e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
Commission file number 001-2979
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
41-0449260 |
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification No.) |
420 Montgomery Street, San Francisco, California 94104
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: 1-866-249-3302
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o 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 o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
|
|
|
|
|
Shares Outstanding |
|
|
July 31, 2006 |
Common stock, $1-2/3 par value
|
|
1,683,610,005 |
FORM 10-Q
CROSS-REFERENCE INDEX
1
PART I FINANCIAL INFORMATION
FINANCIAL REVIEW
SUMMARY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2006 from |
|
|
Six months ended |
|
|
|
|
|
|
|
June 30 |
, |
|
Mar. 31 |
, |
|
June 30 |
, |
|
Mar. 31 |
, |
|
June 30 |
, |
|
June 30 |
, |
|
June 30 |
, |
|
% |
|
($ in millions, except per share amounts) |
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,089 |
|
|
$ |
2,018 |
|
|
$ |
1,910 |
|
|
|
4 |
% |
|
|
9 |
% |
|
$ |
4,107 |
|
|
$ |
3,766 |
|
|
|
9 |
% |
Diluted earnings per common share |
|
|
1.23 |
|
|
|
1.19 |
|
|
|
1.12 |
|
|
|
3 |
|
|
|
10 |
|
|
|
2.42 |
|
|
|
2.20 |
|
|
|
10 |
|
Profitability ratios (annualized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income to average total assets (ROA) |
|
|
1.71 |
% |
|
|
1.72 |
% |
|
|
1.76 |
% |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
1.71 |
% |
|
|
1.75 |
% |
|
|
(2 |
) |
Net income to average stockholders equity (ROE) |
|
|
19.76 |
|
|
|
19.89 |
|
|
|
19.76 |
|
|
|
(1 |
) |
|
|
|
|
|
|
19.83 |
|
|
|
19.68 |
|
|
|
1 |
|
|
|
|
58.9 |
|
|
|
59.3 |
|
|
|
57.9 |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
59.1 |
|
|
|
58.0 |
|
|
|
2 |
|
|
|
$ |
8,789 |
|
|
$ |
8,555 |
|
|
$ |
7,865 |
|
|
|
3 |
|
|
|
12 |
|
|
$ |
17,344 |
|
|
$ |
15,954 |
|
|
|
9 |
|
Dividends declared per common share |
|
|
1.08 |
|
|
|
.52 |
|
|
|
.48 |
|
|
|
108 |
|
|
|
125 |
|
|
|
1.60 |
|
|
|
.96 |
|
|
|
67 |
|
Average common shares outstanding |
|
|
1,681.9 |
|
|
|
1,679.2 |
|
|
|
1,687.7 |
|
|
|
|
|
|
|
|
|
|
|
1,680.5 |
|
|
|
1,691.5 |
|
|
|
(1 |
) |
Diluted average common shares outstanding |
|
|
1,702.2 |
|
|
|
1,697.9 |
|
|
|
1,707.2 |
|
|
|
|
|
|
|
|
|
|
|
1,700.0 |
|
|
|
1,711.4 |
|
|
|
(1 |
) |
|
|
$ |
300,388 |
|
|
$ |
311,132 |
|
|
$ |
295,636 |
|
|
|
(3 |
) |
|
|
2 |
|
|
$ |
305,731 |
|
|
$ |
291,483 |
|
|
|
5 |
|
Average assets |
|
|
491,456 |
|
|
|
475,195 |
|
|
|
435,091 |
|
|
|
3 |
|
|
|
13 |
|
|
|
483,371 |
|
|
|
433,052 |
|
|
|
12 |
|
Average core deposits (2) |
|
|
257,695 |
|
|
|
254,012 |
|
|
|
238,308 |
|
|
|
1 |
|
|
|
8 |
|
|
|
255,864 |
|
|
|
235,096 |
|
|
|
9 |
|
Average retail core deposits (3) |
|
|
213,588 |
|
|
|
212,921 |
|
|
|
198,805 |
|
|
|
|
|
|
|
7 |
|
|
|
213,255 |
|
|
|
195,730 |
|
|
|
9 |
|
|
|
|
4.76 |
% |
|
|
4.85 |
% |
|
|
4.89 |
% |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
4.80 |
% |
|
|
4.88 |
% |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
71,420 |
|
|
$ |
51,195 |
|
|
$ |
29,216 |
|
|
|
40 |
|
|
|
144 |
|
|
$ |
71,420 |
|
|
$ |
29,216 |
|
|
|
144 |
|
Loans |
|
|
300,622 |
|
|
|
306,676 |
|
|
|
301,739 |
|
|
|
(2 |
) |
|
|
|
|
|
|
300,622 |
|
|
|
301,739 |
|
|
|
|
|
Allowance for loan losses |
|
|
3,851 |
|
|
|
3,845 |
|
|
|
3,775 |
|
|
|
|
|
|
|
2 |
|
|
|
3,851 |
|
|
|
3,775 |
|
|
|
2 |
|
Goodwill |
|
|
11,091 |
|
|
|
11,050 |
|
|
|
10,647 |
|
|
|
|
|
|
|
4 |
|
|
|
11,091 |
|
|
|
10,647 |
|
|
|
4 |
|
Assets |
|
|
499,516 |
|
|
|
492,428 |
|
|
|
434,981 |
|
|
|
1 |
|
|
|
15 |
|
|
|
499,516 |
|
|
|
434,981 |
|
|
|
15 |
|
Core deposits (2) |
|
|
260,427 |
|
|
|
258,142 |
|
|
|
239,615 |
|
|
|
1 |
|
|
|
9 |
|
|
|
260,427 |
|
|
|
239,615 |
|
|
|
9 |
|
Stockholders equity |
|
|
41,894 |
|
|
|
41,961 |
|
|
|
39,278 |
|
|
|
|
|
|
|
7 |
|
|
|
41,894 |
|
|
|
39,278 |
|
|
|
7 |
|
Tier 1 capital (4) |
|
|
33,344 |
|
|
|
32,758 |
|
|
|
30,610 |
|
|
|
2 |
|
|
|
9 |
|
|
|
33,344 |
|
|
|
30,610 |
|
|
|
9 |
|
Total capital (4) |
|
|
47,202 |
|
|
|
45,331 |
|
|
|
43,485 |
|
|
|
4 |
|
|
|
9 |
|
|
|
47,202 |
|
|
|
43,485 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity to assets |
|
|
8.39 |
% |
|
|
8.52 |
% |
|
|
9.03 |
% |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
8.39 |
% |
|
|
9.03 |
% |
|
|
(7 |
) |
Risk-based capital (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
|
8.35 |
|
|
|
8.30 |
|
|
|
8.57 |
|
|
|
1 |
|
|
|
(3 |
) |
|
|
8.35 |
|
|
|
8.57 |
|
|
|
(3 |
) |
Total capital |
|
|
11.82 |
|
|
|
11.49 |
|
|
|
12.17 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
11.82 |
|
|
|
12.17 |
|
|
|
(3 |
) |
Tier 1 leverage (4) |
|
|
6.99 |
|
|
|
7.13 |
|
|
|
7.28 |
|
|
|
(2 |
) |
|
|
(4 |
) |
|
|
6.99 |
|
|
|
7.28 |
|
|
|
(4 |
) |
Book value per common share |
|
$ |
24.92 |
|
|
$ |
25.02 |
|
|
$ |
23.30 |
|
|
|
|
|
|
|
7 |
|
|
$ |
24.92 |
|
|
$ |
23.30 |
|
|
|
7 |
|
Team members (active, full-time equivalent) |
|
|
154,300 |
|
|
|
152,000 |
|
|
|
148,600 |
|
|
|
2 |
|
|
|
4 |
|
|
|
154,300 |
|
|
|
148,600 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
69.71 |
|
|
$ |
65.51 |
|
|
$ |
62.22 |
|
|
|
6 |
|
|
|
12 |
|
|
$ |
69.71 |
|
|
$ |
62.75 |
|
|
|
11 |
|
Low |
|
|
63.80 |
|
|
|
60.62 |
|
|
|
57.77 |
|
|
|
5 |
|
|
|
10 |
|
|
|
60.62 |
|
|
|
57.77 |
|
|
|
5 |
|
Period end |
|
|
67.08 |
|
|
|
63.87 |
|
|
|
61.58 |
|
|
|
5 |
|
|
|
9 |
|
|
|
67.08 |
|
|
|
61.58 |
|
|
|
9 |
|
|
|
|
|
|
(1) |
|
The efficiency ratio is noninterest expense divided by total revenue (net interest income
and noninterest income). |
|
(2) |
|
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings
certificates and market rate and other savings. |
|
(3) |
|
Retail core deposits are total core deposits excluding Wholesale Banking core deposits and
retail mortgage escrow deposits. |
|
(4) |
|
See Note 18 (Regulatory and Agency Capital Requirements) to Financial Statements for
additional information. |
2
This Report on Form 10-Q for the quarter ended June 30, 2006, 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. We identify some of the forward-looking
statements contained in this Report in the Risk Factors section. 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, 2005 (2005 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 $500 billion diversified financial services company providing banking,
insurance, investments, mortgage banking and consumer finance through banking stores, the internet
and other distribution channels to consumers, businesses and institutions in all 50 states of the
U.S. and in other countries. We ranked fifth in assets and fourth in market value of our common
stock among U.S. bank holding companies at June 30, 2006. When we refer to the Company, we,
our and us in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When
we refer to the Parent, we mean Wells Fargo & Company.
In second quarter 2006, we achieved record diluted earnings per share of $1.23, up 10% from a year
ago, and record net income of $2.09 billion, up 9% from a year ago. Our results were driven by
solid double-digit revenue growth of 12% from last year. Second quarter results included $250
million of pre-tax losses ($.10 per share) on adjustable rate mortgages (ARMs) and debt securities
sold during the quarter to further improve long-term earning asset yields. The results also
included $28 million (pre tax) of stock option expense ($.01 per share) that was not in last years
results. Our earnings growth was broad based, with many of our more than 80 businesses achieving
double-digit profit and revenue growth.
Our vision is to satisfy all the financial needs of our customers, help them succeed financially,
be recognized as the premier financial services company in our markets and be one of 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 5.0 products with us and our average
Wholesale Banking customer has a record 5.9 products. Our goal is eight products per customer,
which is currently half of our estimate of potential demand. Our core products grew in second
quarter 2006 compared with a year ago, with average loans, even with the sales of ARMs, up 2%,
average core deposits up 8% and assets managed and administered up 14%. Our owned mortgage loan
servicing portfolio was a record $1.11 trillion at June 30, 2006. In July 2006, we acquired a $140
billion mortgage servicing portfolio from Washington Mutual, Inc., which will grow our owned
servicing portfolio to approximately $1.25 trillion.
3
We believe it is important to maintain a well-controlled environment as we continue to grow our
businesses. We manage our credit risk by maintaining prudent credit policies for underwriting and
effective procedures for monitoring and review. We manage the interest rate and market risks
inherent in our asset and liability balances within prudent ranges, while ensuring adequate
liquidity and funding. Our stockholder value has increased over time due to customer satisfaction,
strong financial results, investment in our businesses and the prudent way we attempt to manage our
business risks.
In June 2006, our Board of Directors declared a two-for-one stock split in the form of a 100% stock
dividend on our common stock, to be distributed on August 11, 2006, to stockholders of record at
the close of business on August 4, 2006. We will distribute one share of common stock for each
share of common stock issued and outstanding or held in the treasury of the Company.
Our financial results included the following:
Net income for second quarter 2006 increased 9% to $2.09 billion from $1.91 billion for second
quarter 2005. Diluted earnings per share for second quarter 2006 increased 10% to $1.23 from $1.12
for second quarter 2005. Return on average assets (ROA) was 1.71% and return on average common
equity (ROE) was 19.76% for second quarter 2006, and 1.76% and 19.76%, respectively, for second
quarter 2005.
Net income for the first six months of 2006 was $4.11 billion, or $2.42 per share, compared with
$3.77 billion, or $2.20 per share, for the first half of 2005. ROA was 1.71% in the first half of
2006, compared with 1.75% for the first half of 2005. ROE was 19.83% in the first half of 2006,
compared with 19.68% for the first half of 2005.
Net interest income on a taxable-equivalent basis increased 10% to $5.02 billion for second quarter
2006 on 13% earning assets growth from $4.56 billion for second quarter 2005. Solid growth in net
interest income again was driven by continued growth in high-quality earning assets and solid core
deposit growth. With short-term interest rates now above 5%, our cumulative sales of ARMs and debt
securities over the last two years continued to add to net interest income. We have completed our
sales of over $90 billion of ARMs since mid-2004 with the sales of $26 billion of ARMs in second
quarter 2006. In addition, taking advantage of market volatility during second quarter 2006, we
sold our lowest-yielding debt securities and, for the first time, significantly added to our
portfolio of long-term debt securities at yields of approximately 6.25% nearly 200 basis points
higher than the cyclical low in yields. While the sales of ARMs and continued solid growth in core
deposits particularly double-digit growth in average lower cost checking account balances
positively impacted our net interest margin in second quarter 2006, our even higher growth in
earning assets including the securities purchased in the quarter accounted for all of the 9
basis point linked-quarter decline in our net interest margin to 4.76% in second quarter 2006. We
continued to have the widest and one of the most stable net interest margins among large banks in
the United States.
Noninterest income increased 14% to $3.81 billion for second quarter 2006 from $3.33 billion for
second quarter 2005. This double-digit growth reflected strong year-over-year growth in deposit
service charges (up 6%); trust and investment fees (up 13%); debit and credit card fees (up 16%);
and other fees, primarily loan-related (up 7%). Mortgage banking noninterest income rose $498
million from second quarter 2005 due to business growth and an increase in the value
4
of mortgage servicing net of hedging costs. Gains on mortgage loan origination/sales activities
increased $109 million, largely due to higher mortgage originations, despite the $94 million loss
on the previously mentioned sales of ARMs compared with a $24 million loss a year ago. Servicing
fees grew from $593 million to $820 million largely due to a 34% increase in the portfolio of
mortgage loans serviced for others. The change in the value of mortgage servicing rights (MSRs) net
of economic hedging results in second quarter 2006 a quarter in which interest rates increased
was $17 million. The interest rate-related effect (impairment provision net of hedging results)
in second quarter 2005 a quarter in which interest rates declined was a loss of $199 million.
Revenue, the sum of net interest income and noninterest income, grew $924 million, or 12%, to $8.79
billion in second quarter 2006 from $7.87 billion in second quarter 2005. We achieved 12% revenue
growth despite taking $250 million of losses on the sales of ARMs and debt securities in second
quarter 2006, which, compared with negligible gains on the sale of debt securities in second
quarter 2005, reduced reported year-over-year revenue growth by 3 percentage points. Our operating
businesses continued to generate exceptionally strong double-digit revenue growth from second
quarter 2005 to second quarter 2006 because of strong growth in both interest and fee income,
including double-digit revenue growth in regional banking, credit and debit cards, private client
services, internet services, home mortgage, corporate trust, consumer finance, asset-based lending,
asset management, commercial real estate, Eastdil Secured, international trade services and
commercial banking.
Noninterest expense was $5.18 billion for second quarter 2006 compared with $4.55 billion for the
same period of 2005. Noninterest expense included $28 million, or $.01 per share, in stock option
expense as required under Statement of Financial Accounting Standards No. 123(R), Share-Based
Payment (FAS 123(R)). Expense growth continued to be focused on building our business
particularly distribution and improving customer service. In the last 12 months, we opened 129
new regional banking stores, including 26 stores in second quarter 2006. We grew our sales and
service force by adding 5,700 team members (full-time equivalent), including 551 retail bankers in
second quarter 2006. Among other investments for growth, we invested in improving ATMs and online
banking to enhance our customer experience, and we are developing a common systems platform for all
of our consumer credit products which will increase cross-sell opportunities and improve operating
efficiencies.
Net charge-offs for second quarter 2006 were $432 million (.58% of average total loans,
annualized), compared with $454 million (.62%) during second quarter 2005. During the first half of
2006, net charge-offs were $865 million (.57%), compared with $1,039 million (.72%), for the first
half of 2005, which included $163 million (.11%) related to changes in loss recognition rules at
Wells Fargo Financial to conform to Federal Financial Institutions Examination Council (FFIEC) bank
standards for recognizing credit losses. We continued to have very low commercial losses, and
consumer losses remain at historically low levels, affected by continued low bankruptcy filings,
low unemployment rates, and relatively stable residential real estate values. Although charge-offs
have not yet been fully realized, we believe that our $100 million provision for loan losses
related to Hurricane Katrina in 2005 remains adequate.
The allowance for credit losses, which consists of the allowance for loan losses and the reserve
for unfunded credit commitments, was $4.04 billion, or 1.34% of total loans, at June 30, 2006,
5
compared with $4.06 billion, or 1.31%, at December 31, 2005, and $3.94 billion, or 1.31%, at June
30, 2005.
Total nonaccrual loans were $1.40 billion, or .46% of total loans, at June 30, 2006, compared with
$1.34 billion, or .43%, at December 31, 2005, and $1.20 billion, or .40%, at June 30, 2005. Total
nonperforming assets were $1.92 billion, or .64% of total loans, at June 30, 2006, compared with
$1.53 billion, or .49%, at December 31, 2005, and $1.39 billion, or .46%, at June 30, 2005.
Foreclosed assets were $513 million at June 30, 2006, compared with $191 million at December 31,
2005, and $187 million at June 30, 2005. Foreclosed assets, a component of total nonperforming
assets, included an additional $238 million of foreclosed real estate securing Government National
Mortgage Association (GNMA) loans at June 30, 2006, due to a change in regulatory reporting
requirements effective January 1, 2006. The GNMA foreclosed real estate of $238 million added 8
basis points to the ratio of nonperforming assets to loans in second quarter 2006. These assets are
fully collectible because the corresponding GNMA loans are insured by the Federal Housing
Administration (FHA) or guaranteed by the Department of Veterans Affairs. Wholesale nonperforming
assets remained very low, reflecting the solid financial strength of our borrowers at this point in
the business cycle. Consumer nonperforming assets have gradually increased as our loan portfolios
grow and season but are within expected ranges.
The ratio of stockholders equity to total assets was 8.39% at June 30, 2006, 8.44% at December 31,
2005, and 9.03% at June 30, 2005. Our total risk-based capital (RBC) ratio at June 30, 2006, was
11.82% and our Tier 1 RBC ratio was 8.35%, exceeding the minimum regulatory guidelines of 8% and
4%, respectively, for bank holding companies. Our RBC ratios at June 30, 2005, were 12.17% and
8.57%, respectively. Our Tier 1 leverage ratios were 6.99% and 7.28% at June 30, 2006 and 2005,
respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.
Current Accounting Developments
On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation
No. 48, Accounting for Income Tax Uncertainties (FIN 48), and FASB Staff Position 13-2, Accounting
for a Change or Projected Change in the Timing of Cash Flows Related to Income Taxes Generated by a
Leveraged Lease Transaction (FSP 13-2). FIN 48 supplements FAS 109, Accounting for Income Taxes, by
defining the threshold for recognizing the benefits in the financial statements as
more-likely-than-not to be sustained by the applicable taxing authority. The benefit recognized
for a tax position that meets the more-likely-than-not criterion is measured based on the largest
benefit that is more than 50% likely to be realized, taking into consideration the amounts and
probabilities of the outcomes upon settlement.
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 leveraged lease
transactions have been challenged by the Internal Revenue Service (IRS). While we have not made
investments in a broad class of transactions that the IRS commonly refers as Lease-In, Lease-Out
(LILO) transactions, we have previously invested in certain leveraged lease transactions that the
IRS labels as Sale-In Lease-Out (SILO) transactions. We have paid the IRS the income tax
associated with our SILO transactions. However, we are continuing to
6
vigorously defend our initial
filing position as to the timing of the tax benefits associated with these transactions. We will adopt FIN 48 and FSP 13-2 on January 1, 2007, as required. While
adoption of FIN 48 is not anticipated to have a material effect on our financial statements, we
estimate the cumulative effect of change in accounting upon adoption of FSP 13-2 will require a
reduction of the beginning balance of retained earnings by approximately $75 million after tax,
($115 million pre tax). This amount would be recognized back into income over the remaining terms
of the affected leases.
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 MSRs and
pension accounting. Management has reviewed and approved these critical accounting policies and has
discussed these policies with the Audit and Examination Committee. Policies covering the allowance
for credit losses and pension accounting are described in Financial Review Critical Accounting
Policies and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our
2005 Form 10-K. Due to adoption of FAS 156, Accounting for Servicing of Financial Assets an
amendment of FASB Statement No. 140, our accounting policy covering the valuation of residential
mortgage servicing rights has been updated and is described below.
VALUATION OF RESIDENTIAL MORTGAGE SERVICING RIGHTS
We recognize as assets the rights to service mortgage loans for others, or mortgage servicing
rights (MSRs), whether we purchase the servicing rights, or the servicing rights result from the
sale or securitization of loans we originate (asset transfers). Effective January 1, 2006, under
FAS 156, we elected to initially measure and carry our MSRs related to residential mortgage loans
(residential MSRs) using the fair value measurement method. Under this method, purchased MSRs and
MSRs from asset transfers are capitalized and carried at fair value. Prior to the adoption of FAS
156, we capitalized purchased residential MSRs at cost, and MSRs from asset transfers based on the
relative fair value of the servicing right and the residential mortgage loan at the time of sale,
and carried both purchased MSRs and MSRs from asset transfers at the lower of cost or market.
Effective January 1, 2006, upon the remeasurement of our residential MSRs at fair value, we
recorded a cumulative-effect adjustment to the 2006 beginning balance of retained earnings of $101
million after tax ($158 million pre tax) in our Statement of Changes in Stockholders Equity.
At the end of each quarter, we determine the fair value of MSRs using a valuation model that
calculates the present value of estimated future net servicing income. The model incorporates
assumptions that market participants use in estimating future net servicing income, including
estimates of prepayment speeds, discount rate, cost to service, escrow account earnings,
contractual servicing fee income, ancillary income and late fees. The valuation of MSRs is
discussed further in this section and in Note 1 (Summary of Significant Accounting Policies) and
7
Note 15 (Mortgage Banking Activities) to Financial Statements in this Report and in Note 20
(Securitizations and Variable Interest Entities) and Note 21 (Mortgage Banking Activities) to
Financial Statements in our 2005 Form 10-K.
