exv13



		Financial Review

34		Overview

36		Critical Accounting Policies

39		Earnings Performance
39		Net Interest Income
42		Noninterest Income
43		Noninterest Expense
43		Income Taxes
43		Operating Segment Results

44		Balance Sheet Analysis
44		Securities Available for Sale (table on page 68)
44		Loan Portfolio (table on page 70)
44		Deposits

45		Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
45		Off-Balance Sheet Arrangements, Variable Interest Entities, Guarantees and Other Commitments
46		Contractual Obligations
46		Transactions with Related Parties

46		Risk Management
46		Credit Risk Management Process
47		Nonaccrual Loans and Other Assets
48		Loans 90 Days or More Past Due and Still Accruing
48		Allowance for Loan Losses (table on page 71)
48		Asset/Liability and Market Risk Management
49		Interest Rate Risk
49		Mortgage Banking Interest Rate Risk
50		Market Risk – Trading Activities
50		Market Risk – Equity Markets
50		Liquidity and Funding

52		Capital Management

52		Comparison of 2002 with 2001

53		Factors That May Affect Future Results

57		Additional Information

		Financial Statements

58		Consolidated Statement of Income

59		Consolidated Balance Sheet

60		Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income

61		Consolidated Statement of Cash Flows

62		Notes to Financial Statements

108		Independent Auditors’ Report

109		Quarterly Financial Data

This Annual Report, including the Financial Review and the Financial Statements and related Notes, has forward-looking statements, which include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly from our forecasts and expectations. Please refer to “Factors that May Affect Future Results” for a discussion of some factors that may cause results to differ.

Wells Fargo & Company is a $388 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 third in market value of our common stock among U.S. bank holding companies at December 31, 2003. In this Annual Report, Wells Fargo & Company and Subsidiaries (consolidated) are called the Company; we refer to Wells Fargo & Company alone as the Parent.

2003 was a very successful year. We achieved record revenue of over $28 billion and diluted earnings per share of $3.65, double-digit increases from last year. Once again our growth in earnings per share was driven by revenue growth. Our primary sources of earnings are driven by lending and deposit taking activities, which generate net interest income, and providing financial services that generate fee income.

Our corporate 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 America’s great companies. Our primary strategy to achieve this vision is to increase the number of products we provide to our customers and to focus on providing each customer with all of the financial products that fulfill their needs. Our cross-sell strategy and diversified business model facilitates growth in strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us. We estimate that each of our current customers has an average of over four of our products. Our goal is eight products per customer, which is currently half of the estimated potential demand.

Our core products grew this year as follows:

• Average loans grew by 22%;

• Average core deposits grew by 12%;

• Mortgage loan originations increased 41% to $470 billion, an industry record;

• Assets managed and administered were up 13%; and

• We processed more than one billion electronic deposit transactions, up 18%.

We believe it is important to maintain a well controlled environment as we continue to grow our businesses. We have prudent credit policies: nonperforming loans and net charge-offs as a percentage of loans outstanding declined from the prior year. We manage the interest rate and market risks

inherent in our asset and liability balances within prudent ranges, while ensuring adequate liquidity and funding. We are the only bank in the U.S. to be “Aaa” rated by Moody’s Investors Service, their highest rating. Our stockholder value has continued to increase due to customer satisfaction, strong financial results and the prudent way we attempt to manage our business risk.

Our financial results included the following:

Net income in 2003 was $6.2 billion, or $3.65 per share, compared with $5.7 billion, or $3.32 per share, before the effect of the accounting change related to Statement of Financial Accounting Standards No. 142 (FAS 142), Goodwill and Other Intangible Assets, for 2002. On the same basis, return on average assets (ROA) was 1.64% and return on average common equity (ROE) was 19.36% in 2003, compared with 1.77% and 19.63%, respectively, for 2002.

Net income in 2003 was $6.2 billion, compared with $5.4 billion in 2002. Earnings per common share were $3.65 in 2003, compared with $3.16 in 2002. ROA was 1.64% and ROE was 19.36% in 2003, compared with 1.69% and 18.68%, respectively, in 2002.

Net interest income on a taxable-equivalent basis was $16.1 billion in 2003, compared with $14.6 billion a year ago. The net interest margin was 5.08% for 2003, compared with 5.53% in 2002.

Noninterest income was $12.4 billion in 2003, compared with $10.8 billion in 2002, an increase of 15%.

Revenue, the sum of net interest income and noninterest income, increased 12% to $28.4 billion in 2003 from $25.2 billion in 2002.

Noninterest expense totaled $17.2 billion in 2003, compared with $14.7 billion in 2002, an increase of 17%.

During 2003, net charge-offs were $1.72 billion, or .81% of average total loans, compared with $1.68 billion, or .96%, during 2002. The provision for loan losses was $1.72 billion in 2003, compared with $1.68 billion in 2002. The allowance for loan losses was $3.89 billion, or 1.54% of total loans, at December 31, 2003, compared with $3.82 billion, or 1.98%, at December 31, 2002.

At December 31, 2003, total nonaccrual loans were $1.46 billion, or .58% of total loans, compared with $1.49 billion, or .78%, at December 31, 2002. Foreclosed assets were $198 million at December 31, 2003 and $195 million at December 31, 2002.

The ratio of common stockholders’ equity to total assets was 8.89% at December 31, 2003, compared with 8.67% at December 31, 2002. Our total risk-based capital (RBC) ratio at December 31, 2003 was 12.21% and our Tier 1 RBC ratio was 8.42%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. Our RBC ratios at December 31, 2002 were 11.44% and 7.70%, respectively. Our Tier 1 leverage ratios were 6.93% and 6.57% at December 31, 2003 and 2002, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.


Table 1: Ratios and Per Common Share Data

	Year ended December 31								,
	2003			2002			2001

Before effect of change in accounting principle ⁽¹⁾ and excluding goodwill amortization

PROFITABILITY RATIOS
Net income to average total assets (ROA)		1.64	%		1.77	%		1.40	%
Net income applicable to common stock to average common stockholders’ equity (ROE)		19.36			19.63			14.88
Net income to average stockholders’ equity		19.34			19.61			14.81

EFFICIENCY RATIO ⁽²⁾		60.6			58.3			62.8

After effect of change in accounting principle

PROFITABILITY RATIOS
ROA		1.64			1.69			1.20
ROE		19.36			18.68			12.73
Net income to average stockholders’ equity		19.34			18.66			12.69

EFFICIENCY RATIO		60.6			58.3			65.7

CAPITAL RATIOS
At year end:
Common stockholders’ equity to assets		8.89			8.67			8.82
Stockholders’ equity to assets		8.89			8.68			8.84
Risk-based capital ⁽³⁾
Tier 1 capital		8.42			7.70			7.43
Total capital		12.21			11.44			11.01
Tier 1 leverage ⁽³⁾		6.93			6.57			6.24
Average balances:
Common stockholders’ equity to assets		8.48			9.03			9.35
Stockholders’ equity to assets		8.49			9.05			9.42

PER COMMON SHARE DATA
Dividend payout ⁽⁴⁾		40.68			34.46			50.25
Book value	$	20.31		$	17.95		$	15.99
Market prices ⁽⁵⁾:
High	$	59.18		$	54.84		$	54.81
Low		43.27			38.10			38.25
Year end		58.89			46.87			43.47

(1)		Change in accounting principle is for a transitional goodwill impairment charge recorded in first quarter 2002 for the adoption of FAS 142.
(2)		The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(3)		See Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements for additional information.
(4)		Dividends declared per common share as a percentage of earnings per common share.
(5)		Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.

Recent Accounting Standards
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities and, in December 2003, issued Revised Interpretation No. 46 (FIN 46R), Consolidation of Variable Interest Entities, which replaced FIN 46. We adopted the disclosure provisions of FIN 46 effective December 31, 2002. On February 1, 2003, we adopted the recognition and measurement provisions of FIN 46 for variable interest entities (VIEs) formed after January 31, 2003, and, on December 31, 2003, we adopted FIN 46R for all existing VIEs and consolidated five variable interest entities with total assets of $281 million. The adoption of FIN 46 and FIN 46R did not have a material effect on our financial statements.

Historically, issuer trusts that issued trust preferred securities have been consolidated by their parent companies and trust preferred securities have been treated as eligible for Tier 1 capital treatment by bank holding companies under Federal Reserve Board (FRB) rules and regulations relating to minority interests in equity accounts of consolidated subsidiaries. Applying the provisions of FIN 46R, we deconsolidated our issuer trusts as of December 31, 2003. In a Supervisory Letter dated July 2, 2003, the FRB stated that trust preferred securities continue to qualify as Tier 1 capital until notice is given to the contrary. The FRB will review the regulatory implications of any accounting treatment changes and will provide further guidance if necessary or warranted.

In April 2003, the FASB issued FAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, to provide additional clarification of certain terms and investment characteristics. This statement was effective for contracts entered into or modified after June 30, 2003. The adoption of FAS 149 did not have a material effect on our financial statements.

In May 2003, the FASB issued FAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. FAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. We adopted FAS 150 effective July 1, 2003 and the adoption of the standard did not have a material effect on our financial statements.

On December 8, 2003 President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to plan sponsors that provide a benefit that is at least equivalent to Medicare. Since the measurement date for our postretirement health care plan is November 30 and the Act did not become law until after this date, measurement of our accumulated postretirement benefit obligation and net periodic postretirement benefit cost in our financial statements or accompanying notes do


Table 2: Six-Year Summary of Selected Financial Data

(in millions, except													% Change			Five-year
per share amounts)													2003		/	compound
	2003		2002		2001		2000		1999		1998		2002			growth rate

INCOME STATEMENT
Net interest income	$	16,007	$	14,482	$	11,976	$	10,339	$	9,608	$	9,236		11	%		12	%
Provision for loan losses		1,722		1,684		1,727		1,284		1,079		1,576		2			2
Noninterest income		12,382		10,767		9,005		10,360		9,277		8,113		15			9
Noninterest expense		17,190		14,711		13,794		12,889		11,483		12,130		17			7

Before effect of change in accounting principle

Net income	$	6,202	$	5,710	$	3,411	$	4,012	$	3,995	$	2,178		9			23
Earnings per common share		3.69		3.35		1.99		2.35		2.31		1.27		10			24
Diluted earnings per common share		3.65		3.32		1.97		2.32		2.28		1.25		10			24

After effect of change in accounting principle

Net income	$	6,202	$	5,434	$	3,411	$	4,012	$	3,995	$	2,178		14			23
Earnings per common share		3.69		3.19		1.99		2.35		2.31		1.27		16			24
Diluted earnings per common share		3.65		3.16		1.97		2.32		2.28		1.25		16			24
Dividends declared per common share		1.50		1.10		1.00		.90		.785		.70		36			16

BALANCE SHEET
(at year end)
Securities available for sale	$	32,953	$	27,947	$	40,308	$	38,655	$	43,911	$	36,660		18			(2	)
Loans		253,073		192,478		167,096		155,451		126,700		114,546		31			17
Allowance for loan losses		3,891		3,819		3,717		3,681		3,312		3,274		2			4
Goodwill		10,371		9,753		9,527		9,303		8,046		7,889		6			6
Assets		387,798		349,197		307,506		272,382		241,032		224,141		11			12
Core deposits		211,271		198,234		182,295		156,710		138,247		144,179		7			13
Long-term debt		63,642		47,320		36,095		32,046		26,866		22,662		34			23
Guaranteed preferred beneficial interests in Company’s subordinated debentures ⁽¹⁾		—		2,885		2,435		935		935		935		(100	)		(100	)
Common stockholders’ equity		34,484		30,258		27,111		26,194		23,587		21,873		14			10
Stockholders’ equity		34,469		30,319		27,175		26,461		23,858		22,336		14			9

Allowance for Loan Losses
The allowance for loan losses is management’s estimate of credit losses inherent in the loan portfolio, including unfunded commitments, at the balance sheet date. We have an established process, using several analytical tools and benchmarks, to calculate a range of possible outcomes and determine the adequacy of the allowance. No single statistic or measurement determines the adequacy of the allowance. Loan recoveries and the provision for loan losses increase the allowance, while loan charge-offs decrease the allowance.

PROCESS TO DETERMINE THE ADEQUACY OF THE ALLOWANCE FOR LOAN LOSSES
For analytical purposes only, we allocate a portion of the allowance to specific loan categories (the allocated allowance). The entire allowance (both allocated and unallocated), however, is used to absorb credit losses inherent in the total loan portfolio.

Approximately two-thirds of the allocated allowance is determined at a pooled level for retail loan portfolios (consumer loans and leases, home mortgage loans and some segments of small business loans). We use forecasting models to measure the losses inherent in these portfolios. We frequently validate and update these models to capture the recent behavioral characteristics of the portfolios, as well as any changes in our loss mitigation or marketing strategies.

We use a standardized loan grading process for wholesale loan portfolios (commercial, commercial real estate, real estate construction and leases) and review larger higher-risk transactions individually. Based on this process, we assign a loss factor to each pool of graded loans. For graded loans with evidence of credit weakness at the balance sheet date, the loss factors are derived from migration models that track actual portfolio movements between loan grades over a specified period of time. For graded loans without evidence of credit weakness at the balance sheet date, we use a combination of our long-term average loss experience and external loss data. In addition, we individually review nonperforming loans over $1 million for impairment based on cash flows or collateral. We include the impairment on nonperforming loans in the allocated allowance unless it has already been recognized as a loss.

The allocated allowance is supplemented by the unallocated allowance to adjust for imprecision and to incorporate the range of probable outcomes inherent in estimates used for the allocated allowance. The unallocated allowance is the result of our judgment of risks inherent in the portfolio, economic uncertainties, historical loss experience and other subjective factors, including industry trends.

The ratios of the allocated allowance and the unallocated allowance to the total allowance may change from period to period. The total allowance reflects management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date.

The allowance for loan losses, and the resulting provision, is based on judgments and assumptions, including (1) general economic conditions, (2) loan portfolio composition, (3) loan loss experience, (4) management’s evaluation of the credit risk relating to pools of loans and individual borrowers, (5) sensitivity analysis and expected loss models and (6) observations from our internal auditors, internal loan review staff or our banking regulators.

To estimate the possible range of allowance required at December 31, 2003, and the related change in provision expense, we assumed the following scenarios of a reasonably possible deterioration or improvement in loan credit quality.

Assumptions for deterioration in loan credit quality were:

• For retail loans, a 20 basis point increase in estimated loss rates from historical loss levels; and

• For wholesale loans, which are dissimilar in nature, a migration of certain loans to lower risk grades, resulting in a 30% increase in the balance of nonperforming loans and related impairment.

Assumptions for improvement in loan credit quality were:

• For retail loans, a 10 basis point decrease in estimated loss rates from historical loss levels; and

• For wholesale loans, a negligible change in nonperforming loans and related impairment.

Under the assumptions for deterioration in loan credit quality, another $425 million in expected losses could occur and under the assumptions for improvement, a $200 million reduction in expected losses could occur.

Changes in the estimate of the allowance for loan losses can materially affect net income. The example above is only one of a number of reasonably possible scenarios. Determining the allowance for loan losses requires us to make forecasts that are highly uncertain and require a high degree of judgment.

Valuation of Mortgage Servicing Rights
We recognize the rights to service mortgage loans for others, or mortgage servicing rights (MSRs), as assets, whether we purchase the servicing rights, or keep them after the sale or securitization of loans we originated. Generally, purchased MSRs are capitalized at cost. Originated MSRs are recorded based on the relative fair value of the servicing right and the mortgage loan on the date the mortgage loan is sold. Both purchased and originated MSRs are carried at the lower of (1) the capitalized amount, net of accumulated amortization and hedge accounting adjustments, or (2) fair value. If MSRs are designated as a hedged item in a fair value hedge, the MSRs’ carrying value is adjusted for changes in fair value resulting from the application of hedge accounting. The adjustment becomes part of the carrying value. The carrying value of these MSRs is still subject to a fair value test under FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

MSRs are amortized in proportion to and over the period of estimated net servicing income. We analyze the amortization of MSRs monthly and adjust amortization to reflect changes in prepayment speeds and discount rates.

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 would 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 Notes 1 (Summary of Significant Accounting Policies), 21 (Securitizations and Variable Interest Entities) and 22 (Mortgage Banking Activities) to Financial Statements.

