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, 2007
Commission file number 001-2979
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
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Delaware
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41-0449260 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)
Registrants 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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer 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 issuers classes of common stock, as of
the latest practicable date.
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Shares Outstanding |
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July 31, 2007 |
Common stock, $1-2/3 par value
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3,342,457,892 |
FORM 10-Q
CROSS-REFERENCE INDEX
1
PART I FINANCIAL INFORMATION
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
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% Change |
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Quarter ended |
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June 30, 2007 from |
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Six months ended |
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June 30 |
, |
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Mar. 31 |
, |
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June 30 |
, |
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Mar. 31 |
, |
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June 30 |
, |
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June 30 |
, |
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June 30 |
, |
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% |
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($ in millions, except per share amounts) |
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2007 |
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2007 |
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2006 |
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2007 |
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2006 |
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2007 |
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2006 |
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Change |
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$ |
2,279 |
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$ |
2,244 |
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$ |
2,089 |
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2 |
% |
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9 |
% |
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$ |
4,523 |
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$ |
4,107 |
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10 |
% |
Diluted earnings per common share |
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0.67 |
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0.66 |
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0.61 |
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2 |
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10 |
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1.33 |
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1.21 |
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10 |
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Profitability ratios (annualized): |
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Net income to average total assets (ROA) |
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1.82 |
% |
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1.89 |
% |
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1.71 |
% |
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(4 |
) |
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6 |
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1.85 |
% |
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1.71 |
% |
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8 |
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Net income to average stockholders equity (ROE) |
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19.55 |
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19.65 |
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19.76 |
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(1 |
) |
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(1 |
) |
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19.60 |
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19.83 |
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(1 |
) |
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57.9 |
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58.5 |
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58.9 |
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(1 |
) |
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(2 |
) |
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58.2 |
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59.1 |
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(2 |
) |
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$ |
9,891 |
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$ |
9,441 |
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$ |
8,789 |
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5 |
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13 |
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$ |
19,332 |
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$ |
17,344 |
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11 |
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Dividends declared per common share (2) |
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0.28 |
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0.28 |
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0.54 |
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(48 |
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0.56 |
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0.80 |
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(30 |
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Dividends paid per common share |
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0.28 |
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0.28 |
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0.26 |
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8 |
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0.56 |
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0.52 |
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8 |
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Average common shares outstanding |
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3,351.2 |
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3,376.0 |
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3,363.8 |
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(1 |
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3,363.5 |
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3,360.9 |
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Diluted average common shares outstanding |
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3,389.3 |
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3,416.1 |
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3,404.4 |
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(1 |
) |
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3,402.5 |
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3,400.1 |
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$ |
331,970 |
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$ |
321,429 |
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$ |
300,388 |
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3 |
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11 |
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$ |
326,729 |
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$ |
305,731 |
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7 |
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Average assets |
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502,686 |
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482,105 |
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491,456 |
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4 |
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2 |
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492,453 |
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483,371 |
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2 |
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Average core deposits (3) |
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300,535 |
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290,586 |
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264,129 |
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3 |
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14 |
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295,588 |
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260,817 |
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13 |
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Average retail core deposits (4) |
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228,006 |
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223,729 |
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214,904 |
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2 |
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6 |
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225,872 |
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214,391 |
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5 |
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4.89 |
% |
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4.95 |
% |
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4.76 |
% |
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(1 |
) |
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3 |
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4.92 |
% |
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4.80 |
% |
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3 |
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Securities available for sale |
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$ |
72,179 |
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$ |
45,443 |
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$ |
71,420 |
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59 |
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1 |
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$ |
72,179 |
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$ |
71,420 |
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1 |
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Loans |
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342,800 |
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325,487 |
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300,622 |
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5 |
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14 |
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342,800 |
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300,622 |
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14 |
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Allowance for loan losses |
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3,820 |
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3,772 |
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3,851 |
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1 |
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(1 |
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3,820 |
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3,851 |
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(1 |
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Goodwill |
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11,983 |
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11,275 |
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11,091 |
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6 |
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8 |
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11,983 |
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11,091 |
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8 |
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Assets |
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539,865 |
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485,901 |
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499,516 |
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11 |
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8 |
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539,865 |
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499,516 |
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8 |
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Core deposits (3) |
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300,602 |
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296,469 |
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268,350 |
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1 |
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12 |
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300,602 |
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268,350 |
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12 |
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Stockholders equity |
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47,301 |
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46,135 |
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41,894 |
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3 |
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13 |
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47,301 |
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41,894 |
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13 |
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Tier 1 capital (5) |
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38,387 |
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36,476 |
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33,344 |
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5 |
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15 |
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38,387 |
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33,344 |
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15 |
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Total capital (5) |
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52,517 |
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50,733 |
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47,202 |
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4 |
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11 |
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52,517 |
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47,202 |
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11 |
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Stockholders equity to assets |
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8.76 |
% |
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9.49 |
% |
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8.39 |
% |
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(8 |
) |
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4 |
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8.76 |
% |
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8.39 |
% |
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4 |
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Risk-based capital (5) |
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Tier 1 capital |
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8.57 |
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8.70 |
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8.35 |
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(1 |
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3 |
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8.57 |
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8.35 |
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3 |
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Total capital |
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11.72 |
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12.10 |
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11.82 |
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(3 |
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(1 |
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11.72 |
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11.82 |
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(1 |
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Tier 1 leverage (5) |
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7.90 |
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7.83 |
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6.99 |
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1 |
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13 |
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7.90 |
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6.99 |
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13 |
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Book value per common share |
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$ |
14.07 |
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$ |
13.77 |
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$ |
12.46 |
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2 |
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13 |
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$ |
14.07 |
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$ |
12.46 |
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13 |
|
Team members (active, full-time equivalent) |
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158,700 |
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159,600 |
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|
154,300 |
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(1 |
) |
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3 |
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|
158,700 |
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154,300 |
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3 |
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High |
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$ |
36.49 |
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$ |
36.64 |
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$ |
34.86 |
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5 |
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$ |
36.64 |
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$ |
34.86 |
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5 |
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Low |
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33.93 |
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|
33.01 |
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31.90 |
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3 |
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6 |
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33.01 |
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30.31 |
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9 |
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Period end |
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35.17 |
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|
34.43 |
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33.54 |
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2 |
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5 |
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|
35.17 |
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33.54 |
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5 |
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(1) |
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The efficiency ratio is noninterest expense divided by total revenue (net interest income
and noninterest income). |
(2) |
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On April 25, 2006, the Companys Board of Directors declared the second quarter 2006 cash
dividend payable June 1, 2006. On June 27, 2006, the Board declared a two-for-one split in
the form of a 100% stock dividend on the Companys common stock and, at the same time, the
third quarter 2006 cash dividend payable September 1, 2006. |
(3) |
|
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings
certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep
balances). During 2006, certain customer accounts (largely Wholesale Banking) were converted
to deposit balances in the form of Eurodollar sweep accounts from off-balance sheet money
market funds and repurchase agreements. Included in average core deposits were converted
balances of $9,888 million, $9,888 million and $2,771 million for the quarters ended June 30,
2007, March 31, 2007, and June 30, 2006, respectively. Average core deposits increased 11%
from second quarter 2006 not including these converted balances. |
(4) |
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Retail core deposits are total core deposits excluding Wholesale Banking core deposits and
retail mortgage escrow deposits. |
(5) |
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See Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements for
additional information. |
2
This Report on Form 10-Q for the quarter ended June 30, 2007, including the Financial Review
and the Financial Statements and related Notes, has forward-looking statements, which may include
forecasts of our financial results and condition, expectations for our operations and business, and
our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking
statements. Actual results might differ significantly from our forecasts and expectations due to
several factors. Some of these factors are described in the Financial Review and in the Financial
Statements and related Notes. For a discussion of other factors, refer to the Risk Factors
section in this Report and to the Risk Factors and Regulation and Supervision sections of our
Annual Report on Form 10-K for the year ended December 31, 2006 (2006 Form 10-K), filed with the
Securities and Exchange Commission (SEC) and available on the SECs website at www.sec.gov.
OVERVIEW
Wells Fargo & Company is a $540 billion diversified financial services company providing banking,
insurance, investments, mortgage banking and consumer finance through banking stores, the internet
and other distribution channels to consumers, businesses and institutions in all 50 states of the
U.S. and in other countries. We ranked fifth in assets and fourth in market value of our common
stock among U.S. bank holding companies at June 30, 2007. When we refer to the Company, we,
our and us in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When
we refer to the Parent, we mean Wells Fargo & Company.
In second quarter 2007, we achieved record diluted earnings per share of $0.67, up 10% from a year
ago, and record net income of $2.28 billion, up 9% from a year ago. Our double-digit earnings per
share growth again was driven by an ideal combination of double-digit top line growth (revenue up
13% year over year), positive operating leverage (revenue up 13% versus 11% expense growth), and
relatively stable credit quality (net credit losses of 0.87% of average total loans versus the
0.91% average of the prior two quarters). Business performance was strong and well balanced across
the broad diversity of our business segments, with most of our 80 plus consumer and commercial
businesses producing double-digit earnings or revenue growth in second quarter 2007. We increased
or maintained operating margins, with the net interest margin at 4.89% for second quarter 2007, up
13 basis points from a year ago; return on assets (ROA), which includes all credit costs, at 1.82%,
up 11 basis points from a year ago; and return on equity (ROE) remaining at a strong 19.55%, among
the best in our industry.
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 Americas great
companies. Our primary strategy to achieve this vision is to increase the number of products our
customers buy from us and to give them all of the financial products that fulfill their needs. Our
cross-sell strategy and diversified business model facilitate growth in strong and weak economic
cycles, as we can grow by expanding the number of products our current customers have with us. Our
average retail banking household now has a record 5.4 products with us. Our goal is eight products
per customer, which is currently half of our estimate of potential demand. Our core products grew
in second quarter 2007 from a year ago, with average loans up 11%, average core deposits up 14% and
assets under management or administration up 29%.
3
We believe it is important to maintain a well-controlled environment as we continue to grow our
businesses. We manage our credit risk by setting what we believe are sound credit policies for
underwriting, while continuously monitoring and reviewing the performance of our loan portfolio. We
maintain a well-diversified loan portfolio, measured by industry, geography and product type. We
manage the interest rate and market risks inherent in our assets and liabilities within prudent
ranges, while ensuring adequate liquidity and funding. Our stockholder value has increased over
time due to customer satisfaction, strong financial results, investment in our businesses,
consistent execution of our business model and the management of our business risks.
Our financial results included the following:
Net income for second quarter 2007 increased 9% to $2.28 billion from $2.09 billion for second
quarter 2006. Diluted earnings per share for second quarter 2007 increased 10% to $0.67 from $0.61
for second quarter 2006. ROA was 1.82% and ROE was 19.55% for second quarter 2007, and 1.71% and
19.76%, respectively, for second quarter 2006.
Net income for the first half of 2007 was $4.52 billion, or $1.33 per share, up 10% from $4.11
billion, or $1.21 per share, for the first half of 2006. ROA was 1.85% and ROE was 19.60% in the
first half of 2007, and 1.71% and 19.83%, respectively, for the first half of 2006.
Net interest income on a taxable-equivalent basis increased 4% to $5.23 billion for second quarter
2007 from $5.02 billion for second quarter 2006 driven by a 2% increase in average earning assets
and a 13 basis point increase in the net interest margin, including the addition late in second
quarter 2007 of approximately $30 billion in debt securities at substantially higher yields than
have prevailed on average over the last two years. At 4.89% in second quarter 2007, our net
interest margin remained the highest among our peers. The net interest margin for second quarter
2007 declined 6 basis points from first quarter 2007, largely due to accelerated asset growth,
which is likely to increase net interest income, but reduce the net interest margin, in future
quarters.
Noninterest income increased 23% to $4.70 billion for second quarter 2007 from $3.81 billion for
second quarter 2006. The strong double-digit growth in fee income reflected strong year-over-year
growth in deposit service fees (up 11%); trust and investment fees (up 24%); debit and credit card
fees (up 24%); other fees, primarily loan related, (up 25%); and insurance revenue (up 19%).
Capital markets generally were strong in the quarter, including $242 million in income from our
equity businesses. Bond losses of $42 million were recorded in the quarter as we sold our
lowest-yielding bonds and repositioned our portfolio with higher-yielding securities after rates
increased late in the quarter.
Revenue, the sum of net interest income and noninterest income, grew $1.1 billion, or 13%, to $9.89
billion in second quarter 2007 from $8.79 billion in second quarter 2006. Despite a challenging
environment and selected tightening of credit standards, double-digit revenue growth again was
driven by double-digit growth in consumer and business lending and deposits, as well as very strong
growth in virtually all of our diverse fee-based products and services. Businesses that generated
double-digit, year-over-year revenue growth included asset management, business direct, capital
markets, corporate trust, credit and debit cards, global remittance services, home
4
equity, insurance, international, personal credit management, real estate brokerage, wealth
management and Wells Fargo Financial.
Noninterest expense was $5.73 billion for second quarter 2007, up $551 million, or 11%, from $5.18
billion for the same period of 2006. Substantially all of the expense increase related to higher
personnel costs, reflecting a 3% increase in team members (full-time equivalents, largely sales and
service professionals), normal merit increases, and higher sales commissions in the insurance,
wealth management, and real estate brokerage businesses, all of which had very strong revenue
growth year over year. Most of our non-personnel expenses were essentially flat from last year,
reflecting our ongoing discipline in containing expenses that do not directly add to revenue
growth. Reflecting the continued positive operating leverage, the efficiency ratio in second
quarter 2007 improved to 57.9% from 58.9% a year ago and 58.5% in first quarter 2007.
Net charge-offs for second quarter 2007 were $720 million (0.87% of average total loans
outstanding, annualized), compared with $432 million (0.58%) during second quarter 2006. During the
first half of 2007, net charge-offs were $1.44 billion (0.89%), compared with $865 million (0.57%),
for the first half of 2006. Credit performance in our first mortgage portfolios at Wells Fargo Home
Mortgage and Wells Fargo Financial remained stable. We believe our prudent product strategy, along
with disciplined underwriting and collections practices, and our willingness to work proactively
with our customers, has allowed us to maintain stable and predictable credit performance in our
first mortgage portfolios. Overall commercial loan performance, including commercial real estate,
remained very strong, supported by high occupancy rates and relatively low interest rates.
The allowance for credit losses, which consists of the allowance for loan losses and the reserve
for unfunded credit commitments, was $4.01 billion, or 1.17% of total loans, at June 30, 2007,
compared with $3.96 billion, or 1.24%, at December 31, 2006, and $4.04 billion, or 1.34%, at June
30, 2006.
Total nonaccrual loans were $1.73 billion, or 0.51% of total loans, at June 30, 2007, compared with
$1.67 billion, or 0.52%, at December 31, 2006, and $1.40 billion, or 0.46%, at June 30, 2006. Total
nonperforming assets (NPAs) were $2.72 billion, or 0.79% of total loans, at June 30, 2007, compared
with $2.42 billion, or 0.76%, at December 31, 2006, and $1.92 billion, or 0.64%, at June 30, 2006.
Foreclosed assets were $977 million at June 30, 2007, compared with $745 million at December 31,
2006, and $513 million at June 30, 2006. Foreclosed assets, a component of total NPAs, included
$423 million, $322 million and $238 million of foreclosed real estate securing Government National
Mortgage Association (GNMA) loans at June 30, 2007, December 31, 2006, and June 30, 2006,
respectively, consistent with regulatory reporting requirements. The foreclosed real estate
securing GNMA loans of $423 million represented 12 basis points of the ratio of nonperforming
assets to loans at June 30, 2007. Both principal and interest for GNMA loans secured by the
foreclosed real estate are fully collectible because the GNMA loans are insured by the Federal
Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs.
We believe our nonperforming loan portfolio has relatively low loss potential due to the high
percentage of consumer real estate and auto-secured loans where we take an initial write-down, if
applicable, as the loan is transferred to nonperforming status. We are constantly monitoring
5
residential mortgage and auto nonperforming levels and have active programs to determine the best
strategy to hold and workout or sell these assets.
The Company and each of its subsidiary banks continued to remain well capitalized under
applicable regulatory capital adequacy guidelines. The ratio of stockholders equity to total
assets was 8.76% at June 30, 2007, 9.52% at December 31, 2006, and 8.39% at June 30, 2006. Our
total risk-based capital (RBC) ratio at June 30, 2007, was 11.72% and our Tier 1 RBC ratio was
8.57%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding
companies. Our RBC ratios at June 30, 2006, were 11.82% and 8.35%, respectively. Our Tier 1
leverage ratios were 7.90% and 6.99% at June 30, 2007 and 2006, respectively, exceeding the minimum
regulatory guideline of 3% for bank holding companies.
Current Accounting Developments
On January 1, 2007, we adopted the following new accounting pronouncements:
|
|
|
FIN 48 Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109; |
|
|
|
FSP 13-2 FASB Staff Position 13-2, Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction; |
|
|
|
FAS 155 Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140; |
|
|
|
FAS 157, Fair Value Measurements; and |
|
|
|
FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, including
an amendment of FASB Statement No. 115. |
The adoption of FIN 48, FAS 155, FAS 157 and FAS 159 did not have any effect on our financial
statements at the date of adoption. For additional information, see Note 11 (Income Taxes) and Note
16 (Fair Values of Assets and Liabilities) to Financial Statements.
Upon adoption of FSP 13-2, we recorded a cumulative effect of change in accounting principle to
reduce the beginning balance of 2007 retained earnings by $71 million after tax ($115 million pre
tax). This amount will be recognized back into income over the remaining terms of the affected
leases.
On April 30, 2007, the FASB issued Staff Position FIN 39-1, Amendment of FASB Interpretation No. 39
(FSP FIN 39-1). FSP FIN 39-1 amends Interpretation No. 39 to permit a reporting entity to offset
the right to reclaim cash collateral (a receivable), or the obligation to return cash collateral (a
payable), against derivative instruments executed with the same counterparty under the same master
netting arrangement. The provisions of this FSP are effective for the year beginning on January 1,
2008, with early adoption permitted. We are currently evaluating the impact, if any, that FSP FIN
39-1 may have on our consolidated financial statements.
On June 11, 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement
of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment
Companies and Accounting by Parent Companies and Equity Method Investors for Investments in
Investment Companies (SOP 07-1). SOP 07-1 provides guidance for determining
6
whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies
(the Guide). For those entities that are determined to be investment companies, SOP 07-1 also
addresses whether the specialized industry accounting principles of the Guide should be retained by
a parent company in consolidation or by an investor that has the ability to exercise significant
influence over the investment company and applies the equity method of accounting to its investment
in the entity. SOP 07-1 is effective for the year beginning January 1, 2008. We do not expect that
the adoption of SOP 07-1 will have a material effect on our consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are fundamental to understanding our results of operations and
financial condition, because some accounting policies require that we use estimates and assumptions
that may affect the value of our assets or liabilities and financial results. Three of these
policies are critical because they require management to make difficult, subjective and complex
judgments about matters that are inherently uncertain and because it is likely that materially
different amounts would be reported under different conditions or using different assumptions.
These policies govern the allowance for credit losses, the valuation of residential mortgage
servicing rights (MSRs) and pension accounting. Management has reviewed and approved these critical
accounting policies and has discussed these policies with the Audit and Examination Committee.
These policies are described in Financial Review Critical Accounting Policies and Note 1
(Summary of Significant Accounting Policies) to Financial Statements in our 2006 Form 10-K.