To reduce the sensitivity of earnings to interest rate and market value fluctuations, we may use
securities available for sale and free-standing derivatives (economic hedges) to hedge the risk of
changes in the fair value of MSRs, with the resulting gains or losses reflected in income. Changes
in the fair value of the MSRs from changing mortgage interest rates are generally offset by gains
or losses in the fair value of the derivatives depending on the amount of MSRs we hedge. We may
choose not to fully hedge MSRs, partly because origination volume tends to act as a natural
hedge. For example, as interest rates decline, servicing values decrease and fees from origination
volume tend to increase. Conversely, as interest rates increase, the fair value of the MSRs
increases, while fees from origination volume tend to decline. See Mortgage Banking Interest Rate
Risk for discussion of the timing of the effect of changes in mortgage interest rates.
Servicing income, a component of mortgage banking noninterest income, includes the changes from
period to period in fair value of both our residential MSRs and the free-standing derivatives
(economic hedges) used to hedge our residential MSRs. Changes in the fair value of residential MSRs
from period to period result from (1) changes in the valuation model inputs or assumptions
(principally reflecting changes in discount rates and prepayment assumptions, primarily due to
changes in interest rates) and (2) other changes, representing changes due to
collection/realization of expected cash flows. Prior to the adoption of FAS 156, we carried
residential MSRs at the lower of cost or market, with amortization of MSRs and changes in the MSRs
valuation allowance recognized in servicing income.
We use a dynamic and sophisticated model to estimate the value of our MSRs. The model is validated
by an independent internal model validation group operating in accordance with Company policies.
Senior management reviews all significant assumptions quarterly. Mortgage loan prepayment speed
a key assumption in the model is the annual rate at which borrowers are forecasted to repay
their mortgage loan principal and is based on historical experience. The discount rate used to
determine the present value of estimated future net servicing income another key assumption in
the model is the required rate of return the market would expect for an asset with similar risk.
To determine the discount rate, we consider the risk premium for uncertainties from servicing
operations (e.g., possible changes in future servicing costs, ancillary income and earnings on
escrow accounts). Both assumptions can, and generally will, change quarterly valuations as market
conditions and interest rates change. For example, an increase in either the prepayment speed or
discount rate assumption results in a decrease in the fair value of the MSRs, while a decrease in
either assumption would result in an increase in the fair value of the MSRs. In recent years, there
have been significant market-driven fluctuations in loan prepayment speeds and the discount rate.
These fluctuations can be rapid and may be significant in the future. Therefore, estimating
prepayment speeds within a range that market participants would use in determining the fair value
of MSRs requires significant management judgment.
These key economic assumptions and the sensitivity of the fair value of MSRs to an immediate
adverse change in those assumptions are shown in Note 20 (Securitizations and Variable Interest
Entities) to Financial Statements in our 2005 Form 10-K.
8
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 10% to $5.02 billion in second quarter
2006 from $4.56 billion in second quarter 2005, primarily driven by a 13% growth in average earning
assets. Our net interest margin was 4.76% in second quarter 2006, compared with 4.89% in second
quarter 2005.
Solid growth in net interest income again was driven by continued growth in high-quality earning
assets and solid core deposit growth. With short-term interest rates now above 5%, our cumulative
sales of ARMs and debt securities over the last two years continued to add to net interest income.
We have completed our sales of over $90 billion of ARMs since mid-2004 with the sales of $26
billion of ARMs in second quarter 2006. In addition, taking advantage of market volatility during
second quarter 2006, we sold our lowest-yielding debt securities and, for the first time,
significantly added to our portfolio of long-term debt securities at yields of approximately 6.25%
nearly 200 basis points higher than the cyclical low in yields. While the sales of ARMs and
continued solid growth in core deposits particularly double-digit growth in average lower cost
checking account balances positively impacted our net interest margin in second quarter 2006,
our even higher growth in earning assets including the securities purchased in the quarter
accounted for all of the 9 basis point decline in our net interest margin from first quarter 2006
and the 13 basis point decline from a year ago.
Average earning assets increased $47.8 billion to $422.3 billion in second quarter 2006 from $374.5
billion in second quarter 2005, due to an increase in average loans, mortgage-backed securities and
mortgages held for sale. Loans averaged $300.4 billion in second quarter 2006, compared with $295.6
billion in second quarter 2005. The increase was predominantly due to an increase in commercial
loans, real estate 1-4 family junior lien mortgages, and other revolving credit and installment
loans, partly offset by the sales of $58 billion of ARMs over the last 12 months.
Average mortgages held for sale increased to $51.7 billion in second quarter 2006 from $34.6
billion in second quarter 2005, due to higher origination volume and the transfer of hedged ARMs to
the held for sale portfolio prior to delivery. Debt securities available for sale averaged $57.5
billion during second quarter 2006 and $29.4 billion in second quarter 2005. The increase was due
to additions to our portfolio of long-term debt securities in second quarter 2006.
Average core deposits are an important contributor to growth in net interest income and the net
interest margin. This low-cost source of funding rose 8% from a year ago. Average core deposits
were $257.7 billion and $238.3 billion in second quarter 2006 and 2005, respectively. Total
9
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
4,855 |
|
|
|
4.60 |
% |
|
$ |
56 |
|
|
$ |
5,653 |
|
|
|
2.83 |
% |
|
$ |
40 |
|
Trading assets |
|
|
5,938 |
|
|
|
5.03 |
|
|
|
75 |
|
|
|
6,289 |
|
|
|
3.42 |
|
|
|
54 |
|
Debt securities available for sale (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of U.S. Treasury and federal agencies |
|
|
935 |
|
|
|
4.43 |
|
|
|
11 |
|
|
|
964 |
|
|
|
3.73 |
|
|
|
9 |
|
Securities of U.S. states and political subdivisions |
|
|
3,013 |
|
|
|
8.24 |
|
|
|
60 |
|
|
|
3,434 |
|
|
|
8.29 |
|
|
|
68 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
40,160 |
|
|
|
5.97 |
|
|
|
601 |
|
|
|
17,616 |
|
|
|
6.11 |
|
|
|
260 |
|
Private collateralized mortgage obligations |
|
|
7,176 |
|
|
|
6.70 |
|
|
|
119 |
|
|
|
4,181 |
|
|
|
5.58 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
47,336 |
|
|
|
6.07 |
|
|
|
720 |
|
|
|
21,797 |
|
|
|
6.00 |
|
|
|
317 |
|
Other debt securities (4) |
|
|
6,246 |
|
|
|
6.70 |
|
|
|
104 |
|
|
|
3,249 |
|
|
|
7.38 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities available for sale (4) |
|
|
57,530 |
|
|
|
6.22 |
|
|
|
895 |
|
|
|
29,444 |
|
|
|
6.34 |
|
|
|
453 |
|
Mortgages held for sale (3) |
|
|
51,675 |
|
|
|
6.25 |
|
|
|
808 |
|
|
|
34,554 |
|
|
|
5.56 |
|
|
|
481 |
|
Loans held for sale (3) |
|
|
585 |
|
|
|
7.35 |
|
|
|
11 |
|
|
|
1,255 |
|
|
|
4.54 |
|
|
|
15 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
65,424 |
|
|
|
8.12 |
|
|
|
1,324 |
|
|
|
57,749 |
|
|
|
6.59 |
|
|
|
949 |
|
Other real estate mortgage |
|
|
28,938 |
|
|
|
7.29 |
|
|
|
526 |
|
|
|
29,504 |
|
|
|
6.12 |
|
|
|
450 |
|
Real estate construction |
|
|
14,517 |
|
|
|
7.91 |
|
|
|
286 |
|
|
|
9,814 |
|
|
|
6.48 |
|
|
|
159 |
|
Lease financing |
|
|
5,429 |
|
|
|
5.75 |
|
|
|
78 |
|
|
|
5,176 |
|
|
|
6.02 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
114,308 |
|
|
|
7.77 |
|
|
|
2,214 |
|
|
|
102,243 |
|
|
|
6.41 |
|
|
|
1,636 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
55,019 |
|
|
|
7.36 |
|
|
|
1,011 |
|
|
|
79,533 |
|
|
|
6.36 |
|
|
|
1,263 |
|
Real estate 1-4 family junior lien mortgage |
|
|
62,740 |
|
|
|
7.92 |
|
|
|
1,239 |
|
|
|
54,771 |
|
|
|
6.38 |
|
|
|
871 |
|
Credit card |
|
|
11,947 |
|
|
|
13.18 |
|
|
|
393 |
|
|
|
10,285 |
|
|
|
12.17 |
|
|
|
313 |
|
Other revolving credit and installment |
|
|
50,098 |
|
|
|
9.56 |
|
|
|
1,194 |
|
|
|
44,406 |
|
|
|
8.42 |
|
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
179,804 |
|
|
|
8.55 |
|
|
|
3,837 |
|
|
|
188,995 |
|
|
|
7.17 |
|
|
|
3,379 |
|
Foreign |
|
|
6,276 |
|
|
|
12.61 |
|
|
|
198 |
|
|
|
4,398 |
|
|
|
13.86 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (5) |
|
|
300,388 |
|
|
|
8.34 |
|
|
|
6,249 |
|
|
|
295,636 |
|
|
|
7.01 |
|
|
|
5,167 |
|
Other |
|
|
1,363 |
|
|
|
4.97 |
|
|
|
16 |
|
|
|
1,677 |
|
|
|
4.70 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
$ |
422,334 |
|
|
|
7.70 |
|
|
|
8,110 |
|
|
$ |
374,508 |
|
|
|
6.68 |
|
|
|
6,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking |
|
$ |
4,288 |
|
|
|
2.80 |
|
|
|
30 |
|
|
$ |
3,561 |
|
|
|
1.31 |
|
|
|
12 |
|
Market rate and other savings |
|
|
134,182 |
|
|
|
2.29 |
|
|
|
766 |
|
|
|
128,333 |
|
|
|
1.30 |
|
|
|
417 |
|
Savings certificates |
|
|
30,308 |
|
|
|
3.69 |
|
|
|
279 |
|
|
|
20,932 |
|
|
|
2.71 |
|
|
|
142 |
|
Other time deposits |
|
|
38,288 |
|
|
|
5.03 |
|
|
|
479 |
|
|
|
26,378 |
|
|
|
2.95 |
|
|
|
193 |
|
Deposits in foreign offices |
|
|
20,898 |
|
|
|
4.59 |
|
|
|
240 |
|
|
|
8,871 |
|
|
|
2.77 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
227,964 |
|
|
|
3.16 |
|
|
|
1,794 |
|
|
|
188,075 |
|
|
|
1.76 |
|
|
|
825 |
|
Short-term borrowings |
|
|
24,836 |
|
|
|
4.68 |
|
|
|
289 |
|
|
|
22,687 |
|
|
|
2.90 |
|
|
|
164 |
|
Long-term debt |
|
|
84,486 |
|
|
|
4.79 |
|
|
|
1,010 |
|
|
|
78,781 |
|
|
|
3.43 |
|
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
337,286 |
|
|
|
3.68 |
|
|
|
3,093 |
|
|
|
289,543 |
|
|
|
2.31 |
|
|
|
1,664 |
|
Portion of noninterest-bearing funding sources |
|
|
85,048 |
|
|
|
|
|
|
|
|
|
|
|
84,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding sources |
|
$ |
422,334 |
|
|
|
2.94 |
|
|
|
3,093 |
|
|
$ |
374,508 |
|
|
|
1.79 |
|
|
|
1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin and net interest income on
a taxable-equivalent basis (6) |
|
|
|
|
|
|
4.76 |
% |
|
$ |
5,017 |
|
|
|
|
|
|
|
4.89 |
% |
|
$ |
4,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
12,437 |
|
|
|
|
|
|
|
|
|
|
$ |
12,991 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
11,075 |
|
|
|
|
|
|
|
|
|
|
|
10,646 |
|
|
|
|
|
|
|
|
|
Other |
|
|
45,610 |
|
|
|
|
|
|
|
|
|
|
|
36,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
$ |
69,122 |
|
|
|
|
|
|
|
|
|
|
$ |
60,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST-BEARING FUNDING SOURCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
88,917 |
|
|
|
|
|
|
|
|
|
|
$ |
85,482 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
22,835 |
|
|
|
|
|
|
|
|
|
|
|
21,348 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
42,418 |
|
|
|
|
|
|
|
|
|
|
|
38,718 |
|
|
|
|
|
|
|
|
|
Noninterest-bearing funding sources used to
fund earning assets |
|
|
(85,048 |
) |
|
|
|
|
|
|
|
|
|
|
(84,965 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noninterest-bearing funding sources |
|
$ |
69,122 |
|
|
|
|
|
|
|
|
|
|
$ |
60,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
491,456 |
|
|
|
|
|
|
|
|
|
|
$ |
435,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our average prime rate was 7.90% and 5.92% for the quarters ended June 30, 2006 and 2005,
respectively, and 7.66% and 5.68% for the six months ended June 30, 2006 and 2005,
respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.21% and
3.29% for the quarters ended June 30, 2006 and 2005, respectively, and 4.99% and 3.07% for
the six months ended June 30, 2006 and 2005, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
, |
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
Average |
|
|
Yields/ |
|
|
income/ |
|
|
Average |
|
|
Yields |
/ |
|
income |
/ |
balance |
|
|
rates |
|
|
expense |
|
|
balance |
|
|
rates |
|
|
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,023 |
|
|
|
4.40 |
% |
|
$ |
110 |
|
|
$ |
5,495 |
|
|
|
2.62 |
% |
|
$ |
72 |
|
|
6,018 |
|
|
|
4.82 |
|
|
|
144 |
|
|
|
5,909 |
|
|
|
3.33 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901 |
|
|
|
4.36 |
|
|
|
20 |
|
|
|
947 |
|
|
|
3.83 |
|
|
|
18 |
|
|
3,059 |
|
|
|
8.18 |
|
|
|
120 |
|
|
|
3,503 |
|
|
|
8.35 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,973 |
|
|
|
5.94 |
|
|
|
1,007 |
|
|
|
18,840 |
|
|
|
6.05 |
|
|
|
551 |
|
|
6,870 |
|
|
|
6.58 |
|
|
|
223 |
|
|
|
4,087 |
|
|
|
5.51 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,843 |
|
|
|
6.05 |
|
|
|
1,230 |
|
|
|
22,927 |
|
|
|
5.96 |
|
|
|
661 |
|
|
5,766 |
|
|
|
7.23 |
|
|
|
208 |
|
|
|
3,319 |
|
|
|
7.29 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,569 |
|
|
|
6.28 |
|
|
|
1,578 |
|
|
|
30,696 |
|
|
|
6.30 |
|
|
|
934 |
|
|
45,632 |
|
|
|
6.21 |
|
|
|
1,417 |
|
|
|
33,103 |
|
|
|
5.50 |
|
|
|
911 |
|
|
618 |
|
|
|
7.13 |
|
|
|
22 |
|
|
|
5,137 |
|
|
|
4.97 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,104 |
|
|
|
7.92 |
|
|
|
2,519 |
|
|
|
56,470 |
|
|
|
6.40 |
|
|
|
1,793 |
|
|
28,813 |
|
|
|
7.15 |
|
|
|
1,023 |
|
|
|
29,686 |
|
|
|
6.00 |
|
|
|
883 |
|
|
14,186 |
|
|
|
7.75 |
|
|
|
545 |
|
|
|
9,498 |
|
|
|
6.29 |
|
|
|
297 |
|
|
5,432 |
|
|
|
5.78 |
|
|
|
157 |
|
|
|
5,151 |
|
|
|
6.08 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,535 |
|
|
|
7.60 |
|
|
|
4,244 |
|
|
|
100,805 |
|
|
|
6.25 |
|
|
|
3,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,648 |
|
|
|
7.06 |
|
|
|
2,270 |
|
|
|
82,047 |
|
|
|
6.18 |
|
|
|
2,524 |
|
|
61,364 |
|
|
|
7.79 |
|
|
|
2,370 |
|
|
|
53,920 |
|
|
|
6.20 |
|
|
|
1,658 |
|
|
11,856 |
|
|
|
13.20 |
|
|
|
782 |
|
|
|
10,222 |
|
|
|
12.05 |
|
|
|
616 |
|
|
49,218 |
|
|
|
9.48 |
|
|
|
2,314 |
|
|
|
40,170 |
|
|
|
8.65 |
|
|
|
1,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,086 |
|
|
|
8.32 |
|
|
|
7,736 |
|
|
|
186,359 |
|
|
|
7.04 |
|
|
|
6,523 |
|
|
6,110 |
|
|
|
12.59 |
|
|
|
383 |
|
|
|
4,319 |
|
|
|
13.84 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305,731 |
|
|
|
8.14 |
|
|
|
12,363 |
|
|
|
291,483 |
|
|
|
6.87 |
|
|
|
9,951 |
|
|
1,376 |
|
|
|
4.80 |
|
|
|
32 |
|
|
|
1,700 |
|
|
|
4.51 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
414,967 |
|
|
|
7.59 |
|
|
|
15,666 |
|
|
$ |
373,523 |
|
|
|
6.55 |
|
|
|
12,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,179 |
|
|
|
2.52 |
|
|
|
52 |
|
|
$ |
3,464 |
|
|
|
1.18 |
|
|
|
21 |
|
|
134,205 |
|
|
|
2.18 |
|
|
|
1,453 |
|
|
|
127,842 |
|
|
|
1.17 |
|
|
|
742 |
|
|
29,517 |
|
|
|
3.58 |
|
|
|
524 |
|
|
|
20,214 |
|
|
|
2.60 |
|
|
|
261 |
|
|
36,020 |
|
|
|
4.77 |
|
|
|
852 |
|
|
|
27,590 |
|
|
|
2.73 |
|
|
|
373 |
|
|
18,041 |
|
|
|
4.41 |
|
|
|
395 |
|
|
|
9,480 |
|
|
|
2.56 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,962 |
|
|
|
2.98 |
|
|
|
3,276 |
|
|
|
188,590 |
|
|
|
1.62 |
|
|
|
1,517 |
|
|
25,504 |
|
|
|
4.42 |
|
|
|
559 |
|
|
|
24,051 |
|
|
|
2.63 |
|
|
|
313 |
|
|
83,094 |
|
|
|
4.64 |
|
|
|
1,920 |
|
|
|
77,239 |
|
|
|
3.26 |
|
|
|
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,560 |
|
|
|
3.51 |
|
|
|
5,755 |
|
|
|
289,880 |
|
|
|
2.14 |
|
|
|
3,084 |
|
|
84,407 |
|
|
|
|
|
|
|
|
|
|
|
83,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
414,967 |
|
|
|
2.79 |
|
|
|
5,755 |
|
|
$ |
373,523 |
|
|
|
1.67 |
|
|
|
3,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.80 |
% |
|
$ |
9,911 |
|
|
|
|
|
|
|
4.88 |
% |
|
$ |
9,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,666 |
|
|
|
|
|
|
|
|
|
|
$ |
13,040 |
|
|
|
|
|
|
|
|
|
|
11,019 |
|
|
|
|
|
|
|
|
|
|
|
10,651 |
|
|
|
|
|
|
|
|
|
|
44,719 |
|
|
|
|
|
|
|
|
|
|
|
35,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,404 |
|
|
|
|
|
|
|
|
|
|
$ |
59,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
87,963 |
|
|
|
|
|
|
|
|
|
|
$ |
83,576 |
|
|
|
|
|
|
|
|
|
|
23,076 |
|
|
|
|
|
|
|
|
|
|
|
21,046 |
|
|
|
|
|
|
|
|
|
|
41,772 |
|
|
|
|
|
|
|
|
|
|
|
38,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,407 |
) |
|
|
|
|
|
|
|
|
|
|
(83,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,404 |
|
|
|
|
|
|
|
|
|
|
$ |
59,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
483,371 |
|
|
|
|
|
|
|
|
|
|
$ |
433,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
average retail core deposits, which exclude Wholesale Banking core deposits and retail
mortgage escrow deposits, for second quarter 2006 grew $14.8 billion, or 7%, from a year ago. Average
mortgage escrow deposits were $17.6 billion for second quarter 2006, up $1.5 billion from a year
ago. Savings certificates of deposits increased on average from $20.9 billion in second quarter
2005 to $30.3 billion in second quarter 2006 and noninterest-bearing checking accounts and other
core deposit categories increased on average from $217.4 billion in second quarter 2005 to $227.4
billion in second quarter 2006. Total average interest-bearing deposits increased to $228.0 billion
in second quarter 2006 from $188.1 billion in second quarter 2005.
12
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
Six months |
|
|
|
|
|
|
ended June 30 |
, |
|
% |
|
|
ended June 30 |
, |
|
% |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
|
Service charges on deposit accounts |
|
$ |
665 |
|
|
$ |
625 |
|
|
|
6 |
% |
|
$ |
1,288 |
|
|
$ |
1,203 |
|
|
|
7 |
% |
Trust and investment fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust, investment and IRA fees |
|
|
509 |
|
|
|
456 |
|
|
|
12 |
|
|
|
1,000 |
|
|
|
901 |
|
|
|
11 |
|
Commissions and all other fees |
|
|
166 |
|
|
|
141 |
|
|
|
18 |
|
|
|
338 |
|
|
|
298 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust and investment fees |
|
|
675 |
|
|
|
597 |
|
|
|
13 |
|
|
|
1,338 |
|
|
|
1,199 |
|
|
|
12 |
|
|
|
|
418 |
|
|
|
361 |
|
|
|
16 |
|
|
|
802 |
|
|
|
687 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash network fees |
|
|
48 |
|
|
|
47 |
|
|
|
2 |
|
|
|
92 |
|
|
|
90 |
|
|
|
2 |
|
Charges and fees on loans |
|
|
249 |
|
|
|
260 |
|
|
|
(4 |
) |
|
|
491 |
|
|
|
505 |
|
|
|
(3 |
) |
All other |
|
|
213 |
|
|
|
171 |
|
|
|
25 |
|
|
|
415 |
|
|
|
336 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other fees |
|
|
510 |
|
|
|
478 |
|
|
|
7 |
|
|
|
998 |
|
|
|
931 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing income, net |
|
|
310 |
|
|
|
(99 |
) |
|
|
|
|
|
|
391 |
|
|
|
357 |
|
|
|
10 |
|
Net gains on mortgage loan origination/
sales activities |
|
|
359 |
|
|
|
250 |
|
|
|
44 |
|
|
|
632 |
|
|
|
543 |
|
|
|
16 |
|
All other |
|
|
66 |
|
|
|
86 |
|
|
|
(23 |
) |
|
|
127 |
|
|
|
151 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking |
|
|
735 |
|
|
|
237 |
|
|
|
210 |
|
|
|
1,150 |
|
|
|
1,051 |
|
|
|
9 |
|
|
|
|
200 |
|
|
|
202 |
|
|
|
(1 |
) |
|
|
401 |
|
|
|
410 |
|
|
|
(2 |
) |
Insurance |
|
|
364 |
|
|
|
358 |
|
|
|
2 |
|
|
|
728 |
|
|
|
695 |
|
|
|
5 |
|
Trading assets |
|
|
91 |
|
|
|
64 |
|
|
|
42 |
|
|
|
225 |
|
|
|
207 |
|
|
|
9 |
|
Net gains (losses) on debt securities available for sale |
|
|
(156 |
) |
|
|
39 |
|
|
|
|
|
|
|
(191 |
) |
|
|
35 |
|
|
|
|
|
Net gains from equity investments |
|
|
133 |
|
|
|
201 |
|
|
|
(34 |
) |
|
|
323 |
|
|
|
272 |
|
|
|
19 |
|
Net gains on sales of loans |
|
|
2 |
|
|
|
39 |
|
|
|
(95 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
Net gains on dispositions of operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
1 |
|
|
|
|
|
All other |
|
|
168 |
|
|
|
128 |
|
|
|
31 |
|
|
|
286 |
|
|
|
274 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,805 |
|
|
$ |
3,329 |
|
|
|
14 |
|
|
$ |
7,490 |
|
|
$ |
6,965 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earn trust, investment and IRA fees from managing and administering assets, including
mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At June
30, 2006, these assets totaled $835 billion, up 14% from $732 billion at June 30, 2005. Generally,
trust, investment and IRA fees are based on the market value of the assets that are managed,
administered, or both. The increase from second quarter 2005 was due to continued strong momentum
in growth of separate accounts and our successful efforts to grow the business.