Each quarter, we evaluate MSRs for possible impairment based on the difference between the carrying amount and current estimated fair value under FAS 140. To evaluate and measure impairment we stratify the portfolio based on certain risk characteristics, including loan type and note rate. If temporary impairment exists, we establish a valuation allowance through a charge to net income for any excess of amortized cost over the current fair value, by risk stratification. If we later determine that all or part of the temporary impairment no longer exists for a particular risk stratification, we may reduce the valuation allowance through an increase to net income.

Under our policy, we also evaluate other-than-temporary impairment of MSRs by considering both historical and projected trends in interest rates, pay-off activity and whether the impairment could be recovered through interest rate increases. We recognize a direct write-down if we determine that the recoverability of a recorded valuation allowance is remote. A direct write-down permanently reduces the carrying value of the MSRs, while a valuation allowance (temporary impairment) can be reversed.

To reduce the sensitivity of earnings to interest rate and market value fluctuations, we hedge the change in value of MSRs primarily with liquid derivative contracts. Reductions or increases in the value of the MSRs are generally offset by gains or losses in the value of the derivative. If the reduction or increase in the value of the MSRs is not offset, we immediately recognize a gain or loss for the portion of the amount that is not offset (hedge ineffectiveness). We do not fully hedge MSRs because origination volume is a “natural hedge,” (i.e., as interest rates decline, servicing values decrease and fees from origination volume increase). Conversely, as interest rates increase, the value of the MSRs increases, while fees from origination volume tend to decline.

Servicing fees—net of amortization, provision for impairment and gain or loss on the ineffective portion and the portion of the derivatives excluded from the assessment of hedge effectiveness-are recorded in mortgage banking noninterest income.

We use a dynamic and sophisticated model to estimate the value of our MSRs. 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. The discount rate—another key assumption in the model—is equal to what we believe the required rate of return would be 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 in quarterly and annual valuations as market conditions and interest rates change. Senior management reviews all assumptions quarterly.

Our key economic assumptions and the sensitivity of the current fair value of MSRs to an immediate adverse change in those assumptions are shown in Note 21 (Securitizations and Variable Interest Entities) to Financial Statements.

There have been significant market-driven fluctuations in loan prepayment speeds and the discount rate in recent years. These fluctuations could be rapid and 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.

Pension Accounting
We use four key variables to calculate our annual pension cost; (1) size of the employee population, (2) actuarial assumptions, (3) expected long-term rate of return on plan assets, and (4) discount rate. We describe below the effect of each of these variables on our pension expense.

SIZE OF THE EMPLOYEE POPULATION
Pension expense is directly related to the number of employees covered by the plans. The number of our employees eligible for pension benefits has steadily increased over the last few years, causing a proportional growth in pension expense.

ACTUARIAL ASSUMPTIONS
To estimate the projected benefit obligation, actuarial assumptions are required about factors such as mortality rate, turnover rate, retirement rate, disability rate and the rate of compensation increases. These factors don’t tend to change over time, so the range of assumptions, and their impact on pension expense, is generally narrow.

EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS
We calculate the expected return on plan assets each year based on the balance in the pension asset portfolio at the beginning of the plan year and the expected long-term rate of return on that portfolio. The expected long-term rate of return is designed to approximate the actual long-term rate of return on the plan assets over time. The expected long-term rate of return is generally held constant so the pattern of income/expense recognition more closely matches the stable pattern of services provided by our employees over the life of the pension obligation.

To determine if the expected rate of return is reasonable, we consider such factors as (1) the actual return earned on plan assets, (2) historical rates of return on the various asset classes in the plan portfolio, (3) projections of returns on various asset classes, and (4) current/prospective capital market conditions and economic forecasts. We have used an expected rate of return of 9% on plan assets for the past seven years. Over the last two decades, the plan assets have actually earned a rate of return higher than 9%. Differences in each year, if any, between expected and actual returns in excess of a 5% corridor (as defined in FAS 87, Employers’ Accounting for Pensions) are amortized in net periodic pension calculations over the next five years. See Note 15 (Employee Benefits and Other Expenses) to Financial Statements for details on changes in the pension benefit obligation and the fair value of plan assets.

We use November 30 as a measurement date for our pension asset and projected benefit obligation balances. If we were to assume a 1% increase/decrease in the expected long-term rate of return, holding the discount rate and other actuarial assumptions constant, pension expense would decrease/increase by approximately $36 million.

DISCOUNT RATE

We use the discount rate to determine the present value of our future benefit obligations. It reflects the rates available on long-term high-quality fixed-income debt instruments, reset annually on the measurement date. We lowered our discount rate in 2003 to 6.5% from 7% in 2002 and from 7.5% in 2000-2001, reflecting the decline in interest rates during these periods.

If we were to assume a 1% increase in the discount rate, and keep the expected long-term rate of return and other actuarial assumptions constant, pension expense would decrease by approximately $58 million; if we were to assume a 1% decrease in the discount rate, and keep other assumptions constant, pension expense would increase by approximately $90 million. The decrease to pension expense based on a 1% increase in discount rate differs from the increase to pension expense based on 1% decrease in discount rate due to the 5% corridor.

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-and short-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and debt. Net interest income and the net interest margin are presented 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 was $16.1 billion in 2003, compared with $14.6 billion in 2002, an increase of 10%. The increase was primarily due to robust loan growth and significantly lower funding costs resulting from strong core deposit growth and lower wholesale funding rates. These factors were partially offset by reduced income from a smaller investment portfolio following the sale, prepayment and maturity of higher yielding mortgage-backed securities.

The interest margin for 2003 decreased to 5.08% from 5.53% in 2002. The decrease was primarily due to declining loan yields as new volumes were added to the portfolio at yields below existing loans due to a lower interest rate environment. This was partially offset by significantly reduced funding costs and growth in noninterest-bearing funds.

Average earning assets increased $53.3 billion in 2003 from 2002 due to increases in average loans and mortgages held for sale. Loans averaged $213.1 billion in 2003, compared with $174.5 billion in 2002. The increase was largely due to growth in mortgage and home equity products. Average mortgages held for sale increased to $58.7 billion in 2003 from $39.9 billion in 2002, due to increased originations, largely from refinancing activity. Debt securities available for sale averaged $27.3 billion in 2003, compared with $36.0 billion in 2002.

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 12% from 2002. Average core deposits were $207.0 billion and $184.1 billion and funded 54.8% and 57.2% of average total assets in 2003 and 2002, respectively. While savings certificates of deposits declined on average from $24.3 billion to $20.9 billion, noninterest-bearing checking accounts and other core deposit categories increased on average from $159.9 billion in 2002 to $186.1 billion in 2003 reflecting growth in consumer and business primary account relationships. Total average interest-bearing deposits increased to $161.7 billion in 2003 from $133.8 billion a year ago. For the same periods, total average noninterest-bearing deposits increased to $76.8 billion from $63.6 billion.

Table 3 presents the individual components of net interest income and the net interest margin.


Table 3: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) ⁽¹⁾⁽²⁾

(in millions)	2003									2002
	Average			Yields		/	Interest			Average			Yields		/	Interest
	balance			rates			income		/	balance			rates			income		/
							expense									expense

EARNING ASSETS
Federal funds sold and securities purchased under resale agreements	$	3,675			1.11	%	$	41		$	2,652			1.67	%	$	44
Debt securities available for sale ⁽³⁾:
Securities of U.S. Treasury and federal agencies		1,286			4.74			58			1,770			5.57			95
Securities of U.S. states and political subdivisions		2,424			8.62			196			2,106			8.33			167
Mortgage-backed securities:
Federal agencies		18,283			7.37			1,276			26,718			7.23			1,856
Private collateralized mortgage obligations		2,001			6.24			120			2,341			7.18			163

Total mortgage-backed securities		20,284			7.26			1,396			29,059			7.22			2,019
Other debt securities ⁽⁴⁾		3,302			7.75			240			3,029			7.74			232

Total debt securities available for sale ⁽⁴⁾		27,296			7.32			1,890			35,964			7.25			2,513
Mortgages held for sale ⁽³⁾		58,672			5.34			3,136			39,858			6.13			2,450
Loans held for sale ⁽³⁾		7,142			3.51			251			5,380			4.69			252
Loans:
Commercial		47,279			6.08			2,876			46,520			6.80			3,164
Real estate 1-4 family first mortgage		56,252			5.54			3,115			32,669			6.69			2,185
Other real estate mortgage		25,846			5.44			1,405			25,413			6.17			1,568
Real estate construction		7,954			5.11			406			7,925			5.69			451
Consumer:
Real estate 1-4 family junior lien mortgage		31,670			5.80			1,836			25,220			7.07			1,783
Credit card		7,640			12.06			922			6,810			12.27			836
Other revolving credit and installment		29,838			9.09			2,713			24,072			10.28			2,475

Total consumer		69,148			7.91			5,471			56,102			9.08			5,094
Lease financing		4,453			6.22			277			4,079			6.32			258
Foreign		2,200			18.00			396			1,774			18.90			335

Total loans ⁽⁵⁾		213,132			6.54			13,946			174,482			7.48			13,055
Other		8,235			2.89			238			6,492			3.80			248

Total earning assets	$	318,152			6.16			19,502		$	264,828			7.04			18,562


FUNDING SOURCES
Deposits:
Interest-bearing checking	$	2,571			.27			7		$	2,494			.55			14
Market rate and other savings		106,733			.66			705			93,787			.95			893
Savings certificates		20,927			2.53			529			24,278			3.21			780
Other time deposits		25,388			1.20			305			8,191			1.86			153
Deposits in foreign offices		6,060			1.11			67			5,011			1.58			79

Total interest-bearing deposits		161,679			1.00			1,613			133,761			1.43			1,919
Short-term borrowings		29,898			1.08			322			33,278			1.61			536
Long-term debt		53,823			2.52			1,355			42,158			3.33			1,404
Guaranteed preferred beneficial interests in Company’s subordinated debentures		3,306			3.66			121			2,780			4.23			118

Total interest-bearing liabilities		248,706			1.37			3,411			211,977			1.88			3,977
Portion of noninterest-bearing funding sources		69,446			—			—			52,851			—			—

Total funding sources	$	318,152			1.08			3,411		$	264,828			1.51			3,977

Net interest margin and net interest income on a taxable-equivalent basis ⁽⁶⁾					5.08	%	$	16,091						5.53	%	$	14,585


NONINTEREST-EARNING ASSETS
Cash and due from banks	$	13,433								$	13,820
Goodwill		9,905									9,737
Other		36,123									33,340

Total noninterest-earning assets	$	59,461								$	56,897


NONINTEREST-BEARING FUNDING SOURCES
Deposits	$	76,815								$	63,574
Other liabilities		20,030									17,054
Preferred stockholders’ equity		44									55
Common stockholders’ equity		32,018									29,065
Noninterest-bearing funding sources used to fund earning assets		(69,446	)								(52,851	)

Net noninterest-bearing funding sources	$	59,461								$	56,897

TOTAL ASSETS	$	377,613								$	321,725



	2001									2000									1999
	Average			Yields		/	Interest			Average			Yields		/	Interest			Average			Yields		/	Interest
	balance			rates			income		/	balance			rates			income		/	balance			rates			income		/
							expense									expense									expense

EARNING ASSETS
Federal funds sold and securities purchased under resale agreements	$	2,583			3.69	%	$	95		$	2,370			6.01	%	$	143		$	1,673			5.11	%	$	86
Debt securities available for sale ⁽³⁾:
Securities of U.S. Treasury and federal agencies		2,158			6.55			137			3,322			6.16			210			6,124			5.51			348
Securities of U.S. states and political subdivisions		2,026			7.98			154			2,080			7.74			162			2,119			8.12			168
Mortgage-backed securities:
Federal agencies		27,433			7.19			1,917			26,054			7.22			1,903			23,542			6.77			1,599
Private collateralized mortgage obligations		1,766			8.55			148			2,379			7.61			187			3,945			6.77			270

Total mortgage-backed securities		29,199			7.27			2,065			28,433			7.25			2,090			27,487			6.77			1,869
Other debt securities ⁽⁴⁾		3,343			7.80			254			5,049			7.93			261			3,519			7.49			209

Total debt securities available for sale ⁽⁴⁾		36,726			7.32			2,610			38,884			7.24			2,723			39,249			6.69			2,594
Mortgages held for sale ⁽³⁾		23,677			6.72			1,595			10,725			7.85			849			13,559			6.96			951
Loans held for sale ⁽³⁾		4,820			6.58			317			4,915			8.50			418			5,154			7.31			377
Loans:
Commercial		48,648			8.01			3,896			45,352			9.40			4,263			38,932			8.66			3,370
Real estate 1-4 family first mortgage		23,359			7.54			1,761			17,190			7.72			1,327			13,396			7.76			1,039
Other real estate mortgage		24,194			7.99			1,934			22,509			8.99			2,023			18,822			8.74			1,645
Real estate construction		8,073			8.10			654			6,934			10.02			695			5,260			9.56			503
Consumer:
Real estate 1-4 family junior lien mortgage		17,587			9.20			1,619			14,458			10.85			1,569			11,574			10.00			1,157
Credit card		6,270			13.36			838			5,867			14.58			856			5,686			13.77			783
Other revolving credit and installment		23,459			11.40			2,674			21,824			12.06			2,631			19,561			11.88			2,324

Total consumer		47,316			10.84			5,131			42,149			11.99			5,056			36,821			11.58			4,264
Lease financing		4,024			6.90			278			4,218			5.35			225			3,509			5.23			184
Foreign		1,603			20.82			333			1,621			21.15			343			1,554			20.65			321

Total loans ⁽⁵⁾		157,217			8.90			13,987			139,973			9.95			13,932			118,294			9.57			11,326
Other		4,000			4.77			191			3,206			6.21			199			3,252			5.01			162

Total earning assets	$	229,023			8.24			18,795		$	200,073			9.18			18,264		$	181,181			8.57			15,496


FUNDING SOURCES
Deposits:
Interest-bearing checking	$	2,178			1.59			35		$	3,424			1.88			64		$	3,120			.99			31
Market rate and other savings		80,585			2.08			1,675			63,577			2.81			1,786			60,901			2.30			1,399
Savings certificates		29,850			5.13			1,530			30,101			5.37			1,616			30,088			4.86			1,462
Other time deposits		1,332			5.04			67			4,438			5.69			253			3,957			4.94			196
Deposits in foreign offices		6,209			3.96			246			5,950			6.22			370			1,658			4.76			79

Total interest-bearing deposits		120,154			2.96			3,553			107,490			3.80			4,089			99,724			3.17			3,167
Short-term borrowings		33,885			3.76			1,273			28,222			6.23			1,758			22,559			5.00			1,127
Long-term debt		34,501			5.29			1,826			29,000			6.69			1,939			24,646			5.90			1,453
Guaranteed preferred beneficial interests in Company’s subordinated debentures		1,394			6.40			89			935			7.92			74			935			7.73			72

Total interest-bearing liabilities		189,934			3.55			6,741			165,647			4.75			7,860			147,864			3.94			5,819
Portion of noninterest-bearing funding sources		39,089			—			—			34,426			—			—			33,317			—			—

Total funding sources	$	229,023			2.95			6,741		$	200,073			3.95			7,860		$	181,181			3.22			5,819

Net interest margin and net interest income on a taxable-equivalent basis ⁽⁶⁾					5.29	%	$	12,054						5.23	%	$	10,404						5.35	%	$	9,677


NONINTEREST-EARNING ASSETS
Cash and due from banks	$	14,608								$	13,103								$	12,252
Goodwill		9,514									8,811									7,983
Other		32,222									28,170									23,673

Total noninterest-earning assets	$	56,344								$	50,084								$	43,908


NONINTEREST-BEARING FUNDING SOURCES
Deposits	$	55,333								$	48,691								$	45,201
Other liabilities		13,214									10,949									8,895
Preferred stockholders’ equity		210									266									461
Common stockholders’ equity		26,676									24,604									22,668
Noninterest-bearing funding sources used to fund earning assets		(39,089	)								(34,426	)								(33,317	)

Net noninterest-bearing funding sources	$	56,344								$	50,084								$	43,908

TOTAL ASSETS	$	285,367								$	250,157								$	225,089

Noninterest Income


Table 4: Noninterest Income

(in millions)	Year ended December 31								,	% Change
	2003			2002			2001			2003		/	2002		/
										2002			2001

Service charges on deposit accounts	$	2,361		$	2,179		$	1,876			8	%		16	%
Trust and investment fees:
Trust, investment and IRA fees		1,345			1,343			1,534			—			(12	)
Commissions and all other fees		592			532			257			11			107

Total trust and investment fees		1,937			1,875			1,791			3			5

Credit card fees		1,003			920			796			9			16

Other fees:
Cash network fees		179			183			202			(2	)		(9	)
Charges and fees on loans		756			616			445			23			38
All other		637			585			597			9			(2	)

Total other fees		1,572			1,384			1,244			14			11

Mortgage banking:
Origination and other closing fees		1,218			1,048			737			16			42
Servicing fees, net of amortization and provision for impairment		(954	)		(737	)		(260	)		29			183
Net gains on securities available for sale		—			—			134			—			(100	)
Net gains on mortgage loan origination/sales activities		1,801			1,038			705			74			47
All other		447			364			355			23			3

Total mortgage banking		2,512			1,713			1,671			47			3

Operating leases		937			1,115			1,315			(16	)		(15	)
Insurance		1,071			997			745			7			34
Net gains on debt securities available for sale		4			293			316			(99	)		(7	)
Net gains (losses) from equity investments		55			(327	)		(1,538	)		—			(79	)
Net gains on sales of loans		28			19			35			47			(46	)
Net gains on dispositions of operations		29			10			122			190			(92	)
All other		873			589			632			48			(7	)


Total	$	12,382		$	10,767		$	9,005			15	%		20	%

Service charges on deposit accounts increased 8% due to continued growth in primary checking accounts and increased activity.