7
EARNINGS PERFORMANCE
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
Average |
|
|
Yields/ |
|
|
income/ |
|
|
Average |
|
|
Yields/ |
|
|
income/ |
|
(in millions) |
|
balance |
|
|
rates |
|
|
expense |
|
|
balance |
|
|
rates |
|
|
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold, securities purchased under
resale agreements and other short-term investments |
|
$ |
4,849 |
|
|
|
5.09 |
% |
|
$ |
61 |
|
|
$ |
4,855 |
|
|
|
4.60 |
% |
|
$ |
56 |
|
Trading assets |
|
|
4,572 |
|
|
|
4.83 |
|
|
|
55 |
|
|
|
5,938 |
|
|
|
5.03 |
|
|
|
75 |
|
Debt securities available for sale (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S. Treasury and federal agencies |
|
|
839 |
|
|
|
4.28 |
|
|
|
9 |
|
|
|
935 |
|
|
|
4.43 |
|
|
|
11 |
|
Securities of U.S. states and political subdivisions |
|
|
4,383 |
|
|
|
7.42 |
|
|
|
79 |
|
|
|
3,013 |
|
|
|
8.24 |
|
|
|
60 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
35,406 |
|
|
|
6.09 |
|
|
|
533 |
|
|
|
40,160 |
|
|
|
5.97 |
|
|
|
601 |
|
Private collateralized mortgage obligations |
|
|
3,816 |
|
|
|
6.41 |
|
|
|
61 |
|
|
|
7,176 |
|
|
|
6.70 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
39,222 |
|
|
|
6.13 |
|
|
|
594 |
|
|
|
47,336 |
|
|
|
6.07 |
|
|
|
720 |
|
Other debt securities (4) |
|
|
5,090 |
|
|
|
7.61 |
|
|
|
96 |
|
|
|
6,246 |
|
|
|
6.70 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities available for sale (4) |
|
|
49,534 |
|
|
|
6.36 |
|
|
|
778 |
|
|
|
57,530 |
|
|
|
6.22 |
|
|
|
895 |
|
Mortgages held for sale (5) |
|
|
36,060 |
|
|
|
6.42 |
|
|
|
578 |
|
|
|
51,675 |
|
|
|
6.25 |
|
|
|
808 |
|
Loans held for sale |
|
|
864 |
|
|
|
7.74 |
|
|
|
17 |
|
|
|
585 |
|
|
|
7.35 |
|
|
|
11 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
73,932 |
|
|
|
8.31 |
|
|
|
1,531 |
|
|
|
65,424 |
|
|
|
8.12 |
|
|
|
1,324 |
|
Other real estate mortgage |
|
|
31,736 |
|
|
|
7.48 |
|
|
|
592 |
|
|
|
28,938 |
|
|
|
7.29 |
|
|
|
526 |
|
Real estate construction |
|
|
16,393 |
|
|
|
7.97 |
|
|
|
326 |
|
|
|
14,517 |
|
|
|
7.91 |
|
|
|
286 |
|
Lease financing |
|
|
5,559 |
|
|
|
5.95 |
|
|
|
83 |
|
|
|
5,429 |
|
|
|
5.75 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
127,620 |
|
|
|
7.96 |
|
|
|
2,532 |
|
|
|
114,308 |
|
|
|
7.77 |
|
|
|
2,214 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
58,283 |
|
|
|
7.36 |
|
|
|
1,071 |
|
|
|
55,019 |
|
|
|
7.36 |
|
|
|
1,011 |
|
Real estate 1-4 family junior lien mortgage |
|
|
70,390 |
|
|
|
8.20 |
|
|
|
1,440 |
|
|
|
62,740 |
|
|
|
7.92 |
|
|
|
1,239 |
|
Credit card |
|
|
14,950 |
|
|
|
14.46 |
|
|
|
540 |
|
|
|
11,947 |
|
|
|
13.18 |
|
|
|
393 |
|
Other revolving credit and installment |
|
|
53,464 |
|
|
|
9.78 |
|
|
|
1,303 |
|
|
|
50,098 |
|
|
|
9.56 |
|
|
|
1,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
197,087 |
|
|
|
8.85 |
|
|
|
4,354 |
|
|
|
179,804 |
|
|
|
8.55 |
|
|
|
3,837 |
|
Foreign |
|
|
7,263 |
|
|
|
12.00 |
|
|
|
218 |
|
|
|
6,276 |
|
|
|
12.61 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (5) |
|
|
331,970 |
|
|
|
8.58 |
|
|
|
7,104 |
|
|
|
300,388 |
|
|
|
8.34 |
|
|
|
6,249 |
|
Other |
|
|
1,329 |
|
|
|
5.23 |
|
|
|
18 |
|
|
|
1,363 |
|
|
|
4.97 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
$ |
429,178 |
|
|
|
8.05 |
|
|
|
8,611 |
|
|
$ |
422,334 |
|
|
|
7.70 |
|
|
|
8,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
|
$ |
5,193 |
|
|
|
3.24 |
|
|
|
42 |
|
|
$ |
4,288 |
|
|
|
2.80 |
|
|
|
30 |
|
Market rate and other savings |
|
|
145,185 |
|
|
|
2.82 |
|
|
|
1,022 |
|
|
|
134,182 |
|
|
|
2.29 |
|
|
|
766 |
|
Savings certificates |
|
|
39,729 |
|
|
|
4.38 |
|
|
|
433 |
|
|
|
30,308 |
|
|
|
3.69 |
|
|
|
279 |
|
Other time deposits |
|
|
4,574 |
|
|
|
4.82 |
|
|
|
55 |
|
|
|
38,288 |
|
|
|
5.03 |
|
|
|
479 |
|
Deposits in foreign offices |
|
|
32,841 |
|
|
|
4.75 |
|
|
|
389 |
|
|
|
20,898 |
|
|
|
4.59 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
227,522 |
|
|
|
3.42 |
|
|
|
1,941 |
|
|
|
227,964 |
|
|
|
3.16 |
|
|
|
1,794 |
|
Short-term borrowings |
|
|
21,066 |
|
|
|
5.06 |
|
|
|
265 |
|
|
|
24,836 |
|
|
|
4.68 |
|
|
|
289 |
|
Long-term debt |
|
|
90,931 |
|
|
|
5.17 |
|
|
|
1,174 |
|
|
|
84,486 |
|
|
|
4.79 |
|
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
339,519 |
|
|
|
3.99 |
|
|
|
3,380 |
|
|
|
337,286 |
|
|
|
3.68 |
|
|
|
3,093 |
|
Portion of noninterest-bearing funding sources |
|
|
89,659 |
|
|
|
|
|
|
|
|
|
|
|
85,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding sources |
|
$ |
429,178 |
|
|
|
3.16 |
|
|
|
3,380 |
|
|
$ |
422,334 |
|
|
|
2.94 |
|
|
|
3,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin and net interest income on
a taxable-equivalent basis (6) |
|
|
|
|
|
|
4.89 |
% |
|
$ |
5,231 |
|
|
|
|
|
|
|
4.76 |
% |
|
$ |
5,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
11,655 |
|
|
|
|
|
|
|
|
|
|
$ |
12,437 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
11,435 |
|
|
|
|
|
|
|
|
|
|
|
11,075 |
|
|
|
|
|
|
|
|
|
Other |
|
|
50,418 |
|
|
|
|
|
|
|
|
|
|
|
45,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
$ |
73,508 |
|
|
|
|
|
|
|
|
|
|
$ |
69,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST-BEARING FUNDING SOURCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
91,256 |
|
|
|
|
|
|
|
|
|
|
$ |
88,917 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
25,159 |
|
|
|
|
|
|
|
|
|
|
|
22,835 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
46,752 |
|
|
|
|
|
|
|
|
|
|
|
42,418 |
|
|
|
|
|
|
|
|
|
Noninterest-bearing funding sources used to
fund earning assets |
|
|
(89,659 |
) |
|
|
|
|
|
|
|
|
|
|
(85,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noninterest-bearing funding sources |
|
$ |
73,508 |
|
|
|
|
|
|
|
|
|
|
$ |
69,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
502,686 |
|
|
|
|
|
|
|
|
|
|
$ |
491,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our average prime rate was 8.25% and 7.90% for the quarters ended June 30, 2007 and 2006,
respectively, and 8.25% and 7.66% for the six months ended June 30, 2007 and 2006,
respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.36% and
5.21% for the quarters ended June 30, 2007 and 2006, respectively, and 5.36% and 4.99% for
the six months ended June 30, 2007 and 2006, respectively. |
(2) |
|
Interest rates and amounts include the effects of hedge and risk management activities
associated with the respective asset and liability categories. |
(3) |
|
Yields are based on amortized cost balances computed on a settlement date basis. |
(4) |
|
Includes certain preferred securities. |
(5) |
|
Nonaccrual loans and related income are included in their respective loan categories. |
(6) |
|
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain
loans and securities. The federal statutory tax rate was 35% for the periods presented. |
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
, |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
Average |
|
|
Yields/ |
|
|
income/ |
|
|
Average |
|
|
Yields/ |
|
|
income/ |
|
|
|
balance |
|
|
rates |
|
|
expense |
|
|
balance |
|
|
rates |
|
|
expense |
|
|
|
|
|
|
$ |
5,355 |
|
|
|
5.13 |
% |
|
$ |
136 |
|
|
$ |
5,023 |
|
|
|
4.40 |
% |
|
$ |
110 |
|
|
|
|
4,439 |
|
|
|
5.17 |
|
|
|
114 |
|
|
|
6,018 |
|
|
|
4.82 |
|
|
|
144 |
|
|
|
|
796 |
|
|
|
4.29 |
|
|
|
17 |
|
|
|
901 |
|
|
|
4.36 |
|
|
|
20 |
|
|
|
|
|
3,960 |
|
|
|
7.40 |
|
|
|
142 |
|
|
|
3,059 |
|
|
|
8.18 |
|
|
|
120 |
|
|
|
|
33,036 |
|
|
|
6.14 |
|
|
|
1,000 |
|
|
|
33,973 |
|
|
|
5.94 |
|
|
|
1,007 |
|
|
|
|
|
3,904 |
|
|
|
6.37 |
|
|
|
123 |
|
|
|
6,870 |
|
|
|
6.58 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,940 |
|
|
|
6.16 |
|
|
|
1,123 |
|
|
|
40,843 |
|
|
|
6.05 |
|
|
|
1,230 |
|
|
|
|
5,433 |
|
|
|
7.52 |
|
|
|
202 |
|
|
|
5,766 |
|
|
|
7.23 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,129 |
|
|
|
6.39 |
|
|
|
1,484 |
|
|
|
50,569 |
|
|
|
6.28 |
|
|
|
1,578 |
|
|
|
|
34,212 |
|
|
|
6.48 |
|
|
|
1,108 |
|
|
|
45,632 |
|
|
|
6.21 |
|
|
|
1,417 |
|
|
|
|
829 |
|
|
|
7.78 |
|
|
|
32 |
|
|
|
618 |
|
|
|
7.13 |
|
|
|
22 |
|
|
|
|
|
72,505 |
|
|
|
8.30 |
|
|
|
2,986 |
|
|
|
64,104 |
|
|
|
7.92 |
|
|
|
2,519 |
|
|
|
|
31,166 |
|
|
|
7.45 |
|
|
|
1,152 |
|
|
|
28,813 |
|
|
|
7.15 |
|
|
|
1,023 |
|
|
|
|
16,144 |
|
|
|
7.99 |
|
|
|
640 |
|
|
|
14,186 |
|
|
|
7.75 |
|
|
|
545 |
|
|
|
|
5,531 |
|
|
|
5.84 |
|
|
|
162 |
|
|
|
5,432 |
|
|
|
5.78 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,346 |
|
|
|
7.94 |
|
|
|
4,940 |
|
|
|
112,535 |
|
|
|
7.60 |
|
|
|
4,244 |
|
|
|
|
56,374 |
|
|
|
7.34 |
|
|
|
2,066 |
|
|
|
64,648 |
|
|
|
7.06 |
|
|
|
2,270 |
|
|
|
|
|
69,738 |
|
|
|
8.19 |
|
|
|
2,833 |
|
|
|
61,364 |
|
|
|
7.79 |
|
|
|
2,370 |
|
|
|
|
14,755 |
|
|
|
14.01 |
|
|
|
1,033 |
|
|
|
11,856 |
|
|
|
13.20 |
|
|
|
782 |
|
|
|
|
53,501 |
|
|
|
9.76 |
|
|
|
2,590 |
|
|
|
49,218 |
|
|
|
9.48 |
|
|
|
2,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,368 |
|
|
|
8.82 |
|
|
|
8,522 |
|
|
|
187,086 |
|
|
|
8.32 |
|
|
|
7,736 |
|
|
|
|
7,015 |
|
|
|
11.78 |
|
|
|
410 |
|
|
|
6,110 |
|
|
|
12.59 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,729 |
|
|
|
8.55 |
|
|
|
13,872 |
|
|
|
305,731 |
|
|
|
8.14 |
|
|
|
12,363 |
|
|
|
|
1,327 |
|
|
|
5.17 |
|
|
|
34 |
|
|
|
1,376 |
|
|
|
4.80 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
420,020 |
|
|
|
8.05 |
|
|
|
16,780 |
|
|
$ |
414,967 |
|
|
|
7.59 |
|
|
|
15,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,905 |
|
|
|
3.24 |
|
|
|
79 |
|
|
$ |
4,179 |
|
|
|
2.52 |
|
|
|
52 |
|
|
|
|
143,071 |
|
|
|
2.80 |
|
|
|
1,985 |
|
|
|
134,205 |
|
|
|
2.18 |
|
|
|
1,453 |
|
|
|
|
39,125 |
|
|
|
4.40 |
|
|
|
854 |
|
|
|
29,517 |
|
|
|
3.58 |
|
|
|
524 |
|
|
|
|
6,931 |
|
|
|
5.03 |
|
|
|
173 |
|
|
|
36,020 |
|
|
|
4.77 |
|
|
|
852 |
|
|
|
|
30,258 |
|
|
|
4.71 |
|
|
|
707 |
|
|
|
18,041 |
|
|
|
4.41 |
|
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,290 |
|
|
|
3.41 |
|
|
|
3,798 |
|
|
|
221,962 |
|
|
|
2.98 |
|
|
|
3,276 |
|
|
|
|
16,308 |
|
|
|
4.96 |
|
|
|
401 |
|
|
|
25,504 |
|
|
|
4.42 |
|
|
|
559 |
|
|
|
|
89,984 |
|
|
|
5.16 |
|
|
|
2,312 |
|
|
|
83,094 |
|
|
|
4.64 |
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,582 |
|
|
|
3.97 |
|
|
|
6,511 |
|
|
|
330,560 |
|
|
|
3.51 |
|
|
|
5,755 |
|
|
|
|
89,438 |
|
|
|
|
|
|
|
|
|
|
|
84,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
420,020 |
|
|
|
3.13 |
|
|
|
6,511 |
|
|
$ |
414,967 |
|
|
|
2.79 |
|
|
|
5,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.92 |
% |
|
$ |
10,269 |
|
|
|
|
|
|
|
4.80 |
% |
|
$ |
9,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,758 |
|
|
|
|
|
|
|
|
|
|
$ |
12,666 |
|
|
|
|
|
|
|
|
|
|
|
|
11,355 |
|
|
|
|
|
|
|
|
|
|
|
11,019 |
|
|
|
|
|
|
|
|
|
|
|
|
49,320 |
|
|
|
|
|
|
|
|
|
|
|
44,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
72,433 |
|
|
|
|
|
|
|
|
|
|
$ |
68,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90,020 |
|
|
|
|
|
|
|
|
|
|
$ |
87,963 |
|
|
|
|
|
|
|
|
|
|
|
|
25,316 |
|
|
|
|
|
|
|
|
|
|
|
23,076 |
|
|
|
|
|
|
|
|
|
|
|
|
46,535 |
|
|
|
|
|
|
|
|
|
|
|
41,772 |
|
|
|
|
|
|
|
|
|
|
|
|
(89,438 |
) |
|
|
|
|
|
|
|
|
|
|
(84,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
72,433 |
|
|
|
|
|
|
|
|
|
|
$ |
68,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
492,453 |
|
|
|
|
|
|
|
|
|
|
$ |
483,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NET INTEREST INCOME
Net interest income is the interest earned on debt securities, loans (including yield-related loan
fees) and other interest-earning assets minus the interest paid for deposits and long-term and
short-term debt. The net interest margin is the average yield on earning assets minus the average
interest rate paid for deposits and our other sources of funding. Net interest income and the net
interest margin are presented in the table on page 8 on a taxable-equivalent basis to consistently
reflect income from taxable and tax-exempt loans and securities based on a 35% marginal tax rate.
Net interest income on a taxable-equivalent basis increased 4% to $5.23 billion in second quarter
2007 from $5.02 billion in second quarter 2006, primarily driven by a 2% growth in average earning
assets and a 13 basis point increase in the net interest margin. The net interest margin was 4.89%
in second quarter 2007, up from 4.76% in second quarter 2006. After having sold all of
our lower-yielding adjustable rate mortgages (ARMs) and securities over a year ago when long-term
interest rates were substantially lower than today, we increased our investments in longer-term
securities late in second quarter 2007 as long-term interest rates rose, adding approximately $30
billion in securities at attractive yields substantially higher than the yields at which we sold
our lowest-yielding ARMs and long-term securities between mid-2004 and mid-2006. The additional
assets are expected to increase net interest income growth, but the higher average earning assets
growth is likely to reduce net interest margin in third quarter 2007.
Average earning assets increased $6.9 billion, or 2%, to $429.2 billion in second quarter 2007 from
$422.3 billion in second quarter 2006. Average loans increased $31.6 billion, or 11%, to $332.0
billion in second quarter 2007 from $300.4 billion in second quarter 2006. Average mortgages held
for sale decreased $15.6 billion to $36.1 billion in second quarter 2007 from $51.7 billion in
second quarter 2006. Average debt securities available for sale decreased $8.0 billion to $49.5
billion in second quarter 2007 from $57.5 billion in second quarter 2006.
Average core deposits are an important contributor to growth in net interest income and the net
interest margin. This low-cost source of funding rose 14% from a year ago and funded 91% and 88% of
average loans for second quarter 2007 and 2006, respectively. Core deposits are noninterest-bearing
deposits, interest-bearing checking, savings certificates, market rate and other savings, and
certain foreign deposits (Eurodollar sweep balances). Some of these foreign deposits were
previously swept into non-deposit products. Including only the growth in these funds from the date
of conversion to deposits, average core deposits grew 11% year over year. Total average retail core
deposits, which exclude Wholesale Banking core deposits and retail mortgage escrow deposits, for
second quarter 2007 grew $13.1 billion, or 6%, from a year ago. Average mortgage escrow deposits
were $23.4 billion for second quarter 2007, up $5.8 billion from a year ago. Average savings
certificates of deposit increased to $39.7 billion in second quarter 2007 from $30.3 billion in
second quarter 2006 and average noninterest-bearing checking accounts and other core deposit
categories (interest-bearing checking and market rate and other savings) increased to $241.6
billion in second quarter 2007 from $227.4 billion in second quarter 2006. Total average
interest-bearing deposits were $227.5 billion in second quarter 2007, flat compared with $228.0
billion in second quarter 2006.
10
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
Six months |
|
|
|
|
|
|
ended June 30 |
, |
|
% |
|
|
ended June 30 |
, |
|
% |
|
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
Service charges on deposit accounts |
|
$ |
740 |
|
|
$ |
665 |
|
|
|
11 |
% |
|
$ |
1,425 |
|
|
$ |
1,288 |
|
|
|
11 |
% |
|
Trust and investment fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust, investment and IRA fees |
|
|
610 |
|
|
|
509 |
|
|
|
20 |
|
|
|
1,147 |
|
|
|
1,000 |
|
|
|
15 |
|
Commissions and all other fees |
|
|
229 |
|
|
|
166 |
|
|
|
38 |
|
|
|
423 |
|
|
|
338 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust and investment fees |
|
|
839 |
|
|
|
675 |
|
|
|
24 |
|
|
|
1,570 |
|
|
|
1,338 |
|
|
|
17 |
|
|
Card fees |
|
|
517 |
|
|
|
418 |
|
|
|
24 |
|
|
|
987 |
|
|
|
802 |
|
|
|
23 |
|
|
Other fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash network fees |
|
|
50 |
|
|
|
48 |
|
|
|
4 |
|
|
|
95 |
|
|
|
92 |
|
|
|
3 |
|
Charges and fees on loans |
|
|
253 |
|
|
|
249 |
|
|
|
2 |
|
|
|
491 |
|
|
|
491 |
|
|
|
|
|
All other fees |
|
|
335 |
|
|
|
213 |
|
|
|
57 |
|
|
|
563 |
|
|
|
415 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other fees |
|
|
638 |
|
|
|
510 |
|
|
|
25 |
|
|
|
1,149 |
|
|
|
998 |
|
|
|
15 |
|
|
Mortgage banking: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing income, net |
|
|
(45 |
) |
|
|
310 |
|
|
|
|
|
|
|
171 |
|
|
|
391 |
|
|
|
(56 |
) |
Net gains on mortgage loan origination/
sales activities |
|
|
635 |
|
|
|
359 |
|
|
|
77 |
|
|
|
1,130 |
|
|
|
632 |
|
|
|
79 |
|
All other |
|
|
99 |
|
|
|
66 |
|
|
|
50 |
|
|
|
178 |
|
|
|
127 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking |
|
|
689 |
|
|
|
735 |
|
|
|
(6 |
) |
|
|
1,479 |
|
|
|
1,150 |
|
|
|
29 |
|
|
Operating leases |
|
|
187 |
|
|
|
200 |
|
|
|
(7 |
) |
|
|
379 |
|
|
|
401 |
|
|
|
(5 |
) |
Insurance |
|
|
432 |
|
|
|
364 |
|
|
|
19 |
|
|
|
831 |
|
|
|
728 |
|
|
|
14 |
|
Trading assets |
|
|
260 |
|
|
|
91 |
|
|
|
186 |
|
|
|
525 |
|
|
|
225 |
|
|
|
133 |
|
Net losses on debt securities available for sale |
|
|
(42 |
) |
|
|
(156 |
) |
|
|
(73 |
) |
|
|
(11 |
) |
|
|
(191 |
) |
|
|
(94 |
) |
Net gains from equity investments |
|
|
242 |
|
|
|
133 |
|
|
|
82 |
|
|
|
339 |
|
|
|
323 |
|
|
|
5 |
|
All other |
|
|
193 |
|
|
|
170 |
|
|
|
14 |
|
|
|
453 |
|
|
|
428 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,695 |
|
|
$ |
3,805 |
|
|
|
23 |
|
|
$ |
9,126 |
|
|
$ |
7,490 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earn trust, investment and IRA fees from managing and administering assets, including
mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At June
30, 2007, these assets totaled $1.08 trillion, up 29% from $835 billion at June 30, 2006. Trust,
investment and IRA fees are primarily based on a tiered scale relative to the market value of
assets under management or administration. The increase in these fees in second quarter 2007 from a
year ago was due to continued growth across all trust and investment management businesses.
We also receive commissions and other fees for providing services to full-service and discount
brokerage customers. At June 30, 2007 and 2006, brokerage balances were $126 billion and $105
billion, respectively. Generally, these fees include transactional commissions, which are based on
the number of transactions executed at the customers direction, or asset-based fees, which are
based on the market value of the customers assets. In addition, we receive fees and commissions
from private equity and public debt issuances, and merger and acquisition advisory services, which
accounted for the majority of the increase in fees in second quarter 2007 from a year ago.
11
Card fees increased 24% from second quarter 2006, due to growth in distribution of debit and credit
cards to our customers and increased usage. Purchase volume on these cards was up 18% from a year
ago and average balances were up 21%.
Other fees increased 25% from second quarter 2006, primarily due to higher advisory fees from real
estate debt and equity transactions in our commercial real estate brokerage business.
Mortgage banking noninterest income was $689 million in second quarter 2007, compared with $735
million in the same period of 2006. Servicing fees, included in net servicing income, increased to
$1.01 billion in second quarter 2007 from $820 million in second quarter 2006, due to growth in
loans serviced for others. Our portfolio of loans serviced for others was $1.35 trillion at June
30, 2007, up 32% from $1.02 trillion at June 30, 2006. Servicing income also 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 2007 included a $225 million net MSRs valuation loss that was recorded to earnings ($2.01
billion fair value gain less a $2.24 billion economic hedging loss) and for second quarter 2006
included a $17 million net MSRs valuation gain ($550 million fair value gain less a $533 million
economic hedging loss).
Net gains on mortgage loan origination/sales activities were $635 million in second quarter 2007,
up from $359 million in second quarter 2006, reflecting higher gain on sale margins during the
second quarter and a $135 million increase in the fair value of servicing associated with mortgage
loans held for sale. Residential real estate originations totaled $80 billion in second quarter
2007 compared with $81 billion in second quarter 2006. Under FAS 159 we elected in 2007 to account
for new prime mortgages held for sale (MHFS) at fair value. These loans are initially measured at
fair value, with subsequent changes in fair value recognized as a component of net gains on
mortgage loan origination/sales activities. Prior to the adoption of FAS 159, these fair value
gains would have been deferred until the sale of these loans. (For additional detail, see
Asset/Liability and Market Risk Management Mortgage Banking Interest Rate Risk, and Notes 1
(Significant Accounting Policies), 15 (Mortgage Banking Activities) and 16 (Fair Values of Assets and Liabilities) to Financial
Statements.) The 1-4 family first mortgage unclosed pipeline was $56 billion at June 30, 2007, $48
billion at December 31, 2006, and $63 billion at June 30, 2006.
Insurance fees were up 19% from second quarter 2006, due to growth in our insurance business and
increases in premiums for insurance products, including crop insurance premiums.
Income from trading assets was $260 million and $525 million in the second quarter and first half
of 2007, respectively, compared with $91 million and $225 million in the same periods of 2006, due
to higher capital markets income. Net losses on debt securities available for sale of $42 million
in second quarter 2007 and $156 million in second quarter 2006 were primarily due to sales of
lower-yielding securities to further improve long-term earning asset yields. Net losses on debt
securities available for sale were $11 million and $191 million for the first half of 2007 and
2006, respectively. Net gains from equity investments were $242 million and $339 million in the
second quarter and first half of 2007, respectively, and $133 million and $323 million in the same
periods of 2006.
We routinely review our investment portfolios and recognize impairment write-downs based primarily
on fair market value, issuer-specific factors and results, and our intent to hold such
12
securities. We also consider general economic and market conditions, including industries in which venture capital investments are made, and adverse changes affecting the availability of
venture capital. We determine impairment based on all of the information available at the time of
the assessment with particular focus on the severity and duration of specific security impairments,
but new information or economic developments in the future could result in recognition of
additional impairment.