Also, we receive commissions and other fees for providing services to retail and discount brokerage
customers. At June 30, 2006 and 2005, brokerage balances were $105 billion and $90 billion,
respectively. Generally, these fees are based on the number of transactions executed at the
customers direction.
Card fees increased 16% from second quarter 2005, due to growth in distribution of debit and credit
cards to our customers and increased usage. Purchase volume on consumer credit cards was up 23%
from a year ago and balances were up 14%.
13
Mortgage banking noninterest income was $735 million and $1,150 million in the second quarter and
first half of 2006, respectively, compared with $237 million and $1,051 million in the same periods
of 2005. The increase of $498 million from second quarter 2005 to second quarter 2006 was due to
business growth and an increase in the value of mortgage servicing net of hedging costs. With the
adoption of FAS 156 in first quarter 2006 and measuring our residential MSRs at fair value, net
servicing income includes both changes in the fair value of MSRs during the period as well as
changes in derivatives (economic hedges) used to hedge the MSRs. Prior to adoption of FAS 156,
servicing income included net derivative gains and losses (primarily the ineffective portion of the
change in value of derivatives used to hedge MSRs under FAS 133, Accounting for Derivative
Instruments and Hedging Activities (as amended)), amortization and MSRs impairment, which are all
influenced by both the level and direction of mortgage interest rates.
Gains on mortgage loan origination/sales activities increased $109 million, largely due to higher
mortgage originations, despite the $94 million loss on the previously mentioned sales of ARMs
compared with a $24 million loss a year ago. For the first six months of 2006, gains on mortgage
loan origination/sales activities rose $89 million to $632 million, largely due to higher
origination and sales volume and a higher rate environment.
Servicing fees grew to $820 million in second quarter 2006 from $593 million in second quarter 2005
largely due to a 34% increase in the portfolio of mortgage loans serviced for others, which was
$1.02 trillion at June 30, 2006, up from $761 billion a year ago. The change in the value of MSRs
net of economic hedging results in second quarter 2006 a quarter in which interest rates
increased was $17 million. The interest rate-related effect (impairment provision net of hedging
results) in second quarter 2005 a quarter in which interest rates declined was a loss of $199
million.
Net gains (losses) on debt securities available for sale were $(156) million and $(191) million in
the second quarter and first half of 2006, respectively, compared with $39 million and $35 million
in the same periods of 2005. The $156 million of losses in second quarter 2006 were primarily due
to sales of securities to further improve long-term earning asset yields. Net gains from equity
investments were $133 million and $323 million in the second quarter and first half of 2006,
respectively, and $201 million and $272 million in the same periods of 2005.
We routinely review our investment portfolios and recognize impairment write-downs based primarily
on issuer-specific factors and results, and our intent to hold such securities. We also consider
general economic and market conditions, including industries in which venture capital investments
are made, and adverse changes affecting the availability of venture capital. We determine
impairment based on all of the information available at the time of the assessment, but new
information or economic developments in the future could result in recognition of additional
impairment.
Net gains on dispositions in the first half of 2006 included a first quarter $127 million gain on
the sale of Island Finances operations in Puerto Rico.
14
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
|
|
|
|
Six months |
|
|
|
|
|
|
ended June 30 |
, |
|
% |
|
|
ended June 30 |
, |
|
% |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
|
|
|
$ |
1,754 |
|
|
$ |
1,551 |
|
|
|
13 |
% |
|
$ |
3,426 |
|
|
$ |
3,031 |
|
|
|
13 |
% |
Incentive compensation |
|
|
714 |
|
|
|
562 |
|
|
|
27 |
|
|
|
1,382 |
|
|
|
1,027 |
|
|
|
35 |
|
Employee benefits |
|
|
487 |
|
|
|
432 |
|
|
|
13 |
|
|
|
1,076 |
|
|
|
979 |
|
|
|
10 |
|
Equipment |
|
|
284 |
|
|
|
263 |
|
|
|
8 |
|
|
|
619 |
|
|
|
633 |
|
|
|
(2 |
) |
Net occupancy |
|
|
345 |
|
|
|
310 |
|
|
|
11 |
|
|
|
681 |
|
|
|
714 |
|
|
|
(5 |
) |
Operating leases |
|
|
157 |
|
|
|
157 |
|
|
|
|
|
|
|
318 |
|
|
|
315 |
|
|
|
1 |
|
Outside professional services |
|
|
236 |
|
|
|
189 |
|
|
|
25 |
|
|
|
429 |
|
|
|
352 |
|
|
|
22 |
|
Contract services |
|
|
139 |
|
|
|
141 |
|
|
|
(1 |
) |
|
|
271 |
|
|
|
280 |
|
|
|
(3 |
) |
Travel and entertainment |
|
|
139 |
|
|
|
117 |
|
|
|
19 |
|
|
|
269 |
|
|
|
227 |
|
|
|
19 |
|
Outside data processing |
|
|
109 |
|
|
|
121 |
|
|
|
(10 |
) |
|
|
213 |
|
|
|
227 |
|
|
|
(6 |
) |
Advertising and promotion |
|
|
125 |
|
|
|
117 |
|
|
|
7 |
|
|
|
231 |
|
|
|
206 |
|
|
|
12 |
|
Postage |
|
|
79 |
|
|
|
68 |
|
|
|
16 |
|
|
|
160 |
|
|
|
140 |
|
|
|
14 |
|
Telecommunications |
|
|
73 |
|
|
|
67 |
|
|
|
9 |
|
|
|
143 |
|
|
|
139 |
|
|
|
3 |
|
Insurance |
|
|
99 |
|
|
|
100 |
|
|
|
(1 |
) |
|
|
175 |
|
|
|
179 |
|
|
|
(2 |
) |
Stationery and supplies |
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
106 |
|
|
|
100 |
|
|
|
6 |
|
Operating losses |
|
|
45 |
|
|
|
26 |
|
|
|
73 |
|
|
|
107 |
|
|
|
104 |
|
|
|
3 |
|
Security |
|
|
44 |
|
|
|
42 |
|
|
|
5 |
|
|
|
87 |
|
|
|
83 |
|
|
|
5 |
|
Core deposit intangibles |
|
|
28 |
|
|
|
31 |
|
|
|
(10 |
) |
|
|
57 |
|
|
|
63 |
|
|
|
(10 |
) |
Charitable donations |
|
|
19 |
|
|
|
18 |
|
|
|
6 |
|
|
|
36 |
|
|
|
40 |
|
|
|
(10 |
) |
Net losses (gains) from debt extinguishment |
|
|
(2 |
) |
|
|
1 |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
All other |
|
|
247 |
|
|
|
186 |
|
|
|
33 |
|
|
|
468 |
|
|
|
407 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,176 |
|
|
$ |
4,554 |
|
|
|
14 |
|
|
$ |
10,250 |
|
|
$ |
9,246 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 14% increase in noninterest expense to $5.2 billion in second quarter 2006 from second
quarter 2005 was due primarily to the increase in salary, incentive compensation and employee
benefits from an additional 5,700 team members (full-time equivalent), largely sales people, across
our businesses, and the 2006 adoption of FAS 123(R) requiring the expensing of stock option grants.
We recognized stock option expense, included in incentive compensation, of $28 million in second
quarter 2006 and $80 million in the first half of 2006, which included $33 million in first quarter
2006 for the immediate expensing of stock options for retirement-eligible team members. We
continued to focus on building our business, with additional expense for opening new banking
stores, investments in improving ATMs and online banking, and developing a common systems platform
for our consumer credit products. In the last 12 months, we opened 129 new regional banking stores,
including 26 stores in second quarter 2006.
INCOME TAX EXPENSE
Our effective income tax rate was 34.3% and 34.1% for the second quarter and first half of 2006,
respectively, and 33.2% and 33.6% for the same periods of 2005. The increase in the effective tax
rate for second quarter 2006 from second quarter 2005 was primarily due to lower tax exempt income
and income tax credits, along with less tax benefits associated with the donation of appreciated
securities. The increase in the effective tax rate in second quarter 2006 from 33.8% in first
quarter 2006 was primarily due to a reduction in tax credits.
15
OPERATING SEGMENT RESULTS
Our lines of business for management reporting are Community Banking, Wholesale Banking and Wells
Fargo Financial. For a more complete description of our operating segments, including additional
financial information and the underlying management accounting process, see Note 13 (Operating
Segments) to Financial Statements.
Community Bankings net income increased 8% to $1.34 billion in second quarter 2006 from $1.24
billion in second quarter 2005. Net income decreased 2% to $2.55 billion in the first half of 2006
from $2.59 billion in the first half of 2005. Net interest income increased 6% to $3.32 billion,
and 6% to $6.58 billion in the second quarter and first half of 2006, respectively,
from the same periods of 2005, primarily due
to growth in earning assets and deposits. Average loans were $173.9 billion in second quarter 2006,
down 8% from a year ago, predominantly due to sales of ARMs. Excluding real estate 1-4 family
mortgages the loan category affected by the sales of ARMs total average loans grew by $12.8
billion, or 10%. Core deposits averaged $230.7 billion in second quarter 2006, up 8% over the prior
year. Noninterest income in second quarter 2006 increased $406 million, or 20%, from $1.99 billion
in second quarter 2005, predominantly due to higher mortgage banking revenue, partially offset by
losses on sales of debt securities. Noninterest income for the first half of 2006 increased by $174
million from the same period of 2005. Noninterest expense increased $419 million and $586 million
in the second quarter and first half of 2006, respectively, from the same periods in 2005,
primarily due to an increase in the number of team members, as well as investments in new banking
stores, ATMs and online banking.
Wholesale Bankings net income increased 7% to $523 million in second quarter 2006 from $490
million in second quarter 2005. Net income increased 12% to $1.05 billion in the first half of 2006
from $941 million in the first half of 2005. Revenue was $1.79 billion in second quarter 2006, up
12% from $1.60 billion in second quarter 2005, due to strong asset management, insurance and
foreign exchange revenue, along with the acquisition of Secured Capital Corporation, partially
offset by lower capital markets revenue. Average loans increased 15% and average core deposits grew
13% from second quarter 2005. Noninterest income for the second quarter and first half of 2006
increased by $80 million and $225 million, respectively, from the same periods in 2005. Wholesale
Banking recorded a recovery of provision for credit losses of $7 million in second quarter 2006 and
$10 million in second quarter 2005. Noninterest expense increased 16% to $1.02 billion and 17% to
$2.01 billion in the second quarter and first half of 2006, respectively, from the same periods in
2005, due to higher personnel related expenses and additional expenses from the Secured Capital
Corporation acquisition.
Wells Fargo Financials net income increased 28% to $230 million in second quarter 2006 from $180
million in second quarter 2005. For the first six months of 2006, net income was $510 million,
which included a first quarter $127 million pre-tax gain for the sale of Island Finances
operations in Puerto Rico, compared with $232 million for the same period a year ago, which
included a first quarter $163 million pre-tax charge to conform Wells Fargo Financials charge-off
practices with FFIEC guidelines. Total revenue rose 11% in second quarter 2006, reaching $1.28
billion, compared with $1.16 billion in second quarter 2005. Net interest income increased $133
million, or 16%, to $957 million in second quarter 2006 from $824 million in second quarter 2005,
due to growth in average loans. Average real estate secured receivables increased 25% to $20.1
billion and average auto finance receivables rose 30% to $24.5 billion from second quarter 2005.
Noninterest expense increased 10% to $673 million in second quarter
16
2006, primarily due to additional investments in the collections, underwriting and service teams as a
result of the growth of the business.
Segment results for prior periods have been revised due to the realignment of our automobile
financing business into Wells Fargo Financial in third quarter 2005 and the realignment of our
insurance business into Wholesale Banking in first quarter 2006, designed to leverage the
expertise, systems and resources of the existing businesses.
BALANCE SHEET ANALYSIS
SECURITIES AVAILABLE FOR SALE
Our securities available for sale portfolio consists of both debt and marketable equity securities.
We hold debt securities available for sale primarily for liquidity, interest rate risk management
and yield enhancement. Accordingly, this portfolio primarily includes very liquid, high-quality
federal agency debt securities. At June 30, 2006, we held $70.6 billion of debt securities
available for sale, compared with $40.9 billion at December 31, 2005, with a net unrealized loss of
$291 million and a net unrealized gain of $591 million for the same periods, respectively. The
$20.3 billion increase in debt securities from $50.3 billion at March 31, 2006, was due to
significant additions to our portfolio, predominantly mortgage-backed securities. We also held $800
million of marketable equity securities available for sale at June 30, 2006, and $900 million at
December 31, 2005, with a net unrealized gain of $242 million and $342 million for the same
periods, respectively.
The weighted-average expected maturity of debt securities available for sale was 5.9 years at June
30, 2006. Since 84% 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 |
|
|
|
|
|
$ |
59.6 |
|
|
$ |
(.4 |
) |
|
5.5 yrs. |
At June 30, 2006, assuming a 200 basis point: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in interest rates |
|
|
54.5 |
|
|
|
(5.5 |
) |
|
7.3 yrs. |
Decrease in interest rates |
|
|
62.0 |
|
|
|
2.0 |
|
|
1.6 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 9 and a comparative schedule of average loan balances is included in the table
17
on page 10; quarter-end balances are in Note 5 (Loans and Allowance for Credit Losses) to Financial
Statements.
Total loans at June 30, 2006, were $300.6 billion, compared with $301.7 billion at June 30, 2005.
Consumer loans decreased to $178.8 billion at June 30, 2006, from $193.2 billion at June 30, 2005,
due to sales of $58 billion of ARMs over the last 12 months. Commercial and commercial real estate
loans increased $11.4 billion, or 11%, from June 30, 2005. Mortgages held for sale increased to
$39.7 billion at June 30, 2006, from $31.7 billion a year ago, due to higher origination volume.
DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
December 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
$ |
89,448 |
|
|
$ |
87,712 |
|
|
$ |
86,791 |
|
Interest-bearing checking |
|
|
3,399 |
|
|
|
3,324 |
|
|
|
3,080 |
|
Market rate and other savings |
|
|
135,955 |
|
|
|
134,811 |
|
|
|
128,231 |
|
Savings certificates |
|
|
31,625 |
|
|
|
27,494 |
|
|
|
21,513 |
|
|
|
|
|
|
|
|
|
|
|
Core deposits |
|
|
260,427 |
|
|
|
253,341 |
|
|
|
239,615 |
|
Other time deposits |
|
|
46,331 |
|
|
|
46,488 |
|
|
|
20,464 |
|
Deposits in foreign offices |
|
|
19,694 |
|
|
|
14,621 |
|
|
|
14,934 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
326,452 |
|
|
$ |
314,450 |
|
|
$ |
275,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average core deposits increased $19.4 billion to $257.7 billion in second quarter 2006 from
second quarter 2005, largely due to growth in market rate and other savings, and savings
certificates.
OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
In the ordinary course of business, we engage in financial transactions that are not recorded on
the balance sheet, or may be recorded on the balance sheet in amounts that are different than the
full contract or notional amount of the transaction. 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 2005 Form 10-K and Note 17 (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, frequent and
detailed risk measurement and modeling, extensive credit training programs and a continual loan
audit review process. In addition, regulatory examiners review and perform detailed tests of our
credit underwriting, loan administration and allowance processes.
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) 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 2005 Form 10-K
describes our accounting policy for nonaccrual loans.
NONACCRUAL LOANS AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
253 |
|
|
$ |
286 |
|
|
$ |
338 |
|
Other real estate mortgage |
|
|
137 |
|
|
|
165 |
|
|
|
193 |
|
Real estate construction |
|
|
31 |
|
|
|
31 |
|
|
|
44 |
|
Lease financing |
|
|
26 |
|
|
|
45 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
447 |
|
|
|
527 |
|
|
|
626 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
585 |
|
|
|
471 |
|
|
|
357 |
|
Real estate 1-4 family junior lien mortgage |
|
|
179 |
|
|
|
144 |
|
|
|
98 |
|
Other revolving credit and installment |
|
|
139 |
|
|
|
171 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
903 |
|
|
|
786 |
|
|
|
556 |
|
Foreign |
|
|
45 |
|
|
|
25 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans (1) |
|
|
1,395 |
|
|
|
1,338 |
|
|
|
1,202 |
|
As a percentage of total loans |
|
|
.46 |
% |
|
|
.43 |
% |
|
|
.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA loans (2) |
|
|
238 |
|
|
|
|
|
|
|
|
|
Other |
|
|
275 |
|
|
|
191 |
|
|
|
187 |
|
Real estate and other nonaccrual investments (3) |
|
|
9 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans and other assets |
|
$ |
1,917 |
|
|
$ |
1,531 |
|
|
$ |
1,391 |
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans |
|
|
.64 |
% |
|
|
.49 |
% |
|
|
.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes impaired loans of $138 million, $190 million and $268 million at June 30, 2006,
December 31, 2005, and June 30, 2005, respectively. See Note 5 to Financial Statements in
this Report and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in our
2005 Form 10-K for further information on impaired loans. |
|
(2) |
|
As a result of a change in regulatory reporting requirements effective January 1, 2006,
foreclosed real estate securing GNMA loans has been classified as nonperforming. These assets
are fully collectible because the corresponding GNMA loans are insured by the FHA or
guaranteed by the Department of Veterans Affairs. |
|
(3) |
|
Includes real estate investments (contingent interest loans accounted for as investments)
that would be classified as nonaccrual if these assets were recorded as loans. |
We expect that the amount of nonaccrual loans will change due to portfolio growth, portfolio
seasoning, routine problem loan recognition and resolution through collections, sales or
charge-offs. The performance of any one loan can be affected by external factors, such as economic
conditions, or factors particular to a borrower, such as actions of a borrowers management.
19
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 $3,343 million, $3,606 million
and $2,518 million at June 30, 2006, December 31, 2005, and June 30, 2005, respectively. At June
30, 2006, December 31, 2005, and June 30, 2005, the total included $2,526 million, $2,923 million
and $1,943 million, respectively, in advances pursuant to our servicing agreements to GNMA mortgage
pools whose repayments are insured by the FHA or guaranteed by the Department of Veterans Affairs.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
(EXCLUDING INSURED/GUARANTEED GNMA ADVANCES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
11 |
|
|
$ |
18 |
|
|
$ |
30 |
|
Other real estate mortgage |
|
|
2 |
|
|
|
13 |
|
|
|
8 |
|
Real estate construction |
|
|
10 |
|
|
|
9 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
23 |
|
|
|
40 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
107 |
|
|
|
103 |
|
|
|
82 |
|
Real estate 1-4 family junior lien mortgage |
|
|
39 |
|
|
|
50 |
|
|
|
31 |
|
Credit card |
|
|
181 |
|
|
|
159 |
|
|
|
130 |
|
Other revolving credit and installment |
|
|
431 |
|
|
|
290 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
758 |
|
|
|
602 |
|
|
|
500 |
|
|
|
|
36 |
|
|
|
41 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
817 |
|
|
$ |
683 |
|
|
$ |
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
We consider the allowance for credit losses of $4.04 billion adequate to cover credit losses
inherent in the loan portfolio, including unfunded credit commitments, at June 30, 2006. 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 2005 Form 10-K.) Therefore, we
20
cannot provide assurance that, in any particular period, we will not have sizeable credit losses in
relation to the amount reserved. We may need to significantly adjust the
allowance for credit losses, considering current factors at the time, including economic conditions
and ongoing internal and external examination processes. Our process for determining the adequacy
of the allowance for credit losses is discussed in Note 6 (Loans and Allowance for Credit Losses)
to Financial Statements in our 2005 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 Community Banking (including Mortgage Banking), Wholesale Banking and
Wells Fargo Financial have individual asset/liability management committees and processes linked
to the Corporate ALCO process.
Interest Rate Risk
Interest rate risk, which potentially can have a significant earnings impact, is an integral part
of being a financial 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 sources of
earnings.
We assess interest rate risk by comparing our most likely earnings plan with various earnings
simulations using many interest rate scenarios that differ in the direction of interest rate
changes, the degree of change over time, the speed of change and the projected shape of the yield
curve. For example, as of June 30, 2006, our most recent simulation indicated estimated earnings at
risk of less than 1% of our most likely earnings plan over the next 12 months to a scenario in
which the federal funds rate dropped 275 basis points to 2.50% and the Constant Maturity Treasury
bond yield dropped 140 basis points to 3.75% over the same period. Simulation estimates depend on,
and will change with, the size and mix of our actual and projected balance sheet at the time
21
of each simulation. Due to timing differences between the quarterly valuation of MSRs and the eventual
impact of interest rates on mortgage banking volumes, earnings at risk in any particular quarter
could be higher than the average earnings at risk over the twelve month simulation period, depending on the path of interest rates and on our
MSRs hedging strategies. See Mortgage Banking Interest Rate Risk below.
We use exchange-traded and over-the-counter interest rate derivatives to hedge our interest rate
exposures. The credit risk amount and estimated net fair values of these derivatives as of June 30,
2006, and December 31, 2005, are presented in Note 19 (Derivatives) to Financial Statements. We use
derivatives for asset/liability management in three ways:
|
|
|
to convert a major portion of our long-term fixed-rate debt, which we issue to finance
the Company, from fixed-rate payments to floating-rate payments by entering into
receive-fixed swaps; |
|
|
|
to convert the cash flows from selected asset and/or liability instruments/portfolios
from fixed-rate payments to floating-rate payments or vice versa; and |
|
|
|
to hedge our mortgage origination pipeline, funded mortgage loans and MSRs using
interest rate swaps, swaptions, futures, forwards and options. |
Mortgage Banking Interest Rate Risk
We originate, fund and service mortgage loans, which subjects us to various risks, including
credit, liquidity and interest rate risks. We 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 have held originated ARMs in 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. In second quarter 2006, with the sales of $26 billion of ARMs, we completed our sales
of over $90 billion of ARMs since mid-2004.