We earn trust, investment and IRA fees from managing and administering assets, which include mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At December 31, 2003 and 2002, these assets totaled approximately $576 billion and $510 billion, respectively. Generally, these fees are based on the market value of the assets that are managed, administered, or both. These fees were essentially unchanged in 2003 compared with 2002 as most of the increase in asset balances occurred in the fourth quarter of 2003. Additionally, we receive commission and other fees for providing services for retail and discount brokerage customers. At December 31, 2003 and 2002, brokerage balances were approximately $78 billion and $68 billion, respectively. Generally, these fees are based on the number of transactions executed at the customer’s direction. The increase in commissions and all other fees of 11% for 2003 compared with 2002 was largely due to a

higher number of brokerage transactions, stronger equity markets and increased sales of commission driven products.

Credit card fees increased 9% from 2002 due to an increase in credit card accounts and credit and debit card transaction volume. In second quarter 2003, VISA USA Inc. (VISA) reached an agreement to settle merchant litigation, which included a reduction in some interchange fees to retailers. The impact of the settlement is expected to reduce fee income by approximately $120 million per year prior to the effect of increased volumes and future repricing of these transactions by VISA. In October 2003, we renewed our contract with VISA as our primary brand for debit and credit card transactions and expanded our commitment to include VISA’s Interlink network for retail transactions with merchants.

Mortgage banking noninterest income was $2,512 million in 2003, compared with $1,713 million in 2002. Origination and other closing fees increased to $1,218 million from $1,048 a year ago. Net gains on mortgage loan origination/sales activities increased to $1,801 million in 2003 from $1,038 million in 2002. These increases were primarily due to higher mortgage origination volume and gains on loan sales. Originations during 2003 grew to $470 billion from $333 billion during 2002. In the fourth quarter of 2003, we changed the way we recognize income on interest rate lock commitments on mortgage loans held for sale to record the business margin at the time of sale instead of at the funding date. This change resulted in a one-time reduction in net gains on mortgage loan origination/sales activities of $77 million.

Net servicing fees were a loss of $954 million in 2003 and $737 million in 2002. Servicing fees are presented net of amortization and impairment of mortgage servicing rights (MSRs) and gains and losses from hedge ineffectiveness, which are all influenced by both the level and direction of mortgage interest rates. The increase in net losses from servicing fees in 2003 compared with 2002 was primarily due to lower average interest rates, which resulted in higher MSRs amortization. This increase was partially offset by an increase in gross servicing fees in 2003 compared with the prior year due to an 18% growth in the servicing portfolio resulting from originations and purchases.

During 2003 and 2002, we recognized a direct write-down of MSRs of $1,338 million and $1,071 million, respectively. See “Financial Review – Critical Accounting Policies – Mortgage Servicing Rights Valuation” in this report for the method used to evaluate MSRs for impairment and to determine if such impairment is other-than-temporary. Key assumptions, including the sensitivity of those assumptions used to determine the value of MSRs, are disclosed in Notes 1 (Summary of Significant Accounting Policies) and 21 (Securitizations and Variable Interest Entities) to Financial Statements.

Net gains on debt securities were $4 million for 2003, compared with $293 million for 2002. Net gains from equity investments were $55 million in 2003, compared with losses of $327 million in 2002.

We routinely review our investment portfolios and recognize impairment write-downs based primarily on issuer-specific factors and results. 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.

“All other” noninterest income for 2003 included $163 million of losses on the early retirement of $2.6 billion of term debt that was previously issued at higher costs, predominantly offset by gains on trading securities, foreign exchange and other capital markets activities.

Noninterest Expense


Table 5: Noninterest Expense

(in millions)	Year ended December 31						,	% Change
	2003		2002		2001			2003		/	2002		/
								2002			2001

Salaries	$	4,832	$	4,383	$	4,027			10	%		9	%
Incentive compensation		2,054		1,706		1,195			20			43
Employee benefits		1,560		1,283		960			22			34
Equipment		1,246		1,014		909			23			12
Net occupancy		1,177		1,102		975			7			13
Operating leases		702		802		903			(12	)		(11	)
Contract services		866		546		538			59			1
Outside professional services		509		445		441			14			1
Outside data processing		404		350		319			15			10
Advertising and promotion		392		327		276			20			18
Travel and entertainment		389		337		286			15			18
Telecommunications		343		347		355			(1	)		(2	)
Postage		336		256		242			31			6
Stationery and supplies		241		226		242			7			(7	)
Charitable donations		237		39		54			508			(28	)
Insurance		197		169		167			17			1
Operating losses		193		163		234			18			(30	)
Security		163		159		156			3			2
Core deposit intangibles		142		155		165			(8	)		(6	)
Goodwill		—		—		610			—			(100	)
All other		1,207		902		740			34			22

Total	$	17,190	$	14,711	$	13,794			17	%		7	%

The increase in noninterest expense, including increases in salaries, employee benefits, incentive compensation, contract services, advertising and promotion and postage, was largely due to the growth in the mortgage banking business, which accounted for approximately 48% of the increase from 2002. The increase was also due to charitable donations, predominantly donations of appreciated public equity securities to the Wells Fargo Foundation.

Income Taxes
The effective tax rate for 2003 was 34.6%, compared with 35.5% for 2002. This reduction was primarily due to the tax benefit derived from our donations of appreciated public equity securities to the Wells Fargo Foundation.

Operating Segment Results
Our lines of business for management reporting consist of Community Banking, Wholesale Banking and Wells Fargo Financial.

COMMUNITY BANKING’S net income increased 7% to $4.4 billion in 2003 from $4.1 billion in 2002. Revenue increased 12% from 2002. Net interest income increased to $11.5 billion in 2003 from $10.4 billion in 2002, or 11%, due primarily to growth in average consumer loans, mortgages held for sale and deposits. Average loans grew 30% and average core deposits grew 11% from 2002. The provision for loan losses increased $27 million, or 3%, for 2003. Noninterest income for 2003 increased by $1.1 billion, or 14%, over 2002 primarily due to increased mortgage banking income, consumer loan fees, deposit service charges and gains from equity investments. Noninterest expense increased by $2.0 billion, or 18%, in 2003 over 2002 due primarily to increased mortgage origination activity and certain actions taken in 2003.

WHOLESALE BANKING’S net income increased 17% to $1.4 billion in 2003 from $1.2 billion in 2002, before the effect of change in accounting principle. Net interest income was $2.2 billion in 2003 and $2.3 billion in 2002. Noninterest income increased $450 million to $2.8 billion in 2003 compared with 2002. The increase was primarily due to higher income in asset-based lending, insurance brokerage, commercial mortgage originations, derivatives and real estate brokerage. Noninterest expense increased to $2.6 billion in 2003, compared with $2.4 billion for the prior year. The increase was largely due to higher personnel expense, due to an increase in benefit costs and team members, and higher minority interest expense in partnership earnings within asset-based lending.

WELLS FARGO FINANCIAL’S net income increased 25% to $451 million in 2003 from $360 million, before the effect of change in accounting principle, in 2002, due to lower funding costs combined with growth in real estate secured and auto loans. The provision for loan losses increased by $82 million in 2003 due to growth in loans. Noninterest income increased $24 million, or 7%, from 2002 to 2003, predominantly due to increased loan and credit card fee income of $15 million and a decrease in losses on sales of investment securities of $6 million. Noninterest expense increased $244 million, or 22%, in 2003 from 2002, primarily due to increases in employee compensation and benefits and other costs relating to business expansion and acquisition.

For a more complete description of our operating segments, including additional financial information and the underlying management accounting process, see Note 20 (Operating Segments) to Financial Statements.

A comparison between the year-end 2003 and 2002 balance sheets is presented below.

Securities Available for Sale
Our securities available for sale portfolio includes both debt and marketable equity securities. We hold debt securities available for sale primarily for liquidity, interest rate risk management and yield enhancement purposes. Accordingly, this portfolio primarily includes very liquid, high quality federal agency debt securities. At December 31, 2003, we held $32.4 billion of debt securities available for sale, compared with $27.4 billion at December 31, 2002.

We had a net unrealized gain on debt securities available for sale of $1.3 billion at December 31, 2003 and $1.7 billion at December 31, 2002.

The weighted-average expected maturity of debt securities available for sale was 6.25 years at December 31, 2003. Since 75% of this portfolio is 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 is in Table 6.

Table 6: Mortgage-Backed Securities

(in billions)

Fair

Net unrealized

Remaining

value

gain (loss)

maturity

At December 31, 2003

24.3

6.5 yrs.

At December 31, 2003,
assuming a 200 basis point:

Increase in interest rates

21.7

(1.7

)

9.6 yrs.

Decrease in interest rates

25.1

1.7

2.4 yrs.

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

Loan Portfolio
A comparative schedule of average loan balances is included in Table 3; year-end balances are in Note 5 (Loans and Allowance for Loan Losses) to Financial Statements.

Loans averaged $213.1 billion in 2003, compared with $174.5 billion in 2002, an increase of 22%. Total loans at December 31, 2003 were $253.1 billion, compared with $192.5 billion at year-end 2002, an increase of 31%. Mortgages held for sale decreased to $29.0 billion from $51.2 billion due to lower loan origination volume at the end of 2003. Most of the increase in loans was due to a strong demand for home mortgages and home equity loans and lines, as well as solid growth in credit card balances and consumer finance receivables.

Deposits
Year-end deposit balances are in Table 7. Comparative detail of average deposit balances is included in Table 3. Average core deposits funded 54.8% and 57.2% of average total assets in 2003 and 2002, respectively. Total average interest-bearing deposits rose from $133.8 billion in 2002 to $161.7 billion in 2003. Total average noninterest-bearing deposits rose from $63.6 billion in 2002 to $76.8 billion in 2003. Savings certificates declined on average from $24.3 billion in 2002 to $20.9 billion in 2003.


Table 7: Deposits

(in millions)	December 31				,	%
	2003		2002			Change

Noninterest-bearing	$	74,387	$	74,094			—	%
Interest-bearing checking		2,735		2,625			4
Market rate and other savings		114,362		99,183			15
Savings certificates		19,787		22,332			(11	)

Core deposits		211,271		198,234			7
Other time deposits		27,488		9,228			198
Deposits in foreign offices		8,768		9,454			(7	)

Total deposits	$	247,527	$	216,916			14	%

The increase in other time deposits was predominantly due to an increase in certificates of deposit greater than $100,000 sold to institutional customers.

Off-Balance Sheet Arrangements, Variable Interest Entities, Guarantees and Other Commitments
We consolidate our majority-owned subsidiaries and subsidiaries in which we are the primary beneficiary. If we own at least 20% of an affiliate, we generally use the equity method of accounting. If we own less than 20% of an affiliate, we generally carry the investment at cost. See Note 1 (Summary of Significant Accounting Policies) to Financial Statements for our consolidation policy.

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. These transactions are designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity risks, (3) diversify our funding sources or (4) optimize capital, and are accounted for in accordance with generally accepted accounting principles (GAAP).

Almost all of our off-balance sheet arrangements result from securitizations. We routinely securitize home mortgage loans and, from time to time, other financial assets, including student loans, commercial mortgages and automobile receivables. We normally structure loan securitizations as sales, in accordance with FAS 140. This involves the transfer of financial assets to certain qualifying special-purpose entities that we are not required to consolidate. In a securitization, we can convert the assets into cash earlier than if we held the assets to maturity. Special-purpose entities used in these types of securitizations obtain cash to acquire assets by issuing securities to investors. In a securitization, we usually provide representations and warranties for receivables transferred. Also, we generally retain the right to service the transferred receivables and to repurchase those receivables from the special-purpose entity if the outstanding balance of the receivable falls to a level where the cost exceeds the benefits of servicing such receivables. The adoption of FIN 46 and FIN 46R did not affect our accounting for securitizations involving qualifying special-purpose entities.

At December 31, 2003, our securitization arrangements consisted of approximately $46.9 billion in securitized loan receivables, including $22.4 billion of home mortgage loans. We retained servicing rights and other beneficial interests related to these securitizations of approximately $665 million, consisting of $274 million in securities, $229 million in servicing assets and $162 million in other retained interests. Related to securitizations, we provided $9 million in liquidity commitments in demand notes and reserve fund balances, and committed to provide up to $30 million in credit enhancements.

Also, we hold variable interests greater than 20% but less than 50% in certain special-purpose entities formed to provide affordable housing and to securitize high-yield corporate debt that had approximately $2 billion in total assets at December 31, 2003, and a maximum estimated exposure to loss of approximately $450 million. We are not required to consolidate these entities.

For more information on securitizations including sales proceeds and cash flows from securitizations, see Note 21 (Securitizations and Variable Interest Entities) to Financial Statements.

Our mortgage banking business, in the ordinary course of business, originates a portion of its mortgage loans through unconsolidated joint ventures in which we own an interest of 50% or less. Loans made by these joint ventures are funded by Wells Fargo Home Mortgage, Inc., or an affiliated entity, through an established line of credit and are subject to specified underwriting criteria. At December 31, 2003, the total assets of these mortgage origination joint ventures were approximately $100 million. We provide liquidity to these joint ventures in the form of outstanding lines of credit and, at December 31, 2003, these liquidity commitments totaled $400 million.

We also hold interests in other unconsolidated joint ventures formed with unrelated third parties to provide efficiencies from economies of scale. A third party manages our real estate lending services joint ventures and provides customers title, escrow, appraisal and other real estate related services. Our merchant services joint venture includes credit card processing and related activities. At December 31, 2003, total assets of our real estate lending and merchant services joint ventures were approximately $625 million.

When we acquire brokerage, asset management and insurance agencies, the terms of the acquisitions may provide for deferred payments or additional consideration, based on certain performance targets. At December 31, 2003, the amount of contingent consideration we expected to pay was not significant to the financial statements.

As a financial services provider, we routinely commit to extend credit, including loan commitments, standby letters of credit and financial guarantees. A significant portion of commitments to extend credit may expire without being drawn upon. These commitments are subject to the same credit policies and approval process used for our loans. For more information, see Note 5 (Loans and Allowance for Loan Losses) and Note 25 (Guarantees) to Financial Statements.

In our venture capital and capital markets businesses, we commit to fund equity investments directly to investment funds and to specific private companies. The timing of future cash requirements to fund these commitments generally depends on the venture capital investment cycle, the period over which privately-held companies are funded by venture capital investors and ultimately taken public through an initial offering. This cycle can vary based on market conditions and the industry in which the companies operate. We expect that many of these investments will become public, or otherwise become liquid, before the balance of unfunded equity commitments is used. At December 31, 2003, these commitments were approximately $1.1 billion. Our other investment commitments, principally affordable housing, civic and other community development initiatives, were approximately $230 million at December 31, 2003.