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
Six months |
|
|
|
|
|
|
ended June 30 |
, |
|
% |
|
|
ended June 30 |
, |
|
% |
|
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
$ |
1,907 |
|
|
$ |
1,754 |
|
|
|
9 |
% |
|
$ |
3,774 |
|
|
$ |
3,426 |
|
|
|
10 |
% |
Incentive compensation |
|
|
900 |
|
|
|
714 |
|
|
|
26 |
|
|
|
1,642 |
|
|
|
1,382 |
|
|
|
19 |
|
Employee benefits |
|
|
581 |
|
|
|
487 |
|
|
|
19 |
|
|
|
1,246 |
|
|
|
1,076 |
|
|
|
16 |
|
Equipment |
|
|
292 |
|
|
|
284 |
|
|
|
3 |
|
|
|
629 |
|
|
|
619 |
|
|
|
2 |
|
Net occupancy |
|
|
369 |
|
|
|
345 |
|
|
|
7 |
|
|
|
734 |
|
|
|
681 |
|
|
|
8 |
|
Operating leases |
|
|
148 |
|
|
|
157 |
|
|
|
(6 |
) |
|
|
301 |
|
|
|
318 |
|
|
|
(5 |
) |
Outside professional services |
|
|
235 |
|
|
|
236 |
|
|
|
|
|
|
|
427 |
|
|
|
429 |
|
|
|
|
|
Contract services |
|
|
113 |
|
|
|
139 |
|
|
|
(19 |
) |
|
|
231 |
|
|
|
271 |
|
|
|
(15 |
) |
Travel and entertainment |
|
|
118 |
|
|
|
139 |
|
|
|
(15 |
) |
|
|
227 |
|
|
|
269 |
|
|
|
(16 |
) |
Advertising and promotion |
|
|
113 |
|
|
|
125 |
|
|
|
(10 |
) |
|
|
204 |
|
|
|
231 |
|
|
|
(12 |
) |
Outside data processing |
|
|
121 |
|
|
|
109 |
|
|
|
11 |
|
|
|
232 |
|
|
|
213 |
|
|
|
9 |
|
Postage |
|
|
85 |
|
|
|
79 |
|
|
|
8 |
|
|
|
172 |
|
|
|
160 |
|
|
|
8 |
|
Telecommunications |
|
|
81 |
|
|
|
73 |
|
|
|
11 |
|
|
|
162 |
|
|
|
143 |
|
|
|
13 |
|
Insurance |
|
|
148 |
|
|
|
99 |
|
|
|
49 |
|
|
|
276 |
|
|
|
175 |
|
|
|
58 |
|
Stationery and supplies |
|
|
52 |
|
|
|
55 |
|
|
|
(5 |
) |
|
|
105 |
|
|
|
106 |
|
|
|
(1 |
) |
Operating losses |
|
|
57 |
|
|
|
45 |
|
|
|
27 |
|
|
|
144 |
|
|
|
107 |
|
|
|
35 |
|
Security |
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
|
87 |
|
|
|
87 |
|
|
|
|
|
Core deposit intangibles |
|
|
27 |
|
|
|
28 |
|
|
|
(4 |
) |
|
|
53 |
|
|
|
57 |
|
|
|
(7 |
) |
All other |
|
|
336 |
|
|
|
264 |
|
|
|
27 |
|
|
|
607 |
|
|
|
500 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,727 |
|
|
$ |
5,176 |
|
|
|
11 |
|
|
$ |
11,253 |
|
|
$ |
10,250 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense for second quarter 2007 increased 11% from the prior year, substantially
due to higher personnel costs, reflecting a 3% increase in team members (full-time equivalents,
largely sales and service professionals), normal merit increases, and higher sales commissions in
the insurance, wealth management, and real estate brokerage businesses, all of which had very
strong revenue growth from second quarter 2006. In the last 12 months, we opened 99 banking stores,
including 21 stores this quarter, and added 4,400 full-time equivalent (FTE) team members, largely
sales and service professionals. Expenses also included stock option expense of $33 million and $83
million in the second quarter and first half of 2007, respectively, compared with $28 million and
$80 million in the same periods of 2006. In addition, expenses included $120 million and $212
million in the second quarter and first half of 2007, respectively, in origination costs that,
prior to the adoption of FAS 159, would have been deferred and recognized as a reduction of net
gains on mortgage loan origination/sales activities at the time of sale.
13
INCOME TAX EXPENSE
On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). Implementation of FIN 48 did not result in a cumulative effect adjustment to
retained earnings. At January 1, 2007, the total amount of unrecognized tax benefits was $3.1
billion, of which $1.7 billion related to tax benefits that, if recognized, would impact the annual
effective tax rate. Our effective income tax rate was 33.8 % for second quarter 2007, down from
34.3% for second quarter 2006. For the first half of 2007, our effective tax rate was 31.9%, down
from 34.1% for the first half of 2006, primarily reflecting the resolution of certain outstanding
federal income tax matters in first quarter 2007. (See Note 11 (Income Taxes) to Financial
Statements.) We expect that FIN 48 will cause more volatility in our effective tax rate from
quarter to quarter as we are now required to recognize tax positions in our financial statements
based on the probability that such positions will effectively be sustained by taxing authorities,
and to reassess those positions each quarter based on our evaluation of new information.
OPERATING SEGMENT RESULTS
We have three lines of business for management reporting: Community Banking, Wholesale Banking and
Wells Fargo Financial. For a more complete description of our operating segments, including
additional financial information and the underlying management accounting process, see Note 13
(Operating Segments) to Financial Statements. To reflect a change in the allocation of income taxes
for management reporting adopted in second quarter 2007, results for prior periods have been
revised.
Community Bankings net income increased 14% to $1.55 billion in second quarter 2007 from $1.36
billion in second quarter 2006, due to fee revenue growth in retail banking and investment income.
Net income increased 20% to $3.11 billion in the first half of 2007 from $2.59 billion in the first
half of 2006. Revenue was $6.33 billion in second quarter 2007, up 11% from $5.72 billion in second
quarter 2006. Average loans were $186.6 billion in second quarter 2007, up 7% from a year ago. Core
deposits averaged $250.9 billion in second quarter 2007, up 8% over the prior year. Noninterest
income in second quarter 2007 increased $633 million, or 26%, from $2.40 billion in second quarter
2006, largely due to higher revenue related to brokerage, deposit service charges, consumer loans,
cards and investments. Noninterest income for the first half of 2007 increased $1.34 billion from
the same period of 2006. Noninterest expense increased $182 million and $435 million in the second
quarter and first half of 2007, respectively, from the same periods in 2006, due to growth in
personnel expenses.
Wholesale Bankings net income increased 13% to $570 million in second quarter 2007 from $506
million in second quarter 2006. Net income increased 13% to $1.15 billion in the first half of 2007
from $1.02 billion in the first half of 2006. Revenue was $2.15 billion in second quarter 2007, up
20% from $1.79 billion in second quarter 2006, driven by strong loan and deposit growth and higher
fee income. Net interest income increased 15% to $814 million in second quarter 2007 from $706
million in second quarter 2006. Average loans increased 16% and average core deposits grew 55% from
second quarter 2006, with double-digit increases across nearly all wholesale lending businesses.
Noninterest income for the second quarter and first half of 2007 increased by $251 million and $420
million, respectively, from the same periods in 2006, due to higher commercial real estate
brokerage fees, along with year-over-year increases in capital markets activity, trust and
investment income and insurance revenue. Noninterest expense
14
increased 25% to $1.27 billion and 20% to $2.41 billion in the second quarter and first half of
2007, respectively, from the same periods in 2006, due to higher personnel-related costs, including
additional team members and higher incentive expenses, and expenses related to higher sales
volumes, investments in new offices and businesses, and acquisitions completed in the second half
of 2006.
Wells Fargo Financials net income decreased 31% to $156 million in second quarter 2007 from $226
million in second quarter 2006. For the first half of 2007, net income was $268 million, compared
with $503 million for the same period a year ago, which included a first quarter 2006 $127 million
pre-tax gain on the sale of Island Finances operations in Puerto Rico. Total revenue rose 10% in
second quarter 2007, reaching $1.41 billion, compared with $1.28 billion in second quarter 2006,
due to an increase in net interest income from continued growth in the real estate and auto loan
portfolios. Net interest income increased $126 million, or 13%, to $1.08 billion in second quarter
2007 from $957 million in second quarter 2006, due to growth in average loans. Average real estate
secured receivables increased 23% to $24.8 billion and average auto finance receivables rose 13% to
$27.7 billion from second quarter 2006. Noninterest expense increased 18% to $791 million in second
quarter 2007, largely due to the additional collection capacity added in 2006 in auto, along with
higher collection and repossession costs and mortgage insurance premiums.
15
BALANCE SHEET ANALYSIS
SECURITIES AVAILABLE FOR SALE
Our securities available for sale portfolio consists of both debt and marketable equity securities.
We hold debt securities available for sale primarily for liquidity, interest rate risk management
and yield enhancement. Accordingly, this portfolio primarily includes very liquid, high-quality
federal agency debt securities. At June 30, 2007, we held $71.3 billion of debt securities
available for sale, compared with $41.8 billion at December 31, 2006, with a net unrealized loss of
$131 million and net unrealized gain of $722 million for the same periods, respectively. We also
held $919 million of marketable equity securities available for sale at June 30, 2007, and $796
million at December 31, 2006, with net unrealized gains of $222 million and $204 million for the
same periods, respectively.
The weighted-average expected maturity of debt securities available for sale was 6.6 years at June
30, 2007. Since 85% of this portfolio was mortgage-backed securities, the expected remaining
maturity may differ from contractual maturity because borrowers may have the right to prepay
obligations before the underlying mortgages mature. The estimated effect of a 200 basis point
increase or decrease in interest rates on the fair value and the expected remaining maturity of the
mortgage-backed securities available for sale portfolio are shown below.
MORTGAGE-BACKED SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Net unrealized |
|
|
Remaining |
|
(in billions) |
|
value |
|
|
gain (loss) |
|
|
maturity |
|
|
|
|
$ |
60.6 |
|
|
$ |
(.2 |
) |
|
5.8 yrs. |
At June 30, 2007, assuming a 200 basis point: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in interest rates |
|
|
54.7 |
|
|
|
(6.1 |
) |
|
8.0 yrs. |
Decrease in interest rates |
|
|
63.1 |
|
|
|
2.3 |
|
|
1.4 yrs. |
|
|
See Note 4 (Securities Available for Sale) to Financial Statements for securities available
for sale by security type.
LOAN PORTFOLIO
A discussion of average loan balances
is included in Earnings Performance Net Interest Income
on page 10 and a comparative schedule of average loan balances is included in the table on page 8;
quarter-end balances are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements.
Total loans at June 30, 2007, were $342.8 billion, compared with $300.6 billion at June 30, 2006.
Consumer loans increased to $202.8 billion at June 30, 2007, from $178.8 billion a year ago.
Commercial and commercial real estate loans increased $17.1 billion, or 15%, from $115.4 billion a
year ago. Mortgages held for sale decreased to $34.6 billion at June 30, 2007, from $39.7 billion a
year ago.
16
DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
December 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
$ |
89,809 |
|
|
$ |
89,119 |
|
|
$ |
89,448 |
|
Interest-bearing checking |
|
|
3,795 |
|
|
|
3,540 |
|
|
|
3,399 |
|
Market rate and other savings |
|
|
147,281 |
|
|
|
140,283 |
|
|
|
135,955 |
|
Savings certificates |
|
|
40,271 |
|
|
|
37,282 |
|
|
|
31,625 |
|
Foreign deposits (1) |
|
|
19,446 |
|
|
|
17,844 |
|
|
|
7,923 |
|
|
|
|
|
|
|
|
|
|
|
Core deposits |
|
|
300,602 |
|
|
|
288,068 |
|
|
|
268,350 |
|
Other time deposits |
|
|
3,130 |
|
|
|
13,819 |
|
|
|
46,331 |
|
Other foreign deposits |
|
|
21,011 |
|
|
|
8,356 |
|
|
|
11,771 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
324,743 |
|
|
$ |
310,243 |
|
|
$ |
326,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During 2006, certain customer accounts (largely Wholesale Banking) were converted to
deposit balances in the form of Eurodollar sweep accounts from off-balance sheet money market
funds and repurchase agreements. We include Eurodollar sweep balances in total core deposits. |
Average core deposits increased $36.4 billion, or 14%, to $300.5 billion in second quarter
2007 from second quarter 2006, predominantly due to growth in market rate and other savings, and
savings certificates, along with growth in foreign deposits. Included in average core deposits were
converted balances of $9,888 million, $8,888 million and $2,771 million for the quarters ended June
30, 2007, December 31, 2006, and June 30, 2006, respectively. Average core deposits increased 11%
from second quarter 2006 not including the converted foreign balances.
OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
In the ordinary course of business, we engage in financial transactions that are not recorded in
the balance sheet, or may be recorded in the balance sheet in amounts that are different than the
full contract or notional amount of the transaction. We also enter into certain contractual
obligations. For additional information on off-balance sheet arrangements and other contractual
obligations see Financial Review Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations in our 2006 Form 10-K and Note 18 (Guarantees) to Financial Statements in this Report.
RISK MANAGEMENT
CREDIT RISK MANAGEMENT PROCESS
Our credit risk management process provides for decentralized management and accountability by our
lines of business. Our overall credit process includes comprehensive credit policies, judgmental or
statistical credit underwriting, frequent and detailed risk measurement and modeling, extensive
credit training programs and a continual loan review and audit process. In addition, regulatory
agencies review and perform detailed tests of our credit underwriting, loan administration and
allowance processes.
17
Nonaccrual Loans and Other Assets
The table below shows the comparative data for nonaccrual loans and other assets. We generally
place loans on nonaccrual status when:
|
|
|
the full and timely collection of interest or principal becomes uncertain; |
|
|
|
they are 90 days (120 days with respect to real estate 1-4 family first and junior lien
mortgages and auto loans) past due for interest or principal (unless both well-secured and
in the process of collection); or |
|
|
|
part of the principal balance has been charged off. |
Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2006 Form 10-K
describes our accounting policy for nonaccrual loans.
NONACCRUAL LOANS AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
395 |
|
|
$ |
331 |
|
|
$ |
253 |
|
Other real estate mortgage |
|
|
129 |
|
|
|
105 |
|
|
|
137 |
|
Real estate construction |
|
|
81 |
|
|
|
78 |
|
|
|
31 |
|
Lease financing |
|
|
29 |
|
|
|
29 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
634 |
|
|
|
543 |
|
|
|
447 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage (1) |
|
|
663 |
|
|
|
688 |
|
|
|
585 |
|
Real estate 1-4 family junior lien mortgage |
|
|
228 |
|
|
|
212 |
|
|
|
179 |
|
Other revolving credit and installment |
|
|
155 |
|
|
|
180 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
1,046 |
|
|
|
1,080 |
|
|
|
903 |
|
Foreign |
|
|
53 |
|
|
|
43 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans (2) |
|
|
1,733 |
|
|
|
1,666 |
|
|
|
1,395 |
|
As a percentage of total loans |
|
|
0.51 |
% |
|
|
0.52 |
% |
|
|
0.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets: |
|
|
|
|
|
|
|
|
|
|
|
|
GNMA loans (3) |
|
|
423 |
|
|
|
322 |
|
|
|
238 |
|
Other |
|
|
554 |
|
|
|
423 |
|
|
|
275 |
|
Real estate and other nonaccrual investments (4) |
|
|
5 |
|
|
|
5 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans and other assets |
|
$ |
2,715 |
|
|
$ |
2,416 |
|
|
$ |
1,917 |
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans |
|
|
0.79 |
% |
|
|
0.76 |
% |
|
|
0.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes nonaccrual mortgages held for sale. |
|
(2) |
|
Includes impaired loans of $276 million, $230 million and $138 million at June 30, 2007,
December 31, 2006, and June 30, 2006, respectively. See Note 5 to Financial Statements in
this Report and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in our
2006 Form 10-K for further information on impaired loans. |
|
(3) |
|
Consistent with regulatory reporting requirements, foreclosed real estate securing GNMA
loans is classified as nonperforming. Both principal and interest for GNMA loans secured by
the foreclosed real estate are fully collectible because the GNMA loans are insured by the
FHA or guaranteed by the Department of Veterans Affairs. |
|
(4) |
|
Includes real estate investments (contingent interest loans accounted for as investments)
that would be classified as nonaccrual if these assets were recorded as loans. |
We expect that the amount of nonaccrual loans will change due to portfolio growth, portfolio
seasoning, routine problem loan recognition and resolution through collections, sales or
charge-offs. The performance of any one loan can be affected by external factors, such as economic
or market conditions, or factors particular to a borrower, such as actions of a borrowers
management.
18
Loans 90 Days or More Past Due and Still Accruing
Loans included in this category are 90 days or more past due as to interest or principal and still
accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4
family first mortgage loans or consumer loans exempt under regulatory rules from being classified
as nonaccrual.
The total of loans 90 days or more past due and still accruing was $4,994 million, $5,073 million
and $3,343 million at June 30, 2007, December 31, 2006, and June 30, 2006, respectively. The total
included $3,908 million, $3,913 million and $2,526 million for the same periods, respectively, in
advances pursuant to our servicing agreements to GNMA mortgage pools whose repayments are insured
by the FHA or guaranteed by the Department of Veterans Affairs.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
(EXCLUDING INSURED/GUARANTEED GNMA ADVANCES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
21 |
|
|
$ |
15 |
|
|
$ |
11 |
|
Other real estate mortgage |
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
Real estate construction |
|
|
4 |
|
|
|
3 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
27 |
|
|
|
21 |
|
|
|
23 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage (1) |
|
|
179 |
|
|
|
154 |
|
|
|
107 |
|
Real estate 1-4 family junior lien mortgage |
|
|
76 |
|
|
|
63 |
|
|
|
39 |
|
Credit card |
|
|
253 |
|
|
|
262 |
|
|
|
181 |
|
Other revolving credit and installment |
|
|
515 |
|
|
|
616 |
|
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
1,023 |
|
|
|
1,095 |
|
|
|
758 |
|
Foreign |
|
|
36 |
|
|
|
44 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,086 |
|
|
$ |
1,160 |
|
|
$ |
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes mortgages held for sale 90 days or more past due and still accruing. |
Allowance for Credit Losses
The allowance for credit losses, which consists of the allowance for loan losses and the reserve
for unfunded credit commitments, is managements estimate of credit losses inherent in the loan
portfolio at the balance sheet date. We assume that our allowance for credit losses as a percentage
of charge-offs and nonaccrual loans will change at different points in time based on credit
performance, loan mix and collateral values. The detail of the changes in the allowance for credit
losses, including charge-offs and recoveries by loan category, is in Note 5 (Loans and Allowance
for Credit Losses) to Financial Statements.
Home equity losses remained at higher levels during second quarter 2007 as real estate values
remained weak in certain markets. We expect this trend to continue during the last half of 2007.
Because of our responsible lending and risk management practices, we have not
faced many of the issues others have in the mortgage industry. First, we have not retained any credit
interest in any prime and nonprime securitizations. Second, we do not originate any negative
amortizing mortgages, including option adjustable-rate mortgages. Third, we have minimal ARM reset risk
19
across our loan portfolios. Finally, we do not portfolio any nonprime
no-documentation mortgages or nonprime low-documentation mortgages.
Credit quality in Wells Fargo Financials real estate-secured lending business has not experienced
the level of credit degradation that many nonprime lenders have because of our disciplined
underwriting practices. We endeavor to ensure that there is a tangible benefit to the borrower
before we make a loan. The recent guidance issued by the federal financial regulatory agencies in
June 2007, Statement on Subprime Mortgage Lending, which addresses issues relating to certain ARM
products, will not have a significant impact on Wells Fargo Financials operations, since many of
those guidelines have long been part of our normal business practices. Additionally, we have been
proactive in mitigating the credit risk in this portfolio by obtaining private mortgage insurance
on a significant portion of our higher loan-to-value loans.
We continued to see improvement in the credit performance of our $28 billion auto portfolio. While
the impact of enhancements to operational controls and the tightening of account acquisition
strategies have had a positive impact on the performance of this portfolio, we expect higher credit
losses as the auto lending industry typically experiences seasonal declines in credit performance
in the last half of the year.
We consider the allowance for credit losses of $4.01 billion adequate to cover credit losses
inherent in the loan portfolio, including unfunded credit commitments, at June 30, 2007. Given that
the majority of our loan portfolio is consumer loans, for which losses tend to emerge within a
relatively short, predictable timeframe, and that a significant portion of the allowance for credit
losses is related to estimated credit losses associated with consumer loans, management believes
that the provision for credit losses for consumer loans, absent any significant credit event, will
closely track the level of related net charge-offs. The process for determining the adequacy of the
allowance for credit losses is critical to our financial results. It requires difficult, subjective
and complex judgments, as a result of the need to make estimates about the effect of matters that
are uncertain. (See Financial Review Critical Accounting Policies Allowance for Credit
Losses in our 2006 Form 10-K.) Therefore, we cannot provide assurance that, in any particular
period, we will not have sizeable credit losses in relation to the amount reserved. We may need to
significantly adjust the allowance for credit losses, considering current factors at the time,
including economic or market conditions and ongoing internal and external examination processes.
Our process for determining the adequacy of the allowance for credit losses is discussed in
Financial Review Critical Accounting Policies Allowance for Credit Losses and Note 6 (Loans
and Allowance for Credit Losses) to Financial Statements in our 2006 Form 10-K.
ASSET/LIABILITY AND MARKET RISK MANAGEMENT
Asset/liability management involves the evaluation, monitoring and management of interest rate
risk, market risk, liquidity and funding. The Corporate Asset/Liability Management Committee
(Corporate ALCO), which oversees these risks and reports periodically to the Finance Committee of
the Board of Directors, consists of senior financial and business executives. Each of our principal
business groups has individual asset/liability management committees and processes linked to the
Corporate ALCO process.
20
Interest Rate Risk
Interest rate risk, which potentially can have a significant earnings impact, is an integral part
of being a financial intermediary. We are subject to interest rate risk because:
|
|
|
assets and liabilities may mature or reprice at different times (for example, if assets
reprice faster than liabilities and interest rates are generally falling, earnings will
initially decline); |
|
|
|
assets and liabilities may reprice at the same time but by different amounts (for
example, when the general level of interest rates is falling, we may reduce rates paid on
checking and savings deposit accounts by an amount that is less than the general decline in
market interest rates); |
|
|
|
short-term and long-term market interest rates may change by different amounts (for
example, the shape of the yield curve may affect new loan yields and funding costs
differently); or |
|
|
|
the remaining maturity of various assets or liabilities may shorten or lengthen as
interest rates change (for example, if long-term mortgage interest rates decline sharply,
mortgage-backed securities held in the securities available for sale portfolio may prepay
significantly earlier than anticipated which could reduce portfolio income). |
Interest rates may also have a direct or indirect effect on loan demand, credit losses, mortgage
origination volume, the value of MSRs, the value of the pension liability and other items affecting
earnings.
We assess interest rate risk by comparing our most likely earnings plan with various earnings
simulations using many interest rate scenarios that differ in the direction of interest rate
changes, the degree of change over time, the speed of change and the projected shape of the yield
curve.
For example, as of June 30, 2007, our most recent simulation indicated estimated earnings at risk
of less than 5% of our most likely earnings plan over the next 12 months under a scenario in which
the federal funds rate rises 150 basis points to 6.75% and the Constant Maturity Treasury bond
yield rises 200 basis points to 7.00% over the same 12-month period. Simulation estimates depend
on, and will change with, the size and mix of our actual and projected balance sheet at the time of
each simulation. Due to timing differences between the quarterly valuation of MSRs and the eventual
impact of interest rates on mortgage banking volumes, earnings at risk in any particular quarter
could be higher than the average earnings at risk over the 12-month simulation period, depending on
the path of interest rates and on our hedging strategies for MSRs. See Mortgage Banking Interest
Rate Risk below.
