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 September 30, 2007
Commission file number 001-2979
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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41-0449260
(I.R.S. Employer
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 ¨
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 ¨
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Non-accelerated filer ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Shares Outstanding |
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October 31, 2007 |
Common stock, $1-2/3 par value |
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3,354,374,522 |
FORM 10-Q
CROSS-REFERENCE INDEX
1
PART I FINANCIAL INFORMATION
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
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% Change |
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Quarter ended |
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Sept. 30, 2007 from |
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Nine months ended |
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Sept. 30, |
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June 30, |
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Sept. 30, |
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June 30, |
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Sept. 30, |
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Sept. 30, |
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Sept. 30, |
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% |
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($ 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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$ |
2,283 |
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$ |
2,279 |
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$ |
2,194 |
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% |
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4 |
% |
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$ |
6,806 |
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$ |
6,301 |
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8 |
% |
Diluted earnings per common share |
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0.68 |
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0.67 |
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0.64 |
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1 |
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6 |
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2.01 |
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1.85 |
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9 |
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Profitability ratios (annualized): |
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Net income to average total assets (ROA) |
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1.67 |
% |
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1.82 |
% |
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1.76 |
% |
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(8 |
) |
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(5 |
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1.79 |
% |
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1.73 |
% |
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3 |
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Net income to average stockholders equity (ROE) |
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19.12 |
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19.55 |
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20.00 |
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(2 |
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(4 |
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19.44 |
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19.89 |
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(2 |
) |
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55.8 |
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57.9 |
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56.9 |
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(4 |
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(2 |
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57.4 |
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58.3 |
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(2 |
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$ |
9,853 |
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$ |
9,891 |
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$ |
8,934 |
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10 |
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$ |
29,185 |
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$ |
26,278 |
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11 |
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Dividends declared per common share (2) |
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0.31 |
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0.28 |
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11 |
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0.87 |
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0.80 |
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9 |
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Dividends paid per common share |
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0.31 |
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0.28 |
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0.28 |
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11 |
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11 |
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0.87 |
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0.80 |
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9 |
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Average common shares outstanding |
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3,339.6 |
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3,351.2 |
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3,371.9 |
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(1 |
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3,355.5 |
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3,364.6 |
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Diluted average common shares outstanding |
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3,374.0 |
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3,389.3 |
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3,416.0 |
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(1 |
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3,392.9 |
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3,405.5 |
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$ |
350,683 |
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$ |
331,970 |
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$ |
303,980 |
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6 |
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15 |
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$ |
334,801 |
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$ |
305,141 |
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10 |
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Average assets |
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541,533 |
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502,686 |
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494,679 |
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8 |
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9 |
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508,992 |
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487,182 |
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4 |
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Average core deposits (3) |
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306,135 |
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300,535 |
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269,725 |
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2 |
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13 |
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299,142 |
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263,818 |
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13 |
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Average retail core deposits (4) |
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228,633 |
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228,006 |
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214,294 |
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7 |
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226,799 |
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214,358 |
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6 |
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4.55 |
% |
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4.89 |
% |
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4.79 |
% |
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(7 |
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(5 |
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4.79 |
% |
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4.80 |
% |
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Securities available for sale |
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$ |
57,440 |
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$ |
72,179 |
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$ |
52,635 |
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(20 |
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9 |
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$ |
57,440 |
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$ |
52,635 |
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9 |
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Loans |
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362,922 |
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342,800 |
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307,491 |
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6 |
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18 |
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362,922 |
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307,491 |
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18 |
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Allowance for loan losses |
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3,829 |
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3,820 |
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3,799 |
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1 |
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3,829 |
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3,799 |
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1 |
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Goodwill |
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12,018 |
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11,983 |
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11,192 |
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7 |
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12,018 |
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11,192 |
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7 |
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Assets |
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548,727 |
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539,865 |
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483,441 |
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2 |
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14 |
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548,727 |
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483,441 |
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14 |
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Core deposits (3) |
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303,853 |
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300,602 |
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270,818 |
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1 |
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12 |
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303,853 |
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270,818 |
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12 |
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Stockholders equity |
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47,738 |
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47,301 |
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44,862 |
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1 |
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6 |
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47,738 |
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44,862 |
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6 |
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Tier 1 capital (5) |
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38,279 |
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38,387 |
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35,551 |
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8 |
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38,279 |
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35,551 |
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8 |
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Total capital (5) |
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51,797 |
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52,517 |
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50,197 |
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(1 |
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3 |
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51,797 |
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50,197 |
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3 |
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Stockholders equity to assets |
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8.70 |
% |
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8.76 |
% |
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9.28 |
% |
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(1 |
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(6 |
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8.70 |
% |
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9.28 |
% |
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(6 |
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Risk-based capital (5) |
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Tier 1 capital |
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8.21 |
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8.57 |
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8.74 |
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(4 |
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(6 |
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8.21 |
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8.74 |
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(6 |
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Total capital |
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11.11 |
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11.72 |
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12.34 |
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(5 |
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(10 |
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11.11 |
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12.34 |
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(10 |
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Tier 1 leverage (5) |
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7.29 |
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7.90 |
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7.41 |
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(8 |
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(2 |
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7.29 |
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7.41 |
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(2 |
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Book value per common share |
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$ |
14.36 |
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$ |
14.07 |
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$ |
13.30 |
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2 |
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8 |
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$ |
14.36 |
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$ |
13.30 |
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8 |
|
Team members (active, full-time equivalent) |
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158,800 |
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158,700 |
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156,400 |
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2 |
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158,800 |
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156,400 |
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2 |
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High |
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$ |
37.99 |
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$ |
36.49 |
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$ |
36.89 |
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4 |
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3 |
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$ |
37.99 |
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$ |
36.89 |
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3 |
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Low |
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32.66 |
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33.93 |
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33.36 |
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(4 |
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(2 |
) |
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32.66 |
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30.31 |
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8 |
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Period end |
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35.62 |
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35.17 |
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36.18 |
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1 |
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(2 |
) |
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35.62 |
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36.18 |
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(2 |
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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) |
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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. Average core deposits included converted Eurodollar
sweep accounts of $9,888 million, $9,888 million and $3,343 million for the quarters ended
September 30, 2007, June 30, 2007, and September 30, 2006, respectively. Average core
deposits increased 11% from third 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 September 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 $549 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 September 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 third quarter 2007, we achieved record diluted earnings per share of $0.68, up 6% from a year
ago, and record net income of $2.28 billion, up 4% from a year ago. Our solid results were again
driven by double-digit revenue growth (10%), positive operating leverage (revenue growth 2
percentage points above expense growth), double-digit growth in both loans and core deposits, and
operating margins that remained at the top of the large bank peer group.
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 5.5 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 third quarter 2007 from a year ago, with average loans up 15%, average core deposits up 13%,
loans serviced for others up 12% and assets under management or administration up 29%.
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
3
businesses, consistent execution of our business model and the management of our business risks.
Our financial results included the following:
Net income for third quarter 2007 increased 4% to $2.28 billion from $2.19 billion for third
quarter 2006. Diluted earnings per share for third quarter 2007 increased 6% to $0.68 from $0.64
for third quarter 2006. Return on assets (ROA) was 1.67% and return on equity (ROE) was 19.12% for
third quarter 2007, and 1.76% and 20.00%, respectively, for third quarter 2006.
Net income for the first nine months of 2007 was $6.81 billion, or $2.01 per share, up 8% from
$6.30 billion, or $1.85 per share, for the first nine months of 2006. ROA was 1.79% and ROE was
19.44% for the first nine months of 2007, and 1.73% and 19.89%, respectively, for the first nine
months of 2006.
Net interest income on a taxable-equivalent basis increased 5% to $5.32 billion for third quarter
2007 from $5.08 billion for third quarter 2006, primarily due to loan growth, offset by higher
rates on deposits and debt. Our net interest margin was 4.55% in third quarter 2007, down from
4.79% a year ago, largely due to an increase in the quarterly average of securities available for
sale and an increase in interest-bearing core deposits relative to noninterest-bearing deposits.
Noninterest income for third quarter 2007 increased $686 million, or 18%, from third quarter 2006.
The double-digit, year-over-year growth in fee income reflected very strong growth in deposit
service fees (up 18%); trust and investment fees (up 17% driven by new business growth and market
appreciation); card fees (up 21% driven by business activity and continued increases in
debit/credit card penetration rates); and other fees (up 11% driven by real estate brokerage fees).
Mortgage banking noninterest income increased $339 million in third quarter 2007 from a year ago
with the growth and value of the mortgage servicing business more than offsetting a 12% decline in
mortgage originations from a year ago.
During third quarter 2007, noninterest income was affected by widening credit spreads, increases in
market volatility, changes in interest rates and other credit/housing market conditions, including:
|
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($490) million
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Reduction in net mortgage loan origination/sales activities
gains reflecting a write-down of the mortgage warehouse/pipeline due to the illiquidity in
the non-agency mortgage secondary market, a write-down of mortgage loans held or
repurchased during the quarter and an increase in the repurchase reserve for projected
early payment defaults. |
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$562 million
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Increase in mortgage servicing income reflecting a $638 million reduction in the value of mortgage servicing rights (MSRs) due to the decline in mortgage
rates during the quarter, offset by a $1.2 billion gain on the financial instruments hedging the MSRs. |
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($20) million
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Write-down on commercial loans held for sale, recorded in other noninterest income. |
4
Revenue, the sum of net interest income and noninterest income, grew $919 million, or 10%, to $9.85
billion in third quarter 2007 from $8.93 billion in third quarter 2006. Revenue of $29.2 billion
for the first nine months of 2007 was up 11% from the same period of 2006. Achieving double-digit
revenue growth during the challenging environment in third quarter 2007 once again reflected the
value of our diversified business model and our success in earning more of our customers business.
Businesses that generated double-digit, year-over-year revenue growth included asset management,
real estate brokerage, insurance, international, small business lending, wealth management, credit
card, global remittance services, corporate trust and home mortgage.
Noninterest expense was $5.50 billion for third quarter 2007, up $420 million, or 8%, from $5.08
billion for the same period of 2006, 2 percentage points below revenue growth, resulting in
positive operating leverage. The efficiency ratio improved to 55.8% for third quarter 2007 from
56.9% a year ago and 57.9% in second quarter 2007. Third quarter 2007 expenses included $26 million
for merger and integration costs, and severance and other costs in the residential real estate
businesses. While we actively manage our expenses for positive operating leverage and have reduced
expenses at Wells Fargo Home Mortgage, we continued to invest for future growth. We added 20
banking stores and converted 39 Placer Sierra Bancshares stores in third quarter 2007, as well as
added 342 platform bankers.
Net charge-offs for third quarter 2007 were $892 million (1.01% of average total loans outstanding,
annualized), up from $720 million (0.87%) in second quarter 2007 and $663 million (0.86%) in third
quarter 2006. For the first nine months of 2007, net charge-offs were $2.33 billion (0.93%),
compared with $1.53 billion (0.67%), for the first nine months of 2006. Almost half of the increase
in net credit losses from second quarter 2007 was concentrated in the home equity portfolio, where
losses accelerated given the steeper than anticipated decline in home prices. The remainder of the
increased credit losses was concentrated in the auto portfolio (seasonally higher in the second
half of the year) and in unsecured consumer credit (largely due to portfolio growth, with loss
rates remaining relatively stable). Our first mortgage portfolio continued to perform well, with
annualized losses of 0.11% only $16 million on the entire portfolio of $63.9 billion (average)
for third quarter 2007 down from 0.18% in third quarter 2006. The $24 billion debt consolidation
portfolio at Wells Fargo Financial continued to grow and perform as expected, and better than
industry levels. First mortgage delinquency rates also remained below industry levels. In addition,
commercial and commercial real estate loan losses remained modest and within portfolio
expectations.
The allowance for credit losses, which consists of the allowance for loan losses and the reserve
for unfunded credit commitments, was $4.02 billion (1.11% of total loans) at September 30, 2007,
compared with $3.96 billion (1.24%) at December 31, 2006, and $3.98 billion (1.29%) at September
30, 2006.
Total nonaccrual loans were $2.09 billion (0.58% of total loans) at September 30, 2007, compared
with $1.67 billion (0.52%) at December 31, 2006, and $1.49 billion (0.48%) at September 30, 2006.
Total nonperforming assets (NPAs) were $3.18 billion (0.88% of total loans) at September 30, 2007,
compared with $2.42 billion (0.76%) at December 31, 2006, and $2.10 billion (0.68%) at September
30, 2006. Foreclosed assets were $1.09 billion at September 30, 2007, compared with $745 million at
December 31, 2006, and $608 million at September 30, 2006. Foreclosed assets, a component of total
NPAs, included $487 million,
5
$322 million and
$266 million of foreclosed real estate securing Government National Mortgage Association (GNMA)
loans at September 30, 2007, December 31, 2006, and September 30, 2006, respectively, consistent
with regulatory reporting requirements. The foreclosed real estate securing GNMA loans of $487
million represented 13 basis points of the ratio of nonperforming assets to loans at September 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.
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 8.70% at September 30, 2007, 9.52% at December 31, 2006, and 9.28% at September 30,
2006. Our total risk-based capital (RBC) ratio at September 30, 2007, was 11.11% and our Tier 1 RBC
ratio was 8.21%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank
holding companies. Our RBC ratios at September 30, 2006, were 12.34% and 8.74%, respectively. Our
Tier 1 leverage ratios were 7.29% and 7.41% at September 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 July 1, 2007, we adopted Emerging Issues Task Force (EITF) Topic D-109, Determining the Nature
of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a Share under
FASB Statement No. 133 (Topic D-109), which provides clarifying guidance as to whether certain
hybrid financial instruments are more akin to debt or equity, for purposes of evaluating whether
the embedded derivative financial instrument requires separate accounting
6
under FAS 133. In
accordance with the transition provisions of Topic D-109, we transferred $1.2
billion of securities, consisting of investments in preferred stock callable by the issuer, from
trading assets to securities available for sale. Because the securities were carried at fair value,
the adoption of Topic D-109 did not have any effect on our total stockholders equity.
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 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. As
originally issued, SOP 07-1 was effective for the year beginning January 1, 2008; however, on
October 17, 2007, the FASB voted to indefinitely defer the effective date.
On September 20, 2006, the FASB ratified the consensus reached by the EITF at its September 7,
2006, meeting with respect to Issue No. 06-4, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4).
On March 28, 2007, the FASB ratified the consensus reached by the EITF at its March 15, 2007,
meeting with respect to Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life
Insurance Arrangements (EITF 06-10). These consensuses require that for endorsement split-dollar
life insurance arrangements and collateral assignment split-dollar life insurance arrangements where the
employee is provided benefits in postretirement periods, the employer should recognize the cost of
providing that insurance over the employees service period by accruing a liability for the benefit
obligation. Additionally, for collateral assignment split-dollar life insurance arrangements, EITF
06-10 requires an employer to recognize and measure an asset based upon the nature and substance of
the agreement. EITF 06-4 and EITF 06-10 are effective for the year beginning January 1, 2008, with
early adoption permitted. We expect that the adoption of EITF 06-4 and EITF 06-10 will reduce
beginning retained earnings for 2008 by approximately $20 million (after tax), primarily related to
the acquisition of Greater Bay Bancorp.
On November 5, 2007, SEC Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at
Fair Value Through Earnings (SAB 109), was issued. SAB 109 provides the staffs views on the
accounting for written loan commitments recorded at fair value under generally accepted accounting
principles (GAAP). To make the staffs views consistent with current authoritative accounting
guidance, SAB 109 revises and rescinds portions of SAB 105,
7
Application of Accounting Principles to
Loan Commitments. Specifically, SAB 109 states that the expected net future cash flows related to the
associated servicing of the loan should be included in the measurement of all written loan
commitments that are accounted for at fair value through earnings. The provisions of SAB 109 are
applicable to written loan commitments issued or modified beginning on January 1, 2008. We are
currently evaluating the impact, if any, that SAB 109 may have 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.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income is the interest earned on debt securities, loans (including yield-related loan
fees) and other interest-earning assets minus the interest paid for deposits and long-term and
short-term debt. The net interest margin is the average yield on earning assets minus the average
interest rate paid for deposits and our other sources of funding. Net interest income and the net
interest margin are presented in the table on page 10 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 5% to $5.32 billion in third quarter
2007 from $5.08 billion in third quarter 2006, primarily due to loan growth, offset by higher rates
on deposits and debt. The net interest margin was 4.55% in third quarter 2007, down from 4.79% in
third quarter 2006, largely due to an increase in the quarterly average of securities available for
sale and an increase in interest-bearing core deposits relative to noninterest-bearing
deposits. During the quarter, we sold $27 billion of our lowest-yielding mortgage-backed
securities that were largely hedging the MSRs asset against a decline in interest rates. The
securities were replaced with off-balance sheet economic hedges to more efficiently manage the
market risk in the MSRs portfolio. Since most of these securities were sold on a forward basis,
they remained on the balance sheet for most of the quarter, while only modestly adding to net
interest income, and resulted in a decline in the net interest margin during the quarter. In total,
gains on the sale of all mortgage-backed securities in the quarter were $160 million, largely
offset by the associated $147 million loss on the forward sales contracts executed to lock in the
sale of the securities. The sale of the mortgage-backed securities also provided additional
8
capacity to acquire more attractively-yielding assets. About $17 billion of new securities and
loans were purchased later in third quarter 2007 at yields well above the yields on the
mortgage-backed securities that were sold, which will benefit net interest margin in fourth quarter
2007.