In the ordinary course of business, we enter into indemnification agreements, including underwriting agreements relating to offers and sales of our securities, acquisition agreements, and various other business transactions or arrangements, such as relationships arising from service as a director or officer of the Company. For more information, see Note 25 (Guarantees) to Financial Statements.

Contractual Obligations
We enter into contractual obligations in the ordinary course of business, including debt issuances for the funding of operations and leases for premises and equipment.

Table 8 summarizes our significant contractual obligations at December 31, 2003, except obligations for short-term borrowing arrangements and pension and postretirement benefits plans. More information on these obligations is in Notes 10 (Short-Term Borrowings) and 15 (Employee Benefits and Other Expenses) to Financial Statements.

We enter into derivatives, which create contractual obligations, as part of our interest rate risk management process, for our customers or for other trading activities. See “Asset/Liability and Market Risk Management” in this report and Note 27 (Derivatives) to Financial Statements for more information.

Transactions with Related Parties
FAS 57, Related Party Disclosures, requires disclosure of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. The Company had no related party transactions required to be reported under FAS 57 for the years ended December 31, 2003, 2002 and 2001.

Our business units and the office of the Chief Credit Officer periodically review all credit risk portfolios to ensure that the risk identification processes are functioning properly and that credit standards are followed. Our loan examiners and/or internal auditors also independently review portfolios with credit risk.

Our primary business focus, middle market commercial and residential real estate, auto and small consumer lending, results in portfolio diversification. We ensure that we use appropriate methods to understand and underwrite risk.

In our wholesale portfolios, loans are individually underwritten and judgmentally risk rated. They are periodically monitored and prompt corrective actions are taken on deteriorating loans.

Retail loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis.

Each business unit completes quarterly asset quality forecasts to quantify its intermediate-term outlook for loan losses and recoveries, nonperforming loans and market trends. To make sure our overall allowance for loan losses is adequate we conduct periodic stress tests. This includes a portfolio loss simulation model that simulates a range of possible losses for various sub-portfolios assuming various trends in loan quality. We assess loan portfolios for geographic, industry, or other concentrations and develop mitigation strategies, which may include loan sales, syndications or third party insurance, to minimize these concentrations as we deem necessary.

We routinely review and evaluate risks that are not borrower specific but that may influence the behavior of a particular credit, group of credits or entire sub-portfolios. We also assess risk for particular industries and specific macroeconomic trends.

NONACCRUAL LOANS AND OTHER ASSETS
Table 9 (above) shows the five-year trend for nonaccrual loans and other assets. We generally place loans on nonaccrual status (1) when 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), (2) when the full and timely collection of interest or principal becomes uncertain or (3) when part of the principal balance has been charged off. Note 1 (Summary of Significant Accounting Policies) to Financial Statements describes our accounting policy for nonaccrual loans.

We expect that the amount of nonaccrual loans will change due to portfolio growth, routine problem loan recognition and resolution through collections, sales or

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 past due and still accruing was $2,337 million, $672 million, $698 million, $578 million, and $433 million at December 31, 2003, 2002, 2001, 2000 and 1999, respectively. In 2003, the total included $1,641 million in advances pursuant to our servicing agreements to Government National Mortgage Association (GNMA) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Prior to clarifying guidance issued in 2003 as to classification as loans, GNMA advances were included in other assets. Table 10 provides detail by loan category excluding GNMA advances.

Table 10: Loans 90 Days or More Past Due and Still Accruing
(Excluding Insured/Guaranteed GNMA Advances)



(in millions)	December 31										,
	2003		2002		2001		2000		1999

Commercial	$	87	$	92	$	60	$	90	$	27
Real estate
1-4 family first mortgage		117		104		145		74		45
Other real estate mortgage		9		7		22		24		18
Real estate construction		6		11		47		12		4

Consumer:
Real estate
1-4 family junior lien mortgage		31		19		18		19		36
Credit card		135		131		117		96		105
Other revolving credit and installment		311		308		289		263		198

Total consumer		477		458		424		378		339

Total	$	696	$	672	$	698	$	578	$	433

ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is management’s estimate of credit losses inherent in the loan portfolio, including unfunded commitments, at the balance sheet date. We assume that the allowance for loan losses as a percentage of charge-offs and nonperforming loans will change at different points in time based on credit performance, loan mix and collateral values. The analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by loan category, is presented in Note 5 (Loans and Allowance for Loan Losses) to Financial Statements.

At December 31, 2003, the allowance for loan losses was $3.89 billion, or 1.54% of total loans, compared with $3.82 billion, or 1.98%, at December 31, 2002 and $3.72 billion, or 2.22%, at December 31, 2001. The primary driver of the decrease in the allowance for loan losses as a percentage of total loans in 2003 and 2002 was the change in loan mix with residential real estate secured consumer loans representing a higher percentage of the overall loan portfolio. We have historically experienced lower losses on our residential real estate secured consumer loan portfolio. The provision for loan losses totaled $1.72 billion in 2003, $1.68 billion in 2002 and $1.73 billion in 2001. Net charge-offs in 2003 were $1.72 billion, or .81% of average total loans, compared with $1.68 billion, or .96%, in 2002 and $1.73 billion, or 1.10%, in 2001. Loan loss recoveries were $495 million in 2003, compared with $481 million in 2002 and $396 million in 2001. Any loan with past due principal or interest that is not both well-secured and in the process of collection generally is charged off (to the extent that it exceeds the fair value of any related collateral) based on loan category after a predetermined period of time. Also, loans are charged off when classified as a loss by either internal loan examiners or regulatory examiners.

We consider the allowance for loan losses of $3.89 billion adequate to cover credit losses inherent in the loan portfolio, including unfunded commitments, at December 31, 2003. The process for determining the adequacy of the allowance for loan losses is critical to our financial results. It requires management to make 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 Loan Losses.” Therefore, we cannot provide assurance that, in any particular period, we will not have sizeable loan losses in relation to the amount reserved. We may need to significantly increase the allowance for loan 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 loan losses is discussed in Note 5 (Loans and Allowance for Loan Losses) to Financial Statements.

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 re-price at different times (for example, if assets re-price faster than liabilities and interest rates are generally falling, earnings will initially decline);

• assets and liabilities may re-price 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 (i.e., 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). In addition, interest rates may have an indirect impact on loan demand, credit losses, mortgage origination volume, the value of mortgage servicing rights, the value of the pension liability and other sources of earnings.

We assess interest rate risk by comparing our most likely earnings plan over a twelve-month period with various earnings models 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, if we assume a gradual increase of 375 basis points in the federal funds rate, estimated earnings would be less than 1% below our most likely earnings plan for 2004. Simulation estimates depend on, and will change with, the size and mix of our actual and projected balance sheet at the time of each simulation.

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 December 31, 2003 and 2002 are presented in Note 27 (Derivatives) to Financial Statements. We use derivatives for asset/liability management in three ways:

• to convert most of the long-term fixed-rate debt to floating-rate payments by entering into receive-fixed swaps at issuance,

• to convert the cash flows from selected asset and/or liability instruments/portfolios from fixed to floating payments or vice versa, and

• to hedge the mortgage origination pipeline, funded mortgage loans and mortgage servicing rights using swaptions, futures, forwards and options.

MORTGAGE BANKING INTEREST RATE RISK
We originate, fund and service mortgage loans, which subjects us to a number of risks, including credit, liquidity and interest rate risks. We manage credit and liquidity risk by selling or securitizing most of the mortgage loans we originate. Changes in interest rates, however, may have a significant effect on mortgage banking income in any quarter and over time. Interest rates impact both the value of the mortgage servicing rights (MSRs), which is adjusted to the lower of cost or fair value, and the future earnings of the mortgage business, which are driven by origination volume and the duration of our servicing. We manage both risks by hedging the impact of interest rates on the value of the MSRs using derivatives, combined with the “natural hedge” provided by the origination and servicing components of the mortgage business; however, we do not hedge 100% of these two risks.

We hedge a significant portion of the value of our MSRs against a change in interest rates with derivatives. The principal source of risk in this hedging process is the risk that changes in the value of the hedging contracts may not match changes in the value of the hedged portion of our MSRs for any given change in long-term interest rates.

The value of our MSRs is influenced primarily by prepayment speed assumptions affecting the duration of the mortgage loans to which our MSRs relate. Changes in long-term interest rates affect these prepayment speed assumptions. For example, a decrease in long-term rates would accelerate prepayment speed assumptions as borrowers refinance their existing mortgage loans and decrease the value of the MSRs. In contrast, prepayment speed assumptions would tend to slow in a rising interest rate environment and increase the value of the MSRs.

For a given decline in interest rates, a portion of the potential reduction in the value of our MSRs is offset by estimated increases in origination and servicing fees over time from new mortgage activity or refinancing associated with that decline in interest rates. With much lower long-term interest rates, the decline in the value of our MSRs and the effect on net income would be immediate whereas the additional origination and servicing fee income accrues over time. Under GAAP, impairment of our MSRs, due to a decrease in long-term rates or other reasons, is charged to earnings through an increase to the valuation allowance.

In scenarios of sustained increases in long-term interest rates, origination fees may eventually decline as refinancing activity slows. In such higher interest rate scenarios, the duration of the servicing portfolio may extend. In such circumstances, we may reduce periodic amortization of MSRs, and may recover some or all of the previously established valuation allowance.

Our MSRs totaled $6.9 billion, net of a valuation allowance of $1.9 billion at December 31, 2003, and $4.5 billion, net of a valuation allowance of $2.2 billion, at December 31, 2002. The increase in MSRs was primarily due to the growth in the servicing portfolio resulting from originations and purchases. The note rate on the servicing portfolio was 5.90% at December 31, 2003 and 6.67% at December 31, 2002. Our MSRs were 1.15% of mortgage loans serviced for others at December 31, 2003, compared with .92% at December 31, 2002.

MARKET RISK – TRADING ACTIVITIES
Our net income is exposed to interest rate risk, foreign exchange risk, equity price risk, commodity price risk and credit risk in several trading businesses managed under limits set by Corporate ALCO. The primary purpose of these 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, loans, 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 notional or contractual amount, credit risk amount and estimated net fair value of all customer accommodation derivatives at December 31, 2003 and 2002 are included in Note 27 (Derivatives) to Financial Statements. Open, “at risk” positions for all trading business are monitored by Corporate ALCO. During 2003 the maximum daily “value at risk,” the worst expected loss over a given time interval within a given confidence range (99%), for all trading positions covered by value at risk measures did not exceed $25 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 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 investment’s cash flows and capital needs, the viability of its business model and our exit strategy. At December 31, 2003, private equity investments totaled $1,714 million, compared with $1,657 million at December 31, 2002.

We also have marketable equity securities in the available for sale investment portfolio, including shares distributed from 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, in addition, other-than-temporary impairment may be periodically recorded. The initial indicator of impairment for marketable equity securities is a sustained decline in market price below the amount recorded for that investment. We consider a variety of factors, such as the length of time and the extent to which the market value has been less than cost; the issuer’s 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. At December 31, 2003, the fair value of marketable equity securities was $582 million and cost was $394 million, compared with $556 million and $598 million, respectively, at December 31, 2002.

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 liquidity management guidelines for both the consolidated balance sheet as well as for the Parent specifically 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. The weighted-average expected remaining maturity of the debt securities within this portfolio was 6.25 years at December 31, 2003. Of the $31.1 billion (cost basis) of debt securities in this portfolio at December 31, 2003, $6.6 billion, or 21%, is expected to mature or be prepaid in 2004 and an additional $4.3 billion, or 13%, in 2005. Asset liquidity is further enhanced by our ability to sell or securitize loans in secondary markets through whole-loan sales and securitizations.

In 2003, we sold mortgage loans of approximately $400 billion, including securitized home mortgage loans and commercial mortgage loans of approximately $320 billion. The amount of mortgage loans, as well as home equity loans and other consumer loans, available to be sold or securitized totaled approximately $105 billion at December 31, 2003.

Core customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. Average core deposits and stockholders’ equity funded 63.3% and 66.3% of average total assets in 2003 and 2002, respectively.

The remaining assets were funded by long-term debt, deposits in foreign offices, short-term borrowings (federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings) and trust preferred securities. Short-term borrowings averaged $29.9 billion and $33.3 billion in 2003 and 2002, respectively. Long-term debt averaged $53.8 billion and $42.2 billion in 2003 and 2002, respectively. Trust preferred securities averaged $3.3 billion and $2.8 billion in 2003 and 2002, respectively.

We anticipate making capital expenditures of approximately $930 million in 2004 for stores, relocation and remodeling of company facilities, routine replacement of furniture, equipment, servers and other networking equipment related to expansion of our internet services business. We will fund these expenditures from various sources, including retained earnings and borrowings.

Liquidity is also available through our ability to raise funds in a variety of domestic and international money and capital markets. We access capital markets for long-term funding by issuing registered debt, private placements and asset-based secured funding. Approximately $70 billion of our debt is rated by Moody’s Investors Service and Fitch, Inc. as “AA” or equivalent, which is among the highest ratings given to a financial services company. In September 2003, Moody’s Investors Service raised Wells Fargo Bank, N.A.’s rating to “Aaa,” its highest investment grade, from “Aa1” and raised the Company’s senior debt rating to “Aa1” from “Aa2.” In October 2003, Standard & Poor’s Ratings Service raised the counterparty ratings on the Company to “AA-minus/A-1-plus” from “A-plus/A-1” and the revised outlook for the Company to stable from positive. 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. Material changes in these factors could result in a different debt rating; however, a change in debt rating would not cause us to violate any of our debt covenants.

PARENT. In March 2003, the Parent registered with the Securities and Exchange Commission (SEC) for issuance an additional $15.3 billion in senior and subordinated notes and preferred and common securities. During 2003, the

Parent issued a total of $13.4 billion of senior and subordinated notes and trust preferred securities. At December 31, 2003, the Parent’s remaining issuance capacity under effective registration statements was $9.0 billion. We used the proceeds from securities issued in 2003 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 and has a $1 billion back-up credit facility.

On April 15, 2003, we issued $3 billion of convertible senior debentures as a private placement. In October 2003, these debentures were registered with the SEC. If the price per share of our common stock exceeds $120.00 per share on or before April 15, 2008, the holders will have the right to convert the convertible debt securities to common stock at an initial conversion price of $100.00 per share. While we are able to settle the entire amount of the conversion rights granted in this convertible debt offering in cash, common stock or a combination, our policy is to settle the principal amount in cash and to settle the conversion spread (the excess conversion value over the principal) in either cash or stock. We can also redeem all or some of the convertible debt securities for cash at any time on or after May 5, 2008, at their principal amount plus accrued interest, if any.

BANK NOTE PROGRAM. In March 2003, Wells Fargo Bank, N.A. established a $50 billion bank note program under which it may issue up to $20 billion in short-term senior notes outstanding at any time and up to a total of $30 billion in long-term senior and subordinated notes. This program updates and supercedes the bank note program established in February 2001. Securities are issued under this program as private placements in accordance with Office of the Comptroller of the Currency (OCC) regulations. During 2003, Wells Fargo Bank, N.A. issued $9.4 billion in senior long-term notes. At December 31, 2003, the remaining issuance authority under the long-term portion was $14.9 billion.

WELLS FARGO FINANCIAL. In November 2003, Wells Fargo Financial Canada Corporation (WFFCC), a wholly-owned Canadian subsidiary of Wells Fargo Financial, Inc., qualified for distribution with the provincial securities exchanges in Canada $1.5 billion (Canadian). The remaining issuance capacity under previous registered securities of $550 million (Canadian) expired on November 1, 2003. During 2003, WFFCC issued $400 million (Canadian) in senior notes. At December 31, 2003, the remaining issuance capacity for WFFCC was $1.5 billion (Canadian). During 2003, Wells Fargo Financial, Inc. issued $500 million (US) and $400 million (Canadian) in senior notes as private placements.

We have an active program for managing stockholder capital. 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 such costs are perceived to be low.

We use capital to fund organic growth, acquire banks and other financial services companies, pay dividends and repurchase our shares. During 2003, consolidated assets increased by $39 billion, or 11%. Capital used for acquisitions in 2003 totaled $1.4 billion. During 2002, the Board of Directors authorized the repurchase of up to 50 million additional shares of our outstanding common stock. During 2003, we repurchased approximately 31 million shares of our common stock. At December 31, 2003, the total remaining common stock repurchase authority under the 2002 authorization was approximately 27 million shares. Total common stock dividend payments in 2003 were $2.5 billion. In 2003, the Board of Directors approved two increases in our quarterly common stock dividend, which increased it to 45 cents per share from 28 cents per share in 2002, representing a 61% increase in the quarterly dividend.