We use exchange-traded and over-the-counter interest rate derivatives to hedge our interest rate
exposures. The credit risk amount and estimated net fair values of these derivatives as of June 30,
2007, and December 31, 2006, are presented in Note 20 (Derivatives) to Financial Statements. We use
derivatives for asset/liability management in three ways:
|
|
|
to convert a major portion of our long-term fixed-rate debt, which we issue to finance
the Company, from fixed-rate payments to floating-rate payments by entering into
receive-fixed swaps; |
|
|
|
to convert the cash flows from selected asset and/or liability instruments/portfolios
from fixed-rate payments to floating-rate payments or vice versa; and |
21
|
|
|
to hedge our mortgage origination pipeline, funded mortgage loans and MSRs using
interest rate swaps, swaptions, futures, forwards and options. |
Mortgage Banking Interest Rate Risk
We originate, fund and service mortgage loans, which subjects us to various risks, including
credit, liquidity and interest rate risks. We reduce unwanted credit and liquidity risks by selling
or securitizing virtually all of the long-term fixed-rate mortgage loans we originate and most of
the ARMs we originate. From time to time, we hold originated ARMs in our loan portfolio as an
investment for our growing base of core deposits. We determine whether the loans will be held for
investment or held for sale at the time of origination. We may subsequently change our intent to
hold loans for investment and sell some or all of our ARMs as part of our corporate asset/liability
management.
While credit and liquidity risks have historically been relatively low for mortgage banking
activities, interest rate risk can be substantial. Changes in interest rates may potentially impact
total origination and servicing fees, the value of our residential MSRs measured at fair value, the
value of mortgages held for sale (MHFS) carried at fair value and the associated income and loss
reflected in mortgage banking noninterest income, the income and expense associated with
instruments (economic hedges) used to hedge changes in the fair value of MSRs and MHFS, and the
value of derivative loan commitments extended to mortgage applicants.
Interest rates impact the amount and timing of origination and servicing fees because consumer
demand for new mortgages and the level of refinancing activity are sensitive to changes in mortgage
interest rates. Typically, a decline in mortgage interest rates will lead to an increase in
mortgage originations and fees and may also lead to an increase in servicing fee income, depending
on the level of new loans added to the servicing portfolio and prepayments. Given the time it takes
for consumer behavior to fully react to interest rate changes, as well as the time required for
processing a new application, providing the commitment, and securitizing and selling the loan,
interest rate changes will impact origination and servicing fees with a lag. The amount and timing
of the impact on origination and servicing fees will depend on the magnitude, speed and duration of
the change in interest rates.
Under FAS 159, which we adopted January 1, 2007, we elected to measure MHFS at fair value
prospectively for new prime MHFS originations for which an active secondary market and readily
available market prices currently exist to reliably support fair value pricing models used for
these loans. We also elected to measure at fair value certain of our other interests held related
to residential loan sales and securitizations. We believe that the election for MHFS and other
interests held (which are now hedged with free-standing derivatives (economic hedges) along with
our MSRs) will reduce certain timing differences and better match changes in the value of these
assets with changes in the value of derivatives used as economic hedges for these assets. Loan
origination fees are recorded when earned, and related direct loan origination costs and fees are
recognized when incurred.
Under FAS 156, which we adopted January 1, 2006, we elected to use the fair value measurement
method to initially measure and carry our residential MSRs, which represent substantially all of
our MSRs. Under this method, the MSRs are recorded at fair value at the time we sell or securitize
the related mortgage loans. The carrying value of MSRs reflects changes in
22
fair value at the end of each quarter and changes are included in net servicing income, a component
of mortgage banking noninterest income. If the fair value of the MSRs increases, income is
recognized; if the fair value of the MSRs decreases, a loss is recognized. We use a dynamic and
sophisticated model to estimate the fair value of our MSRs. While the valuation of MSRs can be
highly subjective and involve complex judgments by management about matters that are inherently
unpredictable, changes in interest rates influence a variety of assumptions included in the
periodic valuation of MSRs. Assumptions affected include prepayment speed, expected returns and
potential risks on the servicing asset portfolio, the value of escrow balances and other servicing
valuation elements impacted by interest rates.
A decline in interest rates increases the propensity for refinancing, reduces the expected duration
of the servicing portfolio and therefore reduces the estimated fair value of MSRs. This reduction
in fair value causes a charge to income (net of any gains on free-standing derivatives (economic
hedges) used to hedge MSRs). We may choose to not fully hedge all of the potential decline in the
value of our MSRs resulting from a decline in interest rates because the potential increase in
origination/servicing fees in that scenario provides a partial natural business hedge. In a
rising rate period, if the MSRs are not fully hedged with free-standing derivatives, the change in
the fair value of the MSRs that can be recaptured into income will typically although not always
exceed the losses on any free-standing derivatives hedging the MSRs. In second quarter 2007, the
increase in the fair value of our MSRs and the losses on free-standing derivatives used to hedge
the MSRs resulted in a net loss of $225 million.
Hedging the various sources of interest rate risk in mortgage banking is a complex process that
requires sophisticated modeling and constant monitoring. While we attempt to balance these various
aspects of the mortgage business, there are several potential risks to earnings:
|
|
|
MSRs valuation changes associated with interest rate changes are recorded in earnings
immediately within the accounting period in which those interest rate changes occur,
whereas the impact of those same changes in interest rates on origination and servicing
fees occur with a lag and over time. Thus, the mortgage business could be protected from
adverse changes in interest rates over a period of time on a cumulative basis but still
display large variations in income from one accounting period to the next. |
|
|
|
The degree to which the natural business hedge offsets changes in MSRs valuations is
imperfect, varies at different points in the interest rate cycle, and depends not just on
the direction of interest rates but on the pattern of quarterly interest rate changes. |
|
|
|
Origination volumes, the valuation of MSRs and hedging results and associated costs are
also impacted by many factors. Such factors include the mix of new business between ARMs
and fixed-rated mortgages, the relationship between short-term and long-term interest
rates, the degree of volatility in interest rates, the relationship between mortgage
interest rates and other interest rate markets, and other interest rate factors. Many of
these factors are hard to predict and we may not be able to directly or perfectly hedge
their effect. |
|
|
|
While our hedging activities are designed to balance our mortgage banking interest rate
risks, the financial instruments we use may not perfectly correlate with the values and
income being hedged. For example, the change in the value of ARMs production held for sale
from changes in mortgage interest rates may or may not be fully offset by Treasury and
LIBOR index-based financial instruments used as economic hedges for such ARMs. |
23
The total carrying value of our residential and commercial MSRs was $19.2 billion at June 30, 2007,
and $18.0 billion at December 31, 2006. The weighted-average note rate on the owned servicing
portfolio was 5.95% at June 30, 2007, and 5.92% at December 31, 2006. Our total MSRs were 1.42% of
mortgage loans serviced for others at June 30, 2007, compared with 1.41% at December 31, 2006.
As part of our mortgage banking activities, we enter into commitments to fund residential mortgage
loans at specified times in the future. A mortgage loan commitment is an interest rate lock that
binds us to lend funds to a potential borrower at a specified interest rate and within a specified
period of time, generally up to 60 days after inception of the rate lock. These loan commitments
are derivative loan commitments if the loans that will result from the exercise of the commitments
will be held for sale. These derivative loan commitments are recognized at fair value in the
balance sheet with changes in their fair values recorded as part of mortgage banking noninterest
income. We record no value for the loan commitment at inception. Subsequent to inception, we
recognize the fair value of the derivative loan commitment based on estimated changes in the fair
value of the underlying loan that would result from the exercise of that commitment and on changes
in the probability that the loan will not fund within the terms of the commitment (referred to as a
fall-out factor). The value of the underlying loan is affected primarily by changes in interest
rates and the passage of time.
Outstanding derivative loan commitments expose us to the risk that the price of the loans
underlying the commitments might decline due to increases in mortgage interest rates from inception
of the rate lock to the funding of the loan. To minimize this risk, we utilize forwards and
options, Eurodollar futures, and Treasury futures, forwards and options contracts as economic
hedges against the potential decreases in the values of the loans that could result from the
exercise of the loan commitments. We expect that these derivative financial instruments will
experience changes in fair value that will either fully or partially offset the changes in fair
value of the derivative loan commitments.
Market Risk Trading Activities
From a market risk perspective, our net income is exposed to changes in interest rates, credit
spreads, foreign exchange rates, equity and commodity prices and their implied volatilities. The
primary purpose of our trading businesses is to accommodate customers in the management of their
market price risks. Also, we take positions based on market expectations or to benefit from price
differences between financial instruments and markets, subject to risk limits established and
monitored by Corporate ALCO. All securities, foreign exchange transactions, commodity transactions
and derivatives used in our trading businesses are carried at fair value. The Institutional Risk
Committee establishes and monitors counterparty risk limits. The credit risk amount and estimated
net fair value of all customer accommodation derivatives at June 30, 2007, and December 31, 2006,
are included in Note 20 (Derivatives) to Financial Statements. Open, at risk positions for all
trading business are monitored by Corporate ALCO.
The standardized approach for monitoring and reporting market risk for the trading activities is
the value-at-risk (VAR) metrics complemented with factor analysis and stress testing. VAR measures
the worst expected loss over a given time interval and within a given confidence interval. We
measure and report daily VAR at a 99% confidence interval based on actual changes in rates and
prices over the past 250 days. The analysis captures all financial instruments
24
that are considered trading positions. The average one-day VAR throughout second quarter 2007 was
$10 million, with a lower bound of $9 million and an upper bound of $12 million.
Market Risk Equity Markets
We are directly and indirectly affected by changes in the equity markets. We make and manage direct
equity investments in start-up businesses, emerging growth companies, management buy-outs,
acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make
similar private equity investments. These private equity investments are made within capital
allocations approved by management and the Board of Directors (the Board). The Boards policy is to
review business developments, key risks and historical returns for the private equity investment
portfolio at least annually. Management reviews these investments at least quarterly and assesses
them for possible other-than-temporary impairment. For nonmarketable investments, the analysis is
based on facts and circumstances of each individual investment and the expectations for that
investments cash flows and capital needs, the viability of its business model and our exit
strategy. Private equity investments totaled $1.86 billion at June 30, 2007, and $1.67 billion at
December 31, 2006.
We also have marketable equity securities in the available for sale investment portfolio, including
securities relating to our venture capital activities. We manage these investments within capital
risk limits approved by management and the Board and monitored by Corporate ALCO. Gains and losses
on these securities are recognized in net income when realized and other-than-temporary impairment
may be periodically recorded when identified. The initial indicator of impairment for marketable
equity securities is a sustained decline in market price below the amount recorded for that
investment. We consider a variety of factors such as: the length of time and the extent to which
the market value has been less than cost; the issuers financial condition, capital strength, and
near-term prospects; any recent events specific to that issuer and economic conditions of its
industry; and our investment horizon in relationship to an anticipated near-term recovery in the
stock price, if any. The fair value of marketable equity securities was $919 million and cost was
$697 million at June 30, 2007, and $796 million and $592 million, respectively, at December 31,
2006.
Changes in equity market prices may also indirectly affect our net income (1) by affecting the
value of third party assets under management and, hence, fee income, (2) by affecting particular
borrowers, whose ability to repay principal and/or interest may be affected by the stock market, or
(3) by affecting brokerage activity, related commission income and other business activities. Each
business line monitors and manages these indirect risks.
Liquidity and Funding
The objective of effective liquidity management is to ensure that we can meet customer loan
requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both
normal operating conditions and under unpredictable circumstances of industry or market stress. To
achieve this objective, Corporate ALCO establishes and monitors liquidity guidelines that require
sufficient asset-based liquidity to cover potential funding requirements and to avoid
over-dependence on volatile, less reliable funding markets. We set these guidelines for both the
consolidated balance sheet and for the Parent to ensure that the Parent is a source of strength for
its regulated, deposit-taking banking subsidiaries.
25
Debt securities in the securities available for sale portfolio provide asset liquidity, in addition
to the immediately liquid resources of cash and due from banks and federal funds sold, securities
purchased under resale agreements and other short-term investments. Asset liquidity is further
enhanced by our ability to sell or securitize loans in secondary markets through whole-loan sales
and securitizations.
Core customer deposits have historically provided a sizeable source of relatively stable and
low-cost funds. Additional funding is provided by long-term debt (including trust preferred
securities), other foreign deposits and short-term borrowings (federal funds purchased, securities
sold under repurchase agreements, commercial paper and other short-term borrowings).
Liquidity is also available through our ability to raise funds in a variety of domestic and
international money and capital markets. We access capital markets for long-term funding by issuing
registered debt, private placements and asset-backed secured funding. Rating agencies base their
ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset
quality, business mix and level and quality of earnings. Moodys Investors Service rates Wells
Fargo Bank, N.A. as Aaa, its highest investment grade, and rates the Companys senior debt as
Aa1. Dominion Bond Rating Service rates the Companys senior debt as AA. In February 2007,
Standard & Poors Ratings Services raised Wells Fargo Bank, N.A.s credit rating to AAA from
AA+, and raised the Companys senior debt rating to AA+ from AA. Wells Fargo Bank, N.A. is
now the only U.S. bank to have the highest possible credit rating from both Moodys and S&P.
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. Well-known
seasoned issuers generally include those companies with a public float of common equity of at
least $700 million or those companies that have issued at least $1 billion in aggregate principal
amount of non-convertible securities, other than common equity, in the last three years. However,
the Parents ability to issue debt and other securities under a registration statement filed with
the SEC under these new rules is limited by the debt issuance authority granted by the Board. The
Parent is currently authorized by the Board to issue $25 billion in outstanding short-term debt and
$95 billion in outstanding long-term debt, subject to a total outstanding debt limit of $110
billion. In June 2006, the Parents registration statement with the SEC for issuance of senior and
subordinated notes, preferred stock and other securities became effective. During the first half of
2007, the Parent issued a total of $11.6 billion of registered senior notes, including $1.5 billion
(denominated in pounds sterling) sold primarily in the United Kingdom. The Parent also issued $1.0
billion in junior subordinated debt in connection with the issuance of trust preferred securities
by a statutory business trust formed by the Parent. Also, during the first half of 2007, the Parent
issued $413 million in private placements (denominated in Australian dollars) under the Parents
Australian debt issuance program. We used the proceeds from securities issued in the first half of
2007 for general corporate purposes and expect that the proceeds in the future will also be used
for general corporate purposes. The Parent also issues commercial paper from time to time, subject
to its short-term debt limit.
Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is authorized by its board of directors to issue $20
billion in outstanding short-term debt and $40 billion in outstanding long-term debt. In March
2003, Wells Fargo Bank, N.A. established a $50 billion bank note program under which, subject to
any other debt outstanding under the limits described above, it may issue $20 billion in
26
outstanding short-term senior notes and $30 billion in long-term senior notes. Securities are
issued under this program as private placements in accordance with Office of the Comptroller of the
Currency (OCC) regulations. During the first half of 2007, Wells Fargo Bank, N.A. issued $10.7
billion in short-term senior notes.
Wells Fargo Financial. In January 2006, Wells Fargo Financial Canada Corporation (WFFCC), a
wholly-owned Canadian subsidiary of Wells Fargo Financial, Inc. (WFFI), qualified for distribution
with the Canadian provincial securities exchanges CAD$7.0 billion of issuance authority. WFFI did
not issue any debt in the first half of 2007. During the first half of 2007, WFFCC issued CAD$700
million in senior notes. At June 30, 2007, the remaining issuance capacity for WFFCC was CAD$4.7
billion.
CAPITAL MANAGEMENT
We have an active program for managing stockholder capital. We use capital to fund organic growth,
acquire banks and other financial services companies, pay dividends and repurchase our shares. Our
objective is to produce above market long-term returns by opportunistically using capital when
returns are perceived to be high and issuing/accumulating capital when the costs of doing so are
perceived to be low.
From time to time the Board of Directors authorizes the Company to repurchase shares of our common
stock. Although we announce when the Board authorizes share repurchases, we typically do not give
any public notice before we repurchase our shares. Various factors determine the amount and timing
of our share repurchases, including our capital requirements, the number of shares we expect to
issue for acquisitions and employee benefit plans, market conditions (including the trading price
of our stock), and legal considerations. These factors can change at any time, and there can be no
assurance as to the number of shares we will repurchase or when we will repurchase them.
Historically, our policy has been to repurchase shares under the safe harbor conditions of Rule
10b-18 of the Securities Exchange Act of 1934 (Exchange Act) including a limitation on the daily
volume of repurchases. Rule 10b-18 imposes an additional daily volume limitation on share
repurchases during a pending merger or acquisition in which shares of our stock will constitute
some or all of the consideration. Our management may determine that during a pending stock merger
or acquisition when the safe harbor would otherwise be available, it is in our best interest to
repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to
repurchase shares in compliance with the other conditions of the safe harbor, including the
standing daily volume limitation that applies whether or not there is a pending stock merger or
acquisition.
In 2006, the Board authorized the repurchase of up to 50 million additional shares of our
outstanding common stock. In March 2007, the Board authorized the repurchase of up to 75 million
additional shares of our common stock. During the first half of 2007, we repurchased approximately
77 million shares of our common stock. We issued approximately 18 million shares of common stock in
June 2007 in connection with the acquisition of Placer Sierra Bancshares. At June 30, 2007, the
total remaining common stock repurchase authority was approximately 60 million shares. (For
additional information regarding second quarter 2007 share repurchases and repurchase authorizations, see Part II Item
2 of this Report.)
27
On August 6, 2007, the Board authorized the repurchase of an additional 50 million shares. We expect to complete the acquisition of Greater Bay Bancorp in fourth quarter 2007 with the issuance of approximately 45
million shares of our common stock. In July 2007, the Board authorized a quarterly common stock
dividend of 31 cents per share, an increase of 3 cents per share, or 11%, from the prior quarter.
Our potential sources of capital include retained earnings and issuances of common and preferred
stock. In the first half of 2007, retained earnings increased $2.4 billion, predominantly resulting
from net income of $4.5 billion, less dividends of $1.9 billion. In the first half of 2007, we
issued $1.2 billion of common stock (including shares issued for our ESOP plan) under various
employee benefit and director plans and under our dividend reinvestment and direct stock repurchase
programs.
At June 30, 2007, the Company and each of our subsidiary banks were well capitalized under the
applicable regulatory capital adequacy guidelines. For additional information see Note 19
(Regulatory and Agency Capital Requirements) to Financial Statements.
28
RISK FACTORS
An investment in the Company has risk. In addition, in accordance with the Private Securities
Litigation Reform Act of 1995, we caution you that actual results may differ from forward-looking
statements about our future financial and business performance contained in this Report and other
reports we file with the SEC and in other Company communications. This Report contains
forward-looking statements that:
|
|
|
we believe our nonperforming loan portfolio has relatively low loss potential due to
the high percentage of consumer real estate and auto-secured loans where we take an
initial write-down, if applicable, as the loan is transferred to nonperforming status; |
|
|
|
we do not expect the adoption of SOP 07-1 to have a material effect on our consolidated
financial statements; |
|
|
|
we expect the growth in earning assets in second quarter 2007 is likely to increase net
interest income growth, but reduce net interest margin, in third quarter 2007; |
|
|
|
we expect FIN 48 will cause more volatility in our effective tax rate from quarter to
quarter; |
|
|
|
we expect the amount of nonaccrual loans will change due to portfolio growth, portfolio
seasoning, routine problem loan recognition and resolution through collections, sales or
charge-offs; |
|
|
|
we expect home equity losses to remain at higher levels during the last half of 2007; |
|
|
|
we believe the recent guidance issued by federal financial regulatory agencies for
nonprime mortgage lending will not have a significant impact on Wells Fargo Financials
operations; |
|
|
|
we expect higher credit losses in the auto loan portfolio due to seasonal declines in
credit performance typically experienced by the auto lending industry in the last half of
the year; |
|
|
|
we believe the provision for credit losses for consumer loans, absent a significant
credit event, will closely follow the level of related net charge-offs; |
|
|
|
we believe the election to measure new prime mortgages held for sale and other
interests held at fair value will reduce certain timing differences and better match
changes in the value of these interests with changes in the value of derivatives used to
hedge these interests; |
|
|
|
we expect changes in the fair value of derivative financial instruments used to hedge
derivative loan commitments will fully or partially offset changes in the fair value of
such commitments; |
|
|
|
we expect to use the proceeds of securities issued in the future for general corporate
purposes; |
|
|
|
we expect to complete the acquisition of Greater Bay Bancorp in fourth quarter 2007
with the issuance of approximately 45 million shares of our common stock; |
|
|
|
we expect to complete two pending business combination transactions in the last half of
2007; |
|
|
|
we do not expect to make a contribution to the Cash Balance Plan in 2007; |
|
|
|
we expect to recover our affordable housing investments over time through realization
of federal low-income housing tax credits; |
|
|
|
we do not expect the amount of any additional consideration that may be payable in
connection with previous acquisitions to be material; and |
29
|
|
|
we expect $28 million of deferred net gains on derivatives in other comprehensive
income at June 30, 2007, will be reclassified as earnings in the next 12 months. |
This Report also includes various statements about the estimated impact on our earnings from
simulated changes in interest rates.
Factors that could cause our financial results and condition to vary significantly from quarter to
quarter or cause actual results to differ from our expectations for our future financial and
business performance include:
|
|
|
lower or negative revenue growth because of our inability to sell more products to our
existing customers; |
|
|
|
decreased demand for our products and services because of an economic slowdown; |
|
|
|
reduced fee income from our brokerage and asset management businesses because of a fall
in stock market prices; |
|
|
|
lower net interest margin, decreased mortgage loan originations and reductions in the
value of our MSRs because of changes in interest rates or hedging activities; |
|
|
|
reduced liquidity and value of certain asset classes, such as mortgage loans, due to
volatility and risk aversion in the secondary markets; |
|
|
|
reduced earnings due to higher credit losses generally and specifically because: |
|
o |
|
losses in our consumer auto loan portfolio remain at or above historic levels
notwithstanding our collections and underwriting efforts; and/or |
|
o |
|
losses in our residential real estate loan portfolio (including home equity)
are greater than expected due to declining home values, increasing interest rates,
increasing unemployment or other economic factors; |
|
|
|
reduced earnings because of changes in the value of our venture capital investments; |
|
|
|
changes in our accounting policies or in accounting standards; |
|
|
|
reduced earnings from not realizing the expected benefits of acquisitions or from
unexpected difficulties integrating acquisitions; |
|
|
|
federal and state regulations, including those relating to nonprime and student lending
activities; |
|
|
|
reputational damage from negative publicity; |
|
|
|
fines, penalties and other negative consequences from regulatory violations, even
inadvertent or unintentional violations; |
|
|
|
the loss of checking and saving account deposits to alternative investments such as the
stock market and higher-yielding fixed income investments; and |
|
|
|
fiscal and monetary policies of the Federal Reserve Board. |
Refer to our 2006 Form 10-K, including Risk Factors, for information about these factors. Refer
also to this Report, including the discussion under Risk Management in the Financial Review
section, for additional risk factors and other information that may supplement or modify the
discussion of risk factors in our 2006 Form 10-K.
30
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by SEC rules, the Companys management evaluated the effectiveness, as of June 30,
2007, of the Companys disclosure controls and procedures. The Companys chief executive officer
and chief financial officer participated in the evaluation. Based on this evaluation, the Companys
chief executive officer and chief financial officer concluded that the Companys disclosure
controls and procedures were effective as of June 30, 2007.