While credit and liquidity risks have historically been relatively low for mortgage banking
activities, interest rate risk can be substantial. Changes in interest rates may potentially impact
total origination and servicing fees, the value of our residential MSRs measured at fair value 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 the value of derivative loan commitments extended to mortgage applicants.
Interest rates impact the amount and timing of origination and servicing fees because consumer
demand for new mortgages and the level of refinancing activity are sensitive to changes in mortgage
interest rates. Typically, a decline in mortgage interest rates will lead to an increase in
mortgage originations and fees and may also lead to an increase in servicing fee income, depending
on the level of new loans added to the servicing portfolio and prepayments. Given the time it takes
for consumer behavior to fully react to interest rate changes, as well as the time required for
processing a new application, providing the commitment, and securitizing and selling the loan,
interest rate changes will impact origination and servicing fees with a lag. The amount and timing
of the impact on origination and servicing fees will depend on the magnitude, speed and duration of
the change in interest rates.
22
Under FAS 156, which we adopted January 1, 2006, we have 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 initial measurement of fair value of MSRs at the time we sell or
securitize is recorded as a component of net gains on mortgage loan origination/sales activities.
The carrying value of MSRs reflects changes in fair value at the end
of each quarter and changes are included in servicing income, a component of mortgage banking
noninterest income. If the fair value of the MSRs increases, income is recognized; if the fair
value of the MSRs decreases, a loss is recognized. We use a dynamic and sophisticated model to
estimate the fair value of our MSRs. While the valuation of MSRs can be highly subjective and
involve complex judgments by management about matters that are inherently unpredictable, changes in
interest rates influence a variety of assumptions included in the periodic valuation of MSRs.
Assumptions affected include prepayment speed, expected returns and potential risks on the
servicing asset portfolio, the value of escrow balances and other servicing valuation elements
impacted by interest rates.
We hedge the risk of changes in the fair value of residential MSRs with market-based free-standing
derivative instruments (economic hedges), such as swaps, swaptions, Treasury futures and options,
Eurodollar futures and options, and forward contracts, and we also use securities available for
sale. Changes in the fair value of these free-standing derivatives, based on quoted market prices,
as well as changes in the fair value of MSRs determined by our valuation model, are both included
in net servicing income. Changes in fair value of securities available for sale (unrealized gains
and losses) are not included in net servicing income, but are reported in cumulative other
comprehensive income (net of tax) or, upon sale or determination that any impairment is other than
temporary, are reported in gains (losses) on debt securities available for sale.
A decline in interest rates increases the propensity for refinancing, reduces the expected duration
of the servicing portfolio and therefore reduces the estimated fair value of MSRs. This reduction
in fair value causes a charge to income (net of any gains on free-standing derivatives (economic
hedges) used to hedge MSRs). We typically do 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 may provide a partial natural business hedge. In a
rising rate period, when the MSRs may not be fully hedged with free-standing derivatives, the
change in the fair value of the MSRs that can be recaptured into income will typically although
not always exceed the losses on any free-standing derivatives hedging the MSRs. In second
quarter 2006, the change in the fair value of our MSRs exceeded losses on derivatives used to hedge
the MSRs by $17 million. In the first half of 2006, the increase in the fair value of our MSRs was
$167 million less than the losses on free-standing derivatives used to hedge the MSRs.
Hedging the various sources of interest rate risk in mortgage banking is a complex process that
requires sophisticated modeling and constant monitoring. While we attempt to balance these various
aspects of the mortgage business, there are several potential risks to earnings:
|
|
|
MSRs valuation changes associated with interest rate changes are recorded in earnings
immediately within the accounting period in which those interest rate changes occur,
whereas the impact of those same changes in interest rates on origination and servicing
fees occur with a lag and over time. Thus, the mortgage business could be protected from |
23
|
|
|
adverse changes in interest rates over a period of time on a cumulative basis but still
display large variations in income in any accounting period. |
|
|
|
The degree to which the natural business hedge 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. For
example, given the relatively high level of refinancing activity in recent years and the
increase in interest rates during the same period, any significant increase in refinancing
activity would likely occur only if rates drop substantially from year-end 2005 levels. |
|
|
|
Origination volumes, the valuation of MSRs and hedging results and associated costs are
also impacted by many factors. Such factors include the mix of new business between ARMs
and fixed-rate mortgages, the relationship between short-term and long-term interest
rates, the degree of volatility in interest rates, the relationship between mortgage
interest rates and other interest rate markets, and other interest rate factors. Many of
these factors are hard to predict and we may not be able to directly or perfectly hedge
their effect. |
|
|
|
While our hedging activities are designed to balance our mortgage banking interest rate
risks, the financial instruments we use may not perfectly correlate with the values and
income being hedged. |
The total carrying value of our residential and commercial MSRs was $15.8 billion at June 30, 2006,
and $12.5 billion, net of a valuation allowance of $1.2 billion, at December 31, 2005. The
weighted-average note rate on the owned servicing portfolio was 5.80% at June 30, 2006, and 5.72%
at December 31, 2005. Our total MSRs were 1.55% of mortgage loans serviced for others at June 30,
2006, compared with 1.44% at December 31, 2005.
As part of our mortgage banking activities, we enter into commitments to fund residential mortgage
loans at specified times in the future. A mortgage loan commitment is an interest rate lock that
binds us to lend funds to a potential borrower at a specified interest rate and within a specified
period of time, generally up to 60 days after inception of the rate lock. These loan commitments
are derivative loan commitments if the loans that will result from the exercise of the commitments
will be held for sale. Under FAS 133, these derivative loan commitments are recognized at fair
value on the balance sheet with changes in their fair values recorded as part of mortgage banking
noninterest income. Consistent with Emerging Issues Task Force Issue No. 02-3, Issues Involved in
Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities, and SEC Staff Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments, we record no value for the loan commitment at inception.
Subsequent to inception, we recognize 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 that loan is affected primarily by
changes in interest rates and the passage of time. The value of the MSRs is recognized only after
the servicing asset has been contractually separated from the underlying loan by sale or
securitization.
Outstanding derivative loan commitments expose us to the risk that the price of the loans
underlying the commitments might decline due to increases in mortgage interest rates from inception
of the rate lock to the funding of the loan. To minimize this risk, we utilize Treasury futures,
forwards and options, Eurodollar futures and forward contracts as economic hedges
24
against the potential decreases in the values of the loans that could result from the exercise of the loan
commitments. We expect that these derivative financial instruments will experience changes in fair
value that will either fully or partially offset the changes in fair value of the derivative loan
commitments.
Market Risk Trading Activities
From a market risk perspective, our net income is exposed to changes in interest rates, credit
spreads, foreign exchange rates, equity and commodity prices and their implied volatilities. The
primary purpose of our trading businesses is to accommodate customers in the management of their
market price risks. Also, we take positions based on market expectations or to benefit from price
differences between financial instruments and markets, subject to risk limits established and
monitored by Corporate ALCO. All securities, foreign exchange transactions, commodity transactions
and derivatives transacted with customers or used to hedge capital market transactions with
customers are carried at fair value. The Institutional Risk Committee establishes and monitors
counterparty risk limits. The credit risk amount and estimated net fair value of all customer
accommodation derivatives at June 30, 2006, and December 31, 2005, are included in Note 19
(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 second quarter 2006 was $12.7 million, with a
lower bound of $10.4 million and an upper bound of $14.9 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 Board reviews
business developments, key risks and historical returns for the private equity investments at least
annually. Management reviews these investments at least quarterly and assesses them for possible
other-than-temporary impairment. For nonmarketable investments, the analysis is based on facts and
circumstances of each 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 $1.66 billion at June 30, 2006, compared with $1.54 billion at December 31,
2005.
We also have marketable equity securities in the available for sale investment portfolio, including
securities relating to our venture capital activities. We manage these investments within capital
risk limits approved by management and the Board and monitored by Corporate ALCO. Gains and losses
on these securities are recognized in net income when realized and other-than-temporary impairment
may be periodically recorded when identified. The initial
25
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, to a lesser degree, our investment horizon in relationship to an anticipated
near-term recovery in the stock price, if any. The fair value of
marketable equity securities was $800 million and cost was $558 million at June 30, 2006, compared
with $900 million and $558 million, respectively, at December 31, 2005.
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 and
securities purchased under resale agreements. 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. The remaining assets were funded by long-term debt, deposits in foreign offices,
short-term borrowings (federal funds purchased, securities sold under repurchase agreements,
commercial paper and other short-term borrowings) and trust preferred securities.
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. In September 2003, Moodys
Investors Service rated Wells Fargo Bank, N.A. as Aaa, its highest investment grade, and rated
the Companys senior debt as Aa1.
In August 2006, Standard & Poors raised Wells Fargo Bank,
N.A.s rating to AA+ from AA, and raised the
Companys senior debt rating to AA from
AA-.
Rating agencies base their ratings on many quantitative and
qualitative factors, including capital adequacy, liquidity, asset quality, business mix, and level
and quality of earnings.
Parent. Under SEC rules effective December 1, 2005, 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. 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
26
authority granted by the Board. The Parent is currently authorized by the Board to issue $20
billion in outstanding short-term debt and $90 billion in outstanding long-term debt, subject to a
total outstanding debt limit of $100 billion. In June 2006, the Parents registration statement
with the SEC for issuance of senior and subordinated notes, preferred stock and other securities
became effective. During the first half of 2006, the Parent issued a total of $7.6 billion of
registered senior notes, including $.9 billion (denominated in pounds sterling) sold primarily in
the United Kingdom and $2.0 billion (denominated in euros) sold primarily in Europe. Also, in the
first half of 2006, the Parent issued $.5 billion in private placements (denominated in
Australian dollars) under the Parents Australian debt issuance program. We used the proceeds from
securities issued in the first half of 2006 for general corporate purposes and expect that the
proceeds in the future will also be used for general corporate purposes. The Parent also issues
commercial paper from time to time, subject to its short-term debt limit.
Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is authorized by its board of directors to issue $20
billion in outstanding short-term debt and $40 billion in outstanding long-term debt. In March
2003, Wells Fargo Bank, N.A. established a $50 billion bank note program under which, subject to
any other debt outstanding under the limits described above, it may issue $20 billion in
outstanding short-term senior notes and $30 billion in long-term senior notes. Securities are
issued under this program as private placements in accordance with Office of the Comptroller of the
Currency (OCC) regulations. During the first half of 2006, Wells Fargo Bank, N.A. issued $2.1
billion in long-term senior and subordinated notes, including $.6 billion of long-term senior notes
under the bank note program.
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 provincial securities exchanges in Canada $7.0 billion (Canadian) of issuance authority.
During the first half of 2006, WFFCC issued $1.0 billion (Canadian) in senior notes. At June 30,
2006, the remaining issuance capacity for WFFCC was $6.0 billion (Canadian). WFFI issued $.5
billion (U.S.) in private placements in the first half of 2006.
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 cost of doing so is
perceived to be low.
From time to time the Board authorizes the Company to repurchase shares of our common stock.
Although we announce when the Board authorizes share repurchases, we typically do not give any
public notice before we repurchase our shares. 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.
27
Historically, our policy has been to repurchase shares under the safe harbor conditions of
Rule 10b-18 of the Exchange Act including a limitation on the daily volume of repurchases. Rule
10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger
or acquisition in which shares of our stock will constitute some or all of the consideration. Our
management may determine that during a pending stock merger or acquisition when the safe harbor
would otherwise be available, it is in 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 2005, the Board authorized the repurchase of up to 75 million additional shares of our
outstanding common stock. In June 2006, the Board authorized the repurchase of up to 25 million
additional shares of our outstanding common stock. During the first half of 2006, we repurchased 18
million shares of our common stock. At June 30, 2006, the total remaining common stock repurchase
authority under the 2005 and 2006 authorizations was 42 million shares. (For additional information
regarding share repurchases and repurchase authorizations, see Part II Item 2 of this Report.)
On June 27, 2006, the Board declared a two-for-one stock split in the form of a 100% stock dividend
on our common stock, to be distributed August 11, 2006, to stockholders of record at the close of
business August 4, 2006. We will distribute one share of common stock for each share of common
stock issued and outstanding or held in the treasury of the Company. Also, in June 2006, the Board
declared an increase in the quarterly common stock dividend to 56 cents per share, up 4 cents, or
8%. The cash dividend is on a pre-split basis and is payable September 1, 2006, to stockholders of
record at the close of business August 4, 2006.
Our potential sources of capital include retained earnings, and issuances of common and preferred
stock and subordinated debt. In the first half of 2006, retained earnings increased $1.4 billion,
predominantly resulting from net income of $4.1 billion and $.1 billion from the adoption of FAS
156 upon remeasurement of our residential MSRs to fair value, less dividends of $2.7 billion. In
the first half of 2006, we issued $1.1 billion of common stock (including shares issued for our
ESOP plan) under various employee benefit and director plans and under our dividend reinvestment
and direct stock repurchase programs.
At June 30, 2006, the Company and each of our subsidiary banks were well capitalized under the
applicable regulatory capital adequacy guidelines. See Note 18 (Regulatory and Agency Capital
Requirements) to Financial Statements for additional information.
28
RISK FACTORS
An investment in the Company has risk. In addition, in accordance with the Private Securities
Litigation Reform Act of 1995, we caution you that actual results may differ from forward-looking
statements about our future financial and business performance contained in this Report and other
reports we file with the SEC and in other Company communications. This Report contains
forward-looking statements about:
|
|
|
the adequacy of the $100 million loan loss provision taken in 2005 for Hurricane
Katrina to cover actual charge-offs; |
|
|
|
the expected impact of changes in interest rates on loan demand, credit losses,
mortgage origination volume, the value of MSRs, and other sources of earnings; |
|
|
|
the expected time periods over which unrecognized compensation expense relating to
stock options and restricted share rights will be recognized; |
|
|
|
the expected impact of the adoption of new accounting standards and policies; |
|
|
|
future credit losses and nonperforming assets, including changes in the amount of
nonaccrual loans due to portfolio growth, portfolio seasoning, and other factors; |
|
|
|
the extent to which changes in the fair value of derivative financial instruments will
offset changes in the fair value of derivative loan commitments; |
|
|
|
future short-term and long-term interest rate levels and their impact on net interest
margin, net income, liquidity and capital; |
|
|
|
future cross-sell opportunities and the expected improvement in operating efficiencies
from a common systems platform for all consumer credit products; |
|
|
|
the anticipated use of proceeds from the issuance of securities; |
|
|
|
the amount and timing of future contributions to the Cash Balance Plan; |
|
|
|
the recovery of our investment in variable interest entities; |
|
|
|
future reclassification to earnings of deferred net gains on derivatives; |
|
|
|
expected completion dates of pending business combinations and other acquisitions; and |
|
|
|
the amount of contingent consideration payable in connection with certain acquisitions. |
Factors that could cause our financial results and condition to vary significantly from quarter to
quarter or cause actual results to differ from our expectations for our future financial and
business performance include:
|
|
|
lower or negative revenue growth because of our inability to sell more products to our
existing customers; |
|
|
|
decreased demand for our products and services because of an economic slowdown; |
|
|
|
reduced fee income from our brokerage and asset management businesses because of a fall
in stock market prices; |
|
|
|
lower net interest margin, decreased mortgage loan originations and reductions in the
value of our MSRs because of changes in interest rates; |
|
|
|
reduced earnings because of higher credit losses generally and, in the case of
Hurricane Katrina, because actual charge-offs exceed the loan loss provision taken in
2005; |
|
|
|
reduced earnings because of changes in the value of our venture capital investments; |
|
|
|
changes in our accounting policies or in accounting standards; |
|
|
|
reduced earnings from not realizing the expected benefits of acquisitions or from
unexpected difficulties integrating acquisitions; |
|
|
|
federal and state regulations; |
29
|
|
|
reputational damage from negative publicity; |
|
|
|
fines, penalties and other negative consequences from regulatory violations, even
inadvertent or unintentional violations; |
|
|
|
the loss of checking and saving account deposits to alternative investments such as the
stock market and higher-yielding fixed income investments; and |
|
|
|
fiscal and monetary policies of the Federal Reserve Board. |
Refer to our 2005 Form 10-K, including Risk Factors, for information about these factors. Refer
also to this Report, including the discussion below and under Risk Management in the Financial
Review section, for additional risk factors and other information that may supplement or modify the
discussion of risk factors in our 2005 Form 10-K.
Changes in interest rates could reduce the value of our mortgage servicing rights (MSRs) and
earnings.
We have a sizeable portfolio of MSRs. A mortgage servicing right is the right to service a mortgage
loan collect principal, interest, escrow amounts, etc. for a fee. We acquire MSRs when we keep
the servicing rights after we sell or securitize the loans we have originated or when we purchase
the servicing rights to mortgage loans originated by other lenders. Effective January 1, 2006, upon
adoption of FAS 156, we elected to initially measure and carry our residential MSRs using the fair
value measurement method. Fair value is the present value of estimated future net servicing income,
calculated based on a number of variables, including assumptions about the likelihood of prepayment
by borrowers.
Changes in interest rates can affect prepayment assumptions and thus fair value. When interest
rates fall, borrowers are more likely to prepay their mortgage loans by refinancing them at a lower
rate. As the likelihood of prepayment increases, the fair value of our MSRs can decrease. Each
quarter we evaluate the fair value of our MSRs, and any decrease in fair value reduces earnings in
the period in which the decrease occurs.
For more information, refer to Critical Accounting Policies and Risk Management -
Asset/Liability and Market Risk Management Mortgage Banking Interest Rate Risk in the Financial
Review section of this Report.
Our mortgage banking revenue can be volatile from quarter to quarter.
We earn revenue from fees we receive for originating mortgage loans and for servicing mortgage
loans. When rates rise, the demand for mortgage loans tends to fall, reducing the revenue we
receive from loan originations. At the same time, revenue from our MSRs can increase, through
increases in fair value. When rates fall, mortgage originations tend to increase and the value of
our MSRs tends to decline, also with some offsetting revenue effect. Even though they can act as a
natural hedge, the hedge is not perfect, either in amount or timing. For example, the negative
effect on revenue from a decrease in the fair value of residential MSRs is immediate, but any
offsetting revenue benefit from more originations and the MSRs relating to the new loans would
accrue over time.
We typically use derivatives and other instruments to hedge our mortgage banking interest rate
risk. We generally do not hedge all of our risk, and the fact that we attempt to hedge any of the
30
risk does not mean we will be successful. Hedging is a complex process, requiring sophisticated
models and constant monitoring, and is not a perfect science. We may use hedging instruments tied
to U.S. Treasury rates or Eurodollars that may not perfectly correlate with the value or income
being hedged. We could incur losses from our hedging activities. There may be periods where we
elect not to use derivatives and other instruments to hedge mortgage banking interest rate risk.
For more information,
refer to Risk Management Asset/Liability and Market Risk Management
Mortgage Banking Interest Rate Risk in the Financial Review section of this Report.
We may incur fines, penalties and other negative consequences from regulatory violations, possibly
even inadvertent or unintentional violations.
We maintain systems and procedures designed to ensure that we comply with applicable laws and
regulations. However, some legal/regulatory frameworks provide for the imposition of fines or
penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even
though there was in place at the time systems and procedures designed to ensure compliance. For
example, we are subject to regulations issued by the Office of Foreign Assets Control (OFAC) that
prohibit financial institutions from participating in the transfer of property belonging to the
governments of certain foreign countries and designated nationals of those countries. OFAC may
impose penalties for inadvertent or unintentional violations even if reasonable processes are in
place to prevent the violations. Therefore, the establishment and maintenance of systems and
procedures reasonably designed to ensure compliance cannot guarantee that we will be able to avoid
a fine or penalty for noncompliance. For example, in April 2003 and January 2005 OFAC reported
settlements with Wells Fargo Bank, N.A. in amounts of $5,500 and $42,833, respectively. These
settlements related to transactions involving inadvertent acts or human error alleged to have
violated OFAC regulations. There may be other negative consequences resulting from a finding of
noncompliance, including restrictions on
certain activities. Such a finding may also damage our reputation (see Negative publicity could
damage our reputation under Risk Factors in our 2005 Form 10-K) and could restrict the ability
of institutional investment managers to invest in our securities.
31
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by SEC rules, the Companys management evaluated the effectiveness, as of June 30,
2006, of the Companys disclosure controls and procedures. The Companys chief executive officer
and chief financial officer participated in the evaluation. Based on this evaluation, the Companys
chief executive officer and chief financial officer concluded that the Companys disclosure
controls and procedures were effective as of June 30, 2006.