Our potential sources of capital include retained earnings, and issuances of common and preferred stock and subordinated debt. In 2003, retained earnings increased $3.5 billion, predominantly as a result of net income of $6.2 billion less dividends of $2.5 billion. In 2003, we issued $1.3 billion of common stock under various employee benefit and director plans and under our dividend reinvestment program. We issued $1.0 billion in subordinated debt and completed two placements of trust preferred securities in the amount of $700 million in 2003. On October 13, 2003, we called all shares of our Adjustable-Rate Cumulative, Series B preferred stock. The shares were redeemed on November 15, 2003 at the stated liquidation price plus accrued dividends.

The Company and each of our subsidiary banks are subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board and the OCC. Risk-based capital guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. At December 31, 2003, the Company and each of our covered subsidiary banks were “well capitalized” under regulatory standards. See Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements for additional information.

Net income in 2002 was $5.4 billion, compared with $3.4 billion in 2001. Diluted earnings per common share were $3.16, compared with $1.97 in 2001.

Return on average assets (ROA) was 1.69% and return on average common equity (ROE) was 18.68% in 2002, compared with 1.20% and 12.73%, respectively, in 2001.

Net interest income on a taxable-equivalent basis was $14.6 billion in 2002, compared with $12.1 billion in 2001. The net interest margin was 5.53% for 2002, compared with 5.29% in 2001. The increase in net interest income and the net interest margin in 2002 was due to a 10% increase in average core deposits, our low-cost source of funding. Also contributing to the increase in the net interest margin in 2002 was a faster decline in deposit and borrowing costs than the decline in loan and debt securities yields.

Noninterest income was $10.8 billion in 2002, compared with $9.0 billion in 2001. Noninterest income in 2001 included approximately $1.7 billion (before tax) of other-than-temporary impairment in the valuation of publicly-traded securities and private equity investments recorded in the second quarter of 2001.

Revenue, the sum of net interest income and noninterest income, increased from $21.0 billion in 2001 to $25.2 billion in 2002, or 20%.

Noninterest expense totaled $14.7 billion in 2002, compared with $13.8 billion in 2001, an increase of 7%. The increase in 2002 was a result of increases in incentive compensation, outside professional services, travel and entertainment and advertising, predominantly due to the increase in mortgage origination volume.

The provision for loan losses was $1.68 billion in 2002, compared with $1.73 billion in 2001. During 2002, net charge-offs were $1.68 billion, or .96% of average total loans, compared with $1.73 billion, or 1.10%, during 2001. The allowance for loan losses was $3.82 billion, or 1.98% of total loans, at December 31, 2002, compared with $3.72 billion, or 2.22%, at December 31, 2001.

At December 31, 2002, total nonaccrual loans were $1.49 billion, or .8% of total loans, compared with $1.64 billion, or 1.0%, at December 31, 2001. Foreclosed assets were $195 million at December 31, 2002, compared with $160 million at December 31, 2001.

We make forward-looking statements in this report and in other reports and proxy statements we file with the SEC. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others.

Forward-looking statements include:

• projections of our revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;

• descriptions of plans or objectives of our management for future operations, products or services, including pending acquisitions;

• forecasts of our future economic performance; and

• descriptions of assumptions underlying or relating to any of the foregoing.

In this report, for example, we make forward-looking statements discussing our expectations about:

• future credit losses and nonperforming assets;

• the future value of mortgage servicing rights;

• the future value of equity securities, including those in our venture capital portfolios;

• the impact of new accounting standards;

• future short-term and long-term interest rate levels and their impact on our net interest margin, net income, liquidity and capital; and

• the impact of the VISA USA Inc. settlement on our earnings.

Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions. Do not unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we might not update them to reflect changes that occur after the date they are made.

There are several factors—many beyond our control—that could cause results to differ significantly from our expectations. Some of these factors are described below. Other factors, such as credit, market, operational, liquidity, interest rate and other risks, are described elsewhere in this report (see, for example, “Balance Sheet Analysis”). Factors relating to the regulation and supervision are described in our Annual Report on Form 10-K for the year ended December 31, 2003. Any factor described in this report or in our 2003 Form 10-K could by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition. There are also other factors that we have not described in this report or in our 2003 Form 10-K that could cause results to differ from our expectations.

Industry Factors
AS A FINANCIAL SERVICES COMPANY, OUR EARNINGS ARE SIGNIFICANTLY AFFECTED BY GENERAL BUSINESS AND ECONOMIC CONDITIONS.
Our business and earnings are affected by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy and the local economies in which we operate. For example, an economic downturn, an increase in unemployment, or other events that effect household and/or corporate incomes could decrease the demand for loan and non-loan products and services and increase the number of customers who fail to pay interest or principal on their loans.

Geopolitical conditions can also effect our earnings. Acts or threats of terrorism, actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, could affect business and economic conditions in the U.S. and abroad. The terrorist attacks in 2001, for example, caused an immediate decrease in air travel, which affected the airline industry, lodging, gaming and tourism.

We discuss other business and economic conditions in more detail elsewhere in this report.

OUR EARNINGS ARE SIGNIFICANTLY AFFECTED BY THE FISCAL AND MONETARY POLICIES OF THE FEDERAL GOVERNMENT AND ITS AGENCIES.
The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large part our cost of funds for lending and investing and the return we earn on those loans and investments, both of which affect our net interest margin. They also can materially affect the value of financial instruments we hold, such as debt securities and mortgage servicing rights. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal Reserve Board policies are beyond our control and hard to predict.

THE FINANCIAL SERVICES INDUSTRY IS HIGHLY COMPETITIVE.
We operate in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies now can merge by creating a “financial holding company,” which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Recently, a number of foreign banks have acquired financial services companies in the United States, further increasing competition in the U.S. market. Also, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and some have lower cost structures.

WE ARE HEAVILY REGULATED BY FEDERAL AND STATE AGENCIES.
The holding company, its subsidiary banks and many of its nonbank subsidiaries are heavily regulated at the federal and state levels. This regulation is to protect depositors, federal deposit insurance funds and the banking system as a whole, not security holders. Congress and state legislatures and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways including limiting the types of financial services and products we may offer and/or increasing the ability of nonbanks to offer competing financial services and products. Also, if we do not comply with laws, regulations or policies, we could receive regulatory sanctions and damage to our reputation. For more information, refer to the “Regulation and Supervision”

section of our 2003 Form 10-K and to Notes 3 (Cash, Loan and Dividend Restrictions) and 26 (Regulatory and Agency Capital Requirements) to Financial Statements included in this report.

FUTURE LEGISLATION COULD CHANGE OUR COMPETITIVE POSITION.
Legislation is from time to time introduced in the Congress, including proposals to substantially change the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies. This legislation may change banking statutes and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any regulations, would have on our financial condition or results of operations.

WE DEPEND ON THE ACCURACY AND COMPLETENESS OF INFORMATION ABOUT CUSTOMERS AND COUNTERPARTIES.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We also may rely on the audit report covering those financial statements. Our financial condition and results of operations could be negatively affected by relying on financial statements that do not comply with GAAP or that are materially misleading.

CONSUMERS MAY DECIDE NOT TO USE BANKS TO COMPLETE THEIR FINANCIAL TRANSACTIONS.
Technology and other changes now allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly without banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits.

Company Factors
MAINTAINING OR INCREASING OUR MARKET SHARE DEPENDS ON MARKET ACCEPTANCE AND REGULATORY APPROVAL OF NEW PRODUCTS AND SERVICES.
Our success depends, in part, on our ability to adapt our products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, could require us to make substantial expenditures to modify or adapt our existing products and services. We might not be successful in introducing new products and services, achieving market acceptance of our products and services, or developing and maintaining loyal customers.

NEGATIVE PUBLIC OPINION COULD DAMAGE OUR REPUTATION AND ADVERSELY IMPACT OUR EARNINGS.
Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract customers and can expose us to litigation and regulatory action. Because virtually all our businesses operate under the “Wells Fargo” brand, actual or alleged conduct by one business can result in negative public opinion about other Wells Fargo businesses. Although we take steps to minimize reputation risk in dealing with our customers and communities, as a large diversified financial services company with a relatively high industry profile, the risk will always be present in our organization.

THE HOLDING COMPANY RELIES ON DIVIDENDS FROM ITS SUBSIDIARIES FOR MOST OF ITS REVENUE.
The holding company is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the holding company’s common and preferred stock and interest and principal on its debt. Various federal and/or state laws and regulations limit the amount of dividends that our bank and certain of our nonbank subsidiaries may pay to the

holding company. Also, the holding company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. For more information, refer to “Regulation and Supervision—Dividend Restrictions” and “—Holding Company Structure” in our 2003 Form 10-K.

OUR ACCOUNTING POLICIES AND METHODS ARE KEY TO HOW WE REPORT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THEY MAY REQUIRE MANAGEMENT TO MAKE ESTIMATES ABOUT MATTERS THAT ARE UNCERTAIN.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in our reporting materially different amounts than would have been reported under a different alternative. Note 1 (Summary of Significant Accounting Policies) to Financial Statements describes our significant accounting policies.

Three accounting policies are critical to presenting our financial condition and results. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions. These critical accounting policies relate to: (1) the allowance for loan losses, (2) the valuation of mortgage servicing rights, and (3) pension accounting. Because of the uncertainty of estimates about these matters, we cannot provide any assurance that we will not:

• significantly increase our allowance for loan losses and/or sustain loan losses that are significantly higher than the reserve provided;

• recognize significant provision for impairment of our mortgage servicing rights; or

• significantly increase our pension liability.

For more information, refer in this report to “Critical Accounting Policies,” “Balance Sheet Analysis” and “Risk Management.”

WE HAVE BUSINESSES OTHER THAN BANKING.
We are a diversified financial services company. In addition to banking, we provide insurance, investments, mortgages and consumer finance. Although we believe our diversity helps lessen the effect when downturns affect any one segment of our industry, it also means our earnings could be subject to different risks and uncertainties. We discuss some examples below.

MERCHANT BANKING. Our merchant banking business, which includes venture capital investments, has a much greater risk of capital losses than our traditional banking business. Also, it is difficult to predict the timing of any gains from this business. Realization of gains from our venture capital investments depends on a number of factors—many beyond our control—including general economic conditions, the prospects of the companies in which we invest, when these companies go public, the size of our position relative to the public float, and whether we are subject to any resale restrictions. Factors, such as a slowdown in consumer demand or a decline in capital spending, could result in declines in the values of our publicly-traded and private equity securities. If we determine that the declines are other-than-temporary, additional impairment charges would be recognized. Also, we will realize losses to the extent we sell securities at less than book value. For more information, see in this report “Balance Sheet Analysis – Securities Available for Sale.”

MORTGAGE BANKING. The effect of interest rates on our mortgage business can be large and complex. Changes in interest rates can affect loan origination fees and loan servicing fees, which account for a significant portion of mortgage-related revenues. A decline in mortgage rates generally increases the demand for mortgage loans as borrowers refinance, but also generally leads to accelerated payoffs in our mortgage servicing portfolio. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and a decline in payoffs in our servicing portfolio. We use dynamic, sophisticated models to assess the effect of interest rates on mortgage fees, amortization of mortgage servicing rights, and the value of mortgage servicing rights. The estimates of net income and fair value produced by these models, however, depend on assumptions of future loan demand, prepayment speeds and other factors that may overstate or understate actual experience. We use derivatives to hedge the value of our servicing portfolio but they do not cover the full value of the portfolio. We cannot assure that the hedges will offset significant decreases in the value of the portfolio. For more information, see in this report “Critical Accounting Policies – Valuation of Mortgage Servicing Rights” and “Asset /Liability and Market Risk Management.”

WE RELY ON OTHER COMPANIES TO PROVIDE KEY COMPONENTS OF OUR BUSINESS INFRASTRUCTURE.
Third parties provide key components of our business infrastructure such as internet connections and network access. Any disruption in internet, network access or other voice or data communication services provided by these third parties or any failure of these third parties to handle current or higher volumes of use could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Technological or financial difficulties of a third party service provider could adversely affect our business to the extent those difficulties result in the interruption or discontinuation of services provided by that party.

WE HAVE AN ACTIVE ACQUISITION PROGRAM.
We regularly explore opportunities to acquire financial institutions and other financial services providers. We cannot predict the number, size or timing of acquisitions. We typically do not comment publicly on a possible acquisition or business combination until we have signed a definitive agreement.

Our ability to successfully complete an acquisition generally is subject to regulatory approval. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We might be required to sell banks or branches as a condition to receiving regulatory approval.

Difficulty in integrating an acquired company may cause us not to realize expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from the acquisition. The integration could result in higher than expected deposit attrition (run-off), loss of key employees, disruption of our business or the business of the acquired company, or otherwise adversely affect our ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition. Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected.

LEGISLATIVE RISK
Our business model depends on sharing information among the family of companies owned by Wells Fargo to better satisfy our customers’ needs. Laws that restrict the ability of our companies to share information about customers could negatively affect our revenue and profit.

OUR BUSINESS COULD SUFFER IF WE FAIL TO ATTRACT AND RETAIN SKILLED PEOPLE.
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities we engage in can be intense. We may not be able to hire the best people or to keep them.


Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income

(in millions, except per share amounts)	Year ended December 31							,
	2003		2002			2001

INTEREST INCOME
Securities available for sale	$	1,816	$	2,424		$	2,544
Mortgages held for sale		3,136		2,450			1,595
Loans held for sale		251		252			317
Loans		13,937		13,045			13,977
Other interest income		278		288			284

Total interest income		19,418		18,459			18,717


INTEREST EXPENSE
Deposits		1,613		1,919			3,553
Short-term borrowings		322		536			1,273
Long-term debt		1,355		1,404			1,826
Guaranteed preferred beneficial interests in Company’ s subordinated debentures		121		118			89

Total interest expense		3,411		3,977			6,741


NET INTEREST INCOME		16,007		14,482			11,976
Provision for loan losses		1,722		1,684			1,727

Net interest income after provision for loan losses		14,285		12,798			10,249


NONINTEREST INCOME
Service charges on deposit accounts		2,361		2,179			1,876
Trust and investment fees		1,937		1,875			1,791
Credit card fees		1,003		920			796
Other fees		1,572		1,384			1,244
Mortgage banking		2,512		1,713			1,671
Operating leases		937		1,115			1,315
Insurance		1,071		997			745
Net gains on debt securities available for sale		4		293			316
Net gains (losses) from equity investments		55		(327	)		(1,538	)
Other		930		618			789

Total noninterest income		12,382		10,767			9,005


NONINTEREST EXPENSE
Salaries		4,832		4,383			4,027
Incentive compensation		2,054		1,706			1,195
Employee benefits		1,560		1,283			960
Equipment		1,246		1,014			909
Net occupancy		1,177		1,102			975
Operating leases		702		802			903
Other		5,619		4,421			4,825

Total noninterest expense		17,190		14,711			13,794


INCOME BEFORE INCOME TAX EXPENSE AND EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		9,477		8,854			5,460
Income tax expense		3,275		3,144			2,049


NET INCOME BEFORE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		6,202		5,710			3,411
Cumulative effect of change in accounting principle		—		(276	)		—


NET INCOME	$	6,202	$	5,434		$	3,411


NET INCOME APPLICABLE TO COMMON STOCK	$	6,199	$	5,430		$	3,397


EARNINGS PER COMMON SHARE BEFORE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Earnings per common share	$	3.69	$	3.35		$	1.99

Diluted earnings per common share	$	3.65	$	3.32		$	1.97


EARNINGS PER COMMON SHARE
Earnings per common share	$	3.69	$	3.19		$	1.99

Diluted earnings per common share	$	3.65	$	3.16		$	1.97

DIVIDENDS DECLARED PER COMMON SHARE	$	1.50	$	1.10		$	1.00

Average common shares outstanding		1,681.1		1,701.1			1,709.5

Diluted average common shares outstanding		1,697.5		1,718.0			1,726.9


Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet

(in millions, except shares)
	December 31					,
	2003			2002

ASSETS
Cash and due from banks	$	15,547		$	17,820
Federal funds sold and securities purchased under resale agreements		2,745			3,174
Securities available for sale		32,953			27,947
Mortgages held for sale		29,027			51,154
Loans held for sale		7,497			6,665