Internal Control Over Financial Reporting
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the
Exchange Act as a process designed by, or under the supervision of, the companys principal
executive and principal financial officers and effected by the companys board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with 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 companys 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 2007 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
31
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
$ |
47 |
|
|
$ |
65 |
|
|
$ |
100 |
|
|
$ |
134 |
|
Securities available for sale |
|
|
752 |
|
|
|
875 |
|
|
|
1,438 |
|
|
|
1,538 |
|
Mortgages held for sale |
|
|
578 |
|
|
|
808 |
|
|
|
1,108 |
|
|
|
1,417 |
|
Loans held for sale |
|
|
17 |
|
|
|
11 |
|
|
|
32 |
|
|
|
22 |
|
Loans |
|
|
7,100 |
|
|
|
6,245 |
|
|
|
13,864 |
|
|
|
12,355 |
|
Other interest income |
|
|
79 |
|
|
|
73 |
|
|
|
170 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
8,573 |
|
|
|
8,077 |
|
|
|
16,712 |
|
|
|
15,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
1,941 |
|
|
|
1,794 |
|
|
|
3,798 |
|
|
|
3,276 |
|
Short-term borrowings |
|
|
265 |
|
|
|
289 |
|
|
|
401 |
|
|
|
559 |
|
Long-term debt |
|
|
1,171 |
|
|
|
1,010 |
|
|
|
2,307 |
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,377 |
|
|
|
3,093 |
|
|
|
6,506 |
|
|
|
5,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
5,196 |
|
|
|
4,984 |
|
|
|
10,206 |
|
|
|
9,854 |
|
Provision for credit losses |
|
|
720 |
|
|
|
432 |
|
|
|
1,435 |
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
4,476 |
|
|
|
4,552 |
|
|
|
8,771 |
|
|
|
8,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
740 |
|
|
|
665 |
|
|
|
1,425 |
|
|
|
1,288 |
|
Trust and investment fees |
|
|
839 |
|
|
|
675 |
|
|
|
1,570 |
|
|
|
1,338 |
|
Card fees |
|
|
517 |
|
|
|
418 |
|
|
|
987 |
|
|
|
802 |
|
Other fees |
|
|
638 |
|
|
|
510 |
|
|
|
1,149 |
|
|
|
998 |
|
Mortgage banking |
|
|
689 |
|
|
|
735 |
|
|
|
1,479 |
|
|
|
1,150 |
|
Operating leases |
|
|
187 |
|
|
|
200 |
|
|
|
379 |
|
|
|
401 |
|
Insurance |
|
|
432 |
|
|
|
364 |
|
|
|
831 |
|
|
|
728 |
|
Net losses on debt securities available for sale |
|
|
(42 |
) |
|
|
(156 |
) |
|
|
(11 |
) |
|
|
(191 |
) |
Net gains from equity investments |
|
|
242 |
|
|
|
133 |
|
|
|
339 |
|
|
|
323 |
|
Other |
|
|
453 |
|
|
|
261 |
|
|
|
978 |
|
|
|
653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
4,695 |
|
|
|
3,805 |
|
|
|
9,126 |
|
|
|
7,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
1,907 |
|
|
|
1,754 |
|
|
|
3,774 |
|
|
|
3,426 |
|
Incentive compensation |
|
|
900 |
|
|
|
714 |
|
|
|
1,642 |
|
|
|
1,382 |
|
Employee benefits |
|
|
581 |
|
|
|
487 |
|
|
|
1,246 |
|
|
|
1,076 |
|
Equipment |
|
|
292 |
|
|
|
284 |
|
|
|
629 |
|
|
|
619 |
|
Net occupancy |
|
|
369 |
|
|
|
345 |
|
|
|
734 |
|
|
|
681 |
|
Operating leases |
|
|
148 |
|
|
|
157 |
|
|
|
301 |
|
|
|
318 |
|
Other |
|
|
1,530 |
|
|
|
1,435 |
|
|
|
2,927 |
|
|
|
2,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
5,727 |
|
|
|
5,176 |
|
|
|
11,253 |
|
|
|
10,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
|
|
3,444 |
|
|
|
3,181 |
|
|
|
6,644 |
|
|
|
6,229 |
|
Income tax expense |
|
|
1,165 |
|
|
|
1,092 |
|
|
|
2,121 |
|
|
|
2,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,279 |
|
|
$ |
2,089 |
|
|
$ |
4,523 |
|
|
$ |
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
$ |
0.68 |
|
|
$ |
0.62 |
|
|
$ |
1.34 |
|
|
$ |
1.22 |
|
DILUTED EARNINGS PER COMMON SHARE |
|
$ |
0.67 |
|
|
$ |
0.61 |
|
|
$ |
1.33 |
|
|
$ |
1.21 |
|
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.28 |
|
|
$ |
0.54 |
|
|
$ |
0.56 |
|
|
$ |
0.80 |
|
Average common shares outstanding |
|
|
3,351.2 |
|
|
|
3,363.8 |
|
|
|
3,363.5 |
|
|
|
3,360.9 |
|
Diluted average common shares outstanding |
|
|
3,389.3 |
|
|
|
3,404.4 |
|
|
|
3,402.5 |
|
|
|
3,400.1 |
|
|
|
The accompanying notes are an integral part of these statements.
32
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
December 31 |
, |
|
June 30 |
, |
(in millions, except shares) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
12,714 |
|
|
$ |
15,028 |
|
|
$ |
14,069 |
|
Federal funds sold, securities purchased under
resale agreements and other short-term investments |
|
|
5,163 |
|
|
|
6,078 |
|
|
|
5,367 |
|
Trading assets |
|
|
7,289 |
|
|
|
5,607 |
|
|
|
7,344 |
|
Securities available for sale |
|
|
72,179 |
|
|
|
42,629 |
|
|
|
71,420 |
|
Mortgages held for sale (includes $30,175 million
carried at fair value at June 30, 2007) |
|
|
34,580 |
|
|
|
33,097 |
|
|
|
39,714 |
|
Loans held for sale |
|
|
887 |
|
|
|
721 |
|
|
|
594 |
|
|
|
|
342,800 |
|
|
|
319,116 |
|
|
|
300,622 |
|
Allowance for loan losses |
|
|
(3,820 |
) |
|
|
(3,764 |
) |
|
|
(3,851 |
) |
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
338,980 |
|
|
|
315,352 |
|
|
|
296,771 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value (residential MSRs) |
|
|
18,733 |
|
|
|
17,591 |
|
|
|
15,650 |
|
Amortized |
|
|
418 |
|
|
|
377 |
|
|
|
175 |
|
Premises and equipment, net |
|
|
4,973 |
|
|
|
4,698 |
|
|
|
4,529 |
|
Goodwill |
|
|
11,983 |
|
|
|
11,275 |
|
|
|
11,091 |
|
Other assets |
|
|
31,966 |
|
|
|
29,543 |
|
|
|
32,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
539,865 |
|
|
$ |
481,996 |
|
|
$ |
499,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
$ |
89,809 |
|
|
$ |
89,119 |
|
|
$ |
89,448 |
|
Interest-bearing deposits |
|
|
234,934 |
|
|
|
221,124 |
|
|
|
237,004 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
324,743 |
|
|
|
310,243 |
|
|
|
326,452 |
|
Short-term borrowings |
|
|
40,838 |
|
|
|
12,829 |
|
|
|
13,619 |
|
Accrued expenses and other liabilities |
|
|
33,153 |
|
|
|
25,903 |
|
|
|
33,794 |
|
Long-term debt |
|
|
93,830 |
|
|
|
87,145 |
|
|
|
83,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492,564 |
|
|
|
436,120 |
|
|
|
457,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
637 |
|
|
|
384 |
|
|
|
548 |
|
Common stock $1-2/3 par value, authorized
6,000,000,000 shares; issued 3,472,762,050 shares |
|
|
5,788 |
|
|
|
5,788 |
|
|
|
5,788 |
|
Additional paid-in capital |
|
|
8,027 |
|
|
|
7,739 |
|
|
|
7,562 |
|
Retained earnings |
|
|
37,665 |
|
|
|
35,277 |
|
|
|
31,964 |
|
Cumulative other comprehensive income (loss) |
|
|
(236 |
) |
|
|
302 |
|
|
|
155 |
|
Treasury stock 110,551,965 shares, 95,612,189 shares
and 110,979,842 shares |
|
|
(3,898 |
) |
|
|
(3,203 |
) |
|
|
(3,537 |
) |
Unearned ESOP shares |
|
|
(682 |
) |
|
|
(411 |
) |
|
|
(586 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
47,301 |
|
|
|
45,876 |
|
|
|
41,894 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
539,865 |
|
|
$ |
481,996 |
|
|
$ |
499,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
33
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
other |
|
|
|
|
|
|
Unearned |
|
|
Total |
|
|
|
Number of |
|
|
Preferred |
|
|
Common |
|
|
paid-in |
|
|
Retained |
|
|
comprehensive |
|
|
Treasury |
|
|
ESOP |
|
|
stockholders' |
|
(in millions, except shares) |
|
common shares |
|
|
stock |
|
|
stock |
|
|
capital |
|
|
earnings |
|
|
income (loss) |
|
|
stock |
|
|
shares |
|
|
equity |
|
|
BALANCE DECEMBER 31, 2005 |
|
|
3,355,166,064 |
|
|
$ |
325 |
|
|
$ |
5,788 |
|
|
$ |
7,040 |
|
|
$ |
30,580 |
|
|
$ |
665 |
|
|
$ |
(3,390 |
) |
|
$ |
(348 |
) |
|
$ |
40,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect from adoption of FAS 156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE JANUARY 1, 2006 |
|
|
3,355,166,064 |
|
|
|
325 |
|
|
|
5,788 |
|
|
|
7,040 |
|
|
|
30,681 |
|
|
|
665 |
|
|
|
(3,390 |
) |
|
|
(348 |
) |
|
|
40,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Net unrealized losses on securities available
for sale and other interests held, net of
reclassification of $7 million of net losses
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592 |
) |
|
|
|
|
|
|
|
|
|
|
(592 |
) |
Net unrealized gains on derivatives and
hedging activities, net of reclassification of
$187 million of net gains on cash flow
hedges included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,597 |
|
Common stock issued |
|
|
37,470,628 |
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
931 |
|
Common stock repurchased |
|
|
(36,721,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,185 |
) |
|
|
|
|
|
|
(1,185 |
) |
Preferred stock (414,000) issued to ESOP |
|
|
|
|
|
|
414 |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443 |
) |
|
|
|
|
Preferred stock released to ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205 |
|
|
|
191 |
|
Preferred stock (191,684) converted to common
shares |
|
|
5,867,000 |
|
|
|
(191 |
) |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,692 |
) |
Tax benefit upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Net change in deferred compensation and
related plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
8 |
|
Reclassification of share-based plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
(211 |
) |
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
6,616,144 |
|
|
|
223 |
|
|
|
|
|
|
|
522 |
|
|
|
1,283 |
|
|
|
(510 |
) |
|
|
(147 |
) |
|
|
(238 |
) |
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,361,782,208 |
|
|
$ |
548 |
|
|
$ |
5,788 |
|
|
$ |
7,562 |
|
|
$ |
31,964 |
|
|
$ |
155 |
|
|
$ |
(3,537 |
) |
|
$ |
(586 |
) |
|
$ |
41,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2006 |
|
|
3,377,149,861 |
|
|
$ |
384 |
|
|
$ |
5,788 |
|
|
$ |
7,739 |
|
|
$ |
35,277 |
|
|
$ |
302 |
|
|
$ |
(3,203 |
) |
|
$ |
(411 |
) |
|
$ |
45,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adoption of FSP 13-2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE JANUARY 1, 2007 |
|
|
3,377,149,861 |
|
|
|
384 |
|
|
|
5,788 |
|
|
|
7,739 |
|
|
|
35,206 |
|
|
|
302 |
|
|
|
(3,203 |
) |
|
|
(411 |
) |
|
|
45,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,523 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Net unrealized losses on securities available
for sale and other interests held, net of
reclassification of $16 million of net gains
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(533 |
) |
|
|
|
|
|
|
|
|
|
|
(533 |
) |
Net unrealized losses on derivatives and
hedging activities, net of reclassification of
$50 million of net gains on cash flow
hedges included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
(29 |
) |
Defined benefit pension plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss and
prior service cost included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,985 |
|
Common stock issued |
|
|
38,031,618 |
|
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
1,223 |
|
|
|
|
|
|
|
995 |
|
Common stock issued for acquisitions |
|
|
17,705,418 |
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
646 |
|
Common stock repurchased |
|
|
(77,290,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,689 |
) |
|
|
|
|
|
|
(2,689 |
) |
Preferred stock (484,000) issued to ESOP |
|
|
|
|
|
|
484 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(518 |
) |
|
|
-- |
|
Preferred stock released to ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
231 |
|
Preferred stock (230,335) converted to common
shares |
|
|
6,613,653 |
|
|
|
(231 |
) |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
-- |
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,885 |
) |
Tax benefit upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
Net change in deferred compensation and
related plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
(14,939,776 |
) |
|
|
253 |
|
|
|
|
|
|
|
288 |
|
|
|
2,459 |
|
|
|
(538 |
) |
|
|
(695 |
) |
|
|
(271 |
) |
|
|
1,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,362,210,085 |
|
|
$ |
637 |
|
|
$ |
5,788 |
|
|
$ |
8,027 |
|
|
$ |
37,665 |
|
|
$ |
(236 |
) |
|
$ |
(3,898 |
) |
|
$ |
(682 |
) |
|
$ |
47,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
34
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,523 |
|
|
$ |
4,107 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1,435 |
|
|
|
865 |
|
Changes in fair value of MSRs (residential) and MHFS carried at fair value |
|
|
(528 |
) |
|
|
(74 |
) |
Depreciation and amortization |
|
|
764 |
|
|
|
1,274 |
|
Other net gains |
|
|
(1,451 |
) |
|
|
(772 |
) |
Preferred shares released to ESOP |
|
|
231 |
|
|
|
191 |
|
Stock option compensation expense |
|
|
83 |
|
|
|
80 |
|
Excess tax benefits related to stock option payments |
|
|
(117 |
) |
|
|
(106 |
) |
Originations of MHFS |
|
|
(121,669 |
) |
|
|
(117,806 |
) |
Proceeds from sales of and principal collected on mortgages originated for sale |
|
|
119,405 |
|
|
|
114,179 |
|
Net change in: |
|
|
|
|
|
|
|
|
Trading assets |
|
|
(1,682 |
) |
|
|
3,580 |
|
Loans originated for sale |
|
|
(161 |
) |
|
|
18 |
|
Deferred income taxes |
|
|
459 |
|
|
|
483 |
|
Accrued interest receivable |
|
|
(259 |
) |
|
|
(115 |
) |
Accrued interest payable |
|
|
(90 |
) |
|
|
278 |
|
Other assets, net |
|
|
321 |
|
|
|
3,095 |
|
Other accrued expenses and liabilities, net |
|
|
7,660 |
|
|
|
10,966 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,924 |
|
|
|
20,243 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Federal funds sold, securities purchased under resale agreements
and other short-term investments |
|
|
922 |
|
|
|
(6 |
) |
Securities available for sale: |
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
8,363 |
|
|
|
26,330 |
|
Prepayments and maturities |
|
|
4,601 |
|
|
|
2,983 |
|
Purchases |
|
|
(43,162 |
) |
|
|
(60,351 |
) |
Loans: |
|
|
|
|
|
|
|
|
Increase in banking subsidiaries loan originations, net of collections |
|
|
(17,430 |
) |
|
|
(17,878 |
) |
Proceeds from sales (including participations) of loans by banking subsidiaries |
|
|
1,640 |
|
|
|
34,832 |
|
Purchases (including participations) of loans by banking subsidiaries |
|
|
(2,679 |
) |
|
|
(2,981 |
) |
Principal collected on nonbank entities loans |
|
|
11,711 |
|
|
|
11,842 |
|
Loans originated by nonbank entities |
|
|
(13,171 |
) |
|
|
(13,215 |
) |
Net cash paid for acquisitions |
|
|
(2,825 |
) |
|
|
(332 |
) |
Proceeds from sales of foreclosed assets |
|
|
677 |
|
|
|
253 |
|
Other changes in MSRs |
|
|
(812 |
) |
|
|
(1,748 |
) |
Other, net |
|
|
(2,222 |
) |
|
|
(3,998 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(54,387 |
) |
|
|
(24,269 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits |
|
|
12,741 |
|
|
|
11,772 |
|
Short-term borrowings |
|
|
27,869 |
|
|
|
(10,319 |
) |
Long-term debt: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
14,905 |
|
|
|
11,924 |
|
Repayment |
|
|
(8,643 |
) |
|
|
(7,959 |
) |
Common stock: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
995 |
|
|
|
931 |
|
Repurchased |
|
|
(2,689 |
) |
|
|
(1,185 |
) |
Cash dividends paid |
|
|
(1,885 |
) |
|
|
(2,692 |
) |
Excess tax benefits related to stock option payments |
|
|
117 |
|
|
|
106 |
|
Other, net |
|
|
(261 |
) |
|
|
120 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
43,149 |
|
|
|
2,698 |
|
|
|
|
|
|
|
|
Net change in cash and due from banks |
|
|
(2,314 |
) |
|
|
(1,328 |
) |
Cash and due from banks at beginning of period |
|
|
15,028 |
|
|
|
15,397 |
|
|
|
|
|
|
|
|
Cash and due from banks at end of period |
|
$ |
12,714 |
|
|
$ |
14,069 |
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
6,596 |
|
|
$ |
5,477 |
|
Income taxes |
|
|
1,646 |
|
|
|
959 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Transfers from loans to MHFS |
|
$ |
|
|
|
$ |
30,164 |
|
Transfers from MHFS to loans |
|
|
1,514 |
|
|
|
|
|
Transfers from loans to foreclosed assets |
|
|
1,225 |
|
|
|
795 |
|
|
|
The accompanying notes are an integral part of these statements.
35
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Fargo & Company is a diversified financial services company. We provide banking, insurance,
investments, mortgage banking and consumer finance through banking stores, the internet and other
distribution channels to consumers, businesses and institutions in all 50 states of the U.S. and in
other countries. When we refer to the Company, we, our and us in this Form 10-Q, we mean
Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the Parent) is a
financial holding company and a bank holding company.
Our accounting and reporting policies conform with U.S. generally accepted accounting principles
(GAAP) and practices in the financial services industry. To prepare the financial statements in
conformity with GAAP, management must make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and income and expenses
during the reporting period.
The information furnished in these unaudited interim statements reflects all adjustments that are,
in the opinion of management, necessary for a fair statement of the results for the periods
presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this
Form 10-Q. The results of operations in the interim statements do not necessarily indicate the
results that may be expected for the full year. The interim financial information should be read in
conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006 (2006 Form
10-K).
On January 1, 2007, we adopted the following new accounting pronouncements:
|
|
|
FIN 48 Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109; |
|
|
|
|
FSP 13-2 FASB Staff Position 13-2, Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction; |
|
|
|
|
FAS 155 Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140; |
|
|
|
|
FAS 157, Fair Value Measurements; and |
|
|
|
|
FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, including
an amendment of FASB Statement No. 115. |
The adoption of FIN 48, FAS 155, FAS 157 and FAS 159 did not have any effect on our financial
statements at the date of adoption. For additional information, see Note 11 (Income Taxes) and Note
16 (Fair Values of Assets and Liabilities) to Financial Statements.
FSP 13-2 relates to the accounting for leveraged lease transactions for which there have been cash
flow estimate changes based on when income tax benefits are recognized. Certain of our leveraged
lease transactions have been challenged by the Internal Revenue Service (IRS). We have paid the IRS
the contested income tax associated with these transactions. However, we are continuing to
vigorously defend our initial filing position as to the timing of the tax benefits associated with
these transactions. Upon adoption of FSP 13-2, we recorded a cumulative effect
36
of change in accounting principle to reduce the beginning balance of 2007 retained earnings by $71
million after tax ($115 million pre tax). Since this adjustment changes only the timing of income
tax cash flows and not the total net income for these leases, this amount will be recognized back
into income over the remaining terms of the affected leases.
Descriptions of our significant accounting policies are included in Note 1 (Summary of Significant
Accounting Policies) to Financial Statements in our 2006 Form 10-K. There have been no significant
changes to these policies, except as discussed below for mortgages held for sale and income taxes,
based on these new pronouncements.
MORTGAGES HELD FOR SALE
Mortgages held for sale (MHFS) include commercial and residential mortgages originated for sale and
securitization in the secondary market, which is our principal market, or for sale as whole loans.
Effective January 1, 2007, upon adoption of FAS 159, we elected to measure MHFS at fair value
prospectively for new prime MHFS originations. (See Note 16.) These loans are carried at fair
value, with changes in the fair value of these loans recognized in mortgage banking noninterest
income. Loan origination fees are recorded when earned, and related direct loan origination costs
and fees are recognized when incurred.
In addition, other MHFS (predominantly nonprime loans and commercial mortgages) are carried at the
lower of cost or market value. For these MHFS, direct loan origination costs and fees are deferred
at origination of the loans and recognized in mortgage banking noninterest income upon sale of the
loan. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in
noninterest income.
INCOME TAXES
We file a consolidated federal income tax return and, in certain states, combined state tax
returns.
We account for income taxes in accordance with FAS 109, Accounting for Income Taxes, as interpreted
by FIN 48, resulting in two components of income tax expense: current and deferred. Current income
tax expense approximates taxes to be paid or refunded for the current period. We determine deferred
income taxes using the balance sheet method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between the book and tax bases of assets
and liabilities, and recognizes enacted changes in tax rates and laws in the period in which they
occur. Deferred income tax expense results from changes in deferred tax assets and liabilities
between periods. Deferred tax assets are recognized subject to management judgment that realization
is more likely than not. A tax position that meets the more likely than not recognition threshold
is measured to determine the amount of benefit to recognize. The tax position is measured at the
largest amount of benefit that is greater than 50% likely of being realized upon settlement.
Foreign taxes paid are generally applied as credits to reduce federal income taxes payable.
Interest and penalties are recognized as a component of income tax expense.
37
2. BUSINESS COMBINATIONS
We regularly explore opportunities to acquire financial services companies and businesses.
Generally, we do not make a public announcement about an acquisition opportunity until a definitive
agreement has been signed.
Transactions completed in the first half of 2007 were:
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Date |
|
|
Assets |
|
|
Placer Sierra Bancshares, Sacramento, California |
|
June 1 |
|
$ |
2,644 |
|
Certain assets of The CIT Group/Equipment Financing, Inc., Tempe, Arizona |
|
June 29 |
|
|
2,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,532 |
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007, we had two pending business combinations with assets of approximately $7.4
billion. We expect to complete these transactions in the last half of 2007.