Internal Control Over Financial Reporting
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the
companys principal executive and principal financial officers and effected by the companys board
of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those
policies and procedures that:
|
|
|
pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of assets of the company; |
|
|
|
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts and
expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and |
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect
on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. No change occurred during
second quarter 2006 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
32
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions, except per share amounts) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
$ |
65 |
|
|
$ |
54 |
|
|
$ |
134 |
|
|
$ |
98 |
|
Securities available for sale |
|
|
875 |
|
|
|
429 |
|
|
|
1,538 |
|
|
|
885 |
|
Mortgages held for sale |
|
|
808 |
|
|
|
481 |
|
|
|
1,417 |
|
|
|
911 |
|
Loans held for sale |
|
|
11 |
|
|
|
15 |
|
|
|
22 |
|
|
|
127 |
|
Loans |
|
|
6,245 |
|
|
|
5,163 |
|
|
|
12,355 |
|
|
|
9,943 |
|
Other interest income |
|
|
73 |
|
|
|
58 |
|
|
|
143 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
8,077 |
|
|
|
6,200 |
|
|
|
15,609 |
|
|
|
12,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
1,794 |
|
|
|
825 |
|
|
|
3,276 |
|
|
|
1,517 |
|
Short-term borrowings |
|
|
289 |
|
|
|
164 |
|
|
|
559 |
|
|
|
313 |
|
Long-term debt |
|
|
1,010 |
|
|
|
675 |
|
|
|
1,920 |
|
|
|
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,093 |
|
|
|
1,664 |
|
|
|
5,755 |
|
|
|
3,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,984 |
|
|
|
4,536 |
|
|
|
9,854 |
|
|
|
8,989 |
|
Provision for credit losses |
|
|
432 |
|
|
|
454 |
|
|
|
865 |
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
4,552 |
|
|
|
4,082 |
|
|
|
8,989 |
|
|
|
7,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
665 |
|
|
|
625 |
|
|
|
1,288 |
|
|
|
1,203 |
|
Trust and investment fees |
|
|
675 |
|
|
|
597 |
|
|
|
1,338 |
|
|
|
1,199 |
|
Card fees |
|
|
418 |
|
|
|
361 |
|
|
|
802 |
|
|
|
687 |
|
Other fees |
|
|
510 |
|
|
|
478 |
|
|
|
998 |
|
|
|
931 |
|
Mortgage banking |
|
|
735 |
|
|
|
237 |
|
|
|
1,150 |
|
|
|
1,051 |
|
Operating leases |
|
|
200 |
|
|
|
202 |
|
|
|
401 |
|
|
|
410 |
|
Insurance |
|
|
364 |
|
|
|
358 |
|
|
|
728 |
|
|
|
695 |
|
Net gains (losses) on debt securities available for sale |
|
|
(156 |
) |
|
|
39 |
|
|
|
(191 |
) |
|
|
35 |
|
Net gains from equity investments |
|
|
133 |
|
|
|
201 |
|
|
|
323 |
|
|
|
272 |
|
Other |
|
|
261 |
|
|
|
231 |
|
|
|
653 |
|
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
3,805 |
|
|
|
3,329 |
|
|
|
7,490 |
|
|
|
6,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
1,754 |
|
|
|
1,551 |
|
|
|
3,426 |
|
|
|
3,031 |
|
Incentive compensation |
|
|
714 |
|
|
|
562 |
|
|
|
1,382 |
|
|
|
1,027 |
|
Employee benefits |
|
|
487 |
|
|
|
432 |
|
|
|
1,076 |
|
|
|
979 |
|
Equipment |
|
|
284 |
|
|
|
263 |
|
|
|
619 |
|
|
|
633 |
|
Net occupancy |
|
|
345 |
|
|
|
310 |
|
|
|
681 |
|
|
|
714 |
|
Operating leases |
|
|
157 |
|
|
|
157 |
|
|
|
318 |
|
|
|
315 |
|
Other |
|
|
1,435 |
|
|
|
1,279 |
|
|
|
2,748 |
|
|
|
2,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
5,176 |
|
|
|
4,554 |
|
|
|
10,250 |
|
|
|
9,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
|
|
3,181 |
|
|
|
2,857 |
|
|
|
6,229 |
|
|
|
5,669 |
|
Income tax expense |
|
|
1,092 |
|
|
|
947 |
|
|
|
2,122 |
|
|
|
1,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,089 |
|
|
$ |
1,910 |
|
|
$ |
4,107 |
|
|
$ |
3,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
$ |
1.24 |
|
|
$ |
1.14 |
|
|
$ |
2.44 |
|
|
$ |
2.23 |
|
DILUTED EARNINGS PER COMMON SHARE |
|
$ |
1.23 |
|
|
$ |
1.12 |
|
|
$ |
2.42 |
|
|
$ |
2.20 |
|
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
1.08 |
|
|
$ |
.48 |
|
|
$ |
1.60 |
|
|
$ |
.96 |
|
Average common shares outstanding |
|
|
1,681.9 |
|
|
|
1,687.7 |
|
|
|
1,680.5 |
|
|
|
1,691.5 |
|
Diluted average common shares outstanding |
|
|
1,702.2 |
|
|
|
1,707.2 |
|
|
|
1,700.0 |
|
|
|
1,711.4 |
|
|
|
The accompanying notes are an integral part of these statements.
33
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
December 31 |
, |
|
June 30 |
, |
(in millions, except shares) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
14,069 |
|
|
$ |
15,397 |
|
|
$ |
13,962 |
|
Federal funds sold, securities purchased under
resale agreements and other short-term investments |
|
|
5,367 |
|
|
|
5,306 |
|
|
|
5,661 |
|
Trading assets |
|
|
7,344 |
|
|
|
10,905 |
|
|
|
8,019 |
|
Securities available for sale |
|
|
71,420 |
|
|
|
41,834 |
|
|
|
29,216 |
|
Mortgages held for sale |
|
|
39,714 |
|
|
|
40,534 |
|
|
|
31,733 |
|
Loans held for sale |
|
|
594 |
|
|
|
612 |
|
|
|
651 |
|
|
|
|
300,622 |
|
|
|
310,837 |
|
|
|
301,739 |
|
Allowance for loan losses |
|
|
(3,851 |
) |
|
|
(3,871 |
) |
|
|
(3,775 |
) |
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
296,771 |
|
|
|
306,966 |
|
|
|
297,964 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value (residential MSRs beginning 2006) |
|
|
15,650 |
|
|
|
|
|
|
|
|
|
Amortized |
|
|
175 |
|
|
|
12,511 |
|
|
|
8,498 |
|
Premises and equipment, net |
|
|
4,529 |
|
|
|
4,417 |
|
|
|
4,156 |
|
Goodwill |
|
|
11,091 |
|
|
|
10,787 |
|
|
|
10,647 |
|
Other assets |
|
|
32,792 |
|
|
|
32,472 |
|
|
|
24,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
499,516 |
|
|
$ |
481,741 |
|
|
$ |
434,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
$ |
89,448 |
|
|
$ |
87,712 |
|
|
$ |
86,791 |
|
Interest-bearing deposits |
|
|
237,004 |
|
|
|
226,738 |
|
|
|
188,222 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
326,452 |
|
|
|
314,450 |
|
|
|
275,013 |
|
Short-term borrowings |
|
|
13,619 |
|
|
|
23,892 |
|
|
|
17,905 |
|
Accrued expenses and other liabilities |
|
|
33,794 |
|
|
|
23,071 |
|
|
|
19,930 |
|
Long-term debt |
|
|
83,757 |
|
|
|
79,668 |
|
|
|
82,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
457,622 |
|
|
|
441,081 |
|
|
|
395,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
548 |
|
|
|
325 |
|
|
|
462 |
|
Common stock $1-2/3 par value, authorized
6,000,000,000 shares; issued 1,736,381,025 shares |
|
|
2,894 |
|
|
|
2,894 |
|
|
|
2,894 |
|
Additional paid-in capital |
|
|
10,456 |
|
|
|
9,934 |
|
|
|
9,862 |
|
Retained earnings |
|
|
31,964 |
|
|
|
30,580 |
|
|
|
28,567 |
|
Cumulative other comprehensive income |
|
|
155 |
|
|
|
665 |
|
|
|
771 |
|
Treasury stock 55,489,921 shares, 58,797,993 shares
and 49,519,417 shares |
|
|
(3,537 |
) |
|
|
(3,390 |
) |
|
|
(2,784 |
) |
Unearned ESOP shares |
|
|
(586 |
) |
|
|
(348 |
) |
|
|
(494 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
41,894 |
|
|
|
40,660 |
|
|
|
39,278 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
499,516 |
|
|
$ |
481,741 |
|
|
$ |
434,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
34
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, 2004 |
|
|
1,694,591,637 |
|
|
$ |
270 |
|
|
$ |
2,894 |
|
|
$ |
9,806 |
|
|
$ |
26,482 |
|
|
$ |
950 |
|
|
$ |
(2,247 |
) |
|
$ |
(289 |
) |
|
$ |
37,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,766 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Net unrealized losses on securities available
for sale and other interests held, net of
reclassification of $114 million of net gains
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128 |
) |
|
|
|
|
|
|
|
|
|
|
(128 |
) |
Net unrealized losses on derivatives and
hedging activities, net of reclassification of
$102 million of net losses on cash flow
hedges included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,587 |
|
Common stock issued |
|
|
12,357,294 |
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
679 |
|
|
|
|
|
|
|
599 |
|
Common stock issued for acquisitions |
|
|
4,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased |
|
|
(22,905,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,373 |
) |
|
|
|
|
|
|
(1,373 |
) |
Preferred stock (363,000) issued to ESOP |
|
|
|
|
|
|
363 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(387 |
) |
|
|
|
|
Preferred stock released to ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
170 |
|
Preferred stock (170,368) converted to common
shares |
|
|
2,813,705 |
|
|
|
(170 |
) |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
157 |
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,626 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,626 |
) |
Tax benefit upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
Other, net |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
(7,730,029 |
) |
|
|
192 |
|
|
|
|
|
|
|
56 |
|
|
|
2,085 |
|
|
|
(179 |
) |
|
|
(537 |
) |
|
|
(205 |
) |
|
|
1,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,686,861,608 |
|
|
$ |
462 |
|
|
$ |
2,894 |
|
|
$ |
9,862 |
|
|
$ |
28,567 |
|
|
$ |
771 |
|
|
$ |
(2,784 |
) |
|
$ |
(494 |
) |
|
$ |
39,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2005 |
|
|
1,677,583,032 |
|
|
$ |
325 |
|
|
$ |
2,894 |
|
|
$ |
9,934 |
|
|
$ |
30,580 |
|
|
$ |
665 |
|
|
$ |
(3,390 |
) |
|
$ |
(348 |
) |
|
$ |
40,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect from adoption of FAS 156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE JANUARY 1, 2006 |
|
|
1,677,583,032 |
|
|
|
325 |
|
|
|
2,894 |
|
|
|
9,934 |
|
|
|
30,681 |
|
|
|
665 |
|
|
|
(3,390 |
) |
|
|
(348 |
) |
|
|
40,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Net unrealized losses on securities available
for sale and other interests held, net of
reclassification of $7 million of net losses
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592 |
) |
|
|
|
|
|
|
|
|
|
|
(592 |
) |
Net unrealized gains on derivatives and
hedging activities, net of reclassification of
$187 million of net gains on cash flow
hedges included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,597 |
|
Common stock issued |
|
|
18,735,314 |
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
1,095 |
|
|
|
|
|
|
|
931 |
|
Common stock repurchased |
|
|
(18,360,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,185 |
) |
|
|
|
|
|
|
(1,185 |
) |
Preferred stock (414,000) issued to ESOP |
|
|
|
|
|
|
414 |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443 |
) |
|
|
|
|
Preferred stock released to ESOP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205 |
|
|
|
191 |
|
Preferred stock (191,684) converted to common
shares |
|
|
2,933,500 |
|
|
|
(191 |
) |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,692 |
) |
Tax benefit upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Net change in deferred compensation and
related plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
8 |
|
Reclassification of share-based plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
(211 |
) |
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
3,308,072 |
|
|
|
223 |
|
|
|
|
|
|
|
522 |
|
|
|
1,283 |
|
|
|
(510 |
) |
|
|
(147 |
) |
|
|
(238 |
) |
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,680,891,104 |
|
|
$ |
548 |
|
|
$ |
2,894 |
|
|
$ |
10,456 |
|
|
$ |
31,964 |
|
|
$ |
155 |
|
|
$ |
(3,537 |
) |
|
$ |
(586 |
) |
|
$ |
41,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
35
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,107 |
|
|
$ |
3,766 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
865 |
|
|
|
1,039 |
|
Provision for MSRs in excess of fair value |
|
|
|
|
|
|
33 |
|
Change in fair value of residential MSRs |
|
|
74 |
|
|
|
|
|
Depreciation and amortization |
|
|
1,274 |
|
|
|
2,002 |
|
Net losses (gains) on securities available for sale |
|
|
11 |
|
|
|
(170 |
) |
Net gains on mortgage loan origination/sales activities |
|
|
(632 |
) |
|
|
(543 |
) |
Other net gains |
|
|
(151 |
) |
|
|
(25 |
) |
Preferred shares released to ESOP |
|
|
191 |
|
|
|
170 |
|
Stock option compensation expense |
|
|
80 |
|
|
|
|
|
Excess tax benefits related to stock option payments |
|
|
(106 |
) |
|
|
|
|
Net decrease in trading assets |
|
|
3,580 |
|
|
|
981 |
|
Net increase in deferred income taxes |
|
|
483 |
|
|
|
571 |
|
Net increase in accrued interest receivable |
|
|
(115 |
) |
|
|
(118 |
) |
Net increase in accrued interest payable |
|
|
278 |
|
|
|
196 |
|
Originations of mortgages held for sale |
|
|
(117,806 |
) |
|
|
(100,635 |
) |
Proceeds from sales of mortgages originated for sale |
|
|
113,032 |
|
|
|
95,815 |
|
Principal collected on mortgages originated for sale |
|
|
1,147 |
|
|
|
912 |
|
Net increase in loans originated for sale |
|
|
18 |
|
|
|
2,783 |
|
Other assets, net |
|
|
3,095 |
|
|
|
(1,164 |
) |
Other accrued expenses and liabilities, net |
|
|
10,966 |
|
|
|
559 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
20,391 |
|
|
|
6,172 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
26,330 |
|
|
|
3,799 |
|
Prepayments and maturities |
|
|
2,983 |
|
|
|
3,379 |
|
Purchases |
|
|
(60,351 |
) |
|
|
(2,884 |
) |
Net cash paid for acquisitions |
|
|
(332 |
) |
|
|
(6 |
) |
Increase in banking subsidiaries loan originations, net of collections |
|
|
(17,878 |
) |
|
|
(17,090 |
) |
Proceeds from sales (including participations) of loans by banking subsidiaries |
|
|
34,832 |
|
|
|
18,175 |
|
Purchases (including participations) of loans by banking subsidiaries |
|
|
(2,981 |
) |
|
|
(4,333 |
) |
Principal collected on nonbank entities loans |
|
|
11,842 |
|
|
|
9,393 |
|
Loans originated by nonbank entities |
|
|
(13,215 |
) |
|
|
(14,274 |
) |
Proceeds from sales of foreclosed assets |
|
|
253 |
|
|
|
236 |
|
Net increase in federal funds sold, securities purchased
under resale agreements and other short-term investments |
|
|
(6 |
) |
|
|
(641 |
) |
Net increase in MSRs |
|
|
(1,896 |
) |
|
|
(992 |
) |
Other, net |
|
|
(3,998 |
) |
|
|
(2,860 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(24,417 |
) |
|
|
(8,098 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
11,772 |
|
|
|
155 |
|
Net decrease in short-term borrowings |
|
|
(10,319 |
) |
|
|
(4,057 |
) |
Proceeds from issuance of long-term debt |
|
|
11,924 |
|
|
|
18,171 |
|
Long-term debt repayment |
|
|
(7,959 |
) |
|
|
(8,905 |
) |
Proceeds from issuance of common stock |
|
|
931 |
|
|
|
599 |
|
Common stock repurchased |
|
|
(1,185 |
) |
|
|
(1,373 |
) |
Cash dividends paid on common stock |
|
|
(2,692 |
) |
|
|
(1,626 |
) |
Excess tax benefits related to stock option payments |
|
|
106 |
|
|
|
|
|
Other, net |
|
|
120 |
|
|
|
21 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
2,698 |
|
|
|
2,985 |
|
|
|
|
|
|
|
|
Net change in cash and due from banks |
|
|
(1,328 |
) |
|
|
1,059 |
|
Cash and due from banks at beginning of period |
|
|
15,397 |
|
|
|
12,903 |
|
|
|
|
|
|
|
|
Cash and due from banks at end of period |
|
$ |
14,069 |
|
|
$ |
13,962 |
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
5,477 |
|
|
$ |
3,280 |
|
Income taxes |
|
|
959 |
|
|
|
441 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Net transfers from loans to mortgages held for sale |
|
$ |
30,164 |
|
|
$ |
16,619 |
|
Net transfers from loans held for sale to loans |
|
|
|
|
|
|
7,444 |
|
Transfers from loans to foreclosed assets |
|
|
795 |
|
|
|
284 |
|
|
|
The accompanying notes are an integral part of these statements.
36
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, 2005 (2005 Form
10-K).
Descriptions of our significant accounting policies are included in Note 1 (Summary of Significant
Accounting Policies) to Financial Statements in our 2005 Form 10-K. There have been no significant
changes to these policies, except as discussed below for transfers and servicing of financial
assets and stock-based compensation.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
We account for a transfer of financial assets as a sale when we surrender control of the
transferred assets. Effective January 1, 2006, upon adoption of Statement of Financial Accounting
Standards No. 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement
No. 140 (FAS 156), servicing rights resulting from the sale or securitization of loans we originate
and purchase (asset transfers), are initially measured at fair value at the date of transfer. We
recognize the rights to service mortgage loans for others, or mortgage servicing rights (MSRs), as
assets whether we purchase the MSRs or the MSRs result from an asset transfer. We determine the
fair value of servicing rights at the date of transfer using the present value of estimated future
net servicing income, using assumptions that market participants use in their estimates of values.
We use quoted market prices when available to determine the value of other interests held. Gain or
loss on sale of loans depends on (a) net proceeds received (including cash proceeds and the value
of any servicing asset recorded) and (b) the previous carrying amount of the financial assets
transferred and any interests we continue to hold (such as interest-only strips) based on relative
fair value at the date of transfer.
37
To determine the fair value of MSRs, we use a valuation model that calculates the present value of
estimated future net servicing income. We use assumptions in the valuation model that market
participants use in estimating future net servicing income, including estimates of prepayment
speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income,
ancillary income and late fees. This model is validated by an independent internal model validation
group operating in accordance with a model valuation policy approved by the Corporate
Asset/Liability Management Committee.
MSRs Measured at Fair Value
Effective January 1, 2006, upon adoption of FAS 156, we elected to initially measure and
subsequently carry our MSRs related to residential mortgage loans (residential MSRs) using the fair
value method. Under the fair value method, residential MSRs are carried on the balance sheet at
fair value and the changes in fair value, primarily due to changes in valuation inputs and
assumptions and to the collection/realization of expected cash flows, are reported in earnings in
the period in which the change occurs.
Effective January 1, 2006, upon the remeasurement of our residential MSRs at fair value, we
recorded a cumulative-effect adjustment to the 2006 beginning balance of retained earnings of $101
million after tax ($158 million pre tax) in our Statement of Changes in Stockholders Equity.
Amortized MSRs
Amortized MSRs, which include commercial MSRs and, prior to January 1, 2006, residential MSRs, are
carried at the lower of cost or market. These MSRs are amortized in proportion to, and over the
period of, estimated net servicing income. The amortization of MSRs is analyzed monthly and is
adjusted to reflect changes in prepayment speeds, as well as other factors.
STOCK-BASED COMPENSATION
We have several stock-based employee compensation plans, which are more fully discussed in Note 10.
Prior to January 1, 2006, we accounted for stock options and stock awards under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25), and related interpretations, as permitted by FAS 123, Accounting for
Stock-Based Compensation. Under this guidance, no stock option expense was recognized in our income
statement for periods prior to January 1, 2006, as all options granted under our plans had an
exercise price equal to the market value of the underlying common stock on the date of grant.
Effective January 1, 2006, we adopted FAS 123(R), Share-Based Payment, using the
modified-prospective transition method. Accordingly, compensation cost recognized in the first six
months of 2006 includes; (1) compensation cost for all share-based payments granted prior to, but
not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance
with FAS 123, and (2) compensation cost for all share-based awards granted on or after January 1,
2006, including cost for retirement-eligible team members, which is immediately expensed upon
grant, based on the grant date fair value estimated in accordance with FAS 123(R). Results for
prior periods have not been restated. In calculating the common stock equivalents for purposes of
diluted earnings per share, we selected the transition method provided by FASB Staff Position FAS
123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards.
38
As a result of adopting FAS 123(R) on January 1, 2006, our income before income taxes of $3,181
million and net income of $2,089 million for the second quarter of 2006 was $28 million and $17
million lower, respectively, and our income before income taxes of $6,229 million and net income of
$4,107 million for the first six months of 2006 was $80 million and $50 million lower,
respectively, than if we had continued to account for share-based compensation under APB 25.
Earnings per share and diluted earnings per share for the second quarter of 2006 of $1.24 and
$1.23, respectively, were both $.01 per share lower than if we had not adopted FAS 123(R). Earnings
per share and diluted earnings per share for the first six months of 2006 of $2.44 and $2.42,
respectively, were both $.03 per share lower than if we had not adopted FAS 123(R).
Prior to the adoption of FAS 123(R), we presented all tax benefits of deductions resulting from the
exercise of stock options as operating cash flows in the Statement of Cash Flows. FAS 123(R)
requires the cash flows from the tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax benefits) to be classified as financing
cash flows. The $106 million excess tax benefit for the first six months of 2006 classified as a
financing cash inflow would have been classified as an operating cash inflow if we had not adopted
FAS 123(R).
Pro forma net income and earnings per common share information are provided in the table below as
if we accounted for employee stock option plans under the fair value method of FAS 123 in the
second quarter and first six months of 2005.
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Six months ended |
|
(in millions, except per share amounts) |
|
June 30, 2005 |
|
|
June 30, 2005 |
|
|
|
|
$ |
1,910 |
|
|
$ |
3,766 |
|
Add: Stock-based employee compensation expense
included in reported net income, net of tax |
|
|
|
|
|
|
|
|
Less: Total stock-based employee compensation
expense under the fair value method for
all awards, net of tax |
|
|
(23 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
|
Net income, pro forma |
|
$ |
1,887 |
|
|
$ |
3,618 |
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.14 |
|
|
$ |
2.23 |
|
Pro forma |
|
|
1.12 |
|
|
|
2.14 |
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.12 |
|
|
$ |
2.20 |
|
Pro forma |
|
|
1.10 |
|
|
|
2.11 |
|
|
Stock options granted in our February 2005 grant, under our Long-Term Incentive Compensation
Plan, fully vested upon grant, resulting in full recognition of stock-based compensation expense
under the fair value method in the table above.
39
2. BUSINESS COMBINATIONS
We regularly explore opportunities to acquire financial services companies and businesses.
Generally, we do not make a public announcement about an acquisition opportunity until a definitive
agreement has been signed.
Transactions completed in the first half of 2006 were:
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Date |
|
|
Assets |
|
|
Secured Capital Corp / Secured Capital LLC, Los Angeles, California |
|
January 18 |
|
$ |
132 |
|
Martinius Corporation, Rogers, Minnesota |
|
March 1 |
|
|
91 |
|
Commerce Funding Corporation, Vienna, Virginia |
|
April 17 |
|
|
82 |
|
Fremont National Bank of Canon City / Centennial Bank of Pueblo,
Canon City and Pueblo, Colorado |
|
June 7 |
|
|
201 |
|
Other (1) |
|
Various |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of three acquisitions of insurance brokerage businesses. |
At June 30, 2006, we had two pending business combinations with total assets of approximately
$381 million. We expect to complete these transactions in third quarter 2006. In July 2006, we
acquired a $140 billion mortgage servicing portfolio from Washington Mutual, Inc.