Loans		253,073			192,478
Allowance for loan losses		3,891			3,819

Net loans		249,182			188,659


Mortgage servicing rights, net		6,906			4,489
Premises and equipment, net		3,534			3,688
Goodwill		10,371			9,753
Other assets		30,036			35,848

Total assets	$	387,798		$	349,197


LIABILITIES
Noninterest-bearing deposits	$	74,387		$	74,094
Interest-bearing deposits		173,140			142,822

Total deposits		247,527			216,916
Short-term borrowings		24,659			33,446
Accrued expenses and other liabilities		17,501			18,311
Long-term debt		63,642			47,320
Guaranteed preferred beneficial interests in Company’ s subordinated debentures		—			2,885

Total liabilities		353,329			318,878


STOCKHOLDERS’ EQUITY
Preferred stock		214			251
Common stock – $1⅔ par value, authorized 6,000,000,000 shares; issued 1,736,381,025 shares		2,894			2,894
Additional paid-in capital		9,643			9,498
Retained earnings		22,842			19,355
Cumulative other comprehensive income		938			976
Treasury stock – 38,271,651 shares and 50,474,518 shares		(1,833	)		(2,465	)
Unearned ESOP shares		(229	)		(190	)

Total stockholders’ equity		34,469			30,319

Total liabilities and stockholders’ equity	$	387,798		$	349,197


Wells Fargo & Company and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income

(in millions, except shares)	Number			Preferred			Common		Additional			Retained			Cumulative			Treasury			Unearned			Total
	of common			stock			stock		paid-in			earnings			other			stock			ESOP			stock-
	shares								capital						comprehensive						shares			holders’
															income									equity


BALANCE DECEMBER 31, 2000		1,714,645,843		$	385		$	2,894	$	9,337		$	14,514		$	524		$	(1,075	)	$	(118	)	$	26,461

Comprehensive income
Net income – 2001													3,411												3,411
Other comprehensive income, net of tax:
Translation adjustments																(3	)								(3	)
Minimum pension liability adjustment																(42	)								(42	)
Net unrealized gains on securities available for sale and other retained interests																10									10
Cumulative effect of the change in accounting principle for derivatives and hedging activities																71									71
Net unrealized gains on derivatives and hedging activities																192									192

Total comprehensive income																									3,639
Common stock issued		16,472,042								92			(236	)					738						594
Common stock issued for acquisitions		428,343								1			1						20						22
Common stock repurchased		(39,474,053	)																(1,760	)					(1,760	)
Preferred stock (192,000) issued to ESOP					192					15												(207	)		—
Preferred stock released to ESOP										(12	)											171			159
Preferred stock (158,517) converted to common shares		3,422,822			(159	)				3									156						—
Preferred stock (4,000,000) redeemed					(200	)																			(200	)
Preferred stock dividends													(14	)											(14	)
Common stock dividends													(1,710	)											(1,710	)
Change in Rabbi trust assets (classified as treasury stock)																			(16	)					(16	)

Net change		(19,150,846	)		(167	)		—		99			1,452			228			(862	)		(36	)		714


BALANCE DECEMBER 31, 2001		1,695,494,997			218			2,894		9,436			15,966			752			(1,937	)		(154	)		27,175

Comprehensive income
Net income – 2002													5,434												5,434
Other comprehensive income, net of tax:
Translation adjustments																1									1
Minimum pension liability adjustment																42									42
Net unrealized gains on securities available for sale and other retained interests																484									484
Net unrealized losses on derivatives and hedging activities																(303	)								(303	)

Total comprehensive income																									5,658
Common stock issued		17,345,078								43			(168	)					777						652
Common stock issued for acquisitions		12,017,193								4									531						535
Common stock repurchased		(43,170,943	)																(2,033	)					(2,033	)
Preferred stock (238,000) issued to ESOP					239					17												(256	)		—
Preferred stock released to ESOP										(14	)											220			206
Preferred stock (205,727) converted to common shares		4,220,182			(206	)				12									194						—
Preferred stock dividends													(4	)											(4	)
Common stock dividends													(1,873	)											(1,873	)
Change in Rabbi trust assets and similar arrangements (classified as treasury stock)																			3						3

Net change		(9,588,490	)		33			—		62			3,389			224			(528	)		(36	)		3,144


BALANCE DECEMBER 31, 2002		1,685,906,507			251			2,894		9,498			19,355			976			(2,465	)		(190	)		30,319

Comprehensive income
Net income – 2003													6,202												6,202
Other comprehensive income, net of tax:
Translation adjustments																26									26
Net unrealized losses on securities available for sale and other retained interests																(117	)								(117	)
Net unrealized gains on derivatives and hedging activities																53									53

Total comprehensive income																									6,164
Common stock issued		26,063,731								63			(190	)					1,221						1,094
Common stock issued for acquisitions		12,399,597								66									585						651
Common stock repurchased		(30,779,500	)																(1,482	)					(1,482	)
Preferred stock (260,200) issued to ESOP					260					19												(279	)		—
Preferred stock released to ESOP										(16	)											240			224
Preferred stock (223,660) converted to common shares		4,519,039			(224	)				13									211						—
Preferred stock (1,460,000) redeemed					(73	)																			(73	)
Preferred stock dividends													(3	)											(3	)
Common stock dividends													(2,527	)											(2,527	)
Change in Rabbi trust assets and similar arrangements (classified as treasury stock)																			97						97
Other, net													5												5

Net change		12,202,867			(37	)		—		145			3,487			(38	)		632			(39	)		4,150


BALANCE DECEMBER 31, 2003		1,698,109,374		$	214		$	2,894	$	9,643		$	22,842		$	938		$	(1,833	)	$	(229	)	$	34,469


Wells Fargo & Company and Subsidiaries
Consolidated Statement of Cash Flows

(in millions)	Year ended December 31								,
	2003			2002			2001

Cash flows from operating activities:
Net income	$	6,202		$	5,434		$	3,411
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Provision for loan losses		1,722			1,684			1,727
Provision for mortgage servicing rights in excess of fair value, net		1,092			2,135			1,124
Depreciation and amortization		4,305			4,297			3,864
Net losses (gains) on securities available for sale		(62	)		(198	)		726
Net gains on mortgage loan origination/sales activities		(1,801	)		(1,038	)		(705	)
Net gains on sales of loans		(28	)		(19	)		(35	)
Net losses (gains) on dispositions of premises and equipment		46			52			(21	)
Net gains on dispositions of operations		(29	)		(10	)		(122	)
Release of preferred shares to ESOP		224			206			159
Net increase (decrease) in trading assets		1,248			(3,859	)		(1,219	)
Net increase (decrease) in deferred income taxes		1,698			305			(596	)
Net decrease (increase) in accrued interest receivable		(148	)		145			232
Net decrease in accrued interest payable		(63	)		(53	)		(269	)
Originations of mortgages held for sale		(383,553	)		(286,100	)		(179,475	)
Proceeds from sales of mortgages held for sale		404,207			263,126			156,267
Principal collected on mortgages held for sale		3,136			2,063			1,731
Net increase in loans held for sale		(832	)		(1,091	)		(206	)
Other assets, net		(5,099	)		(4,466	)		(1,780	)
Other accrued expenses and liabilities, net		(1,070	)		1,929			5,075


Net cash provided (used) by operating activities		31,195			(15,458	)		(10,112	)


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		7,357			11,863			19,586
Proceeds from prepayments and maturities		13,152			9,684			6,730
Purchases		(25,131	)		(7,261	)		(29,053	)
Net cash paid for acquisitions		(822	)		(588	)		(459	)
Increase in banking subsidiaries’ loan originations, net of collections		(36,235	)		(18,992	)		(11,866	)
Proceeds from sales (including participations) of loans by banking subsidiaries		1,590			948			2,305
Purchases (including participations) of loans by banking subsidiaries		(15,087	)		(2,818	)		(1,104	)
Principal collected on nonbank entities’ loans		17,638			11,396			9,964
Loans originated by nonbank entities		(21,792	)		(14,621	)		(11,651	)
Purchases of loans by nonbank entities		(3,682	)		—			—
Proceeds from dispositions of operations		34			94			1,191
Proceeds from sales of foreclosed assets		264			473			279
Net decrease (increase) in federal funds sold and securities purchased under resale agreements		483			(475	)		(932	)
Net increase in mortgage servicing rights		(3,875	)		(1,492	)		(2,912	)
Other, net		3,127			314			(825	)


Net cash used by investing activities		(62,979	)		(11,475	)		(18,747	)


Cash flows from financing activities:
Net increase in deposits		28,643			25,050			17,707
Net increase (decrease) in short-term borrowings		(8,901	)		(5,224	)		8,793
Proceeds from issuance of long-term debt		29,490			21,711			14,658
Repayment of long-term debt		(17,931	)		(10,902	)		(10,625	)
Proceeds from issuance of guaranteed preferred beneficial interests in Company’ s subordinated debentures		700			450			1,500
Proceeds from issuance of common stock		944			578			484
Redemption of preferred stock		(73	)		—			(200	)
Repurchase of common stock		(1,482	)		(2,033	)		(1,760	)
Payment of cash dividends on preferred and common stock		(2,530	)		(1,877	)		(1,724	)
Other, net		651			32			16


Net cash provided by financing activities		29,511			27,785			28,849


Net change in cash and due from banks		(2,273	)		852			(10	)

Cash and due from banks at beginning of year		17,820			16,968			16,978

Cash and due from banks at end of year	$	15,547		$	17,820		$	16,968

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	3,348		$	3,924		$	6,472
Income taxes		2,713			2,789			2,552
Noncash investing and financing activities:
Net transfers from mortgages held for sale to loans		368			439			1,230
Net transfers between loans held for sale and loans		—			829			—
Transfers from loans to foreclosed assets		411			491			325

Wells Fargo & Company is a diversified financial services company. We provide banking, insurance, investments, mortgage banking and consumer finance through stores, the internet and other distribution channels to consumers, businesses and institutions in all 50 states of the U.S. and in other countries. In this Annual Report, Wells Fargo & Company and Subsidiaries (consolidated) are called the Company. Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company.

Our accounting and reporting policies conform with 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. Management has made significant estimates in several areas, including the allowance for loan losses (Note 5), valuing mortgage servicing rights (Notes 21 and 22) and pension accounting (Note 15). Actual results could differ from those estimates.

The following is a description of our significant accounting policies.

Consolidation
Our consolidated financial statements include the accounts of the Parent and our majority-owned subsidiaries and variable interest entities (VIEs) (defined below) in which we are the primary beneficiary, which we consolidate line by line. Significant intercompany accounts and transactions are eliminated in consolidation. If we own at least 20% of an affiliate, we generally account for the investment using the equity method. If we own less than 20% of an affiliate, we generally carry the investment at cost, except marketable equity securities, which we carry at fair value with changes in fair value included in other comprehensive income. Assets accounted for under the equity or cost method are included in other assets.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities and, in December 2003, issued Revised Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46R), which replaced FIN 46. This set forth the rules of consolidation for certain entities, VIEs, in which the equity investors do not have a controlling financial interest or do not have enough equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. An enterprise’s variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the entity’s net asset value. Effective for VIEs formed after January 31, 2003,

and effective for all existing VIEs on December 31, 2003, we consolidate a VIE if we are the primary beneficiary because we will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both.

Securities
SECURITIES AVAILABLE FOR SALE Debt securities that we might not hold until maturity and marketable equity securities are classi-fied as securities available for sale and reported at estimated fair value. Unrealized gains and losses, after applicable taxes, are reported in cumulative other comprehensive income. We use current quotations, where available, to estimate the fair value of these securities. Where current quotations are not available, we estimate fair value based on the present value of future cash flows, adjusted for the quality rating of the securities, prepayment assumptions and other factors.

We reduce the asset value when we consider the declines in the value of debt securities and marketable equity securities to be other-than-temporary and record the estimated loss in noninterest income. The initial indicator of impairment for both debt and marketable equity securities is a sustained decline in market price below the amount recorded for that investment. We consider the length of time and the extent to which market value has been less than cost and any recent events specific to the issuer and economic conditions of its industry.

For marketable equity securities, we also consider:

• the issuer’s financial condition, capital strength, and near-term prospects; and

• to a lesser degree, our investment horizon in relationship to an anticipated near-term recovery in the stock price, if any.

For debt securities we also consider:

• The cause of the price decline-general level of interest rates and broad industry factors or issuer-specific;

• The issuer’s financial condition and current ability to make future payments in a timely manner;

• Our investment horizon;

• The issuer’s past ability to service debt; and

• Any change in agencies’ ratings at evaluation date from acquisition date and any likely imminent action.

We manage these investments within capital risk limits approved by management and the Board and monitored by the Corporate Asset/Liability Management Committee. We recognize realized gains and losses on the sale of these securities in noninterest income using the specific identification method. For certain debt securities (for example, Government National Mortgage Association securities), we anticipate prepayments of principal in calculating the effective yield used to accrete discounts or amortize premiums to interest income.

TRADING SECURITIES Securities that we acquire for short-term appreciation or other trading purposes are recorded in a trading portfolio. They are carried at fair value, with unrealized gains and losses recorded in noninterest income. We include trading securities in other assets in the balance sheet.

NONMARKETABLE EQUITY SECURITIES Nonmarketable equity securities include venture capital equity securities that are not publicly traded and securities acquired for various purposes, such as to meet regulatory requirements (for example, Federal Reserve Bank stock). We review these assets at least quarterly for possible other-than-temporary impairment. Our review typically includes an analysis of the facts and circumstances of each investment, the expectations for the investment’s cash flows and capital needs, the viability of its business model and our exit strategy. These securities generally are accounted for at cost and are included in other assets. We reduce the asset value when we consider declines in value to be other-than-temporary. We recognize the estimated loss as a loss from equity investments in noninterest income.

Mortgages Held for Sale
Mortgages held for sale are stated at the lower of total cost or market value. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income.

Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income.

Loans
Loans are reported at the principal amount outstanding, net of unearned income, except for purchased loans, which are recorded at fair value on the purchase date. Unearned income includes deferred fees net of deferred direct incremental loan origination costs. We amortize unearned income to interest income, generally over the contractual life of the loan, using the interest method.

NONACCRUAL LOANS We generally place loans on nonaccrual status (1) when 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), (2) when the full and timely collection of interest or principal becomes uncertain or (3) when part of the principal balance has been charged off. Generally, consumer loans not secured by real estate are placed on nonaccrual status only when part of the principal has been charged off. These loans are entirely charged off when deemed uncollectible or when they reach a predetermined number of days past due based on loan product, industry practice, country, terms and other factors.

When we place a loan on nonaccrual status, we reverse the accrued and unpaid interest receivable and account for the loan on the cash or cost recovery method, until it qualifies for return to accrual status. Generally, we return a loan to accrual status (a) when all delinquent interest and principal becomes current under the terms of the loan agreement or (b) when the loan is both well-secured and in the process of collection and collectibility is no longer doubtful.

IMPAIRED LOANS We assess, account for and disclose as impaired certain nonaccrual commercial loans and commercial real estate mortgage and construction loans that are over $1 million. We consider a loan to be impaired when, based on current information and events, we will probably not be able to collect all amounts due according to the loan contract, including scheduled interest payments.

When we identify a loan as impaired, we measure the impairment using discounted cash flows, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases we use the current fair value of the collateral, less selling costs, instead of discounted cash flows.

If we determine that the value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount), we recognize an impairment through a charge-off to the allowance.

ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is management’s estimate of credit losses inherent in the loan portfolio, including unfunded commitments, at the balance sheet date. Our determination of the allowance, and the resulting provision, is based on judgments and assumptions, including (1) general economic conditions, (2) loan portfolio composition, (3) loan loss experience, (4) management’s evaluation of credit risk relating to pools of loans and individual borrowers, (5) sensitivity analysis and expected loss models and (6) observations from our internal auditors, internal loan review staff or our banking regulators.

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. Servicing rights and other retained interests in the sold assets are recorded by allocating the previously recorded investment between the assets sold and the interest retained based on their relative fair values at the date of transfer. We determine the fair values of servicing rights and other retained interests at the date of transfer using the present value of estimated future cash flows, using assumptions that market participants would use in their estimates of values.