3. |
|
FEDERAL FUNDS SOLD, SECURITIES PURCHASED UNDER RESALE AGREEMENTS AND OTHER SHORT-TERM
INVESTMENTS |
The following table provides the detail of federal funds sold, securities purchased under resale
agreements and other short-term investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Federal funds sold and securities purchased under
resale agreements |
|
$ |
3,868 |
|
|
$ |
5,024 |
|
|
$ |
3,744 |
|
Interest-earning deposits |
|
|
459 |
|
|
|
413 |
|
|
|
869 |
|
Other short-term investments |
|
|
836 |
|
|
|
641 |
|
|
|
754 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,163 |
|
|
$ |
6,078 |
|
|
$ |
5,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
38
4. SECURITIES AVAILABLE FOR SALE
The following table provides the cost and fair value for the major categories of securities
available for sale carried at fair value. There were no securities classified as held to maturity
as of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
Dec. 31, 2006 |
|
|
June 30, 2006 |
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
(in millions) |
|
Cost |
|
|
value |
|
|
Cost |
|
|
value |
|
|
Cost |
|
|
value |
|
|
Securities of U.S. Treasury and
federal agencies |
|
$ |
873 |
|
|
$ |
859 |
|
|
$ |
774 |
|
|
$ |
768 |
|
|
$ |
929 |
|
|
$ |
912 |
|
Securities of U.S. states and
political subdivisions |
|
|
5,044 |
|
|
|
5,132 |
|
|
|
3,387 |
|
|
|
3,530 |
|
|
|
2,909 |
|
|
|
2,988 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
57,101 |
|
|
|
56,893 |
|
|
|
26,981 |
|
|
|
27,463 |
|
|
|
51,960 |
|
|
|
51,543 |
|
Private collateralized mortgage obligations (1) |
|
|
3,756 |
|
|
|
3,755 |
|
|
|
3,989 |
|
|
|
4,046 |
|
|
|
8,033 |
|
|
|
8,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
60,857 |
|
|
|
60,648 |
|
|
|
30,970 |
|
|
|
31,509 |
|
|
|
59,993 |
|
|
|
59,639 |
|
Other |
|
|
4,617 |
|
|
|
4,621 |
|
|
|
5,980 |
|
|
|
6,026 |
|
|
|
7,080 |
|
|
|
7,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
71,391 |
|
|
|
71,260 |
|
|
|
41,111 |
|
|
|
41,833 |
|
|
|
70,911 |
|
|
|
70,620 |
|
Marketable equity securities |
|
|
697 |
|
|
|
919 |
|
|
|
592 |
|
|
|
796 |
|
|
|
558 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
72,088 |
|
|
$ |
72,179 |
|
|
$ |
41,703 |
|
|
$ |
42,629 |
|
|
$ |
71,469 |
|
|
$ |
71,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Substantially all of the private collateralized mortgage obligations are AAA-rated bonds
collateralized by 1-4 family residential first mortgages. |
The following table provides the components of the net unrealized gains (losses) on securities
available for sale. The net unrealized gains (losses) on securities available for sale are reported
on an after-tax basis as a component of cumulative other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
$ |
568 |
|
|
$ |
987 |
|
|
$ |
652 |
|
Gross unrealized losses |
|
|
(477 |
) |
|
|
(61 |
) |
|
|
(701 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
$ |
91 |
|
|
$ |
926 |
|
|
$ |
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the net realized gains (losses) on the sales of securities from the
securities available for sale portfolio, including marketable equity securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Gross realized gains |
|
$ |
21 |
|
|
$ |
76 |
|
|
$ |
80 |
|
|
$ |
247 |
|
Gross realized losses (1) |
|
|
(47 |
) |
|
|
(173 |
) |
|
|
(54 |
) |
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) |
|
$ |
(26 |
) |
|
$ |
(97 |
) |
|
$ |
26 |
|
|
$ |
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes other-than-temporary impairment of $4 million
for the first half of 2007 and $13
million for both the second quarter and first half of 2006. No other-than-temporary impairment
was recorded in second quarter 2007. |
39
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
A summary of the major categories of loans outstanding is shown in the following table. Outstanding
loan balances reflect unearned income, net deferred loan fees, and unamortized discount and premium
totaling $3,195 million, $3,113 million and $3,499 million, at June 30, 2007, December 31, 2006,
and June 30, 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
77,560 |
|
|
$ |
70,404 |
|
|
$ |
66,014 |
|
Other real estate mortgage |
|
|
32,336 |
|
|
|
30,112 |
|
|
|
29,281 |
|
Real estate construction |
|
|
16,552 |
|
|
|
15,935 |
|
|
|
14,764 |
|
Lease financing |
|
|
5,979 |
|
|
|
5,614 |
|
|
|
5,301 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
132,427 |
|
|
|
122,065 |
|
|
|
115,360 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
61,177 |
|
|
|
53,228 |
|
|
|
50,491 |
|
Real estate 1-4 family junior lien mortgage |
|
|
72,398 |
|
|
|
68,926 |
|
|
|
64,727 |
|
Credit card |
|
|
15,567 |
|
|
|
14,697 |
|
|
|
12,387 |
|
Other revolving credit and installment |
|
|
53,701 |
|
|
|
53,534 |
|
|
|
51,236 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
202,843 |
|
|
|
190,385 |
|
|
|
178,841 |
|
Foreign |
|
|
7,530 |
|
|
|
6,666 |
|
|
|
6,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
342,800 |
|
|
$ |
319,116 |
|
|
$ |
300,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The recorded investment in impaired loans and the methodology used to measure impairment was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Impairment measurement based on: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateral value method |
|
$ |
140 |
|
|
$ |
122 |
|
|
$ |
101 |
|
Discounted cash flow method |
|
|
136 |
|
|
|
108 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
|
$ |
276 |
|
|
$ |
230 |
|
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $165 million, $146 million and $47 million of impaired loans with a related
allowance of $26 million, $29 million and $12 million at June 30, 2007, December 31, 2006, and
June 30, 2006, respectively. |
The average recorded investment in impaired loans was $255 million and $137 million during
second quarter 2007 and 2006, respectively, and $253 million and $150 million in the first half of
2007 and 2006, respectively.
40
The allowance for credit losses consists of the allowance for loan losses and the reserve for
unfunded credit commitments. Changes in the allowance for credit losses were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Balance, beginning of period |
|
$ |
3,965 |
|
|
$ |
4,025 |
|
|
$ |
3,964 |
|
|
$ |
4,057 |
|
Provision for credit losses |
|
|
720 |
|
|
|
432 |
|
|
|
1,435 |
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(127 |
) |
|
|
(93 |
) |
|
|
(253 |
) |
|
|
(172 |
) |
Other real estate mortgage |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Real estate construction |
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
Lease financing |
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(16 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
(139 |
) |
|
|
(101 |
) |
|
|
(273 |
) |
|
|
(190 |
) |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
(25 |
) |
|
|
(22 |
) |
|
|
(49 |
) |
|
|
(51 |
) |
Real estate 1-4 family junior lien mortgage |
|
|
(107 |
) |
|
|
(28 |
) |
|
|
(190 |
) |
|
|
(62 |
) |
Credit card |
|
|
(191 |
) |
|
|
(113 |
) |
|
|
(374 |
) |
|
|
(218 |
) |
Other revolving credit and installment |
|
|
(434 |
) |
|
|
(349 |
) |
|
|
(908 |
) |
|
|
(671 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
(757 |
) |
|
|
(512 |
) |
|
|
(1,521 |
) |
|
|
(1,002 |
) |
Foreign |
|
|
(64 |
) |
|
|
(74 |
) |
|
|
(126 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan charge-offs |
|
|
(960 |
) |
|
|
(687 |
) |
|
|
(1,920 |
) |
|
|
(1,340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
25 |
|
|
|
31 |
|
|
|
49 |
|
|
|
58 |
|
Other real estate mortgage |
|
|
3 |
|
|
|
5 |
|
|
|
5 |
|
|
|
6 |
|
Real estate construction |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
Lease financing |
|
|
4 |
|
|
|
6 |
|
|
|
9 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
32 |
|
|
|
43 |
|
|
|
64 |
|
|
|
78 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
6 |
|
|
|
9 |
|
|
|
12 |
|
|
|
12 |
|
Real estate 1-4 family junior lien mortgage |
|
|
16 |
|
|
|
10 |
|
|
|
25 |
|
|
|
18 |
|
Credit card |
|
|
30 |
|
|
|
25 |
|
|
|
61 |
|
|
|
49 |
|
Other revolving credit and installment |
|
|
139 |
|
|
|
148 |
|
|
|
288 |
|
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
191 |
|
|
|
192 |
|
|
|
386 |
|
|
|
356 |
|
Foreign |
|
|
17 |
|
|
|
20 |
|
|
|
35 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan recoveries |
|
|
240 |
|
|
|
255 |
|
|
|
485 |
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
|
(720 |
) |
|
|
(432 |
) |
|
|
(1,435 |
) |
|
|
(865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances related to business combinations/other |
|
|
42 |
|
|
|
10 |
|
|
|
43 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,007 |
|
|
$ |
4,035 |
|
|
$ |
4,007 |
|
|
$ |
4,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,820 |
|
|
$ |
3,851 |
|
|
$ |
3,820 |
|
|
$ |
3,851 |
|
Reserve for unfunded credit commitments |
|
|
187 |
|
|
|
184 |
|
|
|
187 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
4,007 |
|
|
$ |
4,035 |
|
|
$ |
4,007 |
|
|
$ |
4,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs (annualized) as a
percentage of average total loans |
|
|
0.87 |
% |
|
|
0.58 |
% |
|
|
0.89 |
% |
|
|
0.57 |
% |
Allowance for loan losses as a percentage of total loans |
|
|
1.11 |
% |
|
|
1.28 |
% |
|
|
1.11 |
% |
|
|
1.28 |
% |
Allowance for credit losses as a percentage of total loans |
|
|
1.17 |
|
|
|
1.34 |
|
|
|
1.17 |
|
|
|
1.34 |
|
|
|
41
6. OTHER ASSETS
The components of other assets were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Nonmarketable equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments |
|
$ |
1,858 |
|
|
$ |
1,671 |
|
|
$ |
1,664 |
|
Federal bank stock |
|
|
1,342 |
|
|
|
1,326 |
|
|
|
1,354 |
|
All other |
|
|
2,491 |
|
|
|
2,240 |
|
|
|
2,105 |
|
|
|
|
|
|
|
|
|
|
|
Total nonmarketable equity investments (1) |
|
|
5,691 |
|
|
|
5,237 |
|
|
|
5,123 |
|
|
|
|
2,854 |
|
|
|
3,091 |
|
|
|
3,270 |
|
Accounts receivable |
|
|
7,466 |
|
|
|
7,522 |
|
|
|
8,178 |
|
Interest receivable |
|
|
2,829 |
|
|
|
2,570 |
|
|
|
2,394 |
|
Core deposit intangibles |
|
|
390 |
|
|
|
383 |
|
|
|
437 |
|
Foreclosed assets: |
|
|
|
|
|
|
|
|
|
|
|
|
GNMA loans (2) |
|
|
423 |
|
|
|
322 |
|
|
|
238 |
|
Other |
|
|
554 |
|
|
|
423 |
|
|
|
275 |
|
Due from customers on acceptances |
|
|
79 |
|
|
|
103 |
|
|
|
94 |
|
Other |
|
|
11,680 |
|
|
|
9,892 |
|
|
|
12,783 |
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
31,966 |
|
|
$ |
29,543 |
|
|
$ |
32,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At June 30, 2007, December 31, 2006, and June 30, 2006, $4.8 billion, $4.5 billion and $4.4
billion, respectively, of nonmarketable equity investments, including all federal bank stock,
were accounted for at cost. |
(2) |
|
Consistent with regulatory reporting requirements, foreclosed assets included foreclosed
real estate securing Government National Mortgage Association (GNMA) loans. Both principal
and interest for GNMA loans secured by the foreclosed real estate are fully collectible
because the GNMA loans are insured by the Federal Housing Administration or guaranteed by the
Department of Veterans Affairs. |
Income related to nonmarketable equity investments was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Net gains from private equity investments |
|
$ |
226 |
|
|
$ |
74 |
|
|
$ |
302 |
|
|
$ |
143 |
|
Net losses from all other nonmarketable equity investments |
|
|
(4 |
) |
|
|
(16 |
) |
|
|
(17 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains from nonmarketable equity investments |
|
$ |
222 |
|
|
$ |
58 |
|
|
$ |
285 |
|
|
$ |
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
7. INTANGIBLE ASSETS
The gross carrying amount of intangible assets and accumulated amortization was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
|
2007 |
|
|
2006 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
(in millions) |
|
carrying amount |
|
|
amortization |
|
|
carrying amount |
|
|
amortization |
|
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs (commercial) (1) |
|
$ |
533 |
|
|
$ |
115 |
|
|
$ |
233 |
|
|
$ |
58 |
|
Core deposit intangibles |
|
|
2,434 |
|
|
|
2,044 |
|
|
|
2,374 |
|
|
|
1,937 |
|
Credit card and other intangibles |
|
|
641 |
|
|
|
397 |
|
|
|
573 |
|
|
|
361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
3,608 |
|
|
$ |
2,556 |
|
|
$ |
3,180 |
|
|
$ |
2,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,733 |
|
|
|
|
|
|
$ |
15,650 |
|
|
|
|
|
Trademark |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 15 for additional information on MSRs. |
The current year and estimated future amortization expense for intangible assets as of June
30, 2007, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core |
|
|
|
|
|
|
|
|
|
deposit |
|
|
|
|
|
|
|
(in millions) |
|
intangibles |
|
|
Other(1) |
|
|
Total |
|
|
Six months ended June 30, 2007 (actual) |
|
$ |
53 |
|
|
$ |
56 |
|
|
$ |
109 |
|
|
|
|
|
|
|
|
|
|
|
Estimate for year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
108 |
|
|
$ |
111 |
|
|
$ |
219 |
|
2008 |
|
|
104 |
|
|
|
97 |
|
|
|
201 |
|
2009 |
|
|
95 |
|
|
|
87 |
|
|
|
182 |
|
2010 |
|
|
84 |
|
|
|
79 |
|
|
|
163 |
|
2011 |
|
|
25 |
|
|
|
69 |
|
|
|
94 |
|
2012 |
|
|
7 |
|
|
|
62 |
|
|
|
69 |
|
|
|
|
|
|
(1) |
|
Includes amortized commercial MSRs and credit card and other intangibles. |
We based the projections of amortization expense shown above on existing asset balances at
June 30, 2007. Future amortization expense may vary based on additional core deposit or other
intangibles acquired through business combinations.
43
8. GOODWILL
The changes in the carrying amount of goodwill as allocated to our operating segments for goodwill
impairment analysis were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Wholesale |
|
|
Wells Fargo |
|
|
Consolidated |
|
(in millions) |
|
Banking |
|
|
Banking |
|
|
Financial |
|
|
Company |
|
|
|
|
$ |
7,374 |
|
|
$ |
3,047 |
|
|
$ |
366 |
|
|
$ |
10,787 |
|
Goodwill from business combinations |
|
|
30 |
|
|
|
272 |
|
|
|
|
|
|
|
302 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Realignment of businesses
(primarily insurance) |
|
|
(19 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
$ |
7,385 |
|
|
$ |
3,338 |
|
|
$ |
368 |
|
|
$ |
11,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,385 |
|
|
$ |
3,524 |
|
|
$ |
366 |
|
|
$ |
11,275 |
|
Goodwill from business combinations |
|
|
468 |
|
|
|
236 |
|
|
|
|
|
|
|
704 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
$ |
7,853 |
|
|
$ |
3,760 |
|
|
$ |
370 |
|
|
$ |
11,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our goodwill impairment analysis, we allocate all of the goodwill to the individual operating
segments. For management reporting we do not allocate all of the goodwill to the individual
operating segments; some is allocated at the enterprise level. See Note 13 for further information
on management reporting. The balances of goodwill for management reporting were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
|
Wholesale |
|
|
Wells Fargo |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Banking |
|
|
Banking |
|
|
Financial |
|
|
Enterprise |
|
|
Company |
|
|
|
|
$ |
3,538 |
|
|
$ |
1,388 |
|
|
$ |
368 |
|
|
$ |
5,797 |
|
|
$ |
11,091 |
|
|
|
|
4,006 |
|
|
|
1,810 |
|
|
|
370 |
|
|
|
5,797 |
|
|
|
11,983 |
|
|
|
44
9. PREFERRED STOCK
We are authorized to issue 20 million shares of preferred stock and 4 million shares of preference
stock, both without par value. Preferred shares outstanding rank senior to common shares both as to
dividends and liquidation preference but have no general voting rights. We have not issued any
preference shares under this authorization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding |
|
|
Carrying amount (in millions) |
|
|
Adjustable |
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
|
dividends rate |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Minimum |
|
|
Maximum |
|
ESOP Preferred Stock (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,458 |
|
|
|
|
|
|
|
|
|
|
$ |
269 |
|
|
$ |
|
|
|
$ |
|
|
|
|
10.75 |
% |
|
|
11.75 |
% |
|
|
|
106,121 |
|
|
|
115,521 |
|
|
|
237,291 |
|
|
|
106 |
|
|
|
116 |
|
|
|
237 |
|
|
|
10.75 |
|
|
|
11.75 |
|
|
|
|
82,184 |
|
|
|
84,284 |
|
|
|
92,584 |
|
|
|
82 |
|
|
|
84 |
|
|
|
93 |
|
|
|
9.75 |
|
|
|
10.75 |
|
|
|
|
63,680 |
|
|
|
65,180 |
|
|
|
73,080 |
|
|
|
63 |
|
|
|
65 |
|
|
|
73 |
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
43,693 |
|
|
|
44,843 |
|
|
|
51,243 |
|
|
|
44 |
|
|
|
45 |
|
|
|
51 |
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
32,079 |
|
|
|
32,874 |
|
|
|
38,764 |
|
|
|
32 |
|
|
|
33 |
|
|
|
39 |
|
|
|
10.50 |
|
|
|
11.50 |
|
|
|
|
21,823 |
|
|
|
22,303 |
|
|
|
27,633 |
|
|
|
22 |
|
|
|
22 |
|
|
|
28 |
|
|
|
10.50 |
|
|
|
11.50 |
|
|
|
|
13,874 |
|
|
|
14,142 |
|
|
|
18,912 |
|
|
|
14 |
|
|
|
14 |
|
|
|
19 |
|
|
|
11.50 |
|
|
|
12.50 |
|
|
|
|
4,006 |
|
|
|
4,094 |
|
|
|
6,231 |
|
|
|
4 |
|
|
|
4 |
|
|
|
6 |
|
|
|
10.30 |
|
|
|
11.30 |
|
|
|
|
551 |
|
|
|
563 |
|
|
|
1,908 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
10.75 |
|
|
|
11.75 |
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.50 |
|
|
|
10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP Preferred Stock |
|
|
637,469 |
|
|
|
383,804 |
|
|
|
547,779 |
|
|
$ |
637 |
|
|
$ |
384 |
|
|
$ |
548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(682 |
) |
|
$ |
(411 |
) |
|
$ |
(586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Liquidation preference $1,000. At June 30, 2007, December 31, 2006, and June 30, 2006,
additional paid-in capital included $45 million, $27 million and $38 million, respectively,
related to preferred stock. |
|
(2) |
|
In accordance with the American Institute of Certified Public Accountants (AICPA) Statement
of Position 93-6, Employers Accounting for Employee Stock Ownership Plans, we recorded a
corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP
Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock
are committed to be released. |
45
10. EMPLOYEE BENEFITS
We sponsor noncontributory qualified defined benefit retirement plans including the Cash Balance
Plan. The Cash Balance Plan is an active plan that covers eligible employees (except employees of
certain subsidiaries).
We are not planning to make, nor do we expect that we will be required to make, a contribution to
the Cash Balance Plan in 2007, because the Plan is well funded.
The net periodic benefit cost (income) was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits |
|
|
|
|
|
|
Pension benefits |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Other |
|
|
|
|
|
|
Non- |
|
|
Other |
|
(in millions) |
|
Qualified |
|
|
qualified |
|
|
benefits |
|
|
Qualified |
|
|
qualified |
|
|
benefits |
|
Quarter ended June 30, |
|
2007 |
|
|
2006 |
|
|
|
$ |
70 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
62 |
|
|
$ |
4 |
|
|
$ |
4 |
|
Interest cost |
|
|
61 |
|
|
|
4 |
|
|
|
10 |
|
|
|
56 |
|
|
|
4 |
|
|
|
10 |
|
Expected return on plan assets |
|
|
(112 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
(8 |
) |
Amortization of net actuarial loss (1) |
|
|
8 |
|
|
|
3 |
|
|
|
2 |
|
|
|
14 |
|
|
|
2 |
|
|
|
1 |
|
Amortization of prior service cost |
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income) |
|
$ |
27 |
|
|
$ |
10 |
|
|
$ |
6 |
|
|
$ |
29 |
|
|
$ |
10 |
|
|
$ |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
140 |
|
|
$ |
8 |
|
|
$ |
8 |
|
|
$ |
124 |
|
|
$ |
8 |
|
|
$ |
8 |
|
Interest cost |
|
|
122 |
|
|
|
8 |
|
|
|
20 |
|
|
|
112 |
|
|
|
8 |
|
|
|
20 |
|
Expected return on plan assets |
|
|
(225 |
) |
|
|
|
|
|
|
(18 |
) |
|
|
(210 |
) |
|
|
|
|
|
|
(16 |
) |
Amortization of net actuarial loss (1) |
|
|
16 |
|
|
|
6 |
|
|
|
3 |
|
|
|
28 |
|
|
|
4 |
|
|
|
3 |
|
Amortization of prior service cost |
|
|
|
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
53 |
|
|
$ |
21 |
|
|
$ |
11 |
|
|
$ |
56 |
|
|
$ |
20 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net actuarial loss is generally amortized over five years. |
46
11. INCOME TAXES
On January 1, 2007, we adopted FIN 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109. Implementation of FIN 48 did not result in a cumulative
effect adjustment to retained earnings at the date of adoption. At January 1, 2007, the total
amount of unrecognized tax benefits was $3.1 billion, of which $1.7 billion was related to tax
benefits that, if recognized, would impact the annual effective tax rate. We recognize both
interest and penalties as a component of income tax expense. The liability for unrecognized tax
benefits included $262 million of interest and no penalties. It is reasonably possible that the
total unrecognized tax benefit as of January 1, 2007, could decrease by an estimated $380 million
by December 31, 2007, as a result of expiration of statutes of limitations and potential
settlements with federal and state taxing authorities. It is also reasonably possible that this
benefit could be substantially offset by new matters arising during the same period. The Company
files a consolidated federal income tax return and the Company and its subsidiaries file income tax
returns in various state and foreign jurisdictions. With few exceptions, we are not subject to
federal income tax examinations for taxable years prior to 2005, foreign income tax examinations
for taxable years prior to 2003, or state and local income tax examinations prior to 2002.
We expect that the adoption of FIN 48 will result in increased volatility in our quarterly and
annual effective income tax rate because FIN 48 requires that any change in judgment or change in
measurement of a tax position taken in a prior annual period be recognized as a discrete event in
the period in which it occurs. The effective tax rate for the first quarter and first six months of
2007 was impacted by a $119 million net reduction to income tax expense. The net decrease,
including refund interest, was primarily due to the resolution of certain outstanding federal
income tax matters for periods prior to 2002.