Average earning assets increased $43.1 billion, or 10%, to $465.3 billion in third quarter 2007
from $422.2 billion in third quarter 2006. Average loans increased $46.7 billion, or 15%, to $350.7
billion in third quarter 2007 from $304.0 billion in third quarter 2006. Average mortgages held for sale decreased $6.8 billion to $35.6 billion in third quarter 2007 from $42.4 billion in
third quarter 2006. Average debt securities available for sale increased $2.7 billion to $68.4
billion in third quarter 2007 from $65.7 billion in third quarter 2006.
Core deposits are an important contributor to growth in net interest income and the net interest
margin. This low-cost source of funding rose 13% on average from a year ago and funded 87% and 89%
of average loans for third 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 swept into non-deposit products in 2006. 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 third quarter 2007, grew $14.3 billion, or 7%, from a year ago. Average
mortgage escrow deposits were $22.4 billion for third quarter 2007, up $3.0 billion from a year
ago. Average savings certificates of deposit increased to $41.1 billion in third quarter 2007 from
$33.9 billion in third quarter 2006 and average noninterest-bearing checking accounts and other
core deposit categories (interest-bearing checking and market rate and other savings) increased to
$243.3 billion in third quarter 2007 from $226.5 billion in third quarter 2006. Total average
interest-bearing deposits were $247.7 billion in third quarter 2007, up $17.3 billion from $230.4
billion in third quarter 2006.
9
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 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 |
|
$ |
4,219 |
|
|
|
5.01 |
% |
|
$ |
53 |
|
|
$ |
4,247 |
|
|
|
5.00 |
% |
|
$ |
53 |
|
Trading assets |
|
|
4,043 |
|
|
|
3.69 |
|
|
|
37 |
|
|
|
3,880 |
|
|
|
5.19 |
|
|
|
51 |
|
Debt securities available for sale (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S. Treasury and federal agencies |
|
|
871 |
|
|
|
4.27 |
|
|
|
10 |
|
|
|
912 |
|
|
|
4.42 |
|
|
|
10 |
|
Securities of U.S. states and political subdivisions |
|
|
5,021 |
|
|
|
7.31 |
|
|
|
90 |
|
|
|
3,240 |
|
|
|
7.99 |
|
|
|
63 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
52,681 |
|
|
|
6.03 |
|
|
|
794 |
|
|
|
47,009 |
|
|
|
6.09 |
|
|
|
716 |
|
Private collateralized mortgage obligations |
|
|
4,026 |
|
|
|
6.22 |
|
|
|
62 |
|
|
|
7,696 |
|
|
|
6.78 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
56,707 |
|
|
|
6.05 |
|
|
|
856 |
|
|
|
54,705 |
|
|
|
6.19 |
|
|
|
845 |
|
Other debt securities (4) |
|
|
5,822 |
|
|
|
7.67 |
|
|
|
114 |
|
|
|
6,865 |
|
|
|
6.80 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities available for sale (4) |
|
|
68,421 |
|
|
|
6.26 |
|
|
|
1,070 |
|
|
|
65,722 |
|
|
|
6.31 |
|
|
|
1,034 |
|
Mortgages held for sale (3) |
|
|
35,552 |
|
|
|
6.59 |
|
|
|
586 |
|
|
|
42,369 |
|
|
|
6.63 |
|
|
|
702 |
|
Loans held for sale (3) |
|
|
960 |
|
|
|
7.79 |
|
|
|
19 |
|
|
|
622 |
|
|
|
7.73 |
|
|
|
12 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
79,713 |
|
|
|
8.24 |
|
|
|
1,655 |
|
|
|
66,216 |
|
|
|
8.36 |
|
|
|
1,395 |
|
Other real estate mortgage |
|
|
32,641 |
|
|
|
7.42 |
|
|
|
610 |
|
|
|
29,851 |
|
|
|
7.47 |
|
|
|
562 |
|
Real estate construction |
|
|
16,914 |
|
|
|
7.94 |
|
|
|
338 |
|
|
|
15,073 |
|
|
|
8.13 |
|
|
|
309 |
|
Lease financing |
|
|
6,026 |
|
|
|
5.78 |
|
|
|
87 |
|
|
|
5,385 |
|
|
|
5.65 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
135,294 |
|
|
|
7.90 |
|
|
|
2,690 |
|
|
|
116,525 |
|
|
|
7.98 |
|
|
|
2,342 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
63,929 |
|
|
|
7.26 |
|
|
|
1,162 |
|
|
|
50,138 |
|
|
|
7.54 |
|
|
|
951 |
|
Real estate 1-4 family junior lien mortgage |
|
|
73,476 |
|
|
|
8.19 |
|
|
|
1,515 |
|
|
|
65,991 |
|
|
|
8.14 |
|
|
|
1,353 |
|
Credit card |
|
|
16,261 |
|
|
|
13.68 |
|
|
|
557 |
|
|
|
12,810 |
|
|
|
13.45 |
|
|
|
431 |
|
Other revolving credit and installment |
|
|
54,165 |
|
|
|
9.79 |
|
|
|
1,336 |
|
|
|
51,988 |
|
|
|
9.75 |
|
|
|
1,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
207,831 |
|
|
|
8.75 |
|
|
|
4,570 |
|
|
|
180,927 |
|
|
|
8.81 |
|
|
|
4,013 |
|
Foreign |
|
|
7,558 |
|
|
|
11.62 |
|
|
|
221 |
|
|
|
6,528 |
|
|
|
12.42 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (5) |
|
|
350,683 |
|
|
|
8.48 |
|
|
|
7,481 |
|
|
|
303,980 |
|
|
|
8.57 |
|
|
|
6,559 |
|
Other |
|
|
1,396 |
|
|
|
5.01 |
|
|
|
20 |
|
|
|
1,348 |
|
|
|
5.12 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
$ |
465,274 |
|
|
|
7.92 |
|
|
|
9,266 |
|
|
$ |
422,168 |
|
|
|
7.95 |
|
|
|
8,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
|
$ |
5,160 |
|
|
|
3.20 |
|
|
|
42 |
|
|
$ |
4,370 |
|
|
|
3.24 |
|
|
|
36 |
|
Market rate and other savings |
|
|
149,194 |
|
|
|
2.89 |
|
|
|
1,085 |
|
|
|
132,906 |
|
|
|
2.55 |
|
|
|
854 |
|
Savings certificates |
|
|
41,080 |
|
|
|
4.38 |
|
|
|
454 |
|
|
|
33,909 |
|
|
|
4.03 |
|
|
|
344 |
|
Other time deposits |
|
|
10,948 |
|
|
|
5.10 |
|
|
|
140 |
|
|
|
36,920 |
|
|
|
5.27 |
|
|
|
491 |
|
Deposits in foreign offices |
|
|
41,326 |
|
|
|
4.77 |
|
|
|
497 |
|
|
|
22,303 |
|
|
|
4.84 |
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
247,708 |
|
|
|
3.55 |
|
|
|
2,218 |
|
|
|
230,408 |
|
|
|
3.44 |
|
|
|
1,997 |
|
Short-term borrowings |
|
|
36,415 |
|
|
|
5.06 |
|
|
|
464 |
|
|
|
21,539 |
|
|
|
4.99 |
|
|
|
271 |
|
Long-term debt |
|
|
94,686 |
|
|
|
5.33 |
|
|
|
1,267 |
|
|
|
84,112 |
|
|
|
5.13 |
|
|
|
1,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
378,809 |
|
|
|
4.14 |
|
|
|
3,949 |
|
|
|
336,059 |
|
|
|
3.96 |
|
|
|
3,352 |
|
Portion of noninterest-bearing funding sources |
|
|
86,465 |
|
|
|
|
|
|
|
|
|
|
|
86,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding sources |
|
$ |
465,274 |
|
|
|
3.37 |
|
|
|
3,949 |
|
|
$ |
422,168 |
|
|
|
3.16 |
|
|
|
3,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin and net interest income on
a taxable-equivalent basis (6) |
|
|
|
|
|
|
4.55 |
% |
|
$ |
5,317 |
|
|
|
|
|
|
|
4.79 |
% |
|
$ |
5,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
11,579 |
|
|
|
|
|
|
|
|
|
|
$ |
12,159 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
12,008 |
|
|
|
|
|
|
|
|
|
|
|
11,156 |
|
|
|
|
|
|
|
|
|
Other |
|
|
52,672 |
|
|
|
|
|
|
|
|
|
|
|
49,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
$ |
76,259 |
|
|
|
|
|
|
|
|
|
|
$ |
72,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST-BEARING FUNDING SOURCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
88,991 |
|
|
|
|
|
|
|
|
|
|
$ |
89,245 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
26,351 |
|
|
|
|
|
|
|
|
|
|
|
25,839 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
47,382 |
|
|
|
|
|
|
|
|
|
|
|
43,536 |
|
|
|
|
|
|
|
|
|
Noninterest-bearing funding sources used to
fund earning assets |
|
|
(86,465 |
) |
|
|
|
|
|
|
|
|
|
|
(86,109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noninterest-bearing funding sources |
|
$ |
76,259 |
|
|
|
|
|
|
|
|
|
|
$ |
72,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
541,533 |
|
|
|
|
|
|
|
|
|
|
$ |
494,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our average prime rate was 8.18% and 8.25% for the quarters ended September 30, 2007 and
2006, respectively, and 8.23% and 7.86% for the nine months ended September 30, 2007 and
2006, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.44%
and 5.43% for the quarters ended September 30, 2007 and 2006, respectively, and 5.39% and
5.14% for the nine months ended September 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. |
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
, |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
Average |
|
|
Yields/ |
|
|
income/ |
|
|
Average |
|
|
Yields/ |
|
|
income/ |
|
|
|
balance |
|
|
rates |
|
|
expense |
|
|
balance |
|
|
rates |
|
|
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,972 |
|
|
|
5.09 |
% |
|
$ |
189 |
|
|
$ |
4,761 |
|
|
|
4.58 |
% |
|
$ |
163 |
|
|
|
|
4,306 |
|
|
|
4.70 |
|
|
|
151 |
|
|
|
5,298 |
|
|
|
4.91 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
821 |
|
|
|
4.29 |
|
|
|
27 |
|
|
|
905 |
|
|
|
4.38 |
|
|
|
30 |
|
|
|
|
4,318 |
|
|
|
7.36 |
|
|
|
232 |
|
|
|
3,120 |
|
|
|
8.11 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,656 |
|
|
|
6.08 |
|
|
|
1,794 |
|
|
|
38,366 |
|
|
|
5.99 |
|
|
|
1,723 |
|
|
|
|
3,945 |
|
|
|
6.32 |
|
|
|
185 |
|
|
|
7,149 |
|
|
|
6.65 |
|
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,601 |
|
|
|
6.10 |
|
|
|
1,979 |
|
|
|
45,515 |
|
|
|
6.10 |
|
|
|
2,075 |
|
|
|
|
5,564 |
|
|
|
7.57 |
|
|
|
316 |
|
|
|
6,136 |
|
|
|
7.06 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,304 |
|
|
|
6.32 |
|
|
|
2,554 |
|
|
|
55,676 |
|
|
|
6.28 |
|
|
|
2,612 |
|
|
|
|
34,664 |
|
|
|
6.52 |
|
|
|
1,694 |
|
|
|
44,533 |
|
|
|
6.34 |
|
|
|
2,119 |
|
|
|
|
873 |
|
|
|
7.78 |
|
|
|
51 |
|
|
|
619 |
|
|
|
7.33 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,934 |
|
|
|
8.28 |
|
|
|
4,641 |
|
|
|
64,816 |
|
|
|
8.07 |
|
|
|
3,914 |
|
|
|
|
31,663 |
|
|
|
7.44 |
|
|
|
1,762 |
|
|
|
29,162 |
|
|
|
7.26 |
|
|
|
1,585 |
|
|
|
|
16,404 |
|
|
|
7.97 |
|
|
|
978 |
|
|
|
14,485 |
|
|
|
7.89 |
|
|
|
854 |
|
|
|
|
5,698 |
|
|
|
5.82 |
|
|
|
249 |
|
|
|
5,416 |
|
|
|
5.74 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,699 |
|
|
|
7.92 |
|
|
|
7,630 |
|
|
|
113,879 |
|
|
|
7.73 |
|
|
|
6,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,920 |
|
|
|
7.31 |
|
|
|
3,228 |
|
|
|
59,758 |
|
|
|
7.20 |
|
|
|
3,221 |
|
|
|
|
70,998 |
|
|
|
8.19 |
|
|
|
4,348 |
|
|
|
62,923 |
|
|
|
7.91 |
|
|
|
3,723 |
|
|
|
|
15,262 |
|
|
|
13.89 |
|
|
|
1,590 |
|
|
|
12,178 |
|
|
|
13.29 |
|
|
|
1,213 |
|
|
|
|
53,725 |
|
|
|
9.77 |
|
|
|
3,926 |
|
|
|
50,152 |
|
|
|
9.57 |
|
|
|
3,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,905 |
|
|
|
8.79 |
|
|
|
13,092 |
|
|
|
185,011 |
|
|
|
8.49 |
|
|
|
11,749 |
|
|
|
|
7,197 |
|
|
|
11.72 |
|
|
|
631 |
|
|
|
6,251 |
|
|
|
12.53 |
|
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334,801 |
|
|
|
8.52 |
|
|
|
21,353 |
|
|
|
305,141 |
|
|
|
8.29 |
|
|
|
18,922 |
|
|
|
|
1,351 |
|
|
|
5.11 |
|
|
|
54 |
|
|
|
1,366 |
|
|
|
4.90 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
435,271 |
|
|
|
8.00 |
|
|
|
26,046 |
|
|
$ |
417,394 |
|
|
|
7.72 |
|
|
|
24,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,991 |
|
|
|
3.23 |
|
|
|
121 |
|
|
$ |
4,243 |
|
|
|
2.77 |
|
|
|
88 |
|
|
|
|
145,135 |
|
|
|
2.83 |
|
|
|
3,070 |
|
|
|
133,767 |
|
|
|
2.31 |
|
|
|
2,307 |
|
|
|
|
39,784 |
|
|
|
4.40 |
|
|
|
1,308 |
|
|
|
30,997 |
|
|
|
3.75 |
|
|
|
868 |
|
|
|
|
8,284 |
|
|
|
5.06 |
|
|
|
313 |
|
|
|
36,324 |
|
|
|
4.94 |
|
|
|
1,343 |
|
|
|
|
33,988 |
|
|
|
4.73 |
|
|
|
1,204 |
|
|
|
19,477 |
|
|
|
4.58 |
|
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,182 |
|
|
|
3.46 |
|
|
|
6,016 |
|
|
|
224,808 |
|
|
|
3.14 |
|
|
|
5,273 |
|
|
|
|
23,084 |
|
|
|
5.01 |
|
|
|
865 |
|
|
|
24,168 |
|
|
|
4.59 |
|
|
|
830 |
|
|
|
|
91,569 |
|
|
|
5.22 |
|
|
|
3,579 |
|
|
|
83,437 |
|
|
|
4.81 |
|
|
|
3,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,835 |
|
|
|
4.03 |
|
|
|
10,460 |
|
|
|
332,413 |
|
|
|
3.66 |
|
|
|
9,107 |
|
|
|
|
88,436 |
|
|
|
|
|
|
|
|
|
|
|
84,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
435,271 |
|
|
|
3.21 |
|
|
|
10,460 |
|
|
$ |
417,394 |
|
|
|
2.92 |
|
|
|
9,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.79 |
% |
|
$ |
15,586 |
|
|
|
|
|
|
|
4.80 |
% |
|
$ |
14,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,698 |
|
|
|
|
|
|
|
|
|
|
$ |
12,495 |
|
|
|
|
|
|
|
|
|
|
|
|
11,575 |
|
|
|
|
|
|
|
|
|
|
|
11,066 |
|
|
|
|
|
|
|
|
|
|
|
|
50,448 |
|
|
|
|
|
|
|
|
|
|
|
46,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73,721 |
|
|
|
|
|
|
|
|
|
|
$ |
69,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
89,673 |
|
|
|
|
|
|
|
|
|
|
$ |
88,395 |
|
|
|
|
|
|
|
|
|
|
|
|
25,664 |
|
|
|
|
|
|
|
|
|
|
|
24,007 |
|
|
|
|
|
|
|
|
|
|
|
|
46,820 |
|
|
|
|
|
|
|
|
|
|
|
42,367 |
|
|
|
|
|
|
|
|
|
|
|
|
(88,436 |
) |
|
|
|
|
|
|
|
|
|
|
(84,981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73,721 |
|
|
|
|
|
|
|
|
|
|
$ |
69,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
508,992 |
|
|
|
|
|
|
|
|
|
|
$ |
487,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
ended Sept. 30 |
, |
|
% |
|
|
ended Sept. 30, |
|
|
% |
|
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
Service charges on deposit accounts |
|
$ |
837 |
|
|
$ |
707 |
|
|
|
18 |
% |
|
$ |
2,262 |
|
|
$ |
1,995 |
|
|
|
13 |
% |
Trust and investment fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust, investment and IRA fees |
|
|
573 |
|
|
|
508 |
|
|
|
13 |
|
|
|
1,720 |
|
|
|
1,508 |
|
|
|
14 |
|
Commissions and all other fees |
|
|
204 |
|
|
|
156 |
|
|
|
31 |
|
|
|
627 |
|
|
|
494 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust and investment fees |
|
|
777 |
|
|
|
664 |
|
|
|
17 |
|
|
|
2,347 |
|
|
|
2,002 |
|
|
|
17 |
|
|
|
|
561 |
|
|
|
464 |
|
|
|
21 |
|
|
|
1,548 |
|
|
|
1,266 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash network fees |
|
|
51 |
|
|
|
48 |
|
|
|
6 |
|
|
|
146 |
|
|
|
140 |
|
|
|
4 |
|
Charges and fees on loans |
|
|
246 |
|
|
|
244 |
|
|
|
1 |
|
|
|
737 |
|
|
|
735 |
|
|
|
|
|
All other fees |
|
|
269 |
|
|
|
217 |
|
|
|
24 |
|
|
|
832 |
|
|
|
632 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other fees |
|
|
566 |
|
|
|
509 |
|
|
|
11 |
|
|
|
1,715 |
|
|
|
1,507 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing income, net |
|
|
797 |
|
|
|
188 |
|
|
|
324 |
|
|
|
968 |
|
|
|
579 |
|
|
|
67 |
|
Net gains (losses) on mortgage loan origination/
sales activities |
|
|
(61 |
) |
|
|
179 |
|
|
|
|
|
|
|
1,069 |
|
|
|
811 |
|
|
|
32 |
|
All other |
|
|
87 |
|
|
|
117 |
|
|
|
(26 |
) |
|
|
265 |
|
|
|
244 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking |
|
|
823 |
|
|
|
484 |
|
|
|
70 |
|
|
|
2,302 |
|
|
|
1,634 |
|
|
|
41 |
|
|
|
|
171 |
|
|
|
192 |
|
|
|
(11 |
) |
|
|
550 |
|
|
|
593 |
|
|
|
(7 |
) |
Insurance |
|
|
329 |
|
|
|
313 |
|
|
|
5 |
|
|
|
1,160 |
|
|
|
1,041 |
|
|
|
11 |
|
Net gains (losses) from trading activities |
|
|
(43 |
) |
|
|
106 |
|
|
|
|
|
|
|
482 |
|
|
|
331 |
|
|
|
46 |
|
Net gains (losses) on debt securities available for sale |
|
|
160 |
|
|
|
121 |
|
|
|
32 |
|
|
|
149 |
|
|
|
(70 |
) |
|
|
-- |
|
Net gains from equity investments |
|
|
173 |
|
|
|
159 |
|
|
|
9 |
|
|
|
512 |
|
|
|
482 |
|
|
|
6 |
|
All other |
|
|
219 |
|
|
|
168 |
|
|
|
30 |
|
|
|
672 |
|
|
|
596 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,573 |
|
|
$ |
3,887 |
|
|
|
18 |
|
|
$ |
13,699 |
|
|
$ |
11,377 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 30, 2007, these assets totaled $1.12 trillion, up 29% from $868 billion at September 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 third 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 September 30, 2007 and 2006, brokerage balances were $132 billion and $110
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. A significant portion of the increase in fees
in third quarter 2007 from a year ago was due to an increase in securities issuance and investment
banking activity.