We recognize the rights to service mortgage loans for others, or mortgage servicing rights (MSRs), as assets whether we purchase the servicing rights or securitize loans we originate and retain servicing rights. 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.

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 would 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.

Each quarter, we evaluate MSRs for possible impairment based on the difference between the carrying amount and current fair value, in accordance with Statement of Financial Accounting Standards No. 140 (FAS 140), Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. To evaluate and measure impairment we stratify the portfolio based on certain risk characteristics, including loan type and note rate. If temporary impairment exists, we establish a valuation allowance through a charge to net income for any excess of amortized cost over the current fair value, by risk stratification. If we later determine that all or a portion of the temporary impairment no longer exists for a particular risk stratification, we may reduce the valuation allowance through an increase to net income.

Under our policy, we also evaluate other-than-temporary impairment of MSRs by considering both historical and projected trends in interest rates, pay off activity and whether the impairment could be recovered through interest rate increases. We recognize a direct write-down when we determine that the recoverability of a recorded valuation allowance is remote. A direct write-down permanently reduces the carrying value of the MSRs, while a valuation allowance (temporary impairment) can be reversed.

Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Capital leases are included in premises and equipment at the capitalized amount less accumulated amortization.

Primarily we use the straight-line method of depreciation and amortization. Estimated useful lives range up to 40 years for buildings, up to 10 years for furniture and equipment, and the shorter of the estimated useful life or lease term for leasehold improvements. We amortize capitalized leased assets on either the effective interest rate method or a straight-line basis over the lives of the respective leases, up to 21 years.

Goodwill and Identifiable Intangible Assets
Goodwill is recorded when the purchase price is higher than the fair value of net assets acquired in business combinations under the purchase method of accounting. On July 1, 2001, we adopted FAS 142, Goodwill and Other Intangible Assets. FAS 142 eliminates amortization of goodwill from business combinations completed after June 30, 2001. During the transition period from July 1, 2001 through December 31, 2001, we continued to amortize goodwill from business combinations completed prior to July 1, 2001. Effective January 1, 2002, all goodwill amortization was discontinued.

Effective January 1, 2002, we assess goodwill for impairment annually, and more frequently in certain circumstances. We assess goodwill for impairment on a reporting unit level by applying a fair-value-based test using discounted estimated future net cash flows. Impairment exists when the carrying amount of the goodwill exceeds its implied fair value. We recognize impairment losses as a charge to noninterest expense (unless related to discontinued operations) and an adjustment to the carrying value of the goodwill asset. Subsequent reversals of goodwill impairment are prohibited.

We amortize core deposit intangibles on an accelerated basis based on useful lives of 10 to 15 years. We review core deposit intangibles for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future net cash flows is less than the carrying value of the asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value.

Operating Lease Assets
Operating lease rental income for leased assets, generally automobiles, is recognized on a straight-line basis. Related depreciation expense is recorded on a straight-line basis over the life of the lease taking into account the estimated residual value of the leased asset. On a periodic basis, leased assets are reviewed for impairment. Impairment loss is recognized if the carrying amount of leased assets exceeds fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment. Auto lease receivables are written off when 120 days past due.

Pension Accounting
We account for our defined benefit pension plans using an actuarial model required by FAS 87, Employers’ Accounting for Pensions. This model allocates pension costs over the service period of employees in the plan. The underlying principle is that employees render service ratably over this period and, therefore, the income statement effects of pensions should follow a similar pattern.

One of the principal components of the net periodic pension calculation is the expected long-term rate of return on plan assets. The use of an expected long-term rate of return on plan assets may cause us to recognize pension income returns that are greater or less than the actual returns of plan assets in any given year.

The expected long-term rate of return is designed to approximate the actual long-term rate of return over time. We generally hold the expected long-term rate of return constant so the pattern of income/expense recognition more closely matches the more stable pattern of services provided by our employees over the life of our pension obligation. To determine if the expected rate of return is reasonable, we consider such factors as (1) the actual return earned on plan assets, (2) historical rates of return on the various asset classes in the plan portfolio, (3) projections of returns on various asset classes, and (4) current/prospective capital market conditions and economic forecasts. Any difference between actual and expected returns in excess of a 5% corridor (as defined in FAS 87) is recognized in the net periodic pension calculation over the next five years.

We use a discount rate to determine the present value of our future benefit obligations. The discount rate reflects the rates available at the measurement date on high-quality fixed-income debt instruments and is reset annually on the measurement date (November 30).

Long-Term Debt
Based upon current and anticipated levels of interest rates, we may extinguish long-term debt obligations to reduce our long-term funding costs and improve our liquidity. The early termination of these borrowings constitutes a normal part of our asset/liability management. Gains and losses on debt extinguishments and prepayment fees that are considered to be part of our normal business operations are reported in noninterest income.

In connection with convertible debt issuances, while we are able to settle the entire amount of the conversion rights in cash, common stock or a combination, it is our policy to settle the principal amount in cash, and to settle the conversion spread in either cash or stock.

Income Taxes
We file a consolidated federal income tax return and, in certain states, combined state tax returns.

We determine deferred income tax assets and liabilities using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws. Deferred tax assets are recognized subject to management judgment that realization is more likely than not. Foreign taxes paid are applied as credits to reduce federal income taxes payable.

Stock-Based Compensation
We have several stock-based employee compensation plans, which are described more fully in Note 14. As permitted by FAS 123, Accounting for Stock-Based Compensation, we have elected to continue applying the intrinsic value method of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, in accounting for stock-based employee compensation plans. Pro forma net income and earnings per common share information is provided below, as if we accounted for employee stock option plans under the fair value method of FAS 123.



(in millions, except per
share amounts)			Year ended December 31								,
			2003			2002			2001

Net income, as reported			$	6,202		$	5,434		$	3,411

	Add:	Stock-based employee compensation expense included in reported net income, net of tax		3			3			4
	Less:	Total stock-based employee compensation expense under the fair value method for all awards, net of tax		(198	)		(190	)		(150	)

Net income, pro forma			$	6,007		$	5,247		$	3,265

Earnings per common share
	As reported		$	3.69		$	3.19		$	1.99
	Pro forma			3.57			3.08			1.91
Diluted earnings per common share
	As reported		$	3.65		$	3.16		$	1.97
	Pro forma			3.53			3.05			1.89

Earnings Per Common Share
We present earnings per common share and diluted earnings per common share. We compute earnings per common share by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year. We compute diluted earnings per common share by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year, plus the effect of common stock equivalents (for example, stock options, restricted share rights and convertible debentures) that are dilutive.

Derivatives and Hedging Activities
We recognize all derivatives on the balance sheet at fair value. On the date we enter into a derivative contract, we designate the derivative as (1) a hedge of the fair value of a recognized asset or liability (“fair value” hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge) or (3) held for trading, customer accommodation or a contract not qualifying for hedge accounting (“free-standing derivative”). For a fair value hedge, we record changes in the fair value of the derivative and, to the extent that it is effective, changes in the fair value of the hedged asset or liability, attributable to the hedged risk, in current period net income in the same financial statement category as the hedged item. For a cash flow hedge, we record changes in the fair value of the derivative to the extent that it is effective in other comprehensive income. We subsequently reclassify these changes in fair value to net income in the same period(s) that the hedged transaction affects net income in the same financial statement category as the hedged item. For free-standing derivatives, we report changes in the fair values in current period noninterest income.

We formally document the relationship between hedging instruments and hedged items, as well as our risk management objective and strategy for various hedge transactions. This includes linking all derivatives designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. We also formally assess, both at the inception of the hedge and on an ongoing basis, if the derivatives we use are highly effective in offsetting changes in fair values or cash flows of hedged items. If we determine that a derivative is not highly effective as a hedge, we discontinue hedge accounting.

We discontinue hedge accounting prospectively when (1) a derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item, (2) a derivative expires or is sold, terminated, or exercised, (3) a derivative is dedesignated as a hedge, because it is unlikely that a forecasted transaction will occur, or (4) we determine that designation of a derivative as a hedge is no longer appropriate.

When we discontinue hedge accounting because a derivative no longer qualifies as an effective fair value hedge, we continue to carry the derivative on the balance sheet at its fair value with changes in fair value included in earnings, and no longer adjust the previously hedged asset or liability for changes in fair value. Previous adjustments to the hedged item are accounted for in the same manner as other components of the carrying amount of the asset or liability.

When we discontinue hedge accounting because it is probable that a forecasted transaction will not occur, we continue to carry the derivative on the balance sheet at its fair value with changes in fair value included in earnings, and immediately recognize gains and losses that were accumulated in other comprehensive income in earnings.

When we discontinue hedge accounting because the hedging instrument is sold, terminated, or no longer designated (dedesignated), the amount reported in other comprehensive income up to the date of sale, termination or dedesignation continues to be reported in other comprehensive income until the forecasted transaction affects earnings.

In all other situations in which we discontinue hedge accounting, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current period earnings.

We occasionally purchase or originate financial instruments that contain an embedded derivative. At inception of the financial instrument, we assess (1) if the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the financial instrument (host contract), (2) if the financial instrument that embodies both the embedded derivative and the host contract is measured at fair value with changes in fair value reported in earnings, and (3) if a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative. If the embedded derivative does not meet these three conditions, we separate it from the host contract and carry it at fair value with changes recorded in current period earnings.



(in millions)	Date	Assets

2003
Certain assets of Telmark, LLC, Syracuse, New York	February 28	$	660
Pacific Northwest Bancorp, Seattle, Washington	October 31		3,245
Two Rivers Corporation, Grand Junction, Colorado	October 31		74
Other ⁽¹⁾	Various		136

		$	4,115


2002
Texas Financial Bancorporation, Inc., Minneapolis, Minnesota	February 1	$	2,957
Five affiliated banks and related entities of Marquette Bancshares, Inc. located in Minnesota, Wisconsin, Illinois, Iowa and South Dakota	February 1		3,086
Rediscount business of Washington Mutual Bank, FA, Philadelphia, Pennsylvania	March 28		281
Tejas Bancshares, Inc., Amarillo, Texas	April 26		374
Other ⁽²⁾	Various		94

		$	6,792


2001
Conseco Finance Vendor Services Corporation, Paramus, New Jersey	January 31	$	860
ACO Brokerage Holdings Corporation (Acordia Group of Insurance Agencies), Chicago, Illinois	May 1		866
H.D. Vest, Inc., Irving, Texas	July 2		182
Other ⁽³⁾	Various		42

		$	1,950

Federal Reserve Board regulations require that each of our subsidiary banks maintain reserve balances on deposits with the Federal Reserve Banks. The average required reserve balance was $1.0 billion and $1.8 billion in 2003 and 2002, respectively.

Federal law restricts the amount and the terms of both credit and non-credit transactions between a bank and its nonbank affiliates. They may not exceed 10% of the bank’s capital and surplus (which for this purpose represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for loan losses excluded from Tier 2 capital) with any single nonbank affiliate and 20% of the bank’s capital and surplus with all its nonbank affiliates. Transactions that are extensions of credit may require collateral to be held to provide added security to the bank. (For further discussion of risk-based capital, see Note 26).

Dividends paid by our subsidiary banks are subject to various federal and state regulatory limitations. Dividends that may be paid by a national bank without the express approval of the Office of the Comptroller of the Currency (OCC) are limited to that bank’s retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. We also have state-chartered subsidiary banks that are subject to state regulations that limit dividends. Under those provisions, our national and state-chartered subsidiary banks could have declared additional dividends of $844 million and $1,585 million at December 31, 2003 and 2002, respectively, without obtaining prior regulatory approval. In addition, our nonbank subsidiaries could have declared additional dividends of $1,682 million and $1,252 million at December 31, 2003 and 2002, respectively.



(in millions)	December 31																		,
	2003									2002
	Cost		Unrealized		Unrealized			Fair		Cost		Unrealized		Unrealized			Fair
			gross		gross			value				gross		gross			value
			gains		losses							gains		losses

Securities of U.S. Treasury and federal agencies	$	1,252	$	35	$	(1	)	$	1,286	$	1,315	$	66	$	—		$	1,381
Securities of U.S. states and political subdivisions		3,175		176		(5	)		3,346		2,232		155		(5	)		2,382
Mortgage-backed securities:
Federal agencies		20,353		799		(22	)		21,130		17,766		1,325		(1	)		19,090
Private collateralized mortgage obligations ⁽¹⁾		3,056		106		(8	)		3,154		1,775		108		(3	)		1,880

Total mortgage-backed securities		23,409		905		(30	)		24,284		19,541		1,433		(4	)		20,970
Other		3,285		198		(28	)		3,455		2,608		125		(75	)		2,658

Total debt securities		31,121		1,314		(64	)		32,371		25,696		1,779		(84	)		27,391
Marketable equity securities		394		188		—			582		598		72		(114	)		556

Total ⁽²⁾	$	31,515	$	1,502	$	(64	)	$	32,953	$	26,294	$	1,851	$	(198	)	$	27,947

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.



(in millions)	Year ended December 31								,
	2003			2002			2001

Realized gross gains	$	178		$	617		$	789
Realized gross losses ⁽¹⁾		(116	)		(419	)		(1,515	)

Realized net gains (losses)	$	62		$	198		$	(726	)

(1)

Includes other-than-temporary impairment of $50 million, $180 million and $1,198 million for 2003, 2002 and 2001, respectively.

The table below shows the remaining contractual principal maturities and yields (on a taxable-equivalent basis) of debt securities available for sale. The remaining contractual principal maturities for mortgage-backed securities were allocated assuming no prepayments. Remaining maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.



(in millions)	December 31, 2003
	Total		Weighted-
	amount		average			Remaining contractual principal maturity
			yield								After one year					After five years
						Within one year					through five years					through ten years					After ten years
						Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield

Securities of U.S. Treasury and federal agencies	$	1,286		4.44	%	$	323		4.41	%	$	856		4.34	%	$	41		4.85	%	$	66		5.71	%
Securities of U.S. states and political subdivisions		3,346		8.29			241		7.93			1,184		8.35			819		8.04			1,102		8.50
Mortgage-backed securities:
Federal agencies		21,130		6.09			1		6.93			90		7.18			142		5.30			20,897		6.09
Private collateralized mortgage obligations		3,154		5.12			2,631		5.20			61		5.77			230		3.46			232		5.62

Total mortgage-backed securities		24,284		5.96			2,632		5.20			151		6.61			372		4.16			21,129		6.08
Other		3,455		8.54			342		8.09			1,324		8.60			1,718		8.63			71		7.60


ESTIMATED FAIR VALUE OF DEBT SECURITIES ⁽¹⁾	$	32,371		6.42	%	$	3,538		5.59	%	$	3,515		7.39	%	$	2,950		7.85	%	$	22,368		6.21	%

TOTAL COST OF DEBT SECURITIES	$	31,121				$	3,824				$	3,311				$	2,866				$	21,120

To ensure that the pricing of a loan will adequately compensate us for assuming the credit risk presented by a customer, we may require a certain amount of collateral. We hold various types of collateral, including accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. We have the same collateral requirements for loans whether we fund immediately or later (commitment).

A commitment to extend credit is a legally binding agreement to lend funds to a customer, usually at a stated interest rate and for a specified purpose. These commitments have fixed expiration dates and generally require a fee. When we make such a commitment, we have credit risk. The liquidity requirements or credit risk will be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being used. Certain commitments are subject to loan agreements with covenants regarding the financial performance of the customer that must be met before we are required to fund the commitment. We use the same credit policies for commitments to extend credit that we use in making loans. For information on standby letters of credit, see Note 25 (Guarantees).