3. |
|
FEDERAL FUNDS SOLD, SECURITIES PURCHASED UNDER RESALE AGREEMENTS AND OTHER SHORT-TERM
INVESTMENTS |
The following table provides the detail of federal funds sold, securities purchased under resale
agreements and other short-term investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
Federal funds sold and securities purchased under
resale agreements |
|
$ |
3,744 |
|
|
$ |
3,789 |
|
|
$ |
3,536 |
|
Interest-earning deposits |
|
|
869 |
|
|
|
847 |
|
|
|
1,061 |
|
Other short-term investments |
|
|
754 |
|
|
|
670 |
|
|
|
1,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,367 |
|
|
$ |
5,306 |
|
|
$ |
5,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
Dec. 31, 2005 |
|
|
June 30, 2005 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
fair |
|
|
|
|
|
|
fair |
|
|
|
|
|
|
fair |
|
(in millions) |
|
Cost |
|
|
value |
|
|
Cost |
|
|
value |
|
|
Cost |
|
|
value |
|
|
|
Securities of U.S. Treasury and
federal agencies |
|
$ |
929 |
|
|
$ |
912 |
|
|
$ |
845 |
|
|
$ |
839 |
|
|
$ |
1,013 |
|
|
$ |
1,018 |
|
Securities of U.S. states and
political subdivisions |
|
|
2,909 |
|
|
|
2,988 |
|
|
|
3,048 |
|
|
|
3,191 |
|
|
|
3,135 |
|
|
|
3,339 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies |
|
|
51,960 |
|
|
|
51,543 |
|
|
|
25,304 |
|
|
|
25,616 |
|
|
|
15,838 |
|
|
|
16,402 |
|
Private collateralized mortgage obligations (1) |
|
|
8,033 |
|
|
|
8,096 |
|
|
|
6,628 |
|
|
|
6,750 |
|
|
|
4,371 |
|
|
|
4,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
59,993 |
|
|
|
59,639 |
|
|
|
31,932 |
|
|
|
32,366 |
|
|
|
20,209 |
|
|
|
20,864 |
|
Other |
|
|
7,080 |
|
|
|
7,081 |
|
|
|
4,518 |
|
|
|
4,538 |
|
|
|
3,025 |
|
|
|
3,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
70,911 |
|
|
|
70,620 |
|
|
|
40,343 |
|
|
|
40,934 |
|
|
|
27,382 |
|
|
|
28,325 |
|
Marketable equity securities |
|
|
558 |
|
|
|
800 |
|
|
|
558 |
|
|
|
900 |
|
|
|
630 |
|
|
|
891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
71,469 |
|
|
$ |
71,420 |
|
|
$ |
40,901 |
|
|
$ |
41,834 |
|
|
$ |
28,012 |
|
|
$ |
29,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 estimated unrealized net gains (losses) on
securities available for sale. The estimated unrealized net gains and losses on securities
available for sale are reported on an after-tax basis as a component of cumulative other
comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
Estimated unrealized gross gains |
|
$ |
652 |
|
|
$ |
1,041 |
|
|
$ |
1,270 |
|
Estimated unrealized gross losses |
|
|
(701 |
) |
|
|
(108 |
) |
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
Estimated unrealized net gains (losses) |
|
$ |
(49 |
) |
|
$ |
933 |
|
|
$ |
1,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the realized net gains (losses) on the sales of securities from the
securities available for sale portfolio, including marketable equity securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
$ |
76 |
|
|
$ |
174 |
|
|
$ |
247 |
|
|
$ |
287 |
|
Realized gross losses (1) |
|
|
(173 |
) |
|
|
(11 |
) |
|
|
(258 |
) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized net gains (losses) |
|
$ |
(97 |
) |
|
$ |
163 |
|
|
$ |
(11 |
) |
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes other-than-temporary impairment of $13 million
for both the second quarter and first
half of 2006 and $5 million and $15 million for the second quarter and first half of 2005,
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 $3,499 million, $3,918 million and $3,727 million, at June 30, 2006, December 31, 2005,
and June 30, 2005, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
66,014 |
|
|
$ |
61,552 |
|
|
$ |
58,877 |
|
Other real estate mortgage |
|
|
29,281 |
|
|
|
28,545 |
|
|
|
28,282 |
|
Real estate construction |
|
|
14,764 |
|
|
|
13,406 |
|
|
|
11,589 |
|
Lease financing |
|
|
5,301 |
|
|
|
5,400 |
|
|
|
5,195 |
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
115,360 |
|
|
|
108,903 |
|
|
|
103,943 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
50,491 |
|
|
|
77,768 |
|
|
|
81,615 |
|
Real estate 1-4 family junior lien mortgage |
|
|
64,727 |
|
|
|
59,143 |
|
|
|
55,989 |
|
Credit card |
|
|
12,387 |
|
|
|
12,009 |
|
|
|
10,608 |
|
Other revolving credit and installment |
|
|
51,236 |
|
|
|
47,462 |
|
|
|
44,974 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
178,841 |
|
|
|
196,382 |
|
|
|
193,186 |
|
Foreign |
|
|
6,421 |
|
|
|
5,552 |
|
|
|
4,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
300,622 |
|
|
$ |
310,837 |
|
|
$ |
301,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The recorded investment in impaired loans and the methodology used to measure impairment was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
Impairment measurement based on: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateral value method |
|
$ |
101 |
|
|
$ |
115 |
|
|
$ |
161 |
|
Discounted cash flow method |
|
|
37 |
|
|
|
75 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
|
$ |
138 |
|
|
$ |
190 |
|
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $47 million, $56 million and $117 million of impaired loans with a related
allowance of $12 million, $10 million and $17 million at June 30, 2006, December 31, 2005, and
June 30, 2005, respectively. |
The average recorded investment in impaired loans was $137 million and $281 million during
second quarter 2006 and 2005, respectively, and $150 million and $291 million in the first half of
2006 and 2005, 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 |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Balance, beginning of period |
|
$ |
4,025 |
|
|
$ |
3,950 |
|
|
$ |
4,057 |
|
|
$ |
3,950 |
|
Provision for credit losses |
|
|
432 |
|
|
|
454 |
|
|
|
865 |
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(93 |
) |
|
|
(92 |
) |
|
|
(172 |
) |
|
|
(176 |
) |
Other real estate mortgage |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
Real estate construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
Lease financing |
|
|
(7 |
) |
|
|
(10 |
) |
|
|
(16 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
(101 |
) |
|
|
(104 |
) |
|
|
(190 |
) |
|
|
(206 |
) |
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
(22 |
) |
|
|
(23 |
) |
|
|
(51 |
) |
|
|
(59 |
) |
Real estate 1-4 family junior lien mortgage |
|
|
(28 |
) |
|
|
(30 |
) |
|
|
(62 |
) |
|
|
(63 |
) |
Credit card |
|
|
(113 |
) |
|
|
(134 |
) |
|
|
(218 |
) |
|
|
(261 |
) |
Other revolving credit and installment |
|
|
(349 |
) |
|
|
(296 |
) |
|
|
(671 |
) |
|
|
(646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
(512 |
) |
|
|
(483 |
) |
|
|
(1,002 |
) |
|
|
(1,029 |
) |
Foreign |
|
|
(74 |
) |
|
|
(63 |
) |
|
|
(148 |
) |
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan charge-offs |
|
|
(687 |
) |
|
|
(650 |
) |
|
|
(1,340 |
) |
|
|
(1,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
31 |
|
|
|
37 |
|
|
|
58 |
|
|
|
67 |
|
Other real estate mortgage |
|
|
5 |
|
|
|
1 |
|
|
|
6 |
|
|
|
9 |
|
Real estate construction |
|
|
1 |
|
|
|
7 |
|
|
|
2 |
|
|
|
7 |
|
Lease financing |
|
|
6 |
|
|
|
6 |
|
|
|
12 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial and commercial real estate |
|
|
43 |
|
|
|
51 |
|
|
|
78 |
|
|
|
94 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 1-4 family first mortgage |
|
|
9 |
|
|
|
6 |
|
|
|
12 |
|
|
|
9 |
|
Real estate 1-4 family junior lien mortgage |
|
|
10 |
|
|
|
8 |
|
|
|
18 |
|
|
|
14 |
|
Credit card |
|
|
25 |
|
|
|
23 |
|
|
|
49 |
|
|
|
44 |
|
Other revolving credit and installment |
|
|
148 |
|
|
|
90 |
|
|
|
277 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
192 |
|
|
|
127 |
|
|
|
356 |
|
|
|
220 |
|
Foreign |
|
|
20 |
|
|
|
18 |
|
|
|
41 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan recoveries |
|
|
255 |
|
|
|
196 |
|
|
|
475 |
|
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
|
(432 |
) |
|
|
(454 |
) |
|
|
(865 |
) |
|
|
(1,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
(6 |
) |
|
|
(22 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,035 |
|
|
$ |
3,944 |
|
|
$ |
4,035 |
|
|
$ |
3,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,851 |
|
|
$ |
3,775 |
|
|
$ |
3,851 |
|
|
$ |
3,775 |
|
Reserve for unfunded credit commitments |
|
|
184 |
|
|
|
169 |
|
|
|
184 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
4,035 |
|
|
$ |
3,944 |
|
|
$ |
4,035 |
|
|
$ |
3,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs (annualized) as a
percentage of average total loans |
|
|
.58 |
% |
|
|
.62 |
% |
|
|
.57 |
% |
|
|
.72 |
% |
Allowance for loan losses as a percentage of total loans |
|
|
1.28 |
% |
|
|
1.25 |
% |
|
|
1.28 |
% |
|
|
1.25 |
% |
Allowance for credit losses as a percentage of total loans |
|
|
1.34 |
|
|
|
1.31 |
|
|
|
1.34 |
|
|
|
1.31 |
|
|
|
43
6. OTHER ASSETS
The components of other assets were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
Nonmarketable equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments |
|
$ |
1,664 |
|
|
$ |
1,537 |
|
|
$ |
1,485 |
|
Federal bank stock |
|
|
1,354 |
|
|
|
1,402 |
|
|
|
1,594 |
|
All other |
|
|
2,105 |
|
|
|
2,151 |
|
|
|
2,055 |
|
|
|
|
|
|
|
|
|
|
|
Total nonmarketable equity investments (1) |
|
|
5,123 |
|
|
|
5,090 |
|
|
|
5,134 |
|
|
|
|
3,270 |
|
|
|
3,414 |
|
|
|
3,446 |
|
Accounts receivable |
|
|
8,178 |
|
|
|
11,606 |
|
|
|
3,401 |
|
Interest receivable |
|
|
2,394 |
|
|
|
2,279 |
|
|
|
1,601 |
|
Core deposit intangibles |
|
|
437 |
|
|
|
489 |
|
|
|
541 |
|
Foreclosed assets: |
|
|
|
|
|
|
|
|
|
|
|
|
GNMA loans (2) |
|
|
238 |
|
|
|
|
|
|
|
|
|
Other |
|
|
275 |
|
|
|
191 |
|
|
|
187 |
|
Due from customers on acceptances |
|
|
94 |
|
|
|
104 |
|
|
|
153 |
|
Other |
|
|
12,783 |
|
|
|
9,299 |
|
|
|
10,011 |
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
32,792 |
|
|
$ |
32,472 |
|
|
$ |
24,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At June 30, 2006, December 31, 2005, and June 30, 2005, $4.4 billion, $3.1 billion and $3.2
billion, respectively, of nonmarketable equity investments, including all federal bank stock,
were accounted for at cost. |
|
(2) |
|
As a result of a change in regulatory reporting requirements effective January 1, 2006,
foreclosed assets included foreclosed real estate securing Government National Mortgage
Association (GNMA) loans. These assets are fully collectible because the corresponding GNMA
loans are insured by the Federal Housing Administration or guaranteed by the Department of
Veterans Affairs. Such assets were included in accounts receivable at December 31, 2005, and
June 30, 2005. |
Income related to nonmarketable equity investments was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Net gains from private equity investments |
|
$ |
74 |
|
|
$ |
77 |
|
|
$ |
143 |
|
|
$ |
137 |
|
Net losses from all other nonmarketable equity investments |
|
|
(16 |
) |
|
|
(3 |
) |
|
|
(19 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains from nonmarketable equity investments |
|
$ |
58 |
|
|
$ |
74 |
|
|
$ |
124 |
|
|
$ |
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
7. INTANGIBLE ASSETS
The gross carrying amount of intangible assets and accumulated amortization was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
|
|
2006 |
|
|
2005 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
(in millions) |
|
carrying amount |
|
|
amortization |
|
|
carrying amount |
|
|
amortization |
|
|
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs, before valuation allowance (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
|
|
|
$ |
|
|
|
$ |
20,366 |
|
|
$ |
10,365 |
|
Commercial |
|
|
233 |
|
|
|
58 |
|
|
|
130 |
|
|
|
35 |
|
Core deposit intangibles |
|
|
2,374 |
|
|
|
1,937 |
|
|
|
2,423 |
|
|
|
1,882 |
|
Credit card and other intangibles |
|
|
573 |
|
|
|
361 |
|
|
|
544 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
3,180 |
|
|
$ |
2,356 |
|
|
$ |
23,463 |
|
|
$ |
12,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,650 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
Trademark |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Prior to 2006, amortized intangible assets included both residential and commercial MSRs.
Effective January 1, 2006, upon adoption of FAS 156, residential MSRs are measured at fair
value and are no longer amortized. See Note 15 for additional information on MSRs. |
As of June 30, 2006, the current year and estimated future amortization expense for intangible
assets was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core |
|
|
|
|
|
|
|
|
|
deposit |
|
|
|
|
|
|
|
(in millions) |
|
intangibles |
|
|
Other(1) |
|
|
Total |
|
|
Six months ended June 30, 2006 (actual) |
|
$ |
57 |
|
|
$ |
59 |
|
|
$ |
116 |
|
|
|
|
|
|
|
|
|
|
|
Estimate for year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
112 |
|
|
$ |
91 |
|
|
$ |
203 |
|
2007 |
|
|
102 |
|
|
|
57 |
|
|
|
159 |
|
2008 |
|
|
94 |
|
|
|
55 |
|
|
|
149 |
|
2009 |
|
|
86 |
|
|
|
52 |
|
|
|
138 |
|
2010 |
|
|
77 |
|
|
|
48 |
|
|
|
125 |
|
2011 |
|
|
19 |
|
|
|
40 |
|
|
|
59 |
|
|
|
|
|
(1) |
|
Includes amortized commercial MSRs and credit card and other intangibles. |
We based the projections of amortization expense for core deposit intangibles shown above on
existing asset balances at June 30, 2006. Future amortization expense may vary based on additional
core deposit 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 |
|
|
|
|
$ |
7,291 |
|
|
$ |
3,037 |
|
|
$ |
353 |
|
|
$ |
10,681 |
|
Reduction in goodwill related to
divested business |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
(31 |
) |
Revision in goodwill related to
business combinations |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Goodwill from business combinations |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 |
|
$ |
7,262 |
|
|
$ |
3,032 |
|
|
$ |
353 |
|
|
$ |
10,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,374 |
|
|
$ |
3,047 |
|
|
$ |
366 |
|
|
$ |
10,787 |
|
Goodwill from business combinations
(including contingent payments) |
|
|
30 |
|
|
|
272 |
|
|
|
|
|
|
|
302 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Realignment of businesses
(primarily insurance) |
|
|
(19 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
$ |
7,385 |
|
|
$ |
3,338 |
|
|
$ |
368 |
|
|
$ |
11,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
$ |
3,394 |
|
|
$ |
1,092 |
|
|
$ |
364 |
|
|
$ |
5,797 |
|
|
$ |
10,647 |
|
|
|
|
3,538 |
|
|
|
1,388 |
|
|
|
368 |
|
|
|
5,797 |
|
|
|
11,091 |
|
|
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 |
|
|
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
|
June 30 |
, |
|
Dec. 31 |
, |
|
June 30 |
, |
|
dividends rate |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
Minimum |
|
|
Maximum |
|
ESOP Preferred Stock (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,291 |
|
|
|
|
|
|
|
|
|
|
$ |
237 |
|
|
$ |
|
|
|
$ |
|
|
|
|
10.75 |
% |
|
|
11.75 |
% |
|
|
|
92,584 |
|
|
|
102,184 |
|
|
|
203,359 |
|
|
|
93 |
|
|
|
102 |
|
|
|
203 |
|
|
|
9.75 |
|
|
|
10.75 |
|
|
|
|
73,080 |
|
|
|
74,880 |
|
|
|
82,830 |
|
|
|
73 |
|
|
|
75 |
|
|
|
83 |
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
51,243 |
|
|
|
52,643 |
|
|
|
58,878 |
|
|
|
51 |
|
|
|
53 |
|
|
|
59 |
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
38,764 |
|
|
|
39,754 |
|
|
|
45,624 |
|
|
|
39 |
|
|
|
40 |
|
|
|
46 |
|
|
|
10.50 |
|
|
|
11.50 |
|
|
|
|
27,633 |
|
|
|
28,263 |
|
|
|
33,571 |
|
|
|
28 |
|
|
|
28 |
|
|
|
34 |
|
|
|
10.50 |
|
|
|
11.50 |
|
|
|
|
18,912 |
|
|
|
19,282 |
|
|
|
23,922 |
|
|
|
19 |
|
|
|
19 |
|
|
|
24 |
|
|
|
11.50 |
|
|
|
12.50 |
|
|
|
|
6,231 |
|
|
|
6,368 |
|
|
|
8,545 |
|
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
|
|
10.30 |
|
|
|
11.30 |
|
|
|
|
1,908 |
|
|
|
1,953 |
|
|
|
2,919 |
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
10.75 |
|
|
|
11.75 |
|
|
|
|
133 |
|
|
|
136 |
|
|
|
2,171 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
9.50 |
|
|
|
10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.50 |
|
|
|
9.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP Preferred Stock |
|
|
547,779 |
|
|
|
325,463 |
|
|
|
462,195 |
|
|
$ |
548 |
|
|
$ |
325 |
|
|
$ |
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(586 |
) |
|
$ |
(348 |
) |
|
$ |
(494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Liquidation preference $1,000. |
|
(2) |
|
In accordance with the American Institute of Certified Public Accountants (AICPA) Statement
of Position 93-6, Employers Accounting for Employee Stock Ownership Plans, we recorded a
corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP
Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock
are committed to be released. |
47
10. COMMON STOCK PLANS
We offer several stock-based employee compensation plans, which are described below. Effective
January 1, 2006, we adopted FAS 123(R), Share-Based Payment, using the modified prospective
transition method. FAS 123(R) requires that we measure the cost of employee services received in
exchange for an award of equity instruments, such as stock options or restricted share rights
(RSRs), based on the fair value of the award on the grant date. The cost is normally recognized in
our income statement over the vesting period of the award; awards with graded vesting are expensed
on a straight-line method. Awards to retirement-eligible employees are subject to immediate
expensing upon grant. Total stock option compensation expense was $80 million in the first half of
2006, with a related recognized tax benefit of $30 million. Stock option expense is based on the
fair value of the awards at the date of grant and includes expense for awards granted in 2006 and
expense for the unvested portion of awards granted prior to January 1, 2006. Prior to January 1,
2006, we did not record any compensation expense for stock options.
EMPLOYEE STOCK PLANS
Long-Term Incentive Compensation Plans Our stock incentive plans provide for awards of
incentive and nonqualified stock options, stock appreciation rights, restricted shares, RSRs,
performance awards and stock awards without restrictions. Options must have an exercise price at or
above fair market value (as defined in the plan) of the stock at the date of grant (except for
substitute or replacement options granted in connection with mergers or other acquisitions) and a
term of no more than 10 years. Options granted in 2003 and prior generally become exercisable over
three years from the date of grant. Options granted in 2004 and the beginning of 2005 generally
were fully vested upon grant. Options granted in 2006 generally become exercisable over three years
from the date of grant. Except as otherwise permitted under the plan, if employment is ended for
reasons other than retirement, permanent disability or death, the option period is reduced or the
options are canceled.
Options granted prior to 2004 may include the right to acquire a reload stock option. If an
option contains the reload feature and if a participant pays all or part of the exercise price of
the option with shares of stock purchased in the market or held by the participant for at least six
months, upon exercise of the option, the participant is granted a new option to purchase, at the
fair market value of the stock as of the date of the reload, the number of shares of stock equal to
the sum of the number of shares used in payment of the exercise price and a number of shares with
respect to related statutory minimum withholding taxes. Reload grants are fully vested upon grant
and are expensed immediately under FAS 123(R) beginning in 2006.
Holders of RSRs are entitled to the related shares of common stock at no cost generally over
three to five years after the RSRs were granted. Holders of RSRs generally are entitled to receive
cash payments equal to the cash dividends that would have been paid had the RSRs been issued and
outstanding shares of common stock. Except in limited circumstances, RSRs are canceled when
employment ends.
The compensation expense for RSRs equals the quoted market price of the related stock at the date
of grant and is accrued over the vesting period. Total compensation expense for RSRs was not
significant in the first half of 2006 and 2005.
48
For various acquisitions and mergers since 1992, we converted employee and director stock options
of acquired or merged companies into stock options to purchase our common stock based on the terms
of the original stock option plan and the agreed-upon exchange ratio.
Broad-Based Plans In 1996, we adopted the PartnerShares® Stock Option Plan, a broad-based
employee stock option plan. It covers full- and part-time employees who generally were not included
in the long-term incentive compensation plans described above. At June 30, 2006, there were
4,305,190 shares available for grant. The exercise date of options granted under the PartnerShares
Plan is the earlier of (1) five years after the date of grant or (2) when the quoted market price
of the stock reaches a predetermined price. These options generally expire 10 years after the date
of grant. No options have been granted under the PartnerShares Plans since 2002. Because the
exercise price of each PartnerShares grant has been equal to or higher than the quoted market price
of our common stock at the date of grant, we did not recognize any compensation expense in 2005 and
prior years. In 2006, under FAS 123(R), we began to recognize expense related to these grants,
based on the remaining vesting period.
DIRECTOR PLANS
We provide a stock award to non-employee directors as part of their annual retainer under our
director plans. We also provide annual grants of options to purchase common stock to each
non-employee director elected or re-elected at the annual meeting of stockholders. The options can
be exercised after six months and through the tenth anniversary of the grant date.