47
12. EARNINGS PER COMMON SHARE
The table below shows earnings per common share and diluted earnings per common share and
reconciles the numerator and denominator of both earnings per common share calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
|
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions, except per share amounts) |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (numerator) |
|
$ |
2,279 |
|
|
$ |
2,089 |
|
|
$ |
4,523 |
|
|
$ |
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding (denominator) |
|
|
3,351.2 |
|
|
|
3,363.8 |
|
|
|
3,363.5 |
|
|
|
3,360.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share |
|
$ |
0.68 |
|
|
$ |
0.62 |
|
|
$ |
1.34 |
|
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
3,351.2 |
|
|
|
3,363.8 |
|
|
|
3,363.5 |
|
|
|
3,360.9 |
|
Add: |
|
Stock options |
|
|
38.0 |
|
|
|
40.5 |
|
|
|
38.9 |
|
|
|
39.1 |
|
|
|
Restricted share rights |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares outstanding (denominator) |
|
|
3,389.3 |
|
|
|
3,404.4 |
|
|
|
3,402.5 |
|
|
|
3,400.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share |
|
$ |
0.67 |
|
|
$ |
0.61 |
|
|
$ |
1.33 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007 and 2006, options to purchase 8.2 million and 3.0 million shares,
respectively, were outstanding but not included in the calculation of diluted earnings per common
share because the exercise price was higher than the market price, and therefore they were
antidilutive.
48
13. OPERATING SEGMENTS
We have three lines of business for management reporting: Community Banking, Wholesale Banking and
Wells Fargo Financial. The results for these lines of business are based on our management
accounting process, which assigns balance sheet and income statement items to each responsible
operating segment. This process is dynamic and, unlike financial accounting, there is no
comprehensive, authoritative guidance for management accounting equivalent to generally accepted
accounting principles. The management accounting process measures the performance of the operating
segments based on our management structure and is not necessarily comparable with similar
information for other financial services companies. We define our operating segments by product
type and customer segments. If the management structure and/or the allocation process changes,
allocations, transfers and assignments may change. To reflect a change in the allocation of income
taxes for management reporting adopted in second quarter 2007, results for prior periods have been
revised.
The Community Banking Group offers a complete line of diversified financial products and services
to consumers and small businesses with annual sales generally up to $20 million in which the owner
generally is the financial decision maker. Community Banking also offers investment management and
other services to retail customers and high net worth individuals, securities brokerage through
affiliates and venture capital financing. These products and services include the Wells Fargo
Advantage FundsSM, a family of mutual funds, as well as personal trust and agency
assets. Loan products include lines of credit, equity lines and loans, equipment and transportation
(recreational vehicle and marine) loans, education loans, origination and purchase of residential
mortgage loans and servicing of mortgage loans and credit cards. Other credit products and
financial services available to small businesses and their owners include receivables and inventory
financing, equipment leases, real estate financing, Small Business Administration financing,
venture capital financing, cash management, payroll services, retirement plans, Health Savings
Accounts and credit and debit card processing. Consumer and business deposit products include
checking accounts, savings deposits, market rate accounts, Individual Retirement Accounts (IRAs),
time deposits and debit cards.
Community Banking serves customers through a wide range of channels, which include traditional
banking stores, in-store banking centers, business centers and ATMs. Also, Phone BankSM
centers and the National Business Banking Center provide 24-hour telephone service. Online banking
services include single sign-on to online banking, bill pay and brokerage, as well as online
banking for small business.
The Wholesale Banking Group serves businesses across the United States with annual sales generally
in excess of $10 million. Wholesale Banking provides a complete line of commercial, corporate and
real estate banking products and services. These include traditional commercial loans and lines of
credit, letters of credit, asset-based lending, equipment leasing, mezzanine financing, high-yield
debt, international trade facilities, foreign exchange services, treasury management, investment
management, institutional fixed income sales, interest rate, commodity and equity risk management,
online/electronic products such as the Commercial Electronic Office® (CEO®)
portal, insurance and investment banking services. Wholesale Banking manages and administers
institutional investments, employee benefit trusts and mutual funds, including the Wells Fargo
Advantage Funds. Wholesale Banking includes the majority ownership interest in the Wells Fargo HSBC
Trade Bank, which provides trade financing, letters of credit and
49
collection services and is sometimes supported by the Export-Import Bank of the United States (a
public agency of the United States offering export finance support for American-made products).
Wholesale Banking also supports the commercial real estate market with products and services such
as construction loans for commercial and residential development, land acquisition and development
loans, secured and unsecured lines of credit, interim financing arrangements for completed
structures, rehabilitation loans, affordable housing loans and letters of credit, permanent loans
for securitization, commercial real estate loan servicing and real estate and mortgage brokerage
services.
Wells Fargo Financial includes consumer finance and auto finance operations. Consumer finance
operations make direct consumer and real estate loans to individuals and purchase sales finance
contracts from retail merchants from offices throughout the United States, and in Canada and the
Pacific Rim. Automobile finance operations specialize in purchasing sales finance contracts
directly from automobile dealers and making loans secured by automobiles in the United States,
Canada and Puerto Rico. Wells Fargo Financial also provides credit cards and lease and other
commercial financing.
The Consolidated Company total of average assets includes unallocated goodwill balances held at the
enterprise level.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(income/expense in millions, |
|
Community |
|
|
Wholesale |
|
|
Wells Fargo |
|
|
Consolidated |
|
average balances in billions) |
|
Banking |
|
|
Banking |
|
|
Financial |
|
|
Company |
|
Quarter ended June 30, |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
$ |
3,299 |
|
|
$ |
3,321 |
|
|
$ |
814 |
|
|
$ |
706 |
|
|
$ |
1,083 |
|
|
$ |
957 |
|
|
$ |
5,196 |
|
|
$ |
4,984 |
|
Provision (reversal of provision)
for credit losses |
|
|
353 |
|
|
|
187 |
|
|
|
1 |
|
|
|
(7 |
) |
|
|
366 |
|
|
|
252 |
|
|
|
720 |
|
|
|
432 |
|
Noninterest income |
|
|
3,031 |
|
|
|
2,398 |
|
|
|
1,336 |
|
|
|
1,085 |
|
|
|
328 |
|
|
|
322 |
|
|
|
4,695 |
|
|
|
3,805 |
|
Noninterest expense |
|
|
3,667 |
|
|
|
3,485 |
|
|
|
1,269 |
|
|
|
1,018 |
|
|
|
791 |
|
|
|
673 |
|
|
|
5,727 |
|
|
|
5,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
2,310 |
|
|
|
2,047 |
|
|
|
880 |
|
|
|
780 |
|
|
|
254 |
|
|
|
354 |
|
|
|
3,444 |
|
|
|
3,181 |
|
Income tax expense |
|
|
757 |
|
|
|
690 |
|
|
|
310 |
|
|
|
274 |
|
|
|
98 |
|
|
|
128 |
|
|
|
1,165 |
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,553 |
|
|
$ |
1,357 |
|
|
$ |
570 |
|
|
$ |
506 |
|
|
$ |
156 |
|
|
$ |
226 |
|
|
$ |
2,279 |
|
|
$ |
2,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
186.6 |
|
|
$ |
173.9 |
|
|
$ |
81.4 |
|
|
$ |
70.4 |
|
|
$ |
64.0 |
|
|
$ |
56.1 |
|
|
$ |
332.0 |
|
|
$ |
300.4 |
|
Average assets (2) |
|
|
320.0 |
|
|
|
327.2 |
|
|
|
107.1 |
|
|
|
97.2 |
|
|
|
69.8 |
|
|
|
61.3 |
|
|
|
502.7 |
|
|
|
491.5 |
|
Average core deposits |
|
|
250.9 |
|
|
|
232.0 |
|
|
|
49.6 |
|
|
|
32.0 |
|
|
|
|
|
|
|
0.1 |
|
|
|
300.5 |
|
|
|
264.1 |
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,523 |
|
|
$ |
6,577 |
|
|
$ |
1,595 |
|
|
$ |
1,386 |
|
|
$ |
2,088 |
|
|
$ |
1,891 |
|
|
$ |
10,206 |
|
|
$ |
9,854 |
|
Provision (reversal of provision)
for credit losses |
|
|
659 |
|
|
|
376 |
|
|
|
14 |
|
|
|
(9 |
) |
|
|
762 |
|
|
|
498 |
|
|
|
1,435 |
|
|
|
865 |
|
Noninterest income |
|
|
5,878 |
|
|
|
4,541 |
|
|
|
2,601 |
|
|
|
2,181 |
|
|
|
647 |
|
|
|
768 |
|
|
|
9,126 |
|
|
|
7,490 |
|
Noninterest expense |
|
|
7,307 |
|
|
|
6,872 |
|
|
|
2,406 |
|
|
|
2,010 |
|
|
|
1,540 |
|
|
|
1,368 |
|
|
|
11,253 |
|
|
|
10,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
4,435 |
|
|
|
3,870 |
|
|
|
1,776 |
|
|
|
1,566 |
|
|
|
433 |
|
|
|
793 |
|
|
|
6,644 |
|
|
|
6,229 |
|
Income tax expense |
|
|
1,330 |
|
|
|
1,283 |
|
|
|
626 |
|
|
|
549 |
|
|
|
165 |
|
|
|
290 |
|
|
|
2,121 |
|
|
|
2,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,105 |
|
|
$ |
2,587 |
|
|
$ |
1,150 |
|
|
$ |
1,017 |
|
|
$ |
268 |
|
|
$ |
503 |
|
|
$ |
4,523 |
|
|
$ |
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
183.7 |
|
|
$ |
182.1 |
|
|
$ |
79.7 |
|
|
$ |
69.0 |
|
|
$ |
63.3 |
|
|
$ |
54.6 |
|
|
$ |
326.7 |
|
|
$ |
305.7 |
|
Average assets (2) |
|
|
313.6 |
|
|
|
321.0 |
|
|
|
104.1 |
|
|
|
96.6 |
|
|
|
69.0 |
|
|
|
60.0 |
|
|
|
492.5 |
|
|
|
483.4 |
|
Average core deposits |
|
|
247.4 |
|
|
|
230.5 |
|
|
|
48.2 |
|
|
|
30.2 |
|
|
|
|
|
|
|
0.1 |
|
|
|
295.6 |
|
|
|
260.8 |
|
|
|
|
|
|
(1) |
|
Net interest income is the difference between interest earned on assets and the cost of
liabilities to fund those assets. Interest earned includes actual interest earned on segment
assets and, if the segment has excess liabilities, interest credits for providing funding to
other segments. The cost of liabilities includes interest expense on segment liabilities and,
if the segment does not have enough liabilities to fund its assets, a funding charge based on
the cost of excess liabilities from another segment. In general, Community Banking has excess
liabilities and receives interest credits for the funding it provides to other segments. |
(2) |
|
The Consolidated Company balance includes unallocated goodwill held at the enterprise level
of $5.8 billion for all periods presented. |
51
14. VARIABLE INTEREST ENTITIES
We are a variable interest holder in certain special-purpose entities that are consolidated because
we absorb a majority of each entitys expected losses, receive a majority of each entitys expected
returns or both. We do not hold a majority voting interest in these entities. Our consolidated
variable interest entities, substantially all of which were formed to invest in securities and to
securitize real estate investment trust securities, had approximately $4.0 billion and $3.4 billion
in total assets at June 30, 2007, and December 31, 2006, respectively. The primary activities of
these entities consist of acquiring and disposing of, and investing and reinvesting in securities,
and issuing beneficial interests secured by those securities to investors. The creditors of a
majority of these consolidated entities have no recourse against us.
We also hold variable interests greater than 20% but less than 50% in certain special-purpose
entities formed to provide affordable housing and to securitize corporate debt that had
approximately $4.3 billion and $2.9 billion in total assets at June 30, 2007, and December 31,
2006, respectively. We are not required to consolidate these entities. Our maximum exposure to loss
as a result of our involvement with these unconsolidated variable interest entities was
approximately $1.6 billion and $980 million at June 30, 2007, and December 31, 2006, respectively,
primarily representing investments in entities formed to invest in affordable housing. However, we
expect to recover our investment over time, primarily through realization of federal low-income
housing tax credits.
52
15. MORTGAGE BANKING ACTIVITIES
Mortgage banking activities, included in the Community Banking and Wholesale Banking operating
segments, consist of residential and commercial mortgage originations and servicing.
Effective January 1, 2006, upon adoption of FAS 156, we remeasured our residential mortgage
servicing rights (MSRs) at fair value and recognized a pre-tax adjustment of $158 million to
residential MSRs and recorded a corresponding cumulative effect adjustment of $101 million (after
tax) to increase the 2006 beginning balance of retained earnings in stockholders equity.
The changes in residential MSRs measured using the fair value method were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Fair value, beginning of period |
|
$ |
17,779 |
|
|
$ |
13,800 |
|
|
$ |
17,591 |
|
|
$ |
12,547 |
|
Purchases |
|
|
142 |
|
|
|
511 |
|
|
|
301 |
|
|
|
730 |
|
Servicing from securitizations or asset transfers |
|
|
1,029 |
|
|
|
1,310 |
|
|
|
1,857 |
|
|
|
2,299 |
|
Sales |
|
|
(1,422 |
) |
|
|
|
|
|
|
(1,422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to change in valuation model
inputs or assumptions (1) |
|
|
2,013 |
|
|
|
550 |
|
|
|
2,002 |
|
|
|
1,072 |
|
Other changes in fair value (2) |
|
|
(808 |
) |
|
|
(521 |
) |
|
|
(1,596 |
) |
|
|
(998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period |
|
$ |
18,733 |
|
|
$ |
15,650 |
|
|
$ |
18,733 |
|
|
$ |
15,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Principally reflects changes in discount rates and prepayment speed assumptions, mostly due
to changes in interest rates. |
(2) |
|
Represents changes due to collection/realization of expected cash flows over time. |
The changes in amortized MSRs were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Balance, beginning of period |
|
$ |
400 |
|
|
$ |
142 |
|
|
$ |
377 |
|
|
$ |
122 |
|
Purchases (1) |
|
|
26 |
|
|
|
39 |
|
|
|
55 |
|
|
|
64 |
|
Servicing from securitizations or asset transfers (1) |
|
|
11 |
|
|
|
|
|
|
|
21 |
|
|
|
|
|
Amortization |
|
|
(19 |
) |
|
|
(6 |
) |
|
|
(35 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period (2) |
|
$ |
418 |
|
|
$ |
175 |
|
|
$ |
418 |
|
|
$ |
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of amortized MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
484 |
|
|
$ |
205 |
|
|
$ |
457 |
|
|
$ |
146 |
|
End of period |
|
|
561 |
|
|
|
252 |
|
|
|
561 |
|
|
|
252 |
|
|
|
|
|
|
(1) |
|
Based on June 30, 2007, assumptions, the weighted-average amortization period for MSRs
added during the second quarter and first half of 2007 was approximately 10.5 years and 11.1
years, respectively. |
(2) |
|
There was no valuation allowance recorded for the periods presented. |
53
The components of our managed servicing portfolio were:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
(in billions) |
|
2007 |
|
|
2006 |
|
|
Loans serviced for others (1) |
|
$ |
1,347 |
|
|
$ |
1,020 |
|
Owned loans serviced (2) |
|
|
96 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Total owned servicing |
|
|
1,443 |
|
|
|
1,110 |
|
Sub-servicing |
|
|
24 |
|
|
|
23 |
|
|
|
|
|
|
|
|
Total managed servicing portfolio |
|
$ |
1,467 |
|
|
$ |
1,133 |
|
|
|
|
|
|
|
|
Ratio of MSRs to related loans serviced for others |
|
|
1.42 |
% |
|
|
1.55 |
% |
|
|
|
|
|
(1) |
|
Consists of 1-4 family first mortgage and commercial mortgage loans.
|
(2) |
|
Consists of mortgages held for sale and 1-4 family first mortgage loans. |
The components of mortgage banking noninterest income were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees (1) |
|
$ |
1,007 |
|
|
$ |
820 |
|
|
$ |
2,061 |
|
|
$ |
1,567 |
|
Changes in fair value of residential MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation model inputs
or assumptions (2) |
|
|
2,013 |
|
|
|
550 |
|
|
|
2,002 |
|
|
|
1,072 |
|
Other changes in fair value (3) |
|
|
(808 |
) |
|
|
(521 |
) |
|
|
(1,596 |
) |
|
|
(998 |
) |
Amortization |
|
|
(19 |
) |
|
|
(6 |
) |
|
|
(35 |
) |
|
|
(11 |
) |
Net derivative losses from economic hedges (4) |
|
|
(2,238 |
) |
|
|
(533 |
) |
|
|
(2,261 |
) |
|
|
(1,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing income, net |
|
|
(45 |
) |
|
|
310 |
|
|
|
171 |
|
|
|
391 |
|
Net gains on mortgage loan origination/sales activities |
|
|
635 |
|
|
|
359 |
|
|
|
1,130 |
|
|
|
632 |
|
All other |
|
|
99 |
|
|
|
66 |
|
|
|
178 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking noninterest income |
|
$ |
689 |
|
|
$ |
735 |
|
|
$ |
1,479 |
|
|
$ |
1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market-related valuation changes to MSRs, net of
hedge results (2) + (4) |
|
$ |
(225 |
) |
|
$ |
17 |
|
|
$ |
(259 |
) |
|
$ |
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes contractually specified servicing fees, late charges and other ancillary revenues. |
(2) |
|
Principally reflects changes in discount rates and prepayment speed assumptions, mostly due
to changes in interest rates. |
(3) |
|
Represents changes due to collection/realization of expected cash flows over time. |
(4) |
|
Represents results from free-standing derivatives (economic hedges) used to hedge the risk of
changes in fair value of MSRs. See Note 20 Free-Standing Derivatives for additional discussion
and detail. |
54
16. FAIR VALUES OF ASSETS AND LIABILITIES
Effective January 1, 2007, upon adoption of FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115, we elected to measure
mortgages held for sale (MHFS) at fair value prospectively for new prime MHFS originations for
which an active secondary market and readily available market prices currently exist to reliably
support fair value pricing models used for these loans. We also elected to remeasure at fair value
certain of our other interests held related to residential loan sales and securitizations. We
believe the election for MHFS and other interests held (which are now hedged with free-standing
derivatives (economic hedges) along with our MSRs) will reduce certain timing differences and
better match changes in the value of these assets with changes in the value of derivatives used as
economic hedges for these assets. There was no transition adjustment required upon adoption of FAS
159 for MHFS because we continued to account for MHFS originated prior to 2007 at the lower of cost
or market value. At December 31, 2006, the book value of other interests held was equal to fair
value and, therefore, a transition adjustment was not required. Upon adoption of FAS 159, we were
also required to adopt FAS 157, Fair Value Measurements.
In accordance with FAS 157, we group our financial assets and financial liabilities measured at
fair value in three levels, based on the markets in which the assets and liabilities are traded and
the reliability of the assumptions used to determine fair value. These levels are:
|
|
|
Level 1 Valuations for assets and liabilities traded in active exchange
markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and
federal agency securities and federal agency mortgage-backed securities, which are traded
by dealers or brokers in active markets. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or liabilities. |
|
|
|
|
Level 2 Valuations for assets and liabilities traded in less active dealer
or broker markets. For example, MHFS are valued based on what securitization markets are
currently offering for mortgage loans with similar characteristics. Valuations are obtained
from third party pricing services for identical or comparable assets or liabilities. |
|
|
|
|
Level 3 Valuations for assets and liabilities that are derived from other
valuation methodologies, including option pricing models, discounted cash flow models and
similar techniques, and not based on market exchange, dealer, or broker traded
transactions. Level 3 valuations incorporate certain assumptions and projections in
determining the fair value assigned to such assets or liabilities. |
55
The table below presents the balances of assets and liabilities measured at fair value on a
recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
$ |
7,289 |
|
|
$ |
1,608 |
|
|
$ |
5,214 |
|
|
$ |
467 |
|
Securities available for sale |
|
|
72,179 |
|
|
|
58,619 |
|
|
|
11,546 |
|
|
|
2,014 |
|
Mortgages held for sale |
|
|
30,175 |
|
|
|
|
|
|
|
30,175 |
|
|
|
|
|
Mortgage servicing rights (residential) |
|
|
18,733 |
|
|
|
|
|
|
|
|
|
|
|
18,733 |
|
Other assets |
|
|
731 |
|
|
|
529 |
|
|
|
167 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129,107 |
|
|
$ |
60,756 |
|
|
$ |
47,102 |
|
|
$ |
21,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4,953 |
) |
|
$ |
(2,470 |
) |
|
$ |
(2,091 |
) |
|
$ |
(392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Derivatives represent a majority of this category. |
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
Other |
|
|
|
assets |
|
|
Securities |
|
|
servicing |
|
|
Net derivative |
|
|
liabilities |
|
|
|
(excluding |
|
|
available |
|
|
rights |
|
|
assets and |
|
|
(excluding |
|
(in millions) |
|
derivatives) |
|
|
for sale |
|
|
(residential) |
|
|
liabilities |
|
|
derivatives) |
|
|
Quarter ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of quarter |
|
$ |
353 |
|
|
$ |
2,808 |
|
|
$ |
17,779 |
|
|
$ |
(51 |
) |
|
$ |
(249 |
) |
Total net gains (losses) included in net income |
|
|
62 |
|
|
|
|
|
|
|
1,205 |
|
|
|
(400 |
) |
|
|
(22 |
) |
Purchases, sales, issuances and settlements, net |
|
|
51 |
|
|
|
(794 |
) |
|
|
(251 |
) |
|
|
368 |
|
|
|
(6 |
) |
Transfer out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of quarter |
|
$ |
466 |
|
|
$ |
2,014 |
|
|
$ |
18,733 |
|
|
$ |
(79 |
) |
|
$ |
(277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) included in net income relating
to assets and liabilities held at June 30, 2007 (1) |
|
$ |
76 |
(2) |
|
$ |
|
|
|
$ |
1,810 |
(3) |
|
$ |
(76 |
) (3) |
|
$ |
(28 |
) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
360 |
|
|
$ |
3,447 |
|
|
$ |
17,591 |
|
|
$ |
(68 |
) |
|
$ |
(282 |
) |
Total net gains (losses) included in net income |
|
|
21 |
|
|
|
|
|
|
|
406 |
|
|
|
(383 |
) |
|
|
(28 |
) |
Purchases, sales, issuances and settlements, net |
|
|
85 |
|
|
|
(1,433 |
) |
|
|
736 |
|
|
|
368 |
|
|
|
33 |
|
Transfer out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
466 |
|
|
$ |
2,014 |
|
|
$ |
18,733 |
|
|
$ |
(79 |
) |
|
$ |
(277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) included in net income relating
to assets and liabilities held at June 30, 2007 (1) |
|
$ |
51 |
(2) |
|
$ |
|
|
|
$ |
1,805 |
(3) |
|
$ |
(76 |
) (3) |
|
$ |
(28 |
) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents only net gains (losses) that are due to changes in economic conditions and
managements estimates of fair value and excludes changes due to the collection/realization of
cash flows over time. |
(2) |
|
Included in other noninterest income in the income statement. |
(3) |
|
Included in mortgage banking in the income statement. |
56
Also, we may be required, from time to time, to measure certain other financial assets at fair
value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually
result from application of lower-of-cost-or-market accounting or write-downs of individual assets.