12
Card fees increased 21% from third 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 20% from a year
ago and average balances were up 27%.
Other fees increased 11% from third quarter 2006, largely due to commercial real estate brokerage
fees.
Mortgage banking noninterest income increased to $823 million in third quarter 2007 from $484
million in the same period of 2006 with the growth and value of the mortgage servicing business
more than offsetting a decline of 12% in mortgage originations from a year ago. Servicing fees,
included in net servicing income, increased to $970 million in third quarter 2007 from $947 million
in third quarter 2006, due to growth in loans serviced for others. Our portfolio of loans serviced
for others was $1.38 trillion at September 30, 2007, up 12% from $1.24 trillion at September 30,
2006. Servicing income also includes both changes in the fair value of MSRs during the period as
well as changes in the value of derivatives (economic hedges) used to hedge the MSRs. Net servicing
income for third quarter 2007 included a $562 million net MSRs valuation gain that was recorded to
earnings ($638 million fair value loss and a $1,200 million economic hedging gain) and for third
quarter 2006 included a $86 million net MSRs valuation loss ($1,147 million fair value loss and a
$1,061 million economic hedging gain). The favorable performance of the economic hedge relative to
the decline in value of the MSRs in third quarter 2007 was primarily due to wider agency versus
non-agency mortgage spreads, wider mortgage-backed securities versus treasury/LIBOR-based spreads,
and the market estimate of prepayment speeds due to slower housing turnover.
Net losses on mortgage loan origination/sales activities were $61 million in third quarter 2007,
compared with net gains of $179 million in third quarter 2006. Current period gains were reduced by
$490 million, reflecting a $378 million write-down of the mortgage warehouse/ pipeline due to the
illiquidity in the non-agency mortgage secondary market, and $112 million predominantly for a
write-down of mortgage loans held or repurchased during the quarter, as well as an increase in the
repurchase reserve for projected early payment defaults. Residential real estate originations
totaled $68 billion in third quarter 2007 compared with $77 billion in third quarter 2006. Under
FAS 159 we elected in first quarter 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 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 and Market 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 $45 billion at September 30, 2007, $48 billion at December 31, 2006, and $55
billion at September 30, 2006.
Income from trading activities was a loss of $43 million and gain of $482 million in the third
quarter and first nine months of 2007, respectively, compared with gains of $106 million and $331
million in the same periods of 2006. Net gains (losses) on debt securities available for sale were
$160 million and $149 million in the third quarter and first nine months of 2007, compared with
$121 million and $(70) million in the same periods of 2006. Third quarter 2007 included a net gain
of $13 million on the sale of mortgage-backed securities, consisting of the $160 million realized
gain on debt securities, offset by a $147 million realized loss on the related forward
13
sales
contracts, included in trading activities. Net gains from equity investments were $173 million and $512 million in the third quarter and first nine months of 2007, respectively, and $159
million and $482 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 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.
On October 3, 2007, Visa Inc. (Visa) announced that it had completed restructuring transactions in
preparation for its initial public offering planned for 2008. We have an ownership interest in the
restructured Visa and, subject to definitive SEC accounting guidance, may be required to recognize
expense and income related to the restructuring transactions, the planned initial public offering,
and our obligations under related loss and judgment sharing agreements with Visa in connection with
certain litigation. The SEC guidance will determine the amount and timing of any expense or income
recognition.
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
ended Sept. 30 |
, |
|
% |
|
|
ended Sept. 30 |
, |
|
% |
|
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
$ |
1,933 |
|
|
$ |
1,769 |
|
|
|
9 |
% |
|
$ |
5,707 |
|
|
$ |
5,195 |
|
|
|
10 |
% |
Incentive compensation |
|
|
802 |
|
|
|
710 |
|
|
|
13 |
|
|
|
2,444 |
|
|
|
2,092 |
|
|
|
17 |
|
Employee benefits |
|
|
518 |
|
|
|
458 |
|
|
|
13 |
|
|
|
1,764 |
|
|
|
1,534 |
|
|
|
15 |
|
Equipment |
|
|
295 |
|
|
|
294 |
|
|
|
|
|
|
|
924 |
|
|
|
913 |
|
|
|
1 |
|
Net occupancy |
|
|
398 |
|
|
|
357 |
|
|
|
11 |
|
|
|
1,132 |
|
|
|
1,038 |
|
|
|
9 |
|
Operating leases |
|
|
136 |
|
|
|
155 |
|
|
|
(12 |
) |
|
|
437 |
|
|
|
473 |
|
|
|
(8 |
) |
Outside professional services |
|
|
222 |
|
|
|
240 |
|
|
|
(8 |
) |
|
|
649 |
|
|
|
669 |
|
|
|
(3 |
) |
Contract services |
|
|
103 |
|
|
|
143 |
|
|
|
(28 |
) |
|
|
334 |
|
|
|
414 |
|
|
|
(19 |
) |
Travel and entertainment |
|
|
113 |
|
|
|
132 |
|
|
|
(14 |
) |
|
|
340 |
|
|
|
401 |
|
|
|
(15 |
) |
Advertising and promotion |
|
|
108 |
|
|
|
123 |
|
|
|
(12 |
) |
|
|
312 |
|
|
|
354 |
|
|
|
(12 |
) |
Outside data processing |
|
|
123 |
|
|
|
111 |
|
|
|
11 |
|
|
|
355 |
|
|
|
324 |
|
|
|
10 |
|
Postage |
|
|
88 |
|
|
|
75 |
|
|
|
17 |
|
|
|
260 |
|
|
|
235 |
|
|
|
11 |
|
Telecommunications |
|
|
79 |
|
|
|
70 |
|
|
|
13 |
|
|
|
241 |
|
|
|
213 |
|
|
|
13 |
|
Insurance |
|
|
81 |
|
|
|
43 |
|
|
|
88 |
|
|
|
357 |
|
|
|
218 |
|
|
|
64 |
|
Stationery and supplies |
|
|
54 |
|
|
|
57 |
|
|
|
(5 |
) |
|
|
159 |
|
|
|
163 |
|
|
|
(2 |
) |
Operating losses |
|
|
55 |
|
|
|
33 |
|
|
|
67 |
|
|
|
199 |
|
|
|
140 |
|
|
|
42 |
|
Security |
|
|
42 |
|
|
|
43 |
|
|
|
(2 |
) |
|
|
129 |
|
|
|
130 |
|
|
|
(1 |
) |
Core deposit intangibles |
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
81 |
|
|
|
85 |
|
|
|
(5 |
) |
All other |
|
|
323 |
|
|
|
240 |
|
|
|
35 |
|
|
|
930 |
|
|
|
740 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,501 |
|
|
$ |
5,081 |
|
|
|
8 |
|
|
$ |
16,754 |
|
|
$ |
15,331 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense for third quarter 2007 increased 8% from the prior year, mostly due to
higher personnel costs, reflecting a 2% increase in team members (full-time equivalents, largely
sales and service professionals), normal merit increases, and higher sales commissions in the
wealth management and real estate brokerage businesses, both of which had strong revenue growth
from a year ago. Third quarter expenses included $26 million for merger and integration
14
costs, and
severance and other costs in the residential real estate businesses. In the last 12 months, we opened 132 banking stores, including 20 stores and conversions of 39 Placer Sierra
Bancshares stores this quarter, and added 2,400 full-time equivalent (FTE) team members. Expenses
also included stock option expense of $24 million and $107 million in the third quarter and first
nine months of 2007, respectively, and $28 million and $108 million in the same periods of 2006. In
addition, expenses included $109 million and $321 million in the third quarter and first nine
months 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.
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 34.01% for third quarter 2007, up from 32.28%
for third quarter 2006. For the first nine months of 2007, our effective tax rate was 32.64%, down
from 33.45% for the first nine months 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 8% to $1.61 billion in third quarter 2007 from $1.49
billion in third quarter 2006, due to strong fee revenue growth in retail banking and mortgage, as
well as positive operating leverage. Net income increased 15% to $4.71 billion in the first nine
months of 2007 from $4.08 billion in the first nine months of 2006. Revenue was $6.48 billion in
third quarter 2007, up 12% from $5.78 billion in third quarter 2006. Average loans were $197.4
billion in third quarter 2007, up 14% from a year ago. Core deposits averaged $250.6 billion in
third quarter 2007, up 8% over the prior year. Noninterest income in third quarter 2007 increased
$618 million, or 25%, from $2.49 billion in third quarter 2006, largely due to higher revenue
related to brokerage, deposit service charges, cards, investments and mortgage banking. Noninterest
income for the first nine months of 2007 increased $1.96 billion from the same period of 2006.
Noninterest expense increased $227 million and $662 million in the third quarter and first nine
months of 2007, respectively, from the same periods in 2006, due to growth in personnel expense.
The provision for credit losses increased $210 million, predominantly due to higher losses in the
home equity and unsecured consumer credit portfolios.
15
Wholesale Bankings net income increased 6% to $543 million in third quarter 2007 from $510 million
in third quarter 2006. Net income increased 11% to $1.69 billion in the first nine months of 2007
from $1.53 billion in the first nine months of 2006. Revenue was $2.00 billion in third quarter
2007, up 12% from $1.78 billion in third quarter 2006, driven by strong loan and deposit growth and
higher fee income. Net interest income increased 14% to $854 million in third quarter 2007 from
$751 million in third quarter 2006. Average loans increased 21% from third quarter 2006, with
double-digit increases across nearly all wholesale lending businesses. The increase in average
loans included the impact of the acquisition of CIT Construction ($2.6 billion). Average core
deposits were $55.5 billion, up 52% from a year ago, all in interest-bearing balances, reflecting a
combination of organic growth from new and existing customers and conversions, completed in 2006,
of customer sweep accounts from off-balance sheet money market funds into Wells Fargo deposits.
Noninterest income for third quarter 2007 increased by $116 million from $1.03 billion the same
period in 2006, due to higher commercial real estate brokerage fees, trust and investment income
(reflecting a 14% increase in assets under management), foreign exchange and insurance revenue,
partially offset by a lower level of capital markets activity, which included the $20 million
write-down on commercial loans held for sale. Noninterest income was $3.75 billion for the first
nine months of 2007 and $3.21 billion for the same period of 2006. Noninterest expense increased
16% to $1.15 billion in third quarter 2007 from $999 million in third quarter 2006, mainly due to
higher personnel-related costs, including additional team members and higher incentive expenses,
and expenses associated with higher sales volumes and acquisitions completed in the latter part of
2006. Noninterest expense was $3.56 billion in the first nine months of 2007 and $3.01 billion in
the same period of 2006.
Wells Fargo Financials net income decreased 29% to $135 million in third quarter 2007 from $191
million in third quarter 2006. Third quarter 2006 results included a $50 million reversal of the
allowance for credit losses that had been previously established for Hurricane Katrina in third
quarter 2005. For the first nine months of 2007, net income was $403 million, compared with $694
million for the same period a year ago. Third quarter 2007 revenue of $1.4 billion was virtually
flat compared with third quarter 2006. Net interest income increased $55 million, or 5%, to $1.06
billion in third quarter 2007 from $1.00 billion in third quarter 2006, due to growth in average
loans. Average real estate secured receivables increased 24% to $26.1 billion and average auto
finance receivables rose 5% to $27.8 billion from third quarter 2006. Noninterest expense increased
6% to $728 million in third quarter 2007 from $690 million in third quarter 2006, primarily due to
the additional collection capacity added in 2006 in auto, along with higher collection and
repossession costs and mortgage insurance premiums. Noninterest expense was $2.27 billion in the
first nine months of 2007 and $2.06 billion in the same period of 2006. The provision for credit
losses was $427 million for third quarter 2007 up from $377 million for third quarter 2006, which
included the $50 million reversal of the allowance for Hurricane Katrina. Net credit losses for
third quarter 2007 were flat compared with a year ago, with the $45 million increase in net losses
for the credit card portfolio offset by a $32 million reduction in credit losses in the auto
portfolio and declines in other consumer portfolios.
16
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 consists of very liquid, high-quality
federal agency and municipal debt securities. At September 30, 2007, we held $54.9 billion of debt
securities available for sale, compared with $41.8 billion at December 31, 2006, with net
unrealized gains of $459 million and $722 million for the same periods, respectively. We also held
$2.49 billion of marketable equity securities available for sale at September 30, 2007, and $796
million at December 31, 2006, with net unrealized gains of $122 million and $204 million for the
same periods, respectively. The increase in marketable equity securities was primarily due to our
adoption of Topic D-109 effective July 1, 2007, which resulted in the transfer of approximately
$1.2 billion of securities, consisting of investments in preferred stock callable by the issuer,
from trading assets to securities available for sale.
The weighted-average expected maturity of debt securities available for sale was 7.2 years at
September 30, 2007. Since 76% 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 |
|
|
|
|
$ |
42.0 |
|
|
$ |
0.4 |
|
|
4.5 yrs. |
At September 30, 2007, assuming a 200 basis point: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in interest rates |
|
|
38.5 |
|
|
|
(3.1 |
) |
|
7.5 yrs. |
Decrease in interest rates |
|
|
43.2 |
|
|
|
1.6 |
|
|
1.2 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 8 and a comparative schedule of average loan balances is included in the table on page 10;
quarter-end balances are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements.
Total loans at September 30, 2007, were $362.9 billion, up $55.4 billion, or 18%, from $307.5
billion at September 30, 2006. Consumer loans increased $32.4 billion to $215.8 billion at
September 30, 2007, from $183.4 billion a year ago. Commercial and commercial real estate loans
increased $21.7 billion to $139.2 billion at September 30, 2007, from $117.6 billion a year ago.
Mortgages held for sale decreased to $29.7 billion at September 30, 2007, from $39.9 billion a year
ago.
17
DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
$ |
82,365 |
|
|
$ |
89,119 |
|
|
$ |
86,849 |
|
Interest-bearing checking |
|
|
4,376 |
|
|
|
3,540 |
|
|
|
3,279 |
|
Market rate and other savings |
|
|
153,116 |
|
|
|
140,283 |
|
|
|
135,837 |
|
Savings certificates |
|
|
41,863 |
|
|
|
37,282 |
|
|
|
34,828 |
|
Foreign deposits (1) |
|
|
22,133 |
|
|
|
17,844 |
|
|
|
10,025 |
|
|
|
|
|
|
|
|
|
|
|
Core deposits |
|
|
303,853 |
|
|
|
288,068 |
|
|
|
270,818 |
|
Other time deposits |
|
|
2,448 |
|
|
|
13,819 |
|
|
|
32,185 |
|
Other foreign deposits |
|
|
28,655 |
|
|
|
8,356 |
|
|
|
11,316 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
334,956 |
|
|
$ |
310,243 |
|
|
$ |
314,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 13%, to $306.1 billion in third quarter 2007
from third 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 Eurodollar sweep balances of $9,888 million, $8,888 million and $3,343 million for the
quarters ended September 30, 2007, December 31, 2006, and September 30, 2006, respectively. Average
core deposits increased 11% from third 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.