49
The table below summarizes stock option activity and related information for the first six months
of 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
average |
|
|
|
|
|
|
|
|
|
|
average |
|
|
remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
exercise |
|
|
contractual |
|
|
intrinsic value |
|
|
|
Number |
|
|
price |
|
|
term (in yrs.) |
|
|
(in millions) |
|
|
Long-Term Incentive Compensation Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2005 |
|
|
110,591,112 |
|
|
$ |
49.65 |
|
|
|
|
|
|
|
|
|
First six months of 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
20,487,284 |
|
|
|
64.61 |
|
|
|
|
|
|
|
|
|
Canceled or forfeited |
|
|
(200,265 |
) |
|
|
60.17 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(10,412,292 |
) |
|
|
44.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of June 30, 2006 |
|
|
120,465,839 |
|
|
|
52.61 |
|
|
|
6.2 |
|
|
$ |
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable and expected to be exercisable (1) |
|
|
119,479,443 |
|
|
|
52.51 |
|
|
|
6.2 |
|
|
|
1,741 |
|
Options exercisable |
|
|
100,925,993 |
|
|
|
50.42 |
|
|
|
5.6 |
|
|
|
1,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2005 |
|
|
24,492,761 |
|
|
$ |
45.51 |
|
|
|
|
|
|
|
|
|
First six months of 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited |
|
|
(635,287 |
) |
|
|
49.76 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,930,905 |
) |
|
|
40.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of June 30, 2006 |
|
|
20,926,569 |
|
|
|
46.02 |
|
|
|
4.5 |
|
|
$ |
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable and expected to be exercisable (1) |
|
|
20,635,830 |
|
|
|
45.96 |
|
|
|
4.5 |
|
|
|
436 |
|
Options exercisable |
|
|
11,545,494 |
|
|
|
42.47 |
|
|
|
3.5 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2005 |
|
|
389,514 |
|
|
$ |
48.67 |
|
|
|
|
|
|
|
|
|
First six months of 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
43,857 |
|
|
|
65.09 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(27,720 |
) |
|
|
30.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of June 30, 2006 |
|
|
405,651 |
|
|
|
51.66 |
|
|
|
6.0 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable and expected to be exercisable (1) |
|
|
405,651 |
|
|
|
51.66 |
|
|
|
6.0 |
|
|
|
6 |
|
Options exercisable |
|
|
361,794 |
|
|
|
50.03 |
|
|
|
5.6 |
|
|
|
6 |
|
|
|
|
|
(1) |
|
Adjusted for estimated forfeitures. |
As of June 30, 2006, there was $122 million of unrecognized compensation cost related to stock
options. That cost is expected to be recognized over a weighted-average period of 2.5 years.
The total intrinsic value of options exercised during the first half of 2006 and 2005 was $288
million and $149 million, respectively.
Cash received from the exercise of options for the first half of 2006 and 2005 was $555 million and
$302 million, respectively. The actual tax benefit recognized in stockholders equity for the
50
tax deductions from the exercise of options totaled $106 million and $55 million for the first half
of 2006 and 2005, respectively.
We do not have a specific policy on repurchasing shares to satisfy share option exercises. Rather,
we have a general policy on repurchasing shares to meet common stock issuance requirements for our
benefit plans (including share option exercises), conversion of our convertible securities,
acquisitions, and other corporate purposes. 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.
Effective with the adoption of FAS 123(R), the fair value of each option award granted on or after
January 1, 2006, is estimated using a Black-Scholes valuation model. The expected term of options
granted is generally based on the historical exercise behavior of full-term options. Our expected
volatilities are based on a combination of the historical volatility of our common stock and
implied volatilities for traded options on our common stock. The risk-free rate is based on the
U.S. Treasury zero-coupon yield curve in effect at the time of grant. Both expected volatility and
the risk-free rates are based on a period commensurate with our expected term. The expected
dividend is based on the current dividend, our historical pattern of dividend increases and the
current market price of our stock.
Prior to the adoption of FAS 123(R), we also used a Black-Scholes valuation model to estimate the
fair value of options granted for the pro forma disclosures of net income and earnings per common
share that were required by FAS 123.
Effective with the adoption of FAS 123(R), we changed our method of estimating our volatility
assumption. Prior to 2006, we used a volatility based on historical stock price changes. Effective
January 1, 2006, we used a volatility based on a combination of historical stock price changes and
implied volatilities of traded options as both volatilities are relevant in estimating our expected
volatility.
The following table presents the weighted-average per share fair value of options granted and the
assumptions used, based on a Black-Scholes valuation model.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
, |
|
|
2006 |
|
|
2005 |
|
|
|
Per share fair value of options granted: |
|
|
|
|
|
|
|
|
Long-Term Incentive Compensation Plans |
|
$ |
8.18 |
|
|
$ |
7.60 |
|
Director Plans |
|
|
9.32 |
|
|
|
6.28 |
|
Expected volatility |
|
|
16.4 |
% |
|
|
16.4 |
% |
Expected dividends |
|
|
3.5 |
|
|
|
3.4 |
|
Expected term (in years) |
|
|
4.5 |
|
|
|
4.4 |
|
Risk-free interest rate |
|
|
4.4 |
% |
|
|
3.9 |
% |
|
|
51
A summary of the status of our RSRs at June 30, 2006, and changes during the first half of
2006 is in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average grant-date |
|
|
|
Number |
|
|
fair value |
|
|
Nonvested at January 1, 2006 |
|
|
106,183 |
|
|
|
$53.83 |
|
Granted |
|
|
7,600 |
|
|
|
65.85 |
|
Vested |
|
|
(3,540 |
) |
|
|
45.24 |
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2006 |
|
|
110,243 |
|
|
|
54.94 |
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of RSRs granted during the first half of 2005 was
$59.81. At June 30, 2006, there was $2 million of total unrecognized compensation cost related to
nonvested RSRs. The cost is expected to be recognized over a weighted-average period of 3.2 years.
The total fair value of RSRs that vested during the first half of 2006 and 2005 was not
significant.
52
11. 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 expect that we will not be required to make a minimum contribution in 2006 for the Cash Balance
Plan. The maximum we can contribute in 2006 for the Cash Balance Plan depends on several factors,
including the finalization of participant data. Our decision on how much to contribute, if any,
depends on other factors, including the actual investment performance of plan assets. Given these
uncertainties, we cannot at this time reliably estimate the maximum deductible contribution or the
amount that we will contribute in 2006 to the Cash Balance Plan.
The net periodic benefit cost (income) for the second quarter and first half of 2006 and 2005 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits |
|
|
|
|
|
|
Pension benefits |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Other |
|
|
|
|
|
|
Non- |
|
|
Other |
|
(in millions) |
|
Qualified |
|
|
qualified |
|
|
benefits |
|
|
Qualified |
|
|
qualified |
|
|
benefits |
|
|
Quarter ended June 30, |
|
2006
|
|
2005
|
|
|
|
|
|
|
|
$ |
62 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
52 |
|
|
$ |
5 |
|
|
$ |
5 |
|
Interest cost |
|
|
56 |
|
|
|
4 |
|
|
|
10 |
|
|
|
55 |
|
|
|
4 |
|
|
|
11 |
|
Expected return on plan assets |
|
|
(105 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
(7 |
) |
Recognized net actuarial loss (1) |
|
|
14 |
|
|
|
2 |
|
|
|
1 |
|
|
|
17 |
|
|
|
1 |
|
|
|
3 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Special termination benefits |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income) |
|
$ |
29 |
|
|
$ |
10 |
|
|
$ |
(3 |
) |
|
$ |
25 |
|
|
$ |
10 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
124 |
|
|
$ |
8 |
|
|
$ |
8 |
|
|
$ |
104 |
|
|
$ |
10 |
|
|
$ |
10 |
|
Interest cost |
|
|
112 |
|
|
|
8 |
|
|
|
20 |
|
|
|
110 |
|
|
|
7 |
|
|
|
22 |
|
Expected return on plan assets |
|
|
(210 |
) |
|
|
|
|
|
|
(16 |
) |
|
|
(196 |
) |
|
|
|
|
|
|
(13 |
) |
Recognized net actuarial loss (1) |
|
|
28 |
|
|
|
4 |
|
|
|
3 |
|
|
|
34 |
|
|
|
2 |
|
|
|
5 |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Special termination benefits |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
56 |
|
|
$ |
20 |
|
|
$ |
4 |
|
|
$ |
50 |
|
|
$ |
18 |
|
|
$ |
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net actuarial loss is generally amortized over five years. |
53
12. EARNINGS PER COMMON SHARE
The table below shows earnings per common share and diluted earnings per common share and
reconciles the numerator and denominator of both earnings per common share calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Six months |
|
|
|
ended June 30 |
, |
|
ended June 30 |
, |
(in millions, except per share amounts) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
$ |
2,089 |
|
|
$ |
1,910 |
|
|
$ |
4,107 |
|
|
$ |
3,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding (denominator)
|
|
|
1,681.9 |
|
|
|
1,687.7 |
|
|
|
1,680.5 |
|
|
|
1,691.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.24 |
|
|
$ |
1.14 |
|
|
$ |
2.44 |
|
|
$ |
2.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
1,681.9 |
|
|
|
1,687.7 |
|
|
|
1,680.5 |
|
|
|
1,691.5 |
|
Add: Stock options |
|
|
20.2 |
|
|
|
19.2 |
|
|
|
19.4 |
|
|
|
19.6 |
|
Restricted share rights |
|
|
.1 |
|
|
|
.3 |
|
|
|
.1 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares outstanding (denominator) |
|
|
1702.2 |
|
|
|
1,707.2 |
|
|
|
1,700.0 |
|
|
|
1,711.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.23 |
|
|
$ |
1.12 |
|
|
$ |
2.42 |
|
|
$ |
2.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In second quarter 2006 and 2005, options to purchase 1.5 million and 3.7 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.
On June 27, 2006, the Board of Directors declared a two-for-one stock split in the form of a 100%
stock dividend on our common stock, to be distributed August 11, 2006, to stockholders of record at
the close of business August 4, 2006. We will distribute one share of common stock for each share
of common stock issued and outstanding or held in the treasury of the Company.
54
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 the realignment of our automobile
financing business into Wells Fargo Financial in third quarter 2005 and the realignment of our
insurance business into Wholesale Banking in first quarter 2006, results for prior periods have
been revised.
The Community Banking Group offers a complete line of banking and diversified financial products
and services to consumers and small businesses with annual sales generally up to $20 million in
which the owner generally is the financial decision maker. Community Banking also offers investment
management and other services to retail customers and high net worth individuals, securities
brokerage through affiliates and venture capital financing. These products and services include the
Wells Fargo Advantage FundsSM, a family of mutual funds, as well as personal trust and
agency assets. Loan products include lines of credit, equity lines and loans, equipment and
transportation (recreational vehicle and marine) loans, education loans, origination and purchase
of residential mortgage loans and servicing of mortgage loans and credit cards. Other credit
products and financial services available to small businesses and their owners include receivables
and inventory financing, equipment leases, real estate financing, Small Business Administration
financing, venture capital financing, cash management, payroll services, retirement plans, Health
Savings Accounts and credit and debit card processing. Consumer and business deposit products
include checking accounts, savings deposits, market rate accounts, Individual Retirement Accounts
(IRAs), time deposits and debit cards.
Community Banking serves customers through a wide range of channels, which include traditional
banking stores, in-store banking centers, business centers and ATMs. Also, Phone BankSM
centers and the National Business Banking Center provide 24-hour telephone service. Online banking
services include single sign-on to online banking, bill pay and brokerage, as well as online
banking for small business.
The Wholesale Banking Group serves businesses across the United States with annual sales generally
in excess of $10 million. Wholesale Banking provides a complete line of commercial, corporate and
real estate banking products and services. These include traditional commercial loans and lines of
credit, letters of credit, asset-based lending, equipment leasing, mezzanine financing, high-yield
debt, international trade facilities, foreign exchange services, treasury management, investment
management, institutional fixed income and equity 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
55
interest in the Wells Fargo HSBC Trade Bank, which provides trade financing, letters of credit and
collection services and is sometimes supported by the Export-Import Bank of the United States (a
public agency of the United States offering export finance support for American-made products).
Wholesale Banking also supports the commercial real estate market with products and services such
as construction loans for commercial and residential development, land acquisition and development
loans, secured and unsecured lines of credit, interim financing arrangements for completed
structures, rehabilitation loans, affordable housing loans and letters of credit, permanent loans
for securitization, commercial real estate loan servicing and real estate and mortgage brokerage
services.
Wells Fargo Financial includes consumer finance and auto finance operations. Consumer finance
operations make direct consumer and real estate loans to individuals and purchase sales finance
contracts from retail merchants from offices throughout the United States and in Canada, Latin
America, the Caribbean, Guam and Saipan. Automobile finance 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.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(income/expense in millions, |
|
Community |
|
|
Wholesale |
|
|
Wells Fargo |
|
|
Consolidated |
|
average balances in billions) |
|
Banking |
|
|
Banking |
|
|
Financial |
|
|
Company |
|
|
|
|
|
Quarter ended June 30, |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
$ |
3,321 |
|
|
$ |
3,121 |
|
|
$ |
706 |
|
|
$ |
591 |
|
|
$ |
957 |
|
|
$ |
824 |
|
|
$ |
4,984 |
|
|
$ |
4,536 |
|
Provision (reversal of provision)
for credit losses |
|
|
187 |
|
|
|
197 |
|
|
|
(7 |
) |
|
|
(10 |
) |
|
|
252 |
|
|
|
267 |
|
|
|
432 |
|
|
|
454 |
|
Noninterest income |
|
|
2,398 |
|
|
|
1,992 |
|
|
|
1,085 |
|
|
|
1,005 |
|
|
|
322 |
|
|
|
332 |
|
|
|
3,805 |
|
|
|
3,329 |
|
Noninterest expense |
|
|
3,485 |
|
|
|
3,066 |
|
|
|
1,018 |
|
|
|
874 |
|
|
|
673 |
|
|
|
614 |
|
|
|
5,176 |
|
|
|
4,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
2,047 |
|
|
|
1,850 |
|
|
|
780 |
|
|
|
732 |
|
|
|
354 |
|
|
|
275 |
|
|
|
3,181 |
|
|
|
2,857 |
|
Income tax expense |
|
|
711 |
|
|
|
610 |
|
|
|
257 |
|
|
|
242 |
|
|
|
124 |
|
|
|
95 |
|
|
|
1,092 |
|
|
|
947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,336 |
|
|
$ |
1,240 |
|
|
$ |
523 |
|
|
$ |
490 |
|
|
$ |
230 |
|
|
$ |
180 |
|
|
$ |
2,089 |
|
|
$ |
1,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
173.9 |
|
|
$ |
189.3 |
|
|
$ |
70.4 |
|
|
$ |
61.2 |
|
|
$ |
56.1 |
|
|
$ |
45.1 |
|
|
$ |
300.4 |
|
|
$ |
295.6 |
|
Average assets (2) |
|
|
327.2 |
|
|
|
289.4 |
|
|
|
97.2 |
|
|
|
88.6 |
|
|
|
61.3 |
|
|
|
51.3 |
|
|
|
491.5 |
|
|
|
435.1 |
|
Average core deposits |
|
|
230.7 |
|
|
|
214.5 |
|
|
|
26.9 |
|
|
|
23.8 |
|
|
|
.1 |
|
|
|
|
|
|
|
257.7 |
|
|
|
238.3 |
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,577 |
|
|
$ |
6,212 |
|
|
$ |
1,386 |
|
|
$ |
1,157 |
|
|
$ |
1,891 |
|
|
$ |
1,620 |
|
|
$ |
9,854 |
|
|
$ |
8,989 |
|
Provision (reversal of provision)
for credit losses |
|
|
376 |
|
|
|
384 |
|
|
|
(9 |
) |
|
|
(6 |
) |
|
|
498 |
|
|
|
661 |
|
|
|
865 |
|
|
|
1,039 |
|
Noninterest income |
|
|
4,541 |
|
|
|
4,367 |
|
|
|
2,181 |
|
|
|
1,956 |
|
|
|
768 |
|
|
|
642 |
|
|
|
7,490 |
|
|
|
6,965 |
|
Noninterest expense |
|
|
6,872 |
|
|
|
6,286 |
|
|
|
2,010 |
|
|
|
1,716 |
|
|
|
1,368 |
|
|
|
1,244 |
|
|
|
10,250 |
|
|
|
9,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
3,870 |
|
|
|
3,909 |
|
|
|
1,566 |
|
|
|
1,403 |
|
|
|
793 |
|
|
|
357 |
|
|
|
6,229 |
|
|
|
5,669 |
|
Income tax expense |
|
|
1,324 |
|
|
|
1,316 |
|
|
|
515 |
|
|
|
462 |
|
|
|
283 |
|
|
|
125 |
|
|
|
2,122 |
|
|
|
1,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,546 |
|
|
$ |
2,593 |
|
|
$ |
1,051 |
|
|
$ |
941 |
|
|
$ |
510 |
|
|
$ |
232 |
|
|
$ |
4,107 |
|
|
$ |
3,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
182.1 |
|
|
$ |
186.7 |
|
|
$ |
69.0 |
|
|
$ |
60.4 |
|
|
$ |
54.6 |
|
|
$ |
44.4 |
|
|
$ |
305.7 |
|
|
$ |
291.5 |
|
Average assets (2) |
|
|
321.0 |
|
|
|
289.6 |
|
|
|
96.6 |
|
|
|
87.2 |
|
|
|
60.0 |
|
|
|
50.5 |
|
|
|
483.4 |
|
|
|
433.1 |
|
Average core deposits |
|
|
229.4 |
|
|
|
210.4 |
|
|
|
26.4 |
|
|
|
24.7 |
|
|
|
.1 |
|
|
|
|
|
|
|
255.9 |
|
|
|
235.1 |
|
|
|
|
|
|
(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. |
57
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 $3.0 billion and $2.5 billion
in total assets at June 30, 2006, and December 31, 2005, 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 $2.6 billion and $2.9 billion in total assets at June 30, 2006, and December 31,
2005, 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 $840 million and $870 million at June 30, 2006, and December 31, 2005, respectively,
predominantly 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.
58
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 the 2006 beginning balance of retained earnings in our Statement of Changes in
Stockholders Equity. The table below reconciles the December 31, 2005, and January 1, 2006,
balance of MSRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Commercial |
|
|
Total |
|
(in millions) |
|
MSRs |
|
|
MSRs |
|
|
MSRs |
|
|
|
Balance at December 31, 2005 |
|
$ |
12,389 |
|
|
$ |
122 |
|
|
$ |
12,511 |
|
Remeasurement upon adoption of FAS 156 |
|
|
158 |
|
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006 |
|
$ |
12,547 |
|
|
$ |
122 |
|
|
$ |
12,669 |
|
|
|
|
|
|
|
|
|
|
|
|
The changes in residential MSRs measured using the fair value method were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Six months ended |
|
(in millions) |
|
June 30, 2006 |
|
|
June 30, 2006 |
|
|
Fair value, beginning of period |
|
$ |
13,800 |
|
|
$ |
12,547 |
|
Purchases |
|
|
511 |
|
|
|
730 |
|
Servicing from securitizations or asset transfers |
|
|
1,310 |
|
|
|
2,299 |
|
|
|
|
|
|
|
|
|
|
Due to change in valuation model inputs or assumptions (1) |
|
|
550 |
|
|
|
1,072 |
|
Other changes in fair value (2) |
|
|
(521 |
) |
|
|
(998 |
) |
|
|
|
|
|
|
|
Fair value, end of period |
|
$ |
15,650 |
|
|
$ |
15,650 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Principally reflects changes in discount rates and prepayment speed assumptions, mostly due
to changes in interest rates. |
|
(2) |
|
Represents changes due to collection/realization of expected cash flows over time. |
59
The changes in amortized MSRs were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Balance, beginning of period |
|
$ |
142 |
|
|
$ |
10,266 |
|
|
$ |
122 |
|
|
$ |
9,466 |
|
Purchases (1) |
|
|
39 |
|
|
|
453 |
|
|
|
64 |
|
|
|
988 |
|
Servicing from securitizations or asset transfers |
|
|
|
|
|
|
529 |
|
|
|
|
|
|
|
914 |
|
Amortization |
|
|
(6 |
) |
|
|
(493 |
) |
|
|
(11 |
) |
|
|
(963 |
) |
Other (includes changes due to hedging) |
|
|
|
|
|
|
(659 |
) |
|
|
|
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
175 |
|
|
$ |
10,096 |
|
|
$ |
175 |
|
|
$ |
10,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
|
|
|
$ |
1,294 |
|
|
$ |
|
|
|
$ |
1,565 |
|
Provision for MSRs in excess of fair value |
|
|
|
|
|
|
304 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
|
|
|
$ |
1,598 |
|
|
$ |
|
|
|
$ |
1,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
175 |
|
|
$ |
8,498 |
|
|
$ |
175 |
|
|
$ |
8,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of amortized MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
205 |
|
|
$ |
8,989 |
|
|
$ |
146 |
|
|
$ |
7,913 |
|
End of period |
|
|
252 |
|
|
|
8,517 |
|
|
|
252 |
|
|
|
8,517 |
|
|
|
|
|
|
(1) |
|
Based on June 30, 2006, assumptions, the weighted-average amortization period for MSRs
added during both the second quarter and first half of 2006 was approximately 9.8 years. |
The components of our managed servicing portfolio were:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
, |
(in billions) |
|
2006 |
|
|
2005 |
|
|
|
Loans serviced for others (1) |
|
$ |
1,020 |
|
|
$ |
761 |
|
Owned loans serviced (2) |
|
|
90 |
|
|
|
113 |
|
|
|
|
|
|
|
|
Total owned servicing |
|
|
1,110 |
|
|
|
874 |
|
Sub-servicing |
|
|
23 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Total managed servicing portfolio |
|
$ |
1,133 |
|
|
$ |
906 |
|
|
|
|
|
|
|
|
Ratio of MSRs to related loans serviced for others |
|
|
1.55 |
% |
|
|
1.12 |
% |
|
|
|
|
(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. |
60
The components of mortgage banking noninterest income were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30 |
, |
|
Six months ended June 30 |
, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
Servicing income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees (1) |
|
$ |
820 |
|
|
$ |
593 |
|
|
$ |
1,567 |
|
|
$ |
1,163 |
|
Changes in fair value of residential MSRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation model inputs
or assumptions (2) |
|
|
550 |
|
|
|
|
|
|
|
1,072 |
|
|
|
|
|
Other changes in fair value (3) |
|
|
(521 |
) |
|
|
|
|
|
|
(998 |
) |
|
|
|
|
Amortization |
|
|
(6 |
) |
|
|
(493 |
) |
|
|
(11 |
) |
|
|
(963 |
) |
Provision for MSRs in excess of fair value |
|
|
|
|
|
|
(304 |
) |
|
|
|
|
|
|
(33 |
) |
Net derivative gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value accounting hedges (4) |
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
190 |
|
Economic hedges (5) |
|
|
(533 |
) |
|
|
|
|
|
|
(1,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total servicing income, net |
|
|
310 |
|
|
|
(99 |
) |
|
|
391 |
|
|
|
357 |
|
Net gains on mortgage loan origination/sales activities |
|
|
359 |
|
|
|
250 |
|
|
|
632 |
|
|
|
543 |
|
All other |
|
|
66 |
|
|
|
86 |
|
|
|
127 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking noninterest income |
|
$ |
735 |
|
|
$ |
237 |
|
|
$ |
1,150 |
|
|
$ |
1,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market-related valuation changes to MSRs, net of
hedge results (2) + (5) |
|
$ |
17 |
|
|
|
|
|
|
$ |
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes contractually specified servicing fees, late charges and other ancillary revenues. |
|
(2) |
|
Principally reflects changes in discount rates and prepayment speed assumptions, mostly due
to changes in interest rates. |
|
(3) |
|
Represents changes due to collection/realization of expected cash flows over time. |
|
(4) |
|
Results related to MSRs fair value hedging activities under FAS 133, Accounting for
Derivative Instruments and Hedging Activities (as amended), consist of gains and losses
excluded from the evaluation of hedge effectiveness and the ineffective portion of the change
in the value of these derivatives. Gains and losses excluded from the evaluation of hedge
effectiveness are those caused by market conditions (volatility) and the spread between spot
and forward rates priced into the derivative contracts (the passage of time). See Note 19
Fair Value Hedges for additional discussion and detail. |
|
(5) |
|
Represents results from free-standing derivatives (economic hedges) used to hedge the risk of
changes in fair value of MSRs. See Note 19 Free-Standing Derivatives for additional
discussion and detail. |
61
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Following are the condensed consolidating financial statements of the Parent and Wells Fargo
Financial Inc. and its wholly-owned subsidiaries (WFFI). The Wells Fargo Financial business segment
for management reporting (see Note 13) consists of WFFI and other affiliated consumer finance
entities managed by WFFI that are included within other consolidating subsidiaries in the following
tables.