For assets measured at fair value on a nonrecurring basis in the first half of 2007 that were still
held in the balance sheet at June 30, 2007, the following table provides the level of valuation
assumptions used to determine each adjustment and the carrying value of the related individual
assets or portfolios at June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
Carrying value at June 30, 2007 |
|
|
Total |
|
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
losses |
|
|
|
|
$ |
2,227 |
|
|
$ |
|
|
|
$ |
2,227 |
|
|
$ |
|
|
|
$ |
(59 |
) |
Loans (1) |
|
|
751 |
|
|
|
|
|
|
|
751 |
|
|
|
|
|
|
|
(1,328 |
) |
Private equity investments |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(7 |
) |
Foreclosed assets (2) |
|
|
319 |
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
(92 |
) |
Operating lease assets |
|
|
30 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents carrying value and related write-downs of loans for which adjustments are based on
the appraised value of the collateral. The carrying value of loans fully charged-off, the
majority of which are auto loans and unsecured lines and loans, is zero. |
(2) |
|
Represents the fair value and related losses of foreclosed real estate and other collateral
owned that were measured at fair value subsequent to their initial classification as
foreclosed assets. |
Fair Value Option
The following table reflects the differences between the fair value carrying amount of mortgages
held for sale measured at fair value under FAS 159 and the aggregate unpaid principal amount we are
contractually entitled to receive at maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
Aggregate |
|
|
carrying amount |
|
|
|
Fair value |
|
|
unpaid |
|
|
less aggregate |
|
(in millions) |
|
carrying amount |
|
|
principal |
|
|
unpaid principal |
|
|
Mortgages held for sale reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
30,175 |
|
|
$ |
30,208 |
|
|
$ |
(33 |
)(1) |
Nonaccrual loans |
|
|
5 |
|
|
|
6 |
|
|
|
(1 |
) |
Loans 90 days or more past due and still accruing |
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
The difference between fair value carrying amount and aggregate unpaid principal includes
changes in fair value recorded at and subsequent to funding, gains and losses on the related
loan commitment prior to funding, and premiums on acquired loans. |
57
The assets accounted for under FAS 159 are initially measured at fair value. Gains and losses
from initial measurement and subsequent changes in fair value are recognized in earnings. The
changes in fair values related to initial measurement and subsequent changes in fair value that are
included in current period earnings for these assets measured at fair value are shown, by income
statement line item, below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
Quarter ended |
|
|
Six months ended |
|
|
|
Mortgages |
|
|
Other |
|
|
Mortgages |
|
|
Other |
|
|
|
held |
|
|
interests |
|
|
held |
|
|
interests |
|
(in millions) |
|
for sale |
|
|
held |
|
|
for sale |
|
|
held |
|
|
Changes in fair value included in net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on mortgage
loan origination/sales activities (1) |
|
$ |
(107 |
) |
|
$ |
|
|
|
$ |
122 |
|
|
$ |
|
|
Other noninterest income |
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
(1) |
|
Includes changes in fair value of servicing associated with mortgage loans held for sale. |
Interest income on mortgages held for sale measured at fair value is calculated based on the
note rate of the loan and is recorded in interest income in the income statement.
58
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Following are the condensed consolidating financial statements of the Parent and Wells Fargo
Financial Inc. and its wholly-owned subsidiaries (WFFI). The Wells Fargo Financial business segment
for management reporting (see Note 13) consists of WFFI and other affiliated consumer finance
entities managed by WFFI that are included within other consolidating subsidiaries in the following
tables.
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
1,708 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,708 |
) |
|
$ |
|
|
Nonbank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
1,441 |
|
|
|
5,670 |
|
|
|
(11 |
) |
|
|
7,100 |
|
Interest income from subsidiaries |
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
(869 |
) |
|
|
|
|
Other interest income |
|
|
33 |
|
|
|
26 |
|
|
|
1,415 |
|
|
|
(1 |
) |
|
|
1,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
2,610 |
|
|
|
1,467 |
|
|
|
7,085 |
|
|
|
(2,589 |
) |
|
|
8,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,031 |
|
|
|
(90 |
) |
|
|
1,941 |
|
Short-term borrowings |
|
|
80 |
|
|
|
116 |
|
|
|
434 |
|
|
|
(365 |
) |
|
|
265 |
|
Long-term debt |
|
|
922 |
|
|
|
461 |
|
|
|
214 |
|
|
|
(426 |
) |
|
|
1,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,002 |
|
|
|
577 |
|
|
|
2,679 |
|
|
|
(881 |
) |
|
|
3,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,608 |
|
|
|
890 |
|
|
|
4,406 |
|
|
|
(1,708 |
) |
|
|
5,196 |
|
Provision (reversal of provision) for credit losses |
|
|
|
|
|
|
(84 |
) |
|
|
804 |
|
|
|
|
|
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
1,608 |
|
|
|
974 |
|
|
|
3,602 |
|
|
|
(1,708 |
) |
|
|
4,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
91 |
|
|
|
2,643 |
|
|
|
|
|
|
|
2,734 |
|
Other |
|
|
96 |
|
|
|
|
|
|
|
1,877 |
|
|
|
(12 |
) |
|
|
1,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
96 |
|
|
|
91 |
|
|
|
4,520 |
|
|
|
(12 |
) |
|
|
4,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
54 |
|
|
|
318 |
|
|
|
3,016 |
|
|
|
|
|
|
|
3,388 |
|
Other |
|
|
38 |
|
|
|
253 |
|
|
|
2,060 |
|
|
|
(12 |
) |
|
|
2,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
92 |
|
|
|
571 |
|
|
|
5,076 |
|
|
|
(12 |
) |
|
|
5,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
1,612 |
|
|
|
494 |
|
|
|
3,046 |
|
|
|
(1,708 |
) |
|
|
3,444 |
|
Income tax expense (benefit) |
|
|
(32 |
) |
|
|
178 |
|
|
|
1,019 |
|
|
|
|
|
|
|
1,165 |
|
Equity in undistributed income of subsidiaries |
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
(635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,279 |
|
|
$ |
316 |
|
|
$ |
2,027 |
|
|
$ |
(2,343 |
) |
|
$ |
2,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
240 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(240 |
) |
|
$ |
|
|
Nonbank |
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
1,307 |
|
|
|
4,947 |
|
|
|
(9 |
) |
|
|
6,245 |
|
Interest income from subsidiaries |
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
(814 |
) |
|
|
|
|
Other interest income |
|
|
24 |
|
|
|
27 |
|
|
|
1,781 |
|
|
|
|
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,246 |
|
|
|
1,334 |
|
|
|
6,728 |
|
|
|
(1,231 |
) |
|
|
8,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,794 |
|
|
|
|
|
|
|
1,794 |
|
Short-term borrowings |
|
|
101 |
|
|
|
84 |
|
|
|
328 |
|
|
|
(224 |
) |
|
|
289 |
|
Long-term debt |
|
|
793 |
|
|
|
445 |
|
|
|
146 |
|
|
|
(374 |
) |
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
894 |
|
|
|
529 |
|
|
|
2,268 |
|
|
|
(598 |
) |
|
|
3,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352 |
|
|
|
805 |
|
|
|
4,460 |
|
|
|
(633 |
) |
|
|
4,984 |
|
Provision for credit losses |
|
|
|
|
|
|
55 |
|
|
|
377 |
|
|
|
|
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
352 |
|
|
|
750 |
|
|
|
4,083 |
|
|
|
(633 |
) |
|
|
4,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
66 |
|
|
|
2,202 |
|
|
|
|
|
|
|
2,268 |
|
Other |
|
|
(4 |
) |
|
|
57 |
|
|
|
1,497 |
|
|
|
(13 |
) |
|
|
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
(4 |
) |
|
|
123 |
|
|
|
3,699 |
|
|
|
(13 |
) |
|
|
3,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
19 |
|
|
|
252 |
|
|
|
2,684 |
|
|
|
|
|
|
|
2,955 |
|
Other |
|
|
(15 |
) |
|
|
225 |
|
|
|
2,249 |
|
|
|
(238 |
) |
|
|
2,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4 |
|
|
|
477 |
|
|
|
4,933 |
|
|
|
(238 |
) |
|
|
5,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
344 |
|
|
|
396 |
|
|
|
2,849 |
|
|
|
(408 |
) |
|
|
3,181 |
|
Income tax expense (benefit) |
|
|
(26 |
) |
|
|
137 |
|
|
|
981 |
|
|
|
|
|
|
|
1,092 |
|
Equity in undistributed income of subsidiaries |
|
|
1,719 |
|
|
|
|
|
|
|
|
|
|
|
(1,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,089 |
|
|
$ |
259 |
|
|
$ |
1,868 |
|
|
$ |
(2,127 |
) |
|
$ |
2,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
3,266 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(3,266 |
) |
|
$ |
|
|
Nonbank |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
2,795 |
|
|
|
11,091 |
|
|
|
(22 |
) |
|
|
13,864 |
|
Interest income from subsidiaries |
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
(1,721 |
) |
|
|
|
|
Other interest income |
|
|
67 |
|
|
|
52 |
|
|
|
2,732 |
|
|
|
(3 |
) |
|
|
2,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
5,058 |
|
|
|
2,847 |
|
|
|
13,823 |
|
|
|
(5,016 |
) |
|
|
16,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,091 |
|
|
|
(293 |
) |
|
|
3,798 |
|
Short-term borrowings |
|
|
139 |
|
|
|
226 |
|
|
|
652 |
|
|
|
(616 |
) |
|
|
401 |
|
Long-term debt |
|
|
1,819 |
|
|
|
914 |
|
|
|
411 |
|
|
|
(837 |
) |
|
|
2,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,958 |
|
|
|
1,140 |
|
|
|
5,154 |
|
|
|
(1,746 |
) |
|
|
6,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,100 |
|
|
|
1,707 |
|
|
|
8,669 |
|
|
|
(3,270 |
) |
|
|
10,206 |
|
Provision for credit losses |
|
|
|
|
|
|
198 |
|
|
|
1,237 |
|
|
|
|
|
|
|
1,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
3,100 |
|
|
|
1,509 |
|
|
|
7,432 |
|
|
|
(3,270 |
) |
|
|
8,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
171 |
|
|
|
4,960 |
|
|
|
|
|
|
|
5,131 |
|
Other |
|
|
127 |
|
|
|
77 |
|
|
|
3,815 |
|
|
|
(24 |
) |
|
|
3,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
127 |
|
|
|
248 |
|
|
|
8,775 |
|
|
|
(24 |
) |
|
|
9,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
58 |
|
|
|
625 |
|
|
|
5,979 |
|
|
|
|
|
|
|
6,662 |
|
Other |
|
|
58 |
|
|
|
565 |
|
|
|
3,992 |
|
|
|
(24 |
) |
|
|
4,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
116 |
|
|
|
1,190 |
|
|
|
9,971 |
|
|
|
(24 |
) |
|
|
11,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
3,111 |
|
|
|
567 |
|
|
|
6,236 |
|
|
|
(3,270 |
) |
|
|
6,644 |
|
Income tax expense (benefit) |
|
|
(43 |
) |
|
|
212 |
|
|
|
1,952 |
|
|
|
|
|
|
|
2,121 |
|
Equity in undistributed income of subsidiaries |
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
(1,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,523 |
|
|
$ |
355 |
|
|
$ |
4,284 |
|
|
$ |
(4,639 |
) |
|
$ |
4,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Comany |
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
835 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(835 |
) |
|
$ |
|
|
Nonbank |
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
(173 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
2,597 |
|
|
|
9,776 |
|
|
|
(18 |
) |
|
|
12,355 |
|
Interest income from subsidiaries |
|
|
1,568 |
|
|
|
|
|
|
|
|
|
|
|
(1,568 |
) |
|
|
|
|
Other interest income |
|
|
52 |
|
|
|
50 |
|
|
|
3,152 |
|
|
|
|
|
|
|
3,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
2,628 |
|
|
|
2,647 |
|
|
|
12,928 |
|
|
|
(2,594 |
) |
|
|
15,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,276 |
|
|
|
|
|
|
|
3,276 |
|
Short-term borrowings |
|
|
210 |
|
|
|
178 |
|
|
|
600 |
|
|
|
(429 |
) |
|
|
559 |
|
Long-term debt |
|
|
1,499 |
|
|
|
853 |
|
|
|
293 |
|
|
|
(725 |
) |
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,709 |
|
|
|
1,031 |
|
|
|
4,169 |
|
|
|
(1,154 |
) |
|
|
5,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
919 |
|
|
|
1,616 |
|
|
|
8,759 |
|
|
|
(1,440 |
) |
|
|
9,854 |
|
Provision for credit losses |
|
|
|
|
|
|
327 |
|
|
|
538 |
|
|
|
|
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
919 |
|
|
|
1,289 |
|
|
|
8,221 |
|
|
|
(1,440 |
) |
|
|
8,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
130 |
|
|
|
4,296 |
|
|
|
|
|
|
|
4,426 |
|
Other |
|
|
(27 |
) |
|
|
123 |
|
|
|
2,996 |
|
|
|
(28 |
) |
|
|
3,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
(27 |
) |
|
|
253 |
|
|
|
7,292 |
|
|
|
(28 |
) |
|
|
7,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
52 |
|
|
|
537 |
|
|
|
5,295 |
|
|
|
|
|
|
|
5,884 |
|
Other |
|
|
(17 |
) |
|
|
436 |
|
|
|
4,407 |
|
|
|
(460 |
) |
|
|
4,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
35 |
|
|
|
973 |
|
|
|
9,702 |
|
|
|
(460 |
) |
|
|
10,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
857 |
|
|
|
569 |
|
|
|
5,811 |
|
|
|
(1,008 |
) |
|
|
6,229 |
|
Income tax expense (benefit) |
|
|
(60 |
) |
|
|
201 |
|
|
|
1,981 |
|
|
|
|
|
|
|
2,122 |
|
Equity in undistributed income of subsidiaries |
|
|
3,190 |
|
|
|
|
|
|
|
|
|
|
|
(3,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,107 |
|
|
$ |
368 |
|
|
$ |
3,830 |
|
|
$ |
(4,198 |
) |
|
$ |
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary banks |
|
$ |
7,936 |
|
|
$ |
194 |
|
|
$ |
|
|
|
$ |
(8,130 |
) |
|
$ |
|
|
Nonaffiliates |
|
|
|
|
|
|
144 |
|
|
|
17,733 |
|
|
|
|
|
|
|
17,877 |
|
Securities available for sale |
|
|
1,607 |
|
|
|
1,925 |
|
|
|
68,653 |
|
|
|
(6 |
) |
|
|
72,179 |
|
Mortgages and loans held for sale |
|
|
|
|
|
|
|
|
|
|
35,467 |
|
|
|
|
|
|
|
35,467 |
|
|
|
|
|
|
|
|
49,888 |
|
|
|
294,210 |
|
|
|
(1,298 |
) |
|
|
342,800 |
|
Loans to subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
11,400 |
|
|
|
|
|
|
|
|
|
|
|
(11,400 |
) |
|
|
|
|
Nonbank |
|
|
50,813 |
|
|
|
|
|
|
|
|
|
|
|
(50,813 |
) |
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
(879 |
) |
|
|
(2,941 |
) |
|
|
|
|
|
|
(3,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
62,213 |
|
|
|
49,009 |
|
|
|
291,269 |
|
|
|
(63,511 |
) |
|
|
338,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
44,714 |
|
|
|
|
|
|
|
|
|
|
|
(44,714 |
) |
|
|
|
|
Nonbank |
|
|
5,431 |
|
|
|
|
|
|
|
|
|
|
|
(5,431 |
) |
|
|
|
|
Other assets |
|
|
7,387 |
|
|
|
1,702 |
|
|
|
67,745 |
|
|
|
(1,472 |
) |
|
|
75,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
129,288 |
|
|
$ |
52,974 |
|
|
$ |
480,867 |
|
|
$ |
(123,264 |
) |
|
$ |
539,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
332,873 |
|
|
$ |
(8,130 |
) |
|
$ |
324,743 |
|
Short-term borrowings |
|
|
20 |
|
|
|
9,783 |
|
|
|
54,247 |
|
|
|
(23,212 |
) |
|
|
40,838 |
|
Accrued expenses and other liabilities |
|
|
4,474 |
|
|
|
1,444 |
|
|
|
29,458 |
|
|
|
(2,223 |
) |
|
|
33,153 |
|
Long-term debt |
|
|
71,680 |
|
|
|
38,444 |
|
|
|
17,601 |
|
|
|
(33,895 |
) |
|
|
93,830 |
|
Indebtedness to subsidiaries |
|
|
5,813 |
|
|
|
|
|
|
|
|
|
|
|
(5,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
81,987 |
|
|
|
49,671 |
|
|
|
434,179 |
|
|
|
(73,273 |
) |
|
|
492,564 |
|
Stockholders equity |
|
|
47,301 |
|
|
|
3,303 |
|
|
|
46,688 |
|
|
|
(49,991 |
) |
|
|
47,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
129,288 |
|
|
$ |
52,974 |
|
|
$ |
480,867 |
|
|
$ |
(123,264 |
) |
|
$ |
539,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary banks |
|
$ |
12,310 |
|
|
$ |
201 |
|
|
$ |
|
|
|
$ |
(12,511 |
) |
|
$ |
|
|
Nonaffiliates |
|
|
76 |
|
|
|
274 |
|
|
|
19,086 |
|
|
|
|
|
|
|
19,436 |
|
Securities available for sale |
|
|
885 |
|
|
|
1,789 |
|
|
|
68,752 |
|
|
|
(6 |
) |
|
|
71,420 |
|
Mortgages and loans held for sale |
|
|
|
|
|
|
21 |
|
|
|
40,287 |
|
|
|
|
|
|
|
40,308 |
|
|
|
|
|
|
|
|
46,148 |
|
|
|
255,371 |
|
|
|
(897 |
) |
|
|
300,622 |
|
Loans to subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
(3,400 |
) |
|
|
|
|
Nonbank |
|
|
46,100 |
|
|
|
480 |
|
|
|
|
|
|
|
(46,580 |
) |
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
(1,142 |
) |
|
|
(2,709 |
) |
|
|
|
|
|
|
(3,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
49,500 |
|
|
|
45,486 |
|
|
|
252,662 |
|
|
|
(50,877 |
) |
|
|
296,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
39,588 |
|
|
|
|
|
|
|
|
|
|
|
(39,588 |
) |
|
|
|
|
Nonbank |
|
|
4,565 |
|
|
|
|
|
|
|
|
|
|
|
(4,565 |
) |
|
|
|
|
Other assets |
|
|
6,678 |
|
|
|
1,368 |
|
|
|
65,843 |
|
|
|
(2,308 |
) |
|
|
71,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
113,602 |
|
|
$ |
49,139 |
|
|
$ |
446,630 |
|
|
$ |
(109,855 |
) |
|
$ |
499,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
338,963 |
|
|
$ |
(12,511 |
) |
|
$ |
326,452 |
|
Short-term borrowings |
|
|
27 |
|
|
|
6,726 |
|
|
|
19,026 |
|
|
|
(12,160 |
) |
|
|
13,619 |
|
Accrued expenses and other liabilities |
|
|
4,619 |
|
|
|
1,026 |
|
|
|
31,225 |
|
|
|
(3,076 |
) |
|
|
33,794 |
|
Long-term debt |
|
|
62,395 |
|
|
|
38,533 |
|
|
|
16,215 |
|
|
|
(33,386 |
) |
|
|
83,757 |
|
Indebtedness to subsidiaries |
|
|
4,667 |
|
|
|
|
|
|
|
|
|
|
|
(4,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
71,708 |
|
|
|
46,285 |
|
|
|
405,429 |
|
|
|
(65,800 |
) |
|
|
457,622 |
|
Stockholders equity |
|
|
41,894 |
|
|
|
2,854 |
|
|
|
41,201 |
|
|
|
(44,055 |
) |
|
|
41,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
113,602 |
|
|
$ |
49,139 |
|
|
$ |
446,630 |
|
|
$ |
(109,855 |
) |
|
$ |
499,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries/ |
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
eliminations |
|
|
Company |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
2,591 |
|
|
$ |
764 |
|
|
$ |
5,569 |
|
|
$ |
8,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
1,063 |
|
|
|
264 |
|
|
|
7,036 |
|
|
|
8,363 |
|
Prepayments and maturities |
|
|
|
|
|
|
145 |
|
|
|
4,456 |
|
|
|
4,601 |
|
Purchases |
|
|
(1,753 |
) |
|
|
(619 |
) |
|
|
(40,790 |
) |
|
|
(43,162 |
) |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in banking subsidiaries loan
originations, net of collections |
|
|
|
|
|
|
(1,065 |
) |
|
|
(16,365 |
) |
|
|
(17,430 |
) |
Proceeds from sales (including participations) of loans by
banking subsidiaries |
|
|
|
|
|
|
|
|
|
|
1,640 |
|
|
|
1,640 |
|
Purchases (including participations) of loans by
banking subsidiaries |
|
|
|
|
|
|
|
|
|
|
(2,679 |
) |
|
|
(2,679 |
) |
Principal collected on nonbank entities loans |
|
|
|
|
|
|
9,754 |
|
|
|
1,957 |
|
|
|
11,711 |
|
Loans originated by nonbank entities |
|
|
|
|
|
|
(10,558 |
) |
|
|
(2,613 |
) |
|
|
(13,171 |
) |
Net repayments from (advances to) subsidiaries |
|
|
(10,186 |
) |
|
|
|
|
|
|
10,186 |
|
|
|
|
|
Capital notes and term loans made to subsidiaries |
|
|
(5,278 |
) |
|
|
|
|
|
|
5,278 |
|
|
|
|
|
Principal collected on notes/loans made to subsidiaries |
|
|
4,665 |
|
|
|
|
|
|
|
(4,665 |
) |
|
|
|
|
Net decrease (increase) in investment in subsidiaries |
|
|
(1,073 |
) |
|
|
|
|
|
|
1,073 |
|
|
|
|
|
Net cash paid for acquisitions |
|
|
|
|
|
|
|
|
|
|
(2,825 |
) |
|
|
(2,825 |
) |
Other, net |
|
|
|
|
|
|
(85 |
) |
|
|
(1,350 |
) |
|
|
(1,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(12,562 |
) |
|
|
(2,164 |
) |
|
|
(39,661 |
) |
|
|
(54,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
12,741 |
|
|
|
12,741 |
|
Short-term borrowings |
|
|
777 |
|
|
|
1,749 |
|
|
|
25,343 |
|
|
|
27,869 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
13,224 |
|
|
|
5,458 |
|
|
|
(3,777 |
) |
|
|
14,905 |
|
Repayment |
|
|
(6,839 |
) |
|
|
(5,946 |
) |
|
|
4,142 |
|
|
|
(8,643 |
) |
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
995 |
|
|
|
|
|
|
|
|
|
|
|
995 |
|
Repurchased |
|
|
(2,689 |
) |
|
|
|
|
|
|
|
|
|
|
(2,689 |
) |
Cash dividends paid |
|
|
(1,885 |
) |
|
|
|
|
|
|
|
|
|
|
(1,885 |
) |
Excess tax benefits related to stock option payments |
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
117 |
|
Other, net |
|
|
(2 |
) |
|
|
7 |
|
|
|
(266 |
) |
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
3,698 |
|
|
|
1,268 |
|
|
|
38,183 |
|
|
|
43,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and due from banks |
|
|
(6,273 |
) |
|
|
(132 |
) |
|
|
4,091 |
|
|
|
(2,314 |
) |
Cash and due from banks at beginning of period |
|
|
14,209 |
|
|
|
470 |
|
|
|
349 |
|
|
|
15,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of period |
|
$ |
7,936 |
|
|
$ |
338 |
|
|
$ |
4,440 |
|
|
$ |
12,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries/ |
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
eliminations |
|
|
Company |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
1,851 |
|
|
$ |
331 |
|
|
$ |
18,061 |
|
|
$ |
20,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
99 |
|
|
|
260 |
|
|
|
25,971 |
|
|
|
26,330 |