18
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
399 |
|
|
$ |
331 |
|
|
$ |
256 |
|
Other real estate mortgage |
|
|
133 |
|
|
|
105 |
|
|
|
116 |
|
Real estate construction |
|
|
188 |
|
|
|
78 |
|
|
|
90 |
|
Lease financing |
|
|
38 |
|
|
|
29 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
758 |
|
|
|
543 |
|
|
|
489 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage (1) |
|
|
886 |
|
|
|
688 |
|
|
|
595 |
|
Real estate 1-4 family junior lien mortgage |
|
|
238 |
|
|
|
212 |
|
|
|
200 |
|
Other revolving credit and installment |
|
|
160 |
|
|
|
180 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
1,284 |
|
|
|
1,080 |
|
|
|
962 |
|
Foreign |
|
|
46 |
|
|
|
43 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans (2) |
|
|
2,088 |
|
|
|
1,666 |
|
|
|
1,489 |
|
As a percentage of total loans |
|
|
0.58 |
% |
|
|
0.52 |
% |
|
|
0.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA loans (3) |
|
|
487 |
|
|
|
322 |
|
|
|
266 |
|
Other |
|
|
603 |
|
|
|
423 |
|
|
|
342 |
|
Real estate and other nonaccrual investments (4) |
|
|
5 |
|
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans and other assets |
|
$ |
3,183 |
|
|
$ |
2,416 |
|
|
$ |
2,100 |
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans |
|
|
0.88 |
% |
|
|
0.76 |
% |
|
|
0.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes nonaccrual mortgages held for sale. |
(2) |
|
Includes impaired loans of $394 million, $230 million and $192 million at September 30,
2007, December 31, 2006, and September 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. |
A significant portion of the $1.1 billion increase in nonperforming assets from a year ago was
in the residential real estate portfolios, with the balance from the auto and the commercial and
commercial real estate portfolios. Commercial nonperforming assets increased $269 million in third
quarter 2007 from a year ago. A significant portion of the commercial increase occurred this
quarter, as one large, residential real estate developer was moved to nonperforming status.
19
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.
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 $5,526 million, $5,073 million
and $3,664 million at September 30, 2007, December 31, 2006, and September 30, 2006, respectively.
The total included $4,263 million, $3,913 million and $2,689 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. The table
below reflects loans 90 days or more past due and still accruing excluding the insured/guaranteed
GNMA advances.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
(EXCLUDING INSURED/GUARANTEED GNMA ADVANCES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
14 |
|
|
$ |
15 |
|
|
$ |
20 |
|
Other real estate mortgage |
|
|
22 |
|
|
|
3 |
|
|
|
8 |
|
Real estate construction |
|
|
10 |
|
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
46 |
|
|
|
21 |
|
|
|
32 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage (1) |
|
|
225 |
|
|
|
154 |
|
|
|
123 |
|
Real estate 1-4 family junior lien mortgage |
|
|
127 |
|
|
|
63 |
|
|
|
50 |
|
Credit card |
|
|
303 |
|
|
|
262 |
|
|
|
213 |
|
Other revolving credit and installment |
|
|
520 |
|
|
|
616 |
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
1,175 |
|
|
|
1,095 |
|
|
|
902 |
|
Foreign |
|
|
42 |
|
|
|
44 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,263 |
|
|
$ |
1,160 |
|
|
$ |
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
20
Net credit losses and loss rates in the home equity portfolio increased over the prior quarter
and prior year. Third quarter 2007 net credit losses in real estate 1-4 family junior liens were
$153 million (0.83% of average loans, annualized), a $62 million increase from $91 million (0.51%)
for second quarter 2007 and a $126 million increase from $27 million (0.17%) for third quarter
2006. The majority of the home equity portfolio segments, those sourced through our retail stores
or through cross-sell from Wells Fargo Home Mortgage, performed satisfactorily during the quarter.
Due to the continued soft national real estate market conditions we reduced maximum allowable
combined loan-to-value advance rates for all sales channels during third quarter 2007. In addition,
a segment of the portfolio, correspondent home equity loans purchased from third party originators,
has demonstrated an unacceptable level of credit losses. The loans generated by our correspondent
channel represented about 7% of the home equity portfolio at quarter end, but generated about 25%
of the losses in the quarter. As this adverse trend emerged, we tightened credit standards earlier
in 2007 and completely eliminated this channel during the third quarter. Given current real estate
market conditions, credit losses in the home equity portfolio are likely to increase in fourth
quarter 2007 and remain at elevated levels into 2008. Our real estate 1-4 family first mortgage
portfolio continued to perform well, with net credit losses of $16 million (0.11% of average loans,
annualized) for third quarter 2007, down from $19 million (0.13%) for second quarter 2007 and $22
million (0.18%) for third quarter 2006.
Because of our responsible lending and risk management practices, we have not faced many of the
issues others have in the mortgage industry. We do not originate any negative amortizing mortgages,
including option adjustable-rate mortgages (ARMs). We have minimal ARM reset risk across our
owned loan portfolios. While our disciplined underwriting standards have resulted in first mortgage delinquencies below
industry levels, we continued to tighten our underwriting standards in third quarter 2007. Wells
Fargo Home Mortgage closed its nonprime wholesale channel early in third quarter, after closing its
nonprime correspondent channel in second quarter 2007. Rates were increased for non-conforming
mortgage loans during third quarter reflecting the reduced liquidity in the capital markets. In
addition, even though we did not hold any nonprime no-documentation mortgages or nonprime
low-documentation mortgages at September 30, 2007, in fourth quarter 2007, we began to portfolio
small amounts of these mortgages in response to the reduced liquidity in the capital markets.
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. Wells Fargo Financial does not use brokers or correspondents in its business. 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.
Higher credit losses in non-real estate consumer loans (credit card and other revolving credit and
installment) were primarily due to typical second half seasonal increases in the indirect auto
portfolio, with net auto losses for third quarter 2007 up $57 million from prior quarter. Year over
year, net auto losses for third quarter 2007 were down $32 million. Net losses in all other
21
consumer portfolios, including credit cards, increased only $32 million during the third quarter
primarily due to slightly higher levels of bankruptcies and delinquency rates.
Credit performance in the commercial and commercial real estate portfolio remained strong, with
credit losses of $125 million (0.37% of average loans, annualized) compared with $107 million
(0.33%) in second quarter 2007 and $73 million (0.25%) in third quarter 2006. As is typical each
quarter, the vast majority of these charge-offs came from the small business loan portfolio (loans
under $100,000), which continued to perform as expected. Because of our Wholesale Banking business
model, focused primarily on middle-market customers and regional commercial real estate, we do not
actively participate in certain higher-risk activities. Wholesale
Banking did not create any structured investment vehicles (SIVs) to
hold off-balance sheet assets and has negligible exposure to SIVs,
hedge funds, collateralized debt obligations (CDDs) and asset-backed commercial paper. Leveraged-buyout-related
outstandings are diversified by business and borrower and total less than 2% of total Wells Fargo
loans. Our residential real estate development portfolio of less than $6 billion, or 2% of total
loans, continued to perform in a satisfactory manner.
We consider the allowance for credit losses of $4.02 billion adequate to cover credit losses
inherent in the loan portfolio, including unfunded credit commitments, at September 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,
severe decrease in collateral values, significant acceleration of losses or significant change in
payment behavior, 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.
22
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 September 30, 2007, our most recent simulation indicated estimated earnings at
risk of approximately 6% of our most likely earnings plan over the next 12 months under a scenario
in which the federal funds rate rises 225 basis points to 7.00% and the Constant Maturity Treasury
bond yield rises 220 basis points to 6.70% 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
September 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:
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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; |
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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 |
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to hedge our mortgage origination pipeline, funded mortgage loans and MSRs using
interest rate swaps, swaptions, futures, forwards and options. |
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Mortgage Banking Interest Rate and Market Risk
We originate, fund and service mortgage loans, which subjects us to various risks, including
credit, liquidity and interest rate risks. 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. We may also acquire and add to our securities available-for-sale portfolio a portion of
the securities issued at the time we securitize mortgages held for sale.
Third quarter 2007 was a challenging quarter for the financial services industry with the downturn
in the national housing market, deterioration in the capital markets, widening credit spreads and
increases in market volatility, in addition to changes in interest rates discussed in the following
sections. Notwithstanding the sharp downturn in the housing sector, the widening of nonconforming
credit spreads and the lack of liquidity in the nonconforming secondary markets, our mortgage
banking revenue grew, reflecting the complementary origination and servicing strengths of the
business. The secondary market for agency-conforming mortgages functioned well for most of the
quarter. However, with secondary market spreads widening, gain-on-sale margins declined. The
mortgage warehouse and pipeline, which predominantly consists of prime mortgage loans, was written
down by $378 million in third quarter 2007 to reflect the unusual widening in spreads between
nonconforming and conforming agency market spreads. Many of these assets were then securitized and
a large portion retained as securities in our available-for-sale portfolio at attractive yields.
None of the newly added securities are collateralized by subprime mortgage loans. In addition to
the write-down associated with the mortgage warehouse and pipeline, we further reduced mortgage
origination gains by $112 million predominantly to reflect a write-down of mortgage loans held or
repurchased during the quarter, as well as an increase to the repurchase reserve for projected
early payment defaults.
The widening of mortgage spreads, due to illiquidity and market estimates of prepayments, that
drove a decrease in the mortgage warehouse, positively impacted the MSRs valuation. While servicing
income was reduced by $638 million, due to the impact of a more than 30 basis point decline in
30-year mortgage rates on the value of our MSRs during the quarter, the free-standing derivatives
used as economic hedges of our MSRs increased by $1.2 billion. During the quarter, we also
positioned our free-standing derivatives used as economic hedges to hold proportionately more
non-mortgage-backed securities instruments, such as Treasury futures and options, swaps and options
on swaps, which benefited our net results. We also sold $27 billion of our lowest-yielding
mortgage-backed securities, which were largely used as on-balance sheet hedges of our MSRs, to
provide further capacity to acquire higher yielding assets, and added $17 billion of securities and
loans later in the quarter.
Interest rate and market risk can be substantial in the mortgage business. 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) 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.
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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) helps 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 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 and periodically benchmark our estimates to independent
appraisals. 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 generally 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 third quarter 2007, the gains on free-standing derivatives used to hedge the
MSRs exceeded the decrease in the fair value of MSRs by $562 million, primarily due to wider agency
versus non-agency mortgage spreads, wider mortgage-backed securities versus treasury/LIBOR-based
spreads, and the market estimate of prepayment speeds due to slower housing turnover.
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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:
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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. |
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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. |
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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. |
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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. |
The total carrying value of our residential and commercial MSRs was $18.7 billion at September 30,
2007, and $18.0 billion at December 31, 2006. The weighted-average note rate on the owned servicing
portfolio was 5.98% at September 30, 2007, and 5.92% at December 31, 2006. Our total MSRs were
1.35% of mortgage loans serviced for others at September 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
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and
options, Eurodollar futures, and Treasury futures, forwards and options contracts as economic
hedges against the potential decreases in the values of the loans. 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. However, changes in investor
demand, such as concerns about credit risk, can also cause changes in the spread relationships
between underlying loan value and the derivative financial instruments that cannot be hedged.
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 September 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 that are considered
trading positions. The average one-day VAR throughout third quarter 2007 was $35 million, with a
lower bound of $10 million and an upper bound of $93 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 $1.98 billion at September 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
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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 $2.49 billion and cost was $2.37 billion at September 30, 2007, and $796 million and
$592 million, respectively, at December 31, 2006. The increase in marketable equity securities was
primarily due to our adoption of Topic D-109 effective July 1, 2007, which resulted in the transfer
of approximately $1.2 billion of securities, consisting of investments in preferred stock callable
by the issuer, from trading assets to securities available for sale.
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.
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). In third
quarter 2007, net interest income was reduced by approximately $15 million due to temporarily
elevated short-term LIBOR-based funding costs at the peak of the dislocation in the capital markets
in August 2007.
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
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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. 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 nine
months of 2007, the Parent issued a total of $15.4 billion of registered senior notes, including
$1.5 billion (denominated in pounds sterling) sold primarily in the United Kingdom. In October
2007, the Parent issued an additional $3.0 billion of registered senior notes. 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 nine months
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 nine months 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 $50
billion in outstanding short-term debt and $50 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
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 nine months of 2007, Wells Fargo Bank, N.A. issued
$16.8 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 nine months of 2007. During the first nine months of 2007, WFFCC
issued CAD$1.4 billion in senior notes. At September 30, 2007, the remaining issuance capacity for
WFFCC was CAD$4.0 billion.
29
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 March 2007, the Board authorized the repurchase of up to 75 million additional shares of our
outstanding common stock, and in August 2007, the repurchase of up to 50 million additional shares.
During the first nine months of 2007, we repurchased approximately 137 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 September 30, 2007, the total remaining common
stock repurchase authority was approximately 49 million shares. (For additional information
regarding third quarter 2007 share repurchases and repurchase authorizations, see Part II Item 2 of
this Report.)
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. On October 1, 2007, we completed the
acquisition of Greater Bay Bancorp with the issuance of approximately 40 million shares of our
common stock.
Our potential sources of capital include retained earnings and issuances of common and preferred
stock. In the first nine months of 2007, retained earnings increased $3.5 billion, predominantly
resulting from net income of $6.8 billion, less dividends of $2.9 billion. In the first nine months
of 2007, we issued $1.9 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.
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At September 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.