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
240 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(240 |
) |
|
$ |
|
|
Nonbank |
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
1,307 |
|
|
|
4,947 |
|
|
|
(9 |
) |
|
|
6,245 |
|
Interest income from subsidiaries |
|
|
814 |
|
|
|
|
|
|
|
|
|
|
|
(814 |
) |
|
|
|
|
Other interest income |
|
|
24 |
|
|
|
27 |
|
|
|
1,781 |
|
|
|
|
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,246 |
|
|
|
1,334 |
|
|
|
6,728 |
|
|
|
(1,231 |
) |
|
|
8,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
1,794 |
|
|
|
|
|
|
|
1,794 |
|
Short-term borrowings |
|
|
101 |
|
|
|
84 |
|
|
|
328 |
|
|
|
(224 |
) |
|
|
289 |
|
Long-term debt |
|
|
793 |
|
|
|
445 |
|
|
|
146 |
|
|
|
(374 |
) |
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
894 |
|
|
|
529 |
|
|
|
2,268 |
|
|
|
(598 |
) |
|
|
3,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
352 |
|
|
|
805 |
|
|
|
4,460 |
|
|
|
(633 |
) |
|
|
4,984 |
|
Provision for credit losses |
|
|
|
|
|
|
55 |
|
|
|
377 |
|
|
|
|
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
352 |
|
|
|
750 |
|
|
|
4,083 |
|
|
|
(633 |
) |
|
|
4,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
66 |
|
|
|
2,202 |
|
|
|
|
|
|
|
2,268 |
|
Other |
|
|
(4 |
) |
|
|
57 |
|
|
|
1,497 |
|
|
|
(13 |
) |
|
|
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
(4 |
) |
|
|
123 |
|
|
|
3,699 |
|
|
|
(13 |
) |
|
|
3,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
19 |
|
|
|
252 |
|
|
|
2,684 |
|
|
|
|
|
|
|
2,955 |
|
Other |
|
|
(15 |
) |
|
|
225 |
|
|
|
2,249 |
|
|
|
(238 |
) |
|
|
2,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4 |
|
|
|
477 |
|
|
|
4,933 |
|
|
|
(238 |
) |
|
|
5,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
344 |
|
|
|
396 |
|
|
|
2,849 |
|
|
|
(408 |
) |
|
|
3,181 |
|
Income tax expense (benefit) |
|
|
(26 |
) |
|
|
137 |
|
|
|
981 |
|
|
|
|
|
|
|
1,092 |
|
Equity in undistributed income of subsidiaries |
|
|
1,719 |
|
|
|
|
|
|
|
|
|
|
|
(1,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
2,089 |
|
|
$ |
259 |
|
|
$ |
1,868 |
|
|
$ |
(2,127 |
) |
|
$ |
2,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
174 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(174 |
) |
|
$ |
|
|
Nonbank |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
(80 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
1,066 |
|
|
|
4,097 |
|
|
|
|
|
|
|
5,163 |
|
Interest income from subsidiaries |
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
(521 |
) |
|
|
|
|
Other interest income |
|
|
25 |
|
|
|
24 |
|
|
|
988 |
|
|
|
|
|
|
|
1,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
800 |
|
|
|
1,090 |
|
|
|
5,085 |
|
|
|
(775 |
) |
|
|
6,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
825 |
|
|
|
|
|
|
|
825 |
|
Short-term borrowings |
|
|
61 |
|
|
|
40 |
|
|
|
215 |
|
|
|
(152 |
) |
|
|
164 |
|
Long-term debt |
|
|
457 |
|
|
|
332 |
|
|
|
153 |
|
|
|
(267 |
) |
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
518 |
|
|
|
372 |
|
|
|
1,193 |
|
|
|
(419 |
) |
|
|
1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
282 |
|
|
|
718 |
|
|
|
3,892 |
|
|
|
(356 |
) |
|
|
4,536 |
|
Provision for credit losses |
|
|
|
|
|
|
287 |
|
|
|
167 |
|
|
|
|
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
282 |
|
|
|
431 |
|
|
|
3,725 |
|
|
|
(356 |
) |
|
|
4,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
54 |
|
|
|
2,007 |
|
|
|
|
|
|
|
2,061 |
|
Other |
|
|
47 |
|
|
|
66 |
|
|
|
1,189 |
|
|
|
(34 |
) |
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
47 |
|
|
|
120 |
|
|
|
3,196 |
|
|
|
(34 |
) |
|
|
3,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
(18 |
) |
|
|
241 |
|
|
|
2,322 |
|
|
|
|
|
|
|
2,545 |
|
Other |
|
|
(32 |
) |
|
|
163 |
|
|
|
2,014 |
|
|
|
(136 |
) |
|
|
2,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
(50 |
) |
|
|
404 |
|
|
|
4,336 |
|
|
|
(136 |
) |
|
|
4,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
379 |
|
|
|
147 |
|
|
|
2,585 |
|
|
|
(254 |
) |
|
|
2,857 |
|
Income tax expense |
|
|
15 |
|
|
|
50 |
|
|
|
882 |
|
|
|
|
|
|
|
947 |
|
Equity in undistributed income of subsidiaries |
|
|
1,546 |
|
|
|
|
|
|
|
|
|
|
|
(1,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
1,910 |
|
|
$ |
97 |
|
|
$ |
1,703 |
|
|
$ |
(1,800 |
) |
|
$ |
1,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
835 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(835 |
) |
|
$ |
|
|
Nonbank |
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
(173 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
2,597 |
|
|
|
9,776 |
|
|
|
(18 |
) |
|
|
12,355 |
|
Interest income from subsidiaries |
|
|
1,568 |
|
|
|
|
|
|
|
|
|
|
|
(1,568 |
) |
|
|
|
|
Other interest income |
|
|
52 |
|
|
|
50 |
|
|
|
3,152 |
|
|
|
|
|
|
|
3,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
2,628 |
|
|
|
2,647 |
|
|
|
12,928 |
|
|
|
(2,594 |
) |
|
|
15,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
3,276 |
|
|
|
|
|
|
|
3,276 |
|
Short-term borrowings |
|
|
210 |
|
|
|
178 |
|
|
|
600 |
|
|
|
(429 |
) |
|
|
559 |
|
Long-term debt |
|
|
1,499 |
|
|
|
853 |
|
|
|
293 |
|
|
|
(725 |
) |
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,709 |
|
|
|
1,031 |
|
|
|
4,169 |
|
|
|
(1,154 |
) |
|
|
5,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
919 |
|
|
|
1,616 |
|
|
|
8,759 |
|
|
|
(1,440 |
) |
|
|
9,854 |
|
Provision for credit losses |
|
|
|
|
|
|
327 |
|
|
|
538 |
|
|
|
|
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
919 |
|
|
|
1,289 |
|
|
|
8,221 |
|
|
|
(1,440 |
) |
|
|
8,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
130 |
|
|
|
4,296 |
|
|
|
|
|
|
|
4,426 |
|
Other |
|
|
(27 |
) |
|
|
123 |
|
|
|
2,996 |
|
|
|
(28 |
) |
|
|
3,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
(27 |
) |
|
|
253 |
|
|
|
7,292 |
|
|
|
(28 |
) |
|
|
7,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
52 |
|
|
|
537 |
|
|
|
5,295 |
|
|
|
|
|
|
|
5,884 |
|
Other |
|
|
(17 |
) |
|
|
436 |
|
|
|
4,407 |
|
|
|
(460 |
) |
|
|
4,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
35 |
|
|
|
973 |
|
|
|
9,702 |
|
|
|
(460 |
) |
|
|
10,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
857 |
|
|
|
569 |
|
|
|
5,811 |
|
|
|
(1,008 |
) |
|
|
6,229 |
|
Income tax expense (benefit) |
|
|
(60 |
) |
|
|
201 |
|
|
|
1,981 |
|
|
|
|
|
|
|
2,122 |
|
Equity in undistributed income of subsidiaries |
|
|
3,190 |
|
|
|
|
|
|
|
|
|
|
|
(3,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
4,107 |
|
|
$ |
368 |
|
|
$ |
3,830 |
|
|
$ |
(4,198 |
) |
|
$ |
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
Dividends from subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
$ |
2,924 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,924 |
) |
|
$ |
|
|
Nonbank |
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
(185 |
) |
|
|
|
|
Interest income from loans |
|
|
|
|
|
|
2,067 |
|
|
|
7,876 |
|
|
|
|
|
|
|
9,943 |
|
Interest income from subsidiaries |
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
(955 |
) |
|
|
|
|
Other interest income |
|
|
53 |
|
|
|
58 |
|
|
|
2,019 |
|
|
|
|
|
|
|
2,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
4,117 |
|
|
|
2,125 |
|
|
|
9,895 |
|
|
|
(4,064 |
) |
|
|
12,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
1,517 |
|
|
|
|
|
|
|
1,517 |
|
Short-term borrowings |
|
|
111 |
|
|
|
73 |
|
|
|
395 |
|
|
|
(266 |
) |
|
|
313 |
|
Long-term debt |
|
|
826 |
|
|
|
640 |
|
|
|
285 |
|
|
|
(497 |
) |
|
|
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
937 |
|
|
|
713 |
|
|
|
2,197 |
|
|
|
(763 |
) |
|
|
3,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
3,180 |
|
|
|
1,412 |
|
|
|
7,698 |
|
|
|
(3,301 |
) |
|
|
8,989 |
|
Provision for credit losses |
|
|
|
|
|
|
637 |
|
|
|
402 |
|
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for credit losses |
|
|
3,180 |
|
|
|
775 |
|
|
|
7,296 |
|
|
|
(3,301 |
) |
|
|
7,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income nonaffiliates |
|
|
|
|
|
|
108 |
|
|
|
3,912 |
|
|
|
|
|
|
|
4,020 |
|
Other |
|
|
71 |
|
|
|
113 |
|
|
|
2,827 |
|
|
|
(66 |
) |
|
|
2,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
71 |
|
|
|
221 |
|
|
|
6,739 |
|
|
|
(66 |
) |
|
|
6,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
12 |
|
|
|
482 |
|
|
|
4,543 |
|
|
|
|
|
|
|
5,037 |
|
Other |
|
|
5 |
|
|
|
344 |
|
|
|
4,118 |
|
|
|
(258 |
) |
|
|
4,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
17 |
|
|
|
826 |
|
|
|
8,661 |
|
|
|
(258 |
) |
|
|
9,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX
EXPENSE (BENEFIT) AND EQUITY
IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES |
|
|
3,234 |
|
|
|
170 |
|
|
|
5,374 |
|
|
|
(3,109 |
) |
|
|
5,669 |
|
Income tax expense (benefit) |
|
|
(2 |
) |
|
|
58 |
|
|
|
1,847 |
|
|
|
|
|
|
|
1,903 |
|
Equity in undistributed income of subsidiaries |
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
(530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
3,766 |
|
|
$ |
112 |
|
|
$ |
3,527 |
|
|
$ |
(3,639 |
) |
|
$ |
3,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary banks |
|
$ |
12,310 |
|
|
$ |
201 |
|
|
$ |
|
|
|
$ |
(12,511 |
) |
|
$ |
|
|
Nonaffiliates |
|
|
76 |
|
|
|
274 |
|
|
|
19,086 |
|
|
|
|
|
|
|
19,436 |
|
Securities available for sale |
|
|
885 |
|
|
|
1,789 |
|
|
|
68,752 |
|
|
|
(6 |
) |
|
|
71,420 |
|
Mortgages and loans held for sale |
|
|
|
|
|
|
21 |
|
|
|
40,287 |
|
|
|
|
|
|
|
40,308 |
|
|
|
|
|
|
|
|
46,148 |
|
|
|
255,371 |
|
|
|
(897 |
) |
|
|
300,622 |
|
Loans to subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
(3,400 |
) |
|
|
|
|
Nonbank |
|
|
46,100 |
|
|
|
480 |
|
|
|
|
|
|
|
(46,580 |
) |
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
(1,142 |
) |
|
|
(2,709 |
) |
|
|
|
|
|
|
(3,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
49,500 |
|
|
|
45,486 |
|
|
|
252,662 |
|
|
|
(50,877 |
) |
|
|
296,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
39,588 |
|
|
|
|
|
|
|
|
|
|
|
(39,588 |
) |
|
|
|
|
Nonbank |
|
|
4,565 |
|
|
|
|
|
|
|
|
|
|
|
(4,565 |
) |
|
|
|
|
Other assets |
|
|
6,678 |
|
|
|
1,368 |
|
|
|
65,843 |
|
|
|
(2,308 |
) |
|
|
71,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
113,602 |
|
|
$ |
49,139 |
|
|
$ |
446,630 |
|
|
$ |
(109,855 |
) |
|
$ |
499,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
338,963 |
|
|
$ |
(12,511 |
) |
|
$ |
326,452 |
|
Short-term borrowings |
|
|
27 |
|
|
|
6,726 |
|
|
|
19,026 |
|
|
|
(12,160 |
) |
|
|
13,619 |
|
Accrued expenses and other liabilities |
|
|
4,619 |
|
|
|
1,026 |
|
|
|
31,225 |
|
|
|
(3,076 |
) |
|
|
33,794 |
|
Long-term debt |
|
|
62,395 |
|
|
|
38,533 |
|
|
|
16,215 |
|
|
|
(33,386 |
) |
|
|
83,757 |
|
Indebtedness to subsidiaries |
|
|
4,667 |
|
|
|
|
|
|
|
|
|
|
|
(4,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
71,708 |
|
|
|
46,285 |
|
|
|
405,429 |
|
|
|
(65,800 |
) |
|
|
457,622 |
|
Stockholders equity |
|
|
41,894 |
|
|
|
2,854 |
|
|
|
41,201 |
|
|
|
(44,055 |
) |
|
|
41,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
113,602 |
|
|
$ |
49,139 |
|
|
$ |
446,630 |
|
|
$ |
(109,855 |
) |
|
$ |
499,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
subsidiaries |
|
|
Eliminations |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary banks |
|
$ |
14,612 |
|
|
$ |
185 |
|
|
$ |
|
|
|
$ |
(14,797 |
) |
|
$ |
|
|
Nonaffiliates |
|
|
248 |
|
|
|
313 |
|
|
|
19,062 |
|
|
|
|
|
|
|
19,623 |
|
Securities available for sale |
|
|
1,258 |
|
|
|
1,829 |
|
|
|
26,134 |
|
|
|
(5 |
) |
|
|
29,216 |
|
Mortgages and loans held for sale |
|
|
|
|
|
|
24 |
|
|
|
32,360 |
|
|
|
|
|
|
|
32,384 |
|
|
|
|
1 |
|
|
|
38,024 |
|
|
|
263,714 |
|
|
|
|
|
|
|
301,739 |
|
Loans to subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
2,300 |
|
|
|
816 |
|
|
|
|
|
|
|
(3,116 |
) |
|
|
|
|
Nonbank |
|
|
40,324 |
|
|
|
905 |
|
|
|
|
|
|
|
(41,229 |
) |
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
(995 |
) |
|
|
(2,780 |
) |
|
|
|
|
|
|
(3,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
42,625 |
|
|
|
38,750 |
|
|
|
260,934 |
|
|
|
(44,345 |
) |
|
|
297,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
35,423 |
|
|
|
|
|
|
|
|
|
|
|
(35,423 |
) |
|
|
|
|
Nonbank |
|
|
4,563 |
|
|
|
|
|
|
|
|
|
|
|
(4,563 |
) |
|
|
|
|
Other assets |
|
|
5,382 |
|
|
|
841 |
|
|
|
51,126 |
|
|
|
(1,555 |
) |
|
|
55,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
104,111 |
|
|
$ |
41,942 |
|
|
$ |
389,616 |
|
|
$ |
(100,688 |
) |
|
$ |
434,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
289,810 |
|
|
$ |
(14,797 |
) |
|
$ |
275,013 |
|
Short-term borrowings |
|
|
154 |
|
|
|
5,819 |
|
|
|
23,400 |
|
|
|
(11,468 |
) |
|
|
17,905 |
|
Accrued expenses and other liabilities |
|
|
3,079 |
|
|
|
1,247 |
|
|
|
17,950 |
|
|
|
(2,346 |
) |
|
|
19,930 |
|
Long-term debt |
|
|
57,789 |
|
|
|
32,366 |
|
|
|
21,104 |
|
|
|
(28,404 |
) |
|
|
82,855 |
|
Indebtedness to subsidiaries |
|
|
3,811 |
|
|
|
|
|
|
|
|
|
|
|
(3,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
64,833 |
|
|
|
39,432 |
|
|
|
352,264 |
|
|
|
(60,826 |
) |
|
|
395,703 |
|
Stockholders equity |
|
|
39,278 |
|
|
|
2,510 |
|
|
|
37,352 |
|
|
|
(39,862 |
) |
|
|
39,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
104,111 |
|
|
$ |
41,942 |
|
|
$ |
389,616 |
|
|
$ |
(100,688 |
) |
|
$ |
434,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries/ |
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
eliminations |
|
|
Company |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
1,851 |
|
|
$ |
331 |
|
|
$ |
18,209 |
|
|
$ |
20,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
99 |
|
|
|
260 |
|
|
|
25,971 |
|
|
|
26,330 |
|
Prepayments and maturities |
|
|
2 |
|
|
|
76 |
|
|
|
2,905 |
|
|
|
2,983 |
|
Purchases |
|
|
(103 |
) |
|
|
(385 |
) |
|
|
(59,863 |
) |
|
|
(60,351 |
) |
Net cash paid for acquisitions |
|
|
|
|
|
|
|
|
|
|
(332 |
) |
|
|
(332 |
) |
Increase in banking subsidiaries loan
originations, net of collections |
|
|
|
|
|
|
(830 |
) |
|
|
(17,048 |
) |
|
|
(17,878 |
) |
Proceeds from sales (including participations) of loans by
banking subsidiaries |
|
|
|
|
|
|
50 |
|
|
|
34,782 |
|
|
|
34,832 |
|
Purchases (including participations) of loans by
banking subsidiaries |
|
|
|
|
|
|
(202 |
) |
|
|
(2,779 |
) |
|
|
(2,981 |
) |
Principal collected on nonbank entities loans |
|
|
|
|
|
|
10,489 |
|
|
|
1,353 |
|
|
|
11,842 |
|
Loans originated by nonbank entities |
|
|
|
|
|
|
(11,257 |
) |
|
|
(1,958 |
) |
|
|
(13,215 |
) |
Net repayments from (advances to) nonbank entities |
|
|
1,091 |
|
|
|
|
|
|
|
(1,091 |
) |
|
|
|
|
Capital notes and term loans made to subsidiaries |
|
|
(4,705 |
) |
|
|
|
|
|
|
4,705 |
|
|
|
|
|
Principal collected on notes/loans made to subsidiaries |
|
|
2,149 |
|
|
|
|
|
|
|
(2,149 |
) |
|
|
|
|
Net decrease (increase) in investment in subsidiaries |
|
|
189 |
|
|
|
|
|
|
|
(189 |
) |
|
|
|
|
Other, net |
|
|
|
|
|
|
497 |
|
|
|
(6,144 |
) |
|
|
(5,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(1,278 |
) |
|
|
(1,302 |
) |
|
|
(21,837 |
) |
|
|
(24,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
|
|
|
|
|
|
|
|
11,772 |
|
|
|
11,772 |
|
Net increase (decrease) in short-term borrowings |
|
|
635 |
|
|
|
(2,279 |
) |
|
|
(8,675 |
) |
|
|
(10,319 |
) |
Proceeds from issuance of long-term debt |
|
|
8,279 |
|
|
|
4,987 |
|
|
|
(1,342 |
) |
|
|
11,924 |
|
Long-term debt repayment |
|
|
(5,055 |
) |
|
|
(1,743 |
) |
|
|
(1,161 |
) |
|
|
(7,959 |
) |
Proceeds from issuance of common stock |
|
|
931 |
|
|
|
|
|
|
|
|
|
|
|
931 |
|
Common stock repurchased |
|
|
(1,185 |
) |
|
|
|
|
|
|
|
|
|
|
(1,185 |
) |
Cash dividends paid on common stock |
|
|
(2,692 |
) |
|
|
|
|
|
|
|
|
|
|
(2,692 |
) |
Excess tax benefits related to stock option payments |
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
106 |
|
Other, net |
|
|
|
|
|
|
7 |
|
|
|
113 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,019 |
|
|
|
972 |
|
|
|
707 |
|
|
|
2,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and due from banks |
|
|
1,592 |
|
|
|
1 |
|
|
|
(2,921 |
) |
|
|
(1,328 |
) |
Cash and due from banks at beginning of period |
|
|
10,794 |
|
|
|
474 |
|
|
|
4,129 |
|
|
|
15,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of period |
|
$ |
12,386 |
|
|
$ |
475 |
|
|
$ |
1,208 |
|
|
$ |
14,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries/ |
|
|
Consolidated |
|
(in millions) |
|
Parent |
|
|
WFFI |
|
|
eliminations |
|
|
Company |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
3,325 |
|
|
$ |
875 |
|
|
$ |
1,972 |
|
|
$ |
6,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales proceeds |
|
|
212 |
|
|
|
103 |
|
|
|
3,484 |
|
|
|
3,799 |
|
Prepayments and maturities |
|
|
64 |
|
|
|
93 |
|
|
|
3,222 |
|
|
|
3,379 |
|
Purchases |