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:
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the amount recorded as a cumulative effect of change in accounting principle upon
adoption of FSP 13-2 will be recognized back into income over the remaining terms of the
affected leases; |
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we expect that the adoption of EITF 06-4 and EITF 06-10 will reduce beginning retained
earnings for 2008 by approximately $20 million (after tax); |
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loans and securities purchased in third quarter 2007 will benefit net interest margin
in fourth quarter 2007; |
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we may be required to recognize expense and income, the amount and timing of which will be determined by definitive SEC accounting guidance, related to the Visa restructuring transactions, Visas initial public offering, and our obligations under related loss and judgement sharing agreements with Visa in connection with certain litigation; |
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we expect FIN 48 will cause more volatility in our effective tax rate from quarter to
quarter; |
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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; |
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credit losses in our home equity portfolio are likely to increase in fourth quarter
2007 and remain at elevated levels into 2008; |
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the recent guidance issued by federal financial regulatory agencies for nonprime
mortgage lending will not have a significant impact on Wells Fargo Financials operations; |
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our auto loan portfolio typically experiences higher credit losses in the second half
of the year; |
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we believe the provision for credit losses for consumer loans, absent a significant
credit event, severe decrease in collateral values, significant acceleration of losses or
significant change in payment behavior, will closely follow the level of related net
charge-offs; |
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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; |
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we expect changes in the fair value of derivative financial instruments used as
economic hedges of derivative loan commitments will fully or partially offset changes in
the fair value of such commitments to the extent changes in value are due to interest rate
changes; |
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we expect to use the proceeds of securities issued in the future for general corporate
purposes; |
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we do not expect to make a contribution to the Cash Balance Plan in 2007; |
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we expect to recover our affordable housing investments over time through realization
of federal low-income housing tax credits; |
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we do not expect the amount of any additional consideration that may be payable in
connection with previous acquisitions to be material; and |
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we expect $34 million of net deferred gains on derivatives in other comprehensive
income at September 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:
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lower or negative revenue growth because of our inability to sell more products to our
existing customers; |
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decreased demand for our products and services because of an economic slowdown; |
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reduced fee income from our brokerage and asset management businesses because of a fall
in stock market prices; |
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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; |
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reduced liquidity and value of certain asset classes, such as mortgage loans, due to
volatility and risk aversion in the secondary markets; |
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reduced earnings due to higher credit losses generally and specifically because: |
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losses in our consumer auto loan portfolio remain at or above historic levels
notwithstanding our collections and underwriting efforts; and/or |
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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; |
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reduced earnings because of changes in the value of our venture capital investments; |
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changes in our accounting policies or in accounting standards; |
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reduced earnings from not realizing the expected benefits of acquisitions or from
unexpected difficulties integrating acquisitions; |
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federal and state regulations, including those relating to nonprime and student lending
activities; |
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reputational damage from negative publicity; |
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fines, penalties and other negative consequences from regulatory violations, even
inadvertent or unintentional violations; |
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the loss of checking and saving account deposits to alternative investments such as the
stock market and higher-yielding fixed income investments; |
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the inability to obtain private mortgage insurance on our loans at reasonable or economical rates; and |
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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
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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.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by SEC rules, the Companys management evaluated the effectiveness, as of September 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 September 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
third quarter 2007 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
33
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended Sept. 30 |
, |
|
Nine months ended Sept. 30 |
, |
(in millions, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
$ |
37 |
|
|
$ |
45 |
|
|
$ |
137 |
|
|
$ |
179 |
|
Securities available for sale |
|
|
1,032 |
|
|
|
1,014 |
|
|
|
2,470 |
|
|
|
2,552 |
|
Mortgages held for sale |
|
|
586 |
|
|
|
702 |
|
|
|
1,694 |
|
|
|
2,119 |
|
Loans held for sale |
|
|
19 |
|
|
|
12 |
|
|
|
51 |
|
|
|
34 |
|
Loans |
|
|
7,477 |
|
|
|
6,555 |
|
|
|
21,341 |
|
|
|
18,910 |
|
Other interest income |
|
|
72 |
|
|
|
71 |
|
|
|
242 |
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
9,223 |
|
|
|
8,399 |
|
|
|
25,935 |
|
|
|
24,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
2,218 |
|
|
|
1,997 |
|
|
|
6,016 |
|
|
|
5,273 |
|
Short-term borrowings |
|
|
464 |
|
|
|
271 |
|
|
|
865 |
|
|
|
830 |
|
Long-term debt |
|
|
1,261 |
|
|
|
1,084 |
|
|
|
3,568 |
|
|
|
3,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,943 |
|
|
|
3,352 |
|
|
|
10,449 |
|
|
|
9,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,280 |
|
|
|
5,047 |
|
|
|
15,486 |
|
|
|
14,901 |
|
Provision for credit losses |
|
|
892 |
|
|
|
613 |
|
|
|
2,327 |
|
|
|
1,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
4,388 |
|
|
|
4,434 |
|
|
|
13,159 |
|
|
|
13,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
837 |
|
|
|
707 |
|
|
|
2,262 |
|
|
|
1,995 |
|
Trust and investment fees |
|
|
777 |
|
|
|
664 |
|
|
|
2,347 |
|
|
|
2,002 |
|
Card fees |
|
|
561 |
|
|
|
464 |
|
|
|
1,548 |
|
|
|
1,266 |
|
Other fees |
|
|
566 |
|
|
|
509 |
|
|
|
1,715 |
|
|
|
1,507 |
|
Mortgage banking |
|
|
823 |
|
|
|
484 |
|
|
|
2,302 |
|
|
|
1,634 |
|
Operating leases |
|
|
171 |
|
|
|
192 |
|
|
|
550 |
|
|
|
593 |
|
Insurance |
|
|
329 |
|
|
|
313 |
|
|
|
1,160 |
|
|
|
1,041 |
|
Net gains (losses) on debt securities available for sale |
|
|
160 |
|
|
|
121 |
|
|
|
149 |
|
|
|
(70 |
) |
Net gains from equity investments |
|
|
173 |
|
|
|
159 |
|
|
|
512 |
|
|
|
482 |
|
Other |
|
|
176 |
|
|
|
274 |
|
|
|
1,154 |
|
|
|
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
4,573 |
|
|
|
3,887 |
|
|
|
13,699 |
|
|
|
11,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
1,933 |
|
|
|
1,769 |
|
|
|
5,707 |
|
|
|
5,195 |
|
Incentive compensation |
|
|
802 |
|
|
|
710 |
|
|
|
2,444 |
|
|
|
2,092 |
|
Employee benefits |
|
|
518 |
|
|
|
458 |
|
|
|
1,764 |
|
|
|
1,534 |
|
Equipment |
|
|
295 |
|
|
|
294 |
|
|
|
924 |
|
|
|
913 |
|
Net occupancy |
|
|
398 |
|
|
|
357 |
|
|
|
1,132 |
|
|
|
1,038 |
|
Operating leases |
|
|
136 |
|
|
|
155 |
|
|
|
437 |
|
|
|
473 |
|
Other |
|
|
1,419 |
|
|
|
1,338 |
|
|
|
4,346 |
|
|
|
4,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
5,501 |
|
|
|
5,081 |
|
|
|
16,754 |
|
|
|
15,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
|
|
3,460 |
|
|
|
3,240 |
|
|
|
10,104 |
|
|
|
9,469 |
|
Income tax expense |
|
|
1,177 |
|
|
|
1,046 |
|
|
|
3,298 |
|
|
|
3,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,283 |
|
|
$ |
2,194 |
|
|
$ |
6,806 |
|
|
$ |
6,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
$ |
0.69 |
|
|
$ |
0.65 |
|
|
$ |
2.03 |
|
|
$ |
1.87 |
|
DILUTED EARNINGS PER COMMON SHARE |
|
$ |
0.68 |
|
|
$ |
0.64 |
|
|
$ |
2.01 |
|
|
$ |
1.85 |
|
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.31 |
|
|
$ |
|
|
|
$ |
0.87 |
|
|
$ |
0.80 |
|
Average common shares outstanding |
|
|
3,339.6 |
|
|
|
3,371.9 |
|
|
|
3,355.5 |
|
|
|
3,364.6 |
|
Diluted average common shares outstanding |
|
|
3,374.0 |
|
|
|
3,416.0 |
|
|
|
3,392.9 |
|
|
|
3,405.5 |
|
|
|
The accompanying notes are an integral part of these statements.
34
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
, |
|
December 31 |
, |
|
September 30 |
, |
(in millions, except shares) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
12,200 |
|
|
$ |
15,028 |
|
|
$ |
12,591 |
|
Federal funds sold, securities purchased under
resale agreements and other short-term investments |
|
|
4,546 |
|
|
|
6,078 |
|
|
|
4,079 |
|
Trading assets |
|
|
7,298 |
|
|
|
5,607 |
|
|
|
5,300 |
|
Securities available for sale |
|
|
57,440 |
|
|
|
42,629 |
|
|
|
52,635 |
|
Mortgages held for sale (includes $26,714 carried
at fair value at September 30, 2007) |
|
|
29,699 |
|
|
|
33,097 |
|
|
|
39,913 |
|
Loans held for sale |
|
|
1,011 |
|
|
|
721 |
|
|
|
617 |
|
|
|
|
362,922 |
|
|
|
319,116 |
|
|
|
307,491 |
|
Allowance for loan losses |
|
|
(3,829 |
) |
|
|
(3,764 |
) |
|
|
(3,799 |
) |
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
359,093 |
|
|
|
315,352 |
|
|
|
303,692 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value (residential MSRs) |
|
|
18,223 |
|
|
|
17,591 |
|
|
|
17,712 |
|
Amortized |
|
|
460 |
|
|
|
377 |
|
|
|
328 |
|
Premises and equipment, net |
|
|
5,002 |
|
|
|
4,698 |
|
|
|
4,645 |
|
Goodwill |
|
|
12,018 |
|
|
|
11,275 |
|
|
|
11,192 |
|
Other assets |
|
|
41,737 |
|
|
|
29,543 |
|
|
|
30,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
548,727 |
|
|
$ |
481,996 |
|
|
$ |
483,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
$ |
82,365 |
|
|
$ |
89,119 |
|
|
$ |
86,849 |
|
Interest-bearing deposits |
|
|
252,591 |
|
|
|
221,124 |
|
|
|
227,470 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
334,956 |
|
|
|
310,243 |
|
|
|
314,319 |
|
Short-term borrowings |
|
|
41,729 |
|
|
|
12,829 |
|
|
|
13,800 |
|
Accrued expenses and other liabilities |
|
|
28,712 |
|
|
|
25,903 |
|
|
|
26,369 |
|
Long-term debt |
|
|
95,592 |
|
|
|
87,145 |
|
|
|
84,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,989 |
|
|
|
436,120 |
|
|
|
438,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
545 |
|
|
|
384 |
|
|
|
465 |
|
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 |
|
|
8,089 |
|
|
|
7,739 |
|
|
|
7,667 |
|
Retained earnings |
|
|
38,817 |
|
|
|
35,277 |
|
|
|
34,080 |
|
Cumulative other comprehensive income |
|
|
291 |
|
|
|
302 |
|
|
|
633 |
|
Treasury stock 147,535,970 shares, 95,612,189 shares
and 100,057,636 shares |
|
|
(5,209 |
) |
|
|
(3,203 |
) |
|
|
(3,273 |
) |
Unearned ESOP shares |
|
|
(583 |
) |
|
|
(411 |
) |
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
47,738 |
|
|
|
45,876 |
|
|
|
44,862 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
548,727 |
|
|
$ |
481,996 |
|
|
$ |
483,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
35
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 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,301 |
|
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 $87 million of net gains
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Net unrealized losses on derivatives and
hedging activities, net of reclassification of
$71 million of net gains on cash flow
hedges included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,269 |
|
Common stock issued |
|
|
56,859,649 |
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
|
|
(207 |
) |
|
|
|
|
|
|
1,674 |
|
|
|
|
|
|
|
1,419 |
|
Common stock repurchased |
|
|
(47,488,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,566 |
) |
|
|
|
|
|
|
(1,566 |
) |
Preferred stock (414,000) issued to ESOP |
|
|
|
|
|
|
414 |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443 |
) |
|
|
|
|
Preferred stock released to ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293 |
|
|
|
274 |
|
Preferred stock (274,457) converted to common
shares |
|
|
8,167,309 |
|
|
|
(274 |
) |
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
243 |
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,695 |
) |
Tax benefit upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
Net change in deferred compensation and
related plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
16 |
|
Reclassification of share-based plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
(211 |
) |
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
17,538,350 |
|
|
|
140 |
|
|
|
|
|
|
|
627 |
|
|
|
3,399 |
|
|
|
(32 |
) |
|
|
117 |
|
|
|
(150 |
) |
|
|
4,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2006 |
|
|
3,372,704,414 |
|
|
$ |
465 |
|
|
$ |
5,788 |
|
|
$ |
7,667 |
|
|
$ |
34,080 |
|
|
$ |
633 |
|
|
$ |
(3,273 |
) |
|
$ |
(498 |
) |
|
$ |
44,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 FSP13-2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,806 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
Net unrealized losses on securities available
for sale and other interests held, net of
reclassification of $133 million of net gains
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
(226 |
) |
Net unrealized gains on derivatives and
hedging activities, net of reclassification of
$61 million of net gains on cash flow
hedges included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
174 |
|
Defined benefit pension plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss and
prior service cost included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,795 |
|
Common stock issued |
|
|
58,568,656 |
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
(276 |
) |
|
|
|
|
|
|
1,906 |
|
|
|
|
|
|
|
1,531 |
|
Common stock issued for acquisitions |
|
|
17,705,418 |
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
649 |
|
Common stock repurchased |
|
|
(137,404,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,765 |
) |
|
|
|
|
|
|
(4,765 |
) |
Preferred stock (484,000) issued to ESOP |
|
|
|
|
|
|
484 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(518 |
) |
|
|
|
|
Preferred stock released to ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346 |
|
|
|
323 |
|
Preferred stock (323,069) converted to common
shares |
|
|
9,206,535 |
|
|
|
(323 |
) |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,919 |
) |
Tax benefit upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
Net change in deferred compensation and
related plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
(51,923,781 |
) |
|
|
161 |
|
|
|
|
|
|
|
350 |
|
|
|
3,611 |
|
|
|
(11 |
) |
|
|
(2,006 |
) |
|
|
(172 |
) |
|
|
1,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2007 |
|
|
3,325,226,080 |
|
|
$ |
545 |
|
|
$ |
5,788 |
|
|
$ |
8,089 |
|
|
$ |
38,817 |
|
|
$ |
291 |
|
|
$ |
(5,209 |
) |
|
$ |
(583 |
) |
|
$ |
47,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
36
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,806 |
|
|
$ |
6,301 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
2,327 |
|
|
|
1,478 |
|
Changes in fair value of MSRs (residential) and MHFS carried at fair value |
|
|
474 |
|
|
|
1,736 |
|
Depreciation and amortization |
|
|
1,141 |
|
|
|
2,250 |
|
Other net gains |
|
|
(1,337 |
) |
|
|
(1,128 |
) |
Preferred shares released to ESOP |
|
|
323 |
|
|
|
274 |
|
Stock option compensation expense |
|
|
107 |
|
|
|
108 |
|
Excess tax benefits related to stock option payments |
|
|
(185 |
) |
|
|
(179 |
) |
Originations of MHFS |
|
|
(176,135 |
) |
|
|
(180,739 |
) |
Proceeds from sales of and principal collected on mortgages originated for sale |
|
|
175,746 |
|
|
|
179,039 |
|
Net change in: |
|
|
|
|
|
|
|
|
Trading assets |
|
|
(2,959 |
) |
|
|
5,582 |
|
Loans originated for sale |
|
|
(285 |
) |
|
|
(5 |
) |
Deferred income taxes |
|
|
632 |
|
|
|
877 |
|
Accrued interest receivable |
|
|
(446 |
) |
|
|
(265 |
) |
Accrued interest payable |
|
|
(59 |
) |
|
|
358 |
|
Other assets, net |
|
|
(5,516 |
) |
|
|
2,949 |
|
Other accrued expenses and liabilities, net |
|
|
3,059 |
|
|
|
3,136 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,693 |
|
|
|
21,772 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Federal funds sold, securities purchased under resale agreements
and other short-term investments |
|
|
1,539 |
|
|
|
1,282 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
37,297 |
|
|
|
43,896 |
|
Prepayments and maturities |
|
|
6,868 |
|
|
|
5,757 |
|
Purchases |
|
|
(54,192 |
) |
|
|
(61,347 |
) |
Loans: |
|
|
|
|
|
|
|
|
Increase in banking subsidiaries loan originations, net of collections |
|
|
(34,020 |
) |
|
|
(26,503 |
) |
Proceeds from sales (including participations) of loans by banking subsidiaries |
|
|
2,611 |
|
|
|
35,637 |
|
Purchases (including participations) of loans by banking subsidiaries |
|
|
(7,543 |
) |
|
|
(4,136 |
) |
Principal collected on nonbank entities loans |
|
|
16,461 |
|
|
|
18,130 |
|
Loans originated by nonbank entities |
|
|
(19,190 |
) |
|
|
(19,956 |
) |
Net cash paid for acquisitions |
|
|
(2,862 |
) |
|
|
(526 |
) |
Proceeds from sales of foreclosed assets |
|
|
1,014 |
|
|
|
376 |
|
Other changes in MSRs |
|
|
(1,717 |
) |
|
|
(5,127 |
) |
Other, net |
|
|
(5,662 |
) |
|
|
(3,287 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(59,396 |
) |
|
|
(15,804 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits |
|
|
22,954 |
|
|
|
(376 |
) |
Short-term borrowings |
|
|
28,760 |
|
|
|
(10,139 |
) |
Long-term debt: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
22,569 |
|
|
|
14,987 |
|
Repayment |
|
|
(14,846 |
) |
|
|
(10,632 |
) |
Common stock: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
1,531 |
|
|
|
1,419 |
|
Repurchased |
|
|
(4,765 |
) |
|
|
(1,566 |
) |
Cash dividends paid |
|
|
(2,919 |
) |
|
|
(2,695 |
) |
Excess tax benefits related to stock option payments |
|
|
185 |
|
|
|
179 |
|
Other, net |
|
|
(594 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
52,875 |
|
|
|
(8,774 |
) |
|
|
|
|
|
|
|
Net change in cash and due from banks |
|
|
(2,828 |
) |
|
|
(2,806 |
) |
Cash and due from banks at beginning of period |
|
|
15,028 |
|
|
|
15,397 |
|
|
|
|
|
|
|
|
Cash and due from banks at end of period |
|
$ |
12,200 |
|
|
$ |
12,591 |
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
10,508 |
|
|
$ |
8,749 |
|
Income taxes |
|
|
2,613 |
|
|
|
1,423 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Transfers from trading assets to securities available for sale |
|
$ |
1,268 |
|
|
$ |
|
|
Transfers from loans to MHFS |
|
|
|
|
|
|
32,381 |
|
Transfers from MHFS to loans |
|
|
1,522 |
|
|
|
|
|
Transfers from loans to foreclosed assets |
|
|
1,978 |
|
|
|
1,243 |
|
|
|
The accompanying notes are an integral part of these statements.
37
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
38
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.
On July 1, 2007, we adopted Emerging Issues Task Force (EITF) Topic D-109, Determining the Nature
of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a Share under
FASB Statement No. 133 (Topic D-109), which provides clarifying guidance as to whether certain
hybrid financial instruments are more akin to debt or equity, for purposes of evaluating whether
the embedded derivative financial instrument requires separate accounting under FAS 133. In
accordance with the transition provisions of Topic D-109, we transferred $1.2 billion of
securities, consisting of investments in preferred stock callable by the issuer, from trading
assets to securities available for sale. Because the securities were carried at fair value, the
adoption of Topic D-109 did not have any effect on our total stockholders equity.
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 residential MHFS originations. (See Note 16.) These loans are initially
recorded and 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 are subject to U.S. federal income tax as well as income tax in numerous state and foreign
jurisdictions.
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
39
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.
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 nine months 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 |
|
Other (1) |
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of the acquisition of an insurance brokerage business. |
Effective October 1, 2007, we acquired Greater Bay Bancorp, a bank holding company with $7.4
billion in assets based in East Palo Alto, California, with the issuance of approximately 40
million shares of our common stock.
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
Federal funds sold and securities purchased under
resale agreements |
|
$ |
3,436 |
|
|
$ |
5,024 |
|
|
$ |
2,768 |
|
Interest-earning deposits |
|
|
499 |
|
|
|
413 |
|
|
|
629 |
|
Other short-term investments |
|
|
611 |
|
|
|
641 |
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,546 |
|
|
$ |
6,078 |
|
|
$ |
4,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
40
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, 2007 |
|
|
Dec. 31, 2006 |
|
|
Sept. 30, 2006 |
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
(in millions) |
|
Cost |
|
|
value |
|
|
Cost |
|
|
value |
|
|
Cost |
|
|
value |
|
|
|
Securities of U.S. Treasury and
federal agencies |
|
$ |
859 |
|
|
$ |
860 |
|
|
$ |
774 |
|
|
$ |
768 |
|
|
$ |
892 |
|
|
$ |
886 |
|
Securities of U.S. states and
political subdivisions |
|
|
5,698 |
|
|
|
5,786 |
|
|
|
3,387 |
|
|
|
3,530 |
|
|
|
3,241 |
|
|
|
3,388 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
29,470 |
|
|
|
29,902 |
|
|
|
26,981 |
|
|
|
27,463 |
|
|
|
35,549 |
|
|
|
36,045 |
|
Private collateralized mortgage obligations (1) |
|
|
12,083 |
|
|
|
12,086 |
|
|
|
3,989 |
|
|
|
4,046 |
|
|
|
4,842 |
|
|
|
4,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
41,553 |
|
|
|
41,988 |
|
|
|
30,970 |
|
|
|
31,509 |
|
|
|
40,391 |
|
|
|
40,957 |
|
Other |
|
|
6,377 |
|
|
|
6,312 |
|
|
|
5,980 |
|
|
|
6,026 |
|
|
|
6,549 |
|
|
|
6,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
54,487 |
|
|
|
54,946 |
|
|
|
41,111 |
|
|
|
41,833 |
|
|
|
51,073 |
|
|
|
51,806 |
|
Marketable equity securities |
|
|
2,372 |
|
|
|
2,494 |
|
|
|
592 |
|
|
|
796 |
|
|
|
597 |
|
|
|
829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
56,859 |
|
|
$ |
57,440 |
|
|
$ |
41,703 |
|
|
$ |
42,629 |
|
|
$ |
51,670 |
|
|
$ |
52,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 on securities
available for sale. The net unrealized gains on securities available for sale are reported on an
after-tax basis as a component of cumulative other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
$ |
857 |
|
|
$ |
987 |
|
|
$ |
1,050 |
|
Gross unrealized losses |
|
|
(276 |
) |
|
|
(61 |
) |
|
|
(85 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gains |
|
$ |
581 |
|
|
$ |
926 |
|
|
$ |
965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the net realized gains on the sales of securities from the
securities available-for-sale portfolio, including marketable equity securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Nine months |
|
|
|
ended Sept. 30 |
, |
|
ended Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
$ |
212 |
|
|
$ |
143 |
|
|
$ |
292 |
|
|
$ |
390 |
|
Gross realized losses (1) |
|
|
(23 |
) |
|
|
(15 |
) |
|
|
(77 |
) |
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains |
|
$ |
189 |
|
|
$ |
128 |
|
|
$ |
215 |
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes other-than-temporary impairment of $3 million and $7 million for the third quarter
and first nine months of 2007, respectively, and $4 million and $17 million for the third
quarter and first nine months of 2006, respectively. |
41
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 $3,562 million, $3,113 million and $3,050 million, at September 30, 2007, December 31,
2006, and September 30, 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
82,598 |
|
|
$ |
70,404 |
|
|
$ |
66,797 |
|
Other real estate mortgage |
|
|
33,227 |
|
|
|
30,112 |
|
|
|
29,914 |
|
Real estate construction |
|
|
17,301 |
|
|
|
15,935 |
|
|
|
15,397 |
|
Lease financing |
|
|
6,089 |
|
|
|
5,614 |
|
|
|
5,443 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
139,215 |
|
|
|
122,065 |
|
|
|
117,551 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
66,877 |
|
|
|
53,228 |
|
|
|
49,765 |
|
Real estate 1-4 family junior lien mortgage |
|
|
74,632 |
|
|
|
68,926 |
|
|
|
67,185 |
|
Credit card |
|
|
17,129 |
|
|
|
14,697 |
|
|
|
13,343 |
|
Other revolving credit and installment |
|
|
57,180 |
|
|
|
53,534 |
|
|
|
53,080 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
215,818 |
|
|
|
190,385 |
|
|
|
183,373 |
|
Foreign |
|
|
7,889 |
|
|
|
6,666 |
|
|
|
6,567 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
362,922 |
|
|
$ |
319,116 |
|
|
$ |
307,491 |
|
|
|
|
|
|
|
|
|
|
|
|
The recorded investment in impaired loans and the methodology used to measure impairment was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Impairment measurement based on: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateral value method |
|
$ |
267 |
|
|
$ |
122 |
|
|
$ |
121 |
|
Discounted cash flow method |
|
|
127 |
|
|
|
108 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
|
$ |
394 |
|
|
$ |
230 |
|
|
$ |
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $221 million, $146 million and $61 million of impaired loans with a related
allowance of $24 million, $29 million and $8 million at September 30, 2007, December 31, 2006,
and September 30, 2006, respectively. |
The average recorded investment in impaired loans was $308 million and $168 million for third
quarter 2007 and 2006, respectively, and $273 million and $159 million for the first nine months of
2007 and 2006, respectively.
42
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 |
|
|
Nine months |
|
|
|
ended Sept. 30 |
, |
|
ended Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
Balance, beginning of period |
|
$ |
4,007 |
|
|
$ |
4,035 |
|
|
$ |
3,964 |
|
|
$ |
4,057 |
|
Provision for credit losses |
|
|
892 |
|
|
|
613 |
|
|
|
2,327 |
|
|
|
1,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(155 |
) |
|
|
(103 |
) |
|
|
(408 |
) |
|
|
(275 |
) |
Other real estate mortgage |
|
|
|
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
Real estate construction |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(5 |
) |
|
|
(1 |
) |
Lease financing |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(24 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
(166 |
) |
|
|
(111 |
) |
|
|
(439 |
) |
|
|
(301 |
) |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
(22 |
) |
|
|
(30 |
) |
|
|
(71 |
) |
|
|
(81 |
) |
Real estate 1-4 family junior lien mortgage |
|
|
(167 |
) |
|
|
(36 |
) |
|
|
(357 |
) |
|
|
(98 |
) |
Credit card |
|
|
(205 |
) |
|
|
(133 |
) |
|
|
(579 |
) |
|
|
(351 |
) |
Other revolving credit and installment |
|
|
(473 |
) |
|
|
(501 |
) |
|
|
(1,381 |
) |
|
|
(1,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
(867 |
) |
|
|
(700 |
) |
|
|
(2,388 |
) |
|
|
(1,702 |
) |
Foreign |
|
|
(69 |
) |
|
|
(74 |
) |
|
|
(195 |
) |
|
|
(222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan charge-offs |
|
|
(1,102 |
) |
|
|
(885 |
) |
|
|
(3,022 |
) |
|
|
(2,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
35 |
|
|
|
26 |
|
|
|
84 |
|
|
|
84 |
|
Other real estate mortgage |
|
|
2 |
|
|
|
8 |
|
|
|
7 |
|
|
|
14 |
|
Real estate construction |
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Lease financing |
|
|
3 |
|
|
|
4 |
|
|
|
12 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
41 |
|
|
|
38 |
|
|
|
105 |
|
|
|
116 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
6 |
|
|
|
8 |
|
|
|
18 |
|
|
|
20 |
|
Real estate 1-4 family junior lien mortgage |
|
|
14 |
|
|
|
9 |
|
|
|
39 |
|
|
|
27 |
|
Credit card |
|
|
29 |
|
|
|
23 |
|
|
|
90 |
|
|
|
72 |
|
Other revolving credit and installment |
|
|
105 |
|
|
|
124 |
|
|
|
393 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
154 |
|
|
|
164 |
|
|
|
540 |
|
|
|
520 |
|
Foreign |
|
|
15 |
|
|
|
20 |
|
|
|
50 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan recoveries |
|
|
210 |
|
|
|
222 |
|
|
|
695 |
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
|
(892 |
) |
|
|
(663 |
) |
|
|
(2,327 |
) |
|
|
(1,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances related to business combinations/other |
|
|
11 |
|
|
|
(7 |
) |
|
|
54 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,018 |
|
|
$ |
3,978 |
|
|
$ |
4,018 |
|
|
$ |
3,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,829 |
|
|
$ |
3,799 |
|
|
$ |
3,829 |
|
|
$ |
3,799 |
|
Reserve for unfunded credit commitments |
|
|
189 |
|
|
|
179 |
|
|
|
189 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
4,018 |
|
|
$ |
3,978 |
|
|
$ |
4,018 |
|
|
$ |
3,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs (annualized) as a
percentage of average total loans |
|
|
1.01 |
% |
|
|
0.86 |
% |
|
|
0.93 |
% |
|
|
0.67 |
% |
Allowance for loan losses as a
percentage of total loans |
|
|
1.06 |
% |
|
|
1.24 |
% |
|
|
1.06 |
% |
|
|
1.24 |
% |
Allowance for credit losses as a
percentage of total loans |
|
|
1.11 |
|
|
|
1.29 |
|
|
|
1.11 |
|
|
|
1.29 |
|
|
|
43
6. OTHER ASSETS
The components of other assets were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
|
Nonmarketable equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments |
|
$ |
1,982 |
|
|
$ |
1,671 |
|
|
$ |
1,654 |
|
Federal bank stock |
|
|
1,637 |
|
|
|
1,326 |
|
|
|
1,338 |
|
All other |
|
|
2,672 |
|
|
|
2,240 |
|
|
|
2,084 |
|
|
|
|
|
|
|
|
|
|
|
Total nonmarketable equity investments (1) |
|
|
6,291 |
|
|
|
5,237 |
|
|
|
5,076 |
|
|
|
|
2,526 |
|
|
|
3,091 |
|
|
|
3,120 |
|
Accounts receivable |
|
|
16,750 |
|
|
|
7,522 |
|
|
|
7,048 |
|
Interest receivable |
|
|
3,016 |
|
|
|
2,570 |
|
|
|
2,544 |
|
Core deposit intangibles |
|
|
362 |
|
|
|
383 |
|
|
|
410 |
|
Foreclosed assets: |
|
|
|
|
|
|
|
|
|
|
|
|
GNMA loans (2) |
|
|
487 |
|
|
|
322 |
|
|
|
266 |
|
Other |
|
|
603 |
|
|
|
423 |
|
|
|
342 |
|
Due from customers on acceptances |
|
|
83 |
|
|
|
103 |
|
|
|
140 |
|
Other |
|
|
11,619 |
|
|
|
9,892 |
|
|
|
11,791 |
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
41,737 |
|
|
$ |
29,543 |
|
|
$ |
30,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At September 30, 2007, December 31, 2006, and September 30, 2006, $5.4 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 |
|
|
Nine months |
|
|
|
ended Sept. 30 |
, |
|
ended Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
Net gains from private equity investments |
|
$ |
144 |
|
|
$ |
152 |
|
|
$ |
446 |
|
|
$ |
295 |
|
Net gains (losses) from all other nonmarketable
equity investments |
|
|
(7 |
) |
|
|
8 |
|
|
|
(24 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains from nonmarketable equity investments |
|
$ |
137 |
|
|
$ |
160 |
|
|
$ |
422 |
|
|
$ |
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
7. INTANGIBLE ASSETS
The gross carrying amount of intangible assets and accumulated amortization was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
, |
|
|
2007 |
|
|
2006 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
(in millions) |
|
carrying amount |
|
|
amortization |
|
|
carrying amount |
|
|
amortization |
|
|
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs (commercial) (1) |
|
$ |
592 |
|
|
$ |
132 |
|
|
$ |
396 |
|
|
$ |
68 |
|
Core deposit intangibles |
|
|
2,434 |
|
|
|
2,072 |
|
|
|
2,374 |
|
|
|
1,964 |
|
Credit card and other intangibles |
|
|
656 |
|
|
|
410 |
|
|
|
576 |
|
|
|
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
3,682 |
|
|
$ |
2,614 |
|
|
$ |
3,346 |
|
|
$ |
2,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,223 |
|
|
|
|
|
|
$ |
17,712 |
|
|
|
|
|
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
September 30, 2007, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core |
|
|
|
|
|
|
|
|
|
deposit |
|
|
|
|
|
|
|
(in millions) |
|
intangibles |
|
|
Other |
(1) |
|
Total |
|
|
|
Nine months ended September 30, 2007 (actual) |
|
$ |
81 |
|
|
$ |
79 |
|
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
Estimate for year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
108 |
|
|
$ |
112 |
|
|
$ |
220 |
|
2008 |
|
|
104 |
|
|
|
115 |
|
|
|
219 |
|
2009 |
|
|
95 |
|
|
|
102 |
|
|
|
197 |
|
2010 |
|
|
84 |
|
|
|
92 |
|
|
|
176 |
|
2011 |
|
|
25 |
|
|
|
81 |
|
|
|
106 |
|
2012 |
|
|
7 |
|
|
|
71 |
|
|
|
78 |
|
|
|
|
|
|
(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
September 30, 2007. Future amortization expense may vary based on additional core deposit or other
intangibles acquired through business combinations.
45
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 |
|
|
|
373 |
|
|
|
|
|
|
|
403 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Realignment of businesses
(primarily insurance) |
|
|
(19 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
$ |
7,385 |
|
|
$ |
3,439 |
|
|
$ |
368 |
|
|
$ |
11,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,385 |
|
|
$ |
3,524 |
|
|
$ |
366 |
|
|
$ |
11,275 |
|
Goodwill from business combinations |
|
|
473 |
|
|
|
262 |
|
|
|
|
|
|
|
735 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
$ |
7,858 |
|
|
$ |
3,786 |
|
|
$ |
374 |
|
|
$ |
12,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
1,489 |
|
|
$ |
368 |
|
|
$ |
5,797 |
|
|
$ |
11,192 |
|
|
|
|
4,011 |
|
|
|
1,836 |
|
|
|
374 |
|
|
|
5,797 |
|
|
|
12,018 |
|
|
|
46
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 |
|
|
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
|
Sept. 30 |
, |
|
Dec. 31 |
, |
|
Sept. 30 |
, |
|
dividends rate |
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Minimum |
|
|
Maximum |
|
ESOP Preferred Stock (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,016 |
|
|
|
|
|
|
|
|
|
|
$ |
181 |
|
|
$ |
|
|
|
$ |
|
|
|
|
10.75 |
% |
|
|
11.75 |
% |
|
|
|
104,966 |
|
|
|
115,521 |
|
|
|
162,493 |
|
|
|
105 |
|
|
|
116 |
|
|
|
162 |
|
|
|
10.75 |
|
|
|
11.75 |
|
|
|
|
81,134 |
|
|
|
84,284 |
|
|
|
89,984 |
|
|
|
81 |
|
|
|
84 |
|
|
|
90 |
|
|
|
9.75 |
|
|
|
10.75 |
|
|
|
|
62,960 |
|
|
|
65,180 |
|
|
|
71,280 |
|
|
|
63 |
|
|
|
65 |
|
|
|
71 |
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
43,143 |
|
|
|
44,843 |
|
|
|
49,843 |
|
|
|
43 |
|
|
|
45 |
|
|
|
50 |
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
31,679 |
|
|
|
32,874 |
|
|
|
37,774 |
|
|
|
32 |
|
|
|
33 |
|
|
|
38 |
|
|
|
10.50 |
|
|
|
11.50 |
|
|
|
|
21,593 |
|
|
|
22,303 |
|
|
|
27,003 |
|
|
|
21 |
|
|
|
22 |
|
|
|
27 |
|
|
|
10.50 |
|
|
|
11.50 |
|
|
|
|
13,744 |
|
|
|
14,142 |
|
|
|
18,542 |
|
|
|
14 |
|
|
|
14 |
|
|
|
19 |
|
|
|
11.50 |
|
|
|
12.50 |
|
|
|
|
3,961 |
|
|
|
4,094 |
|
|
|
6,094 |
|
|
|
4 |
|
|
|
4 |
|
|
|
6 |
|
|
|
10.30 |
|
|
|
11.30 |
|
|
|
|
539 |
|
|
|
563 |
|
|
|
1,863 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
10.75 |
|
|
|
11.75 |
|
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.50 |
|
|
|
10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP Preferred Stock |
|
|
544,735 |
|
|
|
383,804 |
|
|
|
465,006 |
|
|
$ |
545 |
|
|
$ |
384 |
|
|
$ |
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(583 |
) |
|
$ |
(411 |
) |
|
$ |
(498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Liquidation preference $1,000. At September 30, 2007, December 31, 2006, and September 30,
2006, additional paid-in capital included $38 million, $27 million and $33 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. |
47
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 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits |
|
|
|
|
|
|
Pension benefits |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Other |
|
|
|
|
|
|
Non- |
|
|
Other |
|
(in millions) |
|
Qualified |
|
|
qualified |
|
|
benefits |
|
|
Qualified |
|
|
qualified |
|
|
benefits |
|
|
Quarter ended September 30, |
|
2007
|
|
2006
|
|
|
|
|
|
|
|
$ |
71 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
62 |
|
|
$ |
4 |
|
|
$ |
4 |
|
Interest cost |
|
|
60 |
|
|
|
4 |
|
|
|
10 |
|
|
|
56 |
|
|
|
4 |
|
|
|
10 |
|
Expected return on plan assets |
|
|
(112 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
(8 |
) |
Amortization of net actuarial loss (1) |
|
|
8 |
|
|
|
4 |
|
|
|
1 |
|
|
|
14 |
|
|
|
2 |
|
|
|
1 |
|
Amortization of prior service cost |
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
27 |
|
|
$ |
11 |
|
|
$ |
5 |
|
|
$ |
27 |
|
|
$ |
10 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
211 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
$ |
186 |
|
|
$ |
12 |
|
|
$ |
12 |
|
Interest cost |
|
|
182 |
|
|
|
12 |
|
|
|
30 |
|
|
|
168 |
|
|
|
12 |
|
|
|
30 |
|
Expected return on plan assets |
|
|
(337 |
) |
|
|
|
|
|
|
(27 |
) |
|
|
(315 |
) |
|
|
|
|
|
|
(24 |
) |
Amortization of net actuarial loss (1) |
|
|
24 |
|
|
|
10 |
|
|
|
4 |
|
|
|
42 |
|
|
|
6 |
|
|
|
4 |
|
Amortization of prior service cost |
|
|
|
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
80 |
|
|
$ |
32 |
|
|
$ |
16 |
|
|
$ |
83 |
|
|
$ |
30 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net actuarial loss is generally amortized over five years. |
48
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. We are subject
to U.S. federal income tax as well as income tax in numerous 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. In first quarter 2007 income tax expense was reduced by $119 million
primarily due to the resolution of certain outstanding federal income tax matters for periods prior
to 2002. Income tax expense was increased in second and third quarter 2007 by $4 million and $10
million, respectively, due to various discrete events.
49
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 |
|
|
Nine months |
|
|
|
ended September 30 |
, |
|
ended September 30 |
, |
(in millions, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
$ |
2,283 |
|
|
$ |
2,194 |
|
|
$ |
6,806 |
|
|
$ |
6,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding (denominator) |
|
|
3,339.6 |
|
|
|
3,371.9 |
|
|
|
3,355.5 |
|
|
|
3,364.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.69 |
|
|
$ |
0.65 |
|
|
$ |
2.03 |
|
|
$ |
1.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
3,339.6 |
|
|
|
3,371.9 |
|
|
|
3,355.5 |
|
|
|
3,364.6 |
|
Add: Stock options |
|
|
34.3 |
|
|
|
44.0 |
|
|
|
37.3 |
|
|
|
40.8 |
|
Restricted share rights |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares outstanding (denominator) |
|
|
3,374.0 |
|
|
|
3,416.0 |
|
|
|
3,392.9 |
|
|
|
3,405.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.68 |
|
|
$ |
0.64 |
|
|
$ |
2.01 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007 and 2006, options to purchase 8.9 million and 4.4 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.
50
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 merchant payment 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
51
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.
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(income/expense in millions, |
|
Community |
|
|
Wholesale |
|
|
Wells Fargo |
|
|
Consolidated |
|
average balances in billions) |
|
Banking |
|
|
Banking |
|
|
Financial |
|
|
Company |
|
|
Quarter ended September 30, |
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
|
|
$ |
3,367 |
|
|
$ |
3,292 |
|
|
$ |
854 |
|
|
$ |
751 |
|
|
$ |
1,059 |
|
|
$ |
1,004 |
|
|
$ |
5,280 |
|
|
$ |
5,047 |
|
Provision for credit losses |
|
|
446 |
|
|
|
236 |
|
|
|
19 |
|
|
|
|
|
|
|
427 |
|
|
|
377 |
|
|
|
892 |
|
|
|
613 |
|
Noninterest income |
|
|
3,110 |
|
|
|
2,492 |
|
|
|
1,149 |
|
|
|
1,033 |
|
|
|
314 |
|
|
|
362 |
|
|
|
4,573 |
|
|
|
3,887 |
|
Noninterest expense |
|
|
3,619 |
|
|
|
3,392 |
|
|
|
1,154 |
|
|
|
999 |
|
|
|
728 |
|
|
|
690 |
|
|
|
5,501 |
|
|
|
5,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
2,412 |
|
|
|
2,156 |
|
|
|
830 |
|
|
|
785 |
|
|
|
218 |
|
|
|
299 |
|
|
|
3,460 |
|
|
|
3,240 |
|
Income tax expense |
|
|
807 |
|
|
|
663 |
|
|
|
287 |
|
|
|
275 |
|
|
|
83 |
|
|
|
108 |
|
|
|
1,177 |
|
|
|
1,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,605 |
|
|
$ |
1,493 |
|
|
$ |
543 |
|
|
$ |
510 |
|
|
$ |
135 |
|
|
$ |
191 |
|
|
$ |
2,283 |
|
|
$ |
2,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
197.4 |
|
|
$ |
172.5 |
|
|
$ |
87.5 |
|
|
$ |
72.3 |
|
|
$ |
65.8 |
|
|
$ |
59.2 |
|
|
$ |
350.7 |
|
|
$ |
304.0 |
|
Average assets (2) |
|
|
348.2 |
|
|
|
326.7 |
|
|
|
115.8 |
|
|
|
97.5 |
|
|
|
71.7 |
|
|
|
64.7 |
|
|
|
541.5 |
|
|
|
494.7 |
|
Average core deposits |
|
|
250.6 |
|
|
|
233.1 |
|
|
|
55.5 |
|
|
|
36.5 |
|
|
|
|
|
|
|
0.1 |
|
|
|
306.1 |
|
|
|
269.7 |
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,890 |
|
|
$ |
9,869 |
|
|
$ |
2,449 |
|
|
$ |
2,137 |
|
|
$ |
3,147 |
|
|
$ |
2,895 |
|
|
$ |
15,486 |
|
|
$ |
14,901 |
|
Provision (reversal of provision)
for credit losses |
|
|
1,105 |
|
|
|
612 |
|
|
|
33 |
|
|
|
(9 |
) |
|
|
1,189 |
|
|
|
875 |
|
|
|
2,327 |
|
|
|
1,478 |
|
Noninterest income |
|
|
8,988 |
|
|
|
7,033 |
|
|
|
3,750 |
|
|
|
3,214 |
|
|
|
961 |
|
|
|
1,130 |
|
|
|
13,699 |
|
|
|
11,377 |
|
Noninterest expense |
|
|
10,926 |
|
|
|
10,264 |
|
|
|
3,560 |
|
|
|
3,009 |
|
|
|
2,268 |
|
|
|
2,058 |
|
|
|
16,754 |
|
|
|
15,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
6,847 |
|
|
|
6,026 |
|
|
|
2,606 |
|
|
|
2,351 |
|
|
|
651 |
|
|
|
1,092 |
|
|
|
10,104 |
|
|
|
9,469 |
|
Income tax expense |
|
|
2,137 |
|
|
|
1,946 |
|
|
|
913 |
|
|
|
824 |
|
|
|
248 |
|
|
|
398 |
|
|
|
3,298 |
|
|
|
3,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,710 |
|
|
$ |
4,080 |
|
|
$ |
1,693 |
|
|
$ |
1,527 |
|
|
$ |
403 |
|
|
$ |
694 |
|
|
$ |
6,806 |
|
|
$ |
6,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
188.2 |
|
|
$ |
178.8 |
|
|
$ |
82.4 |
|
|
$ |
70.1 |
|
|
$ |
64.2 |
|
|
$ |
56.2 |
|
|
$ |
334.8 |
|
|
$ |
305.1 |
|
Average assets (2) |
|
|
325.1 |
|
|
|
322.9 |
|
|
|
108.1 |
|
|
|
96.9 |
|
|
|
70.0 |
|
|
|
61.6 |
|
|
|
509.0 |
|
|
|
487.2 |
|
Average core deposits |
|
|
248.5 |
|
|
|
231.4 |
|
|
|
50.6 |
|
|
|
32.3 |
|
|
|
|
|
|
|
0.1 |
|
|
|
299.1 |
|
|
|
263.8 |
|
|
|
|
|
(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. |
53
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 $4.5 billion and $3.4 billion
in total assets at September 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 September 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 $1.7 billion and $980 million at September 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.
54
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 Sept. 30 |
, |
|
Nine months ended Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
Fair value, beginning of period |
|
$ |
18,733 |
|
|
$ |
15,650 |
|
|
$ |
17,591 |
|
|
$ |
12,547 |
|
|
|
|
188 |
|
|
|
2,907 |
|
|
|
489 |
|
|
|
3,637 |
|
Servicing from securitizations or asset transfers |
|
|
951 |
|
|
|
965 |
|
|
|
2,808 |
|
|
|
3,264 |
|
Sales |
|
|
(292 |
) |
|
|
|
|
|
|
(1,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net additions |
|
|
847 |
|
|
|
3,872 |
|
|
|
1,583 |
|
|
|
6,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation model inputs
or assumptions (1) |
|
|
(638 |
) |
|
|
(1,147 |
) |
|
|
1,364 |
|
|
|
(75 |
) |
Other changes in fair value (2) |
|
|
(719 |
) |
|
|
(663 |
) |
|
|
(2,315 |
) |
|
|
(1,661 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in fair value |
|
|
(1,357 |
) |
|
|
(1,810 |
) |
|
|
(951 |
) |
|
|
(1,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period |
|
$ |
18,223 |
|
|
$ |
17,712 |
|
|
$ |
18,223 |
|
|
$ |
17,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Sept. 30 |
, |
|
Nine months ended Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
Balance, beginning of period |
|
$ |
418 |
|
|
$ |
175 |
|
|
$ |
377 |
|
|
$ |
122 |
|
Purchases (1) |
|
|
46 |
|
|
|
161 |
|
|
|
101 |
|
|
|
225 |
|
Servicing from securitizations or asset transfers (1) |
|
|
12 |
|
|
|
2 |
|
|
|
33 |
|
|
|
2 |
|
Amortization |
|
|
(16 |
) |
|
|
(10 |
) |
|
|
(51 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period (2) |
|
$ |
460 |
|
|
$ |
328 |
|
|
$ |
460 |
|
|
$ |
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of amortized MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
561 |
|
|
$ |
252 |
|
|
$ |
457 |
|
|
$ |
146 |
|
End of period |
|
|
602 |
|
|
|
440 |
|
|
|
602 |
|
|
|
440 |
|
|
|
|
|
|
(1) |
|
Based on September 30, 2007, assumptions, the weighted-average amortization period for MSRs
added during the third quarter and first nine months of 2007 was approximately 10.2 years and
10.7 years, respectively. |
(2) |
|
There was no valuation allowance recorded for the periods presented. |
55
The components of our managed servicing portfolio were:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
, |
(in billions) |
|
2007 |
|
|
2006 |
|
|
|
Loans serviced for others (1) |
|
$ |
1,380 |
|
|
$ |
1,235 |
|
Owned loans serviced (2) |
|
|
97 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Total owned servicing |
|
|
1,477 |
|
|
|
1,325 |
|
Sub-servicing |
|
|
22 |
|
|
|
20 |
|
|
|
|
|
|
|
|
Total managed servicing portfolio |
|
$ |
1,499 |
|
|
$ |
1,345 |
|
|
|
|
|
|
|
|
Ratio of MSRs to related loans serviced for others |
|
|
1.35 |
% |
|
|
1.46 |
% |
|
|
|
|
|
(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 Sept. 30 |
, |
|
Nine months ended Sept. 30 |
, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees (1) |
|
$ |
970 |
|
|
$ |
947 |
|
|
$ |
3,031 |
|
|
$ |
2,514 |
|
Changes in fair value of residential MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation model inputs
or assumptions (2) |
|
|
(638 |
) |
|
|
(1,147 |
) |
|
|
1,364 |
|
|
|
(75 |
) |
Other changes in fair value (3) |
|
|
(719 |
) |
|
|
(663 |
) |
|
|
(2,315 |
) |
|
|
(1,661 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in fair value of residential MSRs |
|
|
(1,357 |
) |
|
|
(1,810 |
) |
|
|
(951 |
) |
|
|
(1,736 |
) |
|
|
|
(16 |
) |
|
|
(10 |
) |
|
|
(51 |
) |
|
|
(21 |
) |
Net derivative gains (losses) from economic hedges (4) |
|
|
1,200 |
|
|
|
1,061 |
|
|
|
(1,061 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing income, net |
|
|
797 |
|
|
|
188 |
|
|
|
968 |
|
|
|
579 |
|
Net gains (losses) on mortgage loan origination/sales
activities |
|
|
(61 |
) |
|
|
179 |
|
|
|
1,069 |
|
|
|
811 |
|
All other |
|
|
87 |
|
|
|
117 |
|
|
|
265 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking noninterest income |
|
$ |
823 |
|
|
$ |
484 |
|
|
$ |
2,302 |
|
|
$ |
1,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market-related valuation changes to MSRs, net of
hedge results (2) + (4) |
|
$ |
562 |
|
|
$ |
(86 |
) |
|
$ |
303 |
|
|
$ |
(253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
56
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 residential 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, substantially all of our 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. |
57
The table below presents the balances of assets and liabilities measured at fair value on a
recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
$ |
7,298 |
|
|
$ |
1,403 |
|
|
$ |
5,385 |
|
|
$ |
510 |
|
Securities available for sale |
|
|
57,440 |
|
|
|
32,734 |
|
|
|
20,969 |
|
|
|
3,737 |
|
Mortgages held for sale |
|
|
26,714 |
|
|
|
|
|
|
|
26,636 |
|
|
|
78 |
|
Mortgage servicing rights (residential) |
|
|
18,223 |
|
|
|
|
|
|
|
|
|
|
|
18,223 |
|
Other assets |
|
|
1,060 |
|
|
|
791 |
|
|
|
249 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
110,735 |
|
|
$ |
34,928 |
|
|
$ |
53,239 |
|
|
$ |
22,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,079 |
) |
|
$ |
(1,936 |
) |
|
$ |
(822 |
) |
|
$ |
(321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Net |
|
|
Other |
|
|
|
assets |
|
|
Securities |
|
|
Mortgages |
|
|
servicing |
|
|
derivative |
|
|
liabilities |
|
|
|
(excluding |
|
|
available |
|
|
held for |
|
|
rights |
|
|
assets and |
|
|
(excluding |
|
(in millions) |
|
derivatives) |
|
|
for sale |
|
|
sale |
|
|
(residential) |
|
|
liabilities |
|
|
derivatives) |
|
|
|
Quarter ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of quarter |
|
$ |
466 |
|
|
$ |
2,014 |
|
|
$ |
|
|
|
$ |
18,733 |
|
|
$ |
(79 |
) |
|
$ |
(277 |
) |
Total net gains (losses) for the quarter included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
(52 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
(1,357 |
) |
|
|
124 |
|
|
|
(19 |
) |
Other comprehensive income |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements, net |
|
|
96 |
|
|
|
1,731 |
|
|
|
16 |
|
|
|
847 |
|
|
|
(71 |
) |
|
|
21 |
|
Net transfers into/out of Level 3 |
|
|
|
|
|
|
|
|
|
|
63 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of quarter |
|
$ |
510 |
|
|
$ |
3,737 |
|
|
$ |
78 |
|
|
$ |
18,223 |
|
|
$ |
(26 |
) |
|
$ |
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses included in net income
for the quarter relating to assets and liabilities held
at September 30, 2007 (1) |
|
$ |
(37 |
)(2) |
|
$ |
|
|
|
$ |
(1 |
)(4) |
|
$ |
(603 |
)(4)(5) |
|
$ |
(17 |
)(4) |
|
$ |
(20 |
)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
360 |
|
|
$ |
3,447 |
|
|
$ |
|
|
|
$ |
17,591 |
|
|
$ |
(68 |
) |
|
$ |
(282 |
) |
Total net losses for the period included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
(31 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
(951 |
) |
|
|
(259 |
) |
|
|
(47 |
) |
Other comprehensive income |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements, net |
|
|
181 |
|
|
|
298 |
|
|
|
16 |
|
|
|
1,583 |
|
|
|
297 |
|
|
|
54 |
|
Net transfers into/out of Level 3 |
|
|
|
|
|
|
|
|
|
|
63 |
(3) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
510 |
|
|
$ |
3,737 |
|
|
$ |
78 |
|
|
$ |
18,223 |
|
|
$ |
(26 |
) |
|
$ |
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) included in net income
for the period relating to assets and liabilities held
at September 30, 2007 (1) |
|
$ |
15 |
(2) |
|
$ |
|
|
|
$ |
(1 |
)(4) |
|
$ |
1,341 |
(4)(5) |
|
$ |
(22 |
)(4) |
|
$ |
(48 |
)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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) |
|
Represents loans previously classified as Level 2 that became unsaleable during third quarter
2007; therefore the fair value measurement was derived from discounted cash flow models using
unobservable inputs and assumptions. |
(4) |
|
Included in mortgage banking in the income statement. |
(5) |
|
Represents total unrealized losses of $638 million, net of losses of $35 million related to
sales, for third quarter 2007, and total unrealized gains of $1,364 million, net of gains of
$23 million related to sales, for the first nine months of 2007. |
58
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 nine months of 2007 that
were still held in the balance sheet at September 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 September 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
Carrying value at September 30, 2007 |
|
|
Total |
|
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
losses |
|
|
|
|
$ |
2,984 |
|
|
$ |
|
|
|
$ |
2,984 |
|
|
$ |
|
|
|
$ |
(131 |
) |
Loans held for sale |
|
|
668 |
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
(20 |
) |
Loans (1) |
|
|
602 |
|
|
|
|
|
|
|
583 |
|
|
|
19 |
|
|
|
(2,134 |
) |
Private equity investments |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
(31 |
) |
Foreclosed assets (2) |
|
|
362 |
|
|
|
|
|
|
|
362 |
|
|
|
|
|
|
|
(142 |
) |
Operating lease assets |
|
|
46 |
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
26,714 |
|
|
$ |
26,403 |
|
|
$ |
311 |
(1) |
Nonaccrual loans |
|
|
21 |
|
|
|
29 |
|
|
|
(8 |
) |
Loans 90 days or more past due and still accruing |
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
(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. |
59
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
Quarter ended |
|
|
Nine 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 on mortgage loan
origination/sales activities (1) |
|
$ |
355 |
|
|
$ |
|
|
|
$ |
477 |
|
|
$ |
|
|
Other noninterest income |
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
(32 |
) |
|
|
|
|
(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.
60
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 September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
418 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(418 |
) |
|
$ |
|
|
Nonbank |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
1,431 |
|
|
|
6,058 |
|
|
|
(12 |
) |
|
|
7,477 |
|
Interest income from subsidiaries |
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
|
(1,002 |
) |
|
|
|
|
Other interest income |
|
|
38 |
|
|
|
29 |
|
|
|
1,681 |
|
|
|
(2 |
) |
|
|
1,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,476 |
|
|
|
1,460 |
|
|
|
7,739 |
|
|
|
(1,452 |
) |
|
|
9,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,397 |
|
|
|
(179 |
) |
|
|
2,218 |
|
Short-term borrowings |
|
|
152 |
|
|
|
120 |
|
|
|
531 |
|
|
|
(339 |
) |
|
|
464 |
|
Long-term debt |
|
|
1,007 |
|
|
|
491 |
|
|
|
261 |
|
|
|
(498 |
) |
|
|
1,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,159 |
|
|
|
611 |
|
|
|
3,189 |
|
|
|
(1,016 |
) |
|
|
3,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317 |
|
|
|
849 |
|
|
|
4,550 |
|
|
|
(436 |
) |
|
|
5,280 |
|
Provision for credit losses |
|
|
|
|
|
|
250 |
|
|
|
642 |
|
|
|
|
|
|
|
892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
317 |
|
|
|
599 |
|
|
|
3,908 |
|
|
|
(436 |
) |
|
|
4,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
105 |
|
|
|
2,636 |
|
|
|
|
|
|
|
2,741 |
|
Other |
|
|
(7 |
) |
|
|
31 |
|
|
|
2,917 |
|
|
|
(1,109 |
) |
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
(7 |
) |
|
|
136 |
|
|
|
5,553 |
|
|
|
(1,109 |
) |
|
|
4,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
(9 |
) |
|
|
293 |
|
|
|
2,969 |
|
|
|
|
|
|
|
3,253 |
|
Other |
|
|
19 |
|
|
|
263 |
|
|
|
3,075 |
|
|
|
(1,109 |
) |
|
|
2,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
10 |
|
|
|
556 |
|
|
|
6,044 |
|
|
|
(1,109 |
) |
|
|
5,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
300 |
|
|
|
179 |
|
|
|
3,417 |
|
|
|
(436 |
) |
|
|
3,460 |
|
Income tax expense (benefit) |
|
|
(98 |
) |
|
|
55 |
|
|
|
1,220 |
|
|
|
|
|
|
|
1,177 |
|
Equity in undistributed income of subsidiaries |
|
|
1,885 |
|
|
|
|
|
|
|
|
|
|
|
(1,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,283 |
|
|
$ |
124 |
|
|
$ |
2,197 |
|
|
$ |
(2,321 |
) |
|
$ |
2,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
637 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(637 |
) |
|
$ |
|
|
Nonbank |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
1,336 |
|
|
|
5,231 |
|
|
|
(12 |
) |
|
|
6,555 |
|
Interest income from subsidiaries |
|
|
862 |
|
|
|
|
|
|
|
|
|
|
|
(862 |
) |
|
|
|
|
Other interest income |
|
|
27 |
|
|
|
26 |
|
|
|
1,794 |
|
|
|
(3 |
) |
|
|
1,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,571 |
|
|
|
1,362 |
|
|
|
7,025 |
|
|
|
(1,559 |
) |
|
|
8,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997 |
|
|
|
|
|
|
|
1,997 |
|
Short-term borrowings |
|
|
139 |
|
|
|
96 |
|
|
|
288 |
|
|
|
(252 |
) |
|
|
271 |
|
Long-term debt |
|
|
834 |
|
|
|
457 |
|
|
|
180 |
|
|
|
(387 |
) |
|
|
1,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
973 |
|
|
|
553 |
|
|
|
2,465 |
|
|
|
(639 |
) |
|
|
3,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598 |
|
|
|
809 |
|
|
|
4,560 |
|
|
|
(920 |
) |
|
|
5,047 |
|
Provision for credit losses |
|
|
|
|
|
|
362 |
|
|
|
251 |
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
598 |
|
|
|
447 |
|
|
|
4,309 |
|
|
|
(920 |
) |
|
|
4,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
76 |
|
|
|
2,268 |
|
|
|
|
|
|
|
2,344 |
|
Other |
|
|
85 |
|
|
|
48 |
|
|
|
1,417 |
|
|
|
(7 |
) |
|
|
1,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
85 |
|
|
|
124 |
|
|
|
3,685 |
|
|
|
(7 |
) |
|
|
3,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
5 |
|
|
|
280 |
|
|
|
2,652 |
|
|
|
|
|
|
|
2,937 |
|
Other |
|
|
13 |
|
|
|
217 |
|
|
|
2,159 |
|
|
|
(245 |
) |
|
|
2,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
18 |
|
|
|
497 |
|
|
|
4,811 |
|
|
|
(245 |
) |
|
|
5,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
665 |
|
|
|
74 |
|
|
|
3,183 |
|
|
|
(682 |
) |
|
|
3,240 |
|
Income tax expense (benefit) |
|
|
(54 |
) |
|
|
27 |
|
|
|
1,073 |
|
|
|
|
|
|
|
1,046 |
|
Equity in undistributed income of subsidiaries |
|
|
1,475 |
|
|
|
|
|
|
|
|
|
|
|
(1,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,194 |
|
|
$ |
47 |
|
|
$ |
2,110 |
|
|
$ |
(2,157 |
) |
|
$ |
2,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
3,684 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(3,684 |
) |
|
$ |
|
|
Nonbank |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
4,226 |
|
|
|
17,149 |
|
|
|
(34 |
) |
|
|
21,341 |
|
Interest income from subsidiaries |
|
|
2,723 |
|
|
|
|
|
|
|
|
|
|
|
(2,723 |
) |
|
|
|
|
Other interest income |
|
|
105 |
|
|
|
81 |
|
|
|
4,413 |
|
|
|
(5 |
) |
|
|
4,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
6,534 |
|
|
|
4,307 |
|
|
|
21,562 |
|
|
|
(6,468 |
) |
|
|
25,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,488 |
|
|
|
(472 |
) |
|
|
6,016 |
|
Short-term borrowings |
|
|
291 |
|
|
|
346 |
|
|
|
1,183 |
|
|
|
(955 |
) |
|
|
865 |
|
Long-term debt |
|
|
2,826 |
|
|
|
1,405 |
|
|
|
672 |
|
|
|
(1,335 |
) |
|
|
3,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,117 |
|
|
|
1,751 |
|
|
|
8,343 |
|
|
|
(2,762 |
) |
|
|
10,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,417 |
|
|
|
2,556 |
|
|
|
13,219 |
|
|
|
(3,706 |
) |
|
|
15,486 |
|
Provision for credit losses |
|
|
|
|
|
|
448 |
|
|
|
1,879 |
|
|
|
|
|
|
|
2,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
3,417 |
|
|
|
2,108 |
|
|
|
11,340 |
|
|
|
(3,706 |
) |
|
|
13,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
276 |
|
|
|
7,596 |
|
|
|
|
|
|
|
7,872 |
|
Other |
|
|
120 |
|
|
|
108 |
|
|
|
6,732 |
|
|
|
(1,133 |
) |
|
|
5,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
120 |
|
|
|
384 |
|
|
|
14,328 |
|
|
|
(1,133 |
) |
|
|
13,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
49 |
|
|
|
918 |
|
|
|
8,948 |
|
|
|
|
|
|
|
9,915 |
|
Other |
|
|
77 |
|
|
|
828 |
|
|
|
7,067 |
|
|
|
(1,133 |
) |
|
|
6,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
126 |
|
|
|
1,746 |
|
|
|
16,015 |
|
|
|
(1,133 |
) |
|
|
16,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
3,411 |
|
|
|
746 |
|
|
|
9,653 |
|
|
|
(3,706 |
) |
|
|
10,104 |
|
Income tax expense (benefit) |
|
|
(141 |
) |
|
|
267 |
|
|
|
3,172 |
|
|
|
|
|
|
|
3,298 |
|
Equity in undistributed income of subsidiaries |
|
|
3,254 |
|
|
|
|
|
|
|
|
|
|
|
(3,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,806 |
|
|
$ |
479 |
|
|
$ |
6,481 |
|
|
$ |
(6,960 |
) |
|
$ |
6,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
1,472 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,472 |
) |
|
$ |
|
|
Nonbank |
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
(218 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
3,933 |
|
|
|
15,007 |
|
|
|
(30 |
) |
|
|
18,910 |
|
Interest income from subsidiaries |
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
(2,430 |
) |
|
|
|
|
Other interest income |
|
|
79 |
|
|
|
76 |
|
|
|
4,946 |
|
|
|
(3 |
) |
|
|
5,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
4,199 |
|
|
|
4,009 |
|
|
|
19,953 |
|
|
|
(4,153 |
) |
|
|
24,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,273 |
|
|
|
|
|
|
|
5,273 |
|
Short-term borrowings |
|
|
349 |
|
|
|
274 |
|
|
|
888 |
|
|
|
(681 |
) |
|
|
830 |
|
Long-term debt |
|
|
2,333 |
|
|
|
1,310 |
|
|
|
473 |
|
|
|
(1,112 |
) |
|
|
3,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
2,682 |
|
|
|
1,584 |
|
|
|
6,634 |
|
|
|
(1,793 |
) |
|
|
9,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,517 |
|
|
|
2,425 |
|
|
|
13,319 |
|
|
|
(2,360 |
) |
|
|
14,901 |
|
Provision for credit losses |
|
|
|
|
|
|
689 |
|
|
|
789 |
|
|
|
|
|
|
|
1,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
1,517 |
|
|
|
1,736 |
|
|
|
12,530 |
|
|
|
(2,360 |
) |
|
|
13,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
206 |
|
|
|
6,564 |
|
|
|
|
|
|
|
6,770 |
|
Other |
|
|
58 |
|
|
|
171 |
|
|
|
4,413 |
|
|
|
(35 |
) |
|
|
4,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
58 |
|
|
|
377 |
|
|
|
10,977 |
|
|
|
(35 |
) |
|
|
11,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
57 |
|
|
|
817 |
|
|
|
7,947 |
|
|
|
|
|
|
|
8,821 |
|
Other |
|
|
(4 |
) |
|
|
653 |
|
|
|
6,566 |
|
|
|
(705 |
) |
|
|
6,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
53 |
|
|
|
1,470 |
|
|
|
14,513 |
|
|
|
(705 |
) |
|
|
15,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
1,522 |
|
|
|
643 |
|
|
|
8,994 |
|
|
|
(1,690 |
) |
|
|
9,469 |
|
Income tax expense (benefit) |
|
|
(114 |
) |
|
|
228 |
|
|
|
3,054 |
|
|
|
|
|
|
|
3,168 |
|
Equity in undistributed income of subsidiaries |
|
|
4,665 |
|
|
|
|
|
|
|
|
|
|
|
(4,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,301 |
|
|
$ |
415 |
|
|
$ |
5,940 |
|
|
$ |
(6,355 |
) |
|
$ |
6,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary banks |
|
$ |
8,358 |
|
|
$ |
194 |
|
|
$ |
|
|
|
$ |
(8,552 |
) |
|
$ |
|
|
Nonaffiliates |
|
|
|
|
|
|
284 |
|
|
|
16,462 |
|
|
|
|
|
|
|
16,746 |
|
Securities available for sale |
|
|
2,531 |
|
|
|
2,076 |
|
|
|
52,839 |
|
|
|
(6 |
) |
|
|
57,440 |
|
Mortgages and loans held for sale |
|
|
|
|
|
|
|
|
|
|
30,710 |
|
|
|
|
|
|
|
30,710 |
|
|
|
|
|
|
|
|
50,405 |
|
|
|
320,896 |
|
|
|
(8,379 |
) |
|
|
362,922 |
|
Loans to subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
11,400 |
|
|
|
|
|
|
|
|
|
|
|
(11,400 |
) |
|
|
|
|
Nonbank |
|
|
51,253 |
|
|
|
|
|
|
|
|
|
|
|
(51,253 |
) |
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
(846 |
) |
|
|
(2,983 |
) |
|
|
|
|
|
|
(3,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
62,653 |
|
|
|
49,559 |
|
|
|
317,913 |
|
|
|
(71,032 |
) |
|
|
359,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
47,165 |
|
|
|
|
|
|
|
|
|
|
|
(47,165 |
) |
|
|
|
|
Nonbank |
|
|
5,775 |
|
|
|
|
|
|
|
|
|
|
|
(5,775 |
) |
|
|
|
|
Other assets |
|
|
7,108 |
|
|
|
1,724 |
|
|
|
79,149 |
|
|
|
(3,243 |
) |
|
|
84,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
133,590 |
|
|
$ |
53,837 |
|
|
$ |
497,073 |
|
|
$ |
(135,773 |
) |
|
$ |
548,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
343,508 |
|
|
$ |
(8,552 |
) |
|
$ |
334,956 |
|
Short-term borrowings |
|
|
33 |
|
|
|
8,660 |
|
|
|
58,185 |
|
|
|
(25,149 |
) |
|
|
41,729 |
|
Accrued expenses and other liabilities |
|
|
5,035 |
|
|
|
1,470 |
|
|
|
25,472 |
|
|
|
(3,265 |
) |
|
|
28,712 |
|
Long-term debt |
|
|
72,025 |
|
|
|
40,424 |
|
|
|
20,406 |
|
|
|
(37,263 |
) |
|
|
95,592 |
|
Indebtedness to subsidiaries |
|
|
8,759 |
|
|
|
|
|
|
|
|
|
|
|
(8,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
85,852 |
|
|
|
50,554 |
|
|
|
447,571 |
|
|
|
(82,988 |
) |
|
|
500,989 |
|
Stockholders equity |
|
|
47,738 |
|
|
|
3,283 |
|
|
|
49,502 |
|
|
|
(52,785 |
) |
|
|
47,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
133,590 |
|
|
$ |
53,837 |
|
|
$ |
497,073 |
|
|
$ |
(135,773 |
) |
|
$ |
548,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary banks |
|
$ |
11,879 |
|
|
$ |
232 |
|
|
$ |
|
|
|
$ |
(12,111 |
) |
|
$ |
|
|
Nonaffiliates |
|
|
77 |
|
|
|
195 |
|
|
|
16,398 |
|
|
|
|
|
|
|
16,670 |
|
Securities available for sale |
|
|
986 |
|
|
|
1,798 |
|
|
|
49,857 |
|
|
|
(6 |
) |
|
|
52,635 |
|
Mortgages and loans held for sale |
|
|
|
|
|
|
29 |
|
|
|
40,501 |
|
|
|
|
|
|
|
40,530 |
|
|
|
|
|
|
|
|
47,174 |
|
|
|
261,213 |
|
|
|
(896 |
) |
|
|
307,491 |
|
Loans to subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
(3,400 |
) |
|
|
|
|
Nonbank |
|
|
46,369 |
|
|
|
63 |
|
|
|
|
|
|
|
(46,432 |
) |
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
(1,147 |
) |
|
|
(2,652 |
) |
|
|
|
|
|
|
(3,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
49,769 |
|
|
|
46,090 |
|
|
|
258,561 |
|
|
|
(50,728 |
) |
|
|
303,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
41,335 |
|
|
|
|
|
|
|
|
|
|
|
(41,335 |
) |
|
|
|
|
Nonbank |
|
|
5,168 |
|
|
|
|
|
|
|
|
|
|
|
(5,168 |
) |
|
|
|
|
Other assets |
|
|
5,817 |
|
|
|
1,456 |
|
|
|
64,148 |
|
|
|
(1,507 |
) |
|
|
69,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
115,031 |
|
|
$ |
49,800 |
|
|
$ |
429,465 |
|
|
$ |
(110,855 |
) |
|
$ |
483,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
326,430 |
|
|
$ |
(12,111 |
) |
|
$ |
314,319 |
|
Short-term borrowings |
|
|
18 |
|
|
|
7,909 |
|
|
|
19,072 |
|
|
|
(13,199 |
) |
|
|
13,800 |
|
Accrued expenses and other liabilities |
|
|
3,359 |
|
|
|
1,018 |
|
|
|
24,038 |
|
|
|
(2,046 |
) |
|
|
26,369 |
|
Long-term debt |
|
|
61,817 |
|
|
|
37,944 |
|
|
|
16,447 |
|
|
|
(32,117 |
) |
|
|
84,091 |
|
Indebtedness to subsidiaries |
|
|
4,975 |
|
|
|
|
|
|
|
|
|
|
|
(4,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
70,169 |
|
|
|
46,871 |
|
|
|
385,987 |
|
|
|
(64,448 |
) |
|
|
438,579 |
|
Stockholders equity |
|
|
44,862 |
|
|
|
2,929 |
|
|
|
43,478 |
|
|
|
(46,407 |
) |
|
|
44,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
115,031 |
|
|
$ |
49,800 |
|
|
$ |
429,465 |
|
|
$ |
(110,855 |
) |
|
$ |
483,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries/ |
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
eliminations |
|
|
Company |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
$ |
2,970 |
|
|
$ |
1,133 |
|
|
$ |
(410 |
) |
|
$ |
3,693 |
|
|
|
|
|
|
|
|
|
|