In addition, we manage the potential risk in credit commitments by limiting the total amount of arrangements, both



(in millions)	Year ended December 31														,
	2003			2002			2001			2000			1999
Balance, beginning of year	$	3,819		$	3,717		$	3,681		$	3,312		$	3,274
Allowances related to business combinations/other		69			93			41			265			48
Provision for loan losses		1,722			1,684			1,727			1,284			1,079
Loan charge-offs:
Commercial		(597	)		(716	)		(692	)		(429	)		(395	)
Real estate 1-4 family first mortgage		(47	)		(39	)		(40	)		(16	)		(14	)
Other real estate mortgage		(33	)		(24	)		(32	)		(32	)		(28	)
Real estate construction		(11	)		(40	)		(37	)		(8	)		(2	)
Consumer:
Real estate 1-4 family junior lien mortgage		(77	)		(55	)		(36	)		(34	)		(33	)
Credit card		(476	)		(407	)		(421	)		(367	)		(403	)
Other revolving credit and installment		(827	)		(770	)		(770	)		(623	)		(585	)

Total consumer		(1,380	)		(1,232	)		(1,227	)		(1,024	)		(1,021	)
Lease financing		(41	)		(21	)		(22	)		—			—
Foreign		(105	)		(84	)		(78	)		(86	)		(90	)

Total loan charge-offs		(2,214	)		(2,156	)		(2,128	)		(1,595	)		(1,550	)

Loan recoveries:
Commercial		177			162			96			98			90
Real estate 1-4 family first mortgage		10			8			6			4			6
Other real estate mortgage		11			16			22			13			38
Real estate construction		11			19			3			4			5
Consumer:
Real estate 1-4 family junior lien mortgage		13			10			8			14			15
Credit card		50			47			40			39			49
Other revolving credit and installment		196			205			203			213			243

Total consumer		259			262			251			266			307
Lease financing		8			—			—			—			—
Foreign		19			14			18			30			15

Total loan recoveries		495			481			396			415			461

Net loan charge-offs		(1,719	)		(1,675	)		(1,732	)		(1,180	)		(1,089	)

Balance, end of year	$	3,891		$	3,819		$	3,717		$	3,681		$	3,312

Net loan charge-offs as a percentage of average total loans		.81	%		.96	%		1.10	%		.84	%		.92	%

Allowance as a percentage of total loans		1.54	%		1.98	%		2.22	%		2.37	%		2.61	%

The potential risk from unfunded loan commitments and letters of credit is part of the loss analysis of loans outstanding. This risk assessment is converted to a loan equivalent factor and is a minor component of the allocated allowance. At December 31, 2003, 4% of allocated reserves and 3% of the total allowance was related to this potential risk. Any provision necessary to cover this exposure is part of the provision for loan losses.

Like all national banks, our subsidiary national banks continue to be subject to examination by their primary regulator, the Office of the Comptroller of the Currency (OCC), and some have OCC examiners in residence. The OCC examinations occur throughout the year and target various activities of our subsidiary national banks, including both the loan grading system and specific segments of the loan portfolio (for example, commercial real estate and shared national credits). The Parent and its nonbank subsidiaries are examined by the Federal Reserve Board.

We consider the allowance for loan losses of $3.89 billion adequate to cover credit losses inherent in the loan portfolio, including unfunded commitments, at December 31, 2003.

Nonaccrual loans were $1,458 million and $1,492 million at December 31, 2003 and 2002, respectively. Loans past due 90 days or more as to interest or principal and still accruing interest were $2,337 million at December 31, 2003 and $672 million at December 31, 2002. The 2003 balance included $1,641 million in advances pursuant to our servicing agreements to the Government National Mortgage Association (GNMA) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veteran Affairs. Prior to clarifying guidance issued in 2003 as to classification as loans, GNMA advances were included in other assets.

The recorded investment in impaired loans and the methodology used to measure impairment was:



(in millions)	December 31				,
	2003		2002

Impairment measurement based on:
Collateral value method	$	386	$	309
Discounted cash flow method		243		303

Total ⁽¹⁾	$	629	$	612

(1) Includes $59 million and $201 million of impaired loans with a related allowance of $8 million and $52 million at December 31, 2003 and 2002, respectively.

The average recorded investment in impaired loans during 2003, 2002 and 2001 was $668 million, $705 million and $707 million, respectively. Predominantly all payments received on impaired loans were recorded using the cost recovery method. Under the cost recovery method, all payments received are applied to principal. This method is used when the ultimate collectibility of the total principal is in doubt. For payments received on impaired loans recorded using the cash basis method, total interest income recognized for 2003, 2002 and 2001 was $12 million, $17 million and $13 million, respectively. Under the cash method, contractual interest is credited to interest income when received. This method is used when the ultimate collectibility of the total principal is not in doubt.



(in millions)	December 31				,
	2003		2002
Land	$	521	$	486
Buildings		2,699		2,758
Furniture and equipment		3,013		2,991
Leasehold improvements		957		911
Premises leased under capital leases		57		45

Total premises and equipment		7,247		7,191
Less accumulated depreciation and amortization		3,713		3,503

Net book value, premises and equipment	$	3,534	$	3,688

Depreciation and amortization expense was $666 million, $599 million and $561 million in 2003, 2002 and 2001, respectively.

Net gains (losses) on dispositions of premises and equipment, included in noninterest expense, were $(46) million, $(52) million and $21 million in 2003, 2002 and 2001, respectively.

We have obligations under a number of noncancelable operating leases for premises (including vacant premises) and equipment. The terms of these leases, including renewal options, are predominantly up to 15 years, with the longest up to 100 years, and many provide for periodic adjustment of rentals based on changes in various economic indicators. The future minimum payments under noncancelable operating leases and capital leases, net of sublease rentals, with terms greater than one year as of December 31, 2003 were:



(in millions)	Operating leases		Capital leases

Year ended December 31,
2004	$	505	$	8
2005		411		7
2006		336		4
2007		277		2
2008		228		2
Thereafter		867		16

Total minimum lease payments	$	2,624		39

Executory costs				(3	)
Amounts representing interest				(11	)

Present value of net minimum lease payments			$	25

Operating lease rental expense (predominantly for premises), net of rental income, was $574 million, $535 million and $473 million in 2003, 2002 and 2001, respectively.

The components of other assets at December 31, 2003 and 2002 were:



(in millions)	December 31				,
	2003		2002
Trading assets	$	8,919	$	10,167
Accounts receivable		2,456		5,219
Nonmarketable equity investments:
Private equity investments		1,714		1,657
Federal bank stock		1,765		1,591
All other		1,542		1,473

Total nonmarketable equity investments		5,021		4,721

Operating lease assets		3,448		4,104
Interest receivable		1,287		1,139
Core deposit intangibles		737		868
Interest-earning deposits		988		352
Foreclosed assets		198		195
Due from customers on acceptances		137		110
Other		6,845		8,973

Total other assets	$	30,036	$	35,848

Trading assets are primarily securities, including corporate debt, U.S. government agency obligations and the fair value of derivatives held for customer accommodation purposes. Interest income from trading assets was $156 million, $169 million and $114 million in 2003, 2002 and 2001, respectively. Noninterest income from trading assets, included in the “other” category, was $502 million, $321 million and $400 million in 2003, 2002 and 2001, respectively.

Net gains (losses) from sales or impairment of nonmarketable equity investments were $113 million, $(202) million and $(566) million for 2003, 2002 and 2001, respectively, and included net (losses) from private equity investments of $(3) million, $(232) million and $(496) million in 2003, 2002 and 2001, respectively.

The gross carrying amount of intangible assets and accumulated amortization at December 31, 2003 and 2002 was:



(in millions)	December 31								,
	2003				2002
	Gross		Accumulated		Gross		Accumulated
	carrying		amortization		carrying		amortization
	amount				amount

Amortized intangible assets:
Mortgage servicing rights, before valuation allowance ⁽¹⁾	$	16,459	$	7,611	$	11,528	$	4,851
Core deposit intangibles		2,426		1,689		2,415		1,547
Other		392		273		374		254

Total amortized intangible assets	$	19,277	$	9,573	$	14,317	$	6,652

Unamortized intangible asset (trademark)	$	14			$	14

(1) The valuation allowance was $1,942 million at December 31, 2003 and $2,188 million at December 31, 2002. The carrying value of mortgage servicing rights was $6,906 million at December 31, 2003 and $4,489 million at December 31, 2002.

As of December 31, 2003, the current year and estimated future amortization expense for amortized intangible assets was:



(in millions)	Mortgage		Core		Other		Total
	servicing		deposit
	rights		intangibles

Year ended December 31, 2003	$	2,760	$	142	$	29	$	2,931


Estimate for year ended December 31,
2004	$	1,471	$	134	$	24	$	1,629
2005		1,158		123		18		1,299
2006		989		110		15		1,114
2007		843		100		14		957
2008		707		92		13		812

We based the projections of amortization expense for mortgage servicing rights shown above on existing asset balances and the existing interest rate environment as of December 31, 2003. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions. We based the projections of amortization expense for core deposit intangibles shown above on existing asset balances at December 31, 2003. Future amortization expense may vary based on additional core deposit intangibles acquired through business combinations.



(in millions)	2003					2002					2001
	Amount		Rate			Amount		Rate			Amount		Rate
As of December 31,
Commercial paper and other short-term borrowings	$	6,709		1.26	%	$	11,109		1.57	%	$	13,965		2.01	%

Federal funds purchased and securities sold under agreements to repurchase		17,950		.84			22,337		1.08			23,817		1.53

Total	$	24,659		.95		$	33,446		1.24		$	37,782		1.71

Year ended December 31,
Average daily balance
Commercial paper and other short-term borrowings	$	11,506		1.22	%	$	13,048		1.84	%	$	13,561		4.12	%
Federal funds purchased and securities sold under agreements to repurchase		18,392		.99			20,230		1.47			20,324		3.51

Total	$	29,898		1.08		$	33,278		1.61		$	33,885		3.76

Maximum month-end balance
Commercial paper and other short-term borrowings ⁽¹⁾	$	14,462		N/A		$	17,323		N/A		$	19,818		N/A

Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾		24,132		N/A			33,647		N/A			26,346		N/A

The following is a summary of long-term debt, based on
original maturity, (reflecting unamortized debt discounts
and premiums, where applicable) owed by the Parent
and its subsidiaries.



(in millions)			December 31				,
	Maturity	Interest
	date(s)	rate(s)	2003		2002

Wells Fargo & Company (Parent only)

Senior
Global Notes ⁽¹⁾	2004-2027	2.45-7.65%	$	9,497	$	9,939
Floating-Rate Global Notes	2004-2007	Varies		12,905		4,150
Extendable Notes⁽²⁾	2005-2008	Varies		2,999		2,998
Equity Linked Notes⁽³⁾	2008-2010	Zero Coupon		297		79
Convertible Debenture⁽⁴⁾	2033	Varies		3,000		—

Total senior debt – Parent				28,698		17,166


Subordinated
Fixed-Rate Notes⁽¹⁾	2003-2023	4.95-6.65%		3,280		2,482
FixFloat Notes	2012	4.00% through 2006,varies		299		299

Total subordinated debt – Parent				3,579		2,781


Junior Subordinated
Fixed-Rate Notes⁽¹⁾⁽⁵⁾	2031-2033	5.625-7.00%		2,732		—

Total junior subordinated debt – Parent				2,732		—

Total long-term debt – Parent				35,009		19,947


Wells Fargo Bank, N.A. and its subsidiaries (WFB, N.A.)

Senior
Fixed-Rate Bank Notes ⁽¹⁾	2004-2011	1.50-7.49%		210		—
Floating-Rate Notes	2004-2011	Varies		7,087		5,304
Notes payable by subsidiaries	2004-2008	3.13-13.5%		79		—
Other notes and debentures ⁽⁶⁾	2006-2011	Varies		11		—
Obligations of subsidiaries under capital leases (Note 6)				7		7

Total senior debt – WFB, N.A.				7,394		5,311


Subordinated
Fixed-Rate Bank Notes⁽¹⁾	2011-2013	7.73-9.39%		16		—
FixFloat Notes⁽¹⁾	2010	7.8% through 2004, varies		998		997
Notes ⁽¹⁾	2010-2011	6.45-7.55%		2,867		2,497
Floating-Rate Notes	2011-2013	Varies		43		—

Total subordinated debt – WFB, N.A.				3,924		3,494

Total long-term debt – WFB, N.A.				11,318		8,805


Wells Fargo Financial, Inc. and its subsidiaries (WFFI)

Senior
Fixed-Rate Notes	2004-2012	4.35-9.05%		6,969		7,634
Floating-Rate Notes	2004-2033	Varies		1,292		1,100

Total long-term debt – WFFI			$	8,261	$	8,734


(continued from previous page)

(in millions)			December 31				,
	Maturity	Interest
	date(s)	rate(s)	2003		2002
Other consolidated subsidiaries
Senior
Floating-Rate Euro Medium-Term Notes	2003	Varies	$	—	$	285
Fixed-Rate Notes	2003-2006	5.875-6.875%		150		474
Federal Home Loan Bank (FHLB) Notes and Advances	2003-2012	.97-6.47%		3,310		2,931
Floating-Rate FHLB Advances	2002-2011	Varies		1,075		4,165
Medium-Term Notes ⁽⁷⁾	2013	6.40%		—		15
Other notes and debentures – Floating-Rate	2008-2011	Varies		1,958		10
Other notes and debentures	2003-2015	1.74-12.00%		41		140
Other notes and debentures ⁽⁶⁾	2004-2009	Varies		5		—
Obligations of subsidiaries under capital leases (Note 6)				18		14

Total senior debt – Other consolidated subsidiaries				6,557		8,034

Subordinated
Medium-Term Notes ⁽⁷⁾	2013	6.50%		—		25
Notes	2003-2008	6.125-6.875%		228		598
Notes ⁽¹⁾	2004-2006	6.875-9.125%		1,091		1,092
Other notes and debentures	2007	1.99-11.14%		57		—
Other notes and debentures – Floating-Rate	2005	7.55%		85		85

Total subordinated debt – Other consolidated subsidiaries				1,461		1,800

Junior Subordinated
Floating-Rate Notes ⁽⁵⁾	2027-2032	Varies		168		—
Fixed-Rate Notes ⁽⁵⁾	2026-2029	7.73-9.875%		868		—

Total junior subordinated debt – Other consolidated subsidiaries				1,036		—

Total long-term debt – Other consolidated subsidiaries				9,054		9,834

Total long-term debt			$	63,642	$	47,320

Note 12: Guaranteed Preferred Beneficial Interests In Company’s Subordinated Debentures



	Shares issued					Carrying amount												Dividends declared
	and outstanding					(in millions)						Adjustable						(in millions)
	December 31				,	December 31					,	dividend rate						Year ended December 31						,
	2003		2002			2003			2002			Minimum			Maximum			2003		2002		2001

Adjustable-Rate Cumulative, Series B ⁽¹⁾		—		1,460,000		$	—		$	73			5.50	%		10.50	%	$	3	$	4	$	4
Adjustable-Rate Noncumulative Preferred Stock, Series H ⁽²⁾		—		—			—			—			7.00			13.00			—		—		10
ESOP Cumulative Convertible ⁽³⁾
2003		68,238		—			68			—			8.50			9.50			—		—		—
2002		53,641		64,049			54			64			10.50			11.50			—		—		—
2001		40,206		46,126			40			46			10.50			11.50			—		—		—
2000		29,492		34,742			30			35			11.50			12.50			—		—		—
1999		11,032		13,222			11			13			10.30			11.30			—		—		—
1998		4,075		5,095			4			5			10.75			11.75			—		—		—
1997		4,081		5,876			4			6			9.50			10.50			—		—		—
1996		2,927		5,407			3			6			8.50			9.50			—		—		—
1995		408		3,043			—			3			10.00			10.00			—		—		—

Total preferred stock		214,100		1,637,560		$	214		$	251								$	3	$	4	$	14

Unearned ESOP shares ⁽⁴⁾						$	(229	)	$	(190	)

Common Stock
This table summarizes our reserved, issued and authorized common stock at December 31, 2003.



	Number of shares

Dividend reinvestment and common stock purchase plans		1,010,756
Director plans		914,656
Stock plans⁽¹⁾		246,593,327


Total shares reserved		248,518,739
Shares issued		1,736,381,025
Shares not reserved		4,015,100,236

Total shares authorized		6,000,000,000

(1)

Includes employee option, restricted shares and restricted share rights,
401(k), profit sharing and compensation deferral plans.

Dividend Reinvestment and Common Stock Purchase Plans
Participants in our dividend reinvestment and common stock direct purchase plans may purchase shares of our common stock at fair market value by reinvesting dividends and/or making optional cash payments, under the plan’s terms.

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.

Employee Stock Plans
LONG-TERM INCENTIVE PLANS Our stock incentive plans provide for awards of incentive and nonqualified stock options, stock appreciation rights, restricted shares, restricted share rights, performance awards and stock awards without restrictions. We can grant employee stock options with exercise prices at or above the fair market value (as defined in the plan) of the stock at the date of grant and with terms of up to ten years. The options generally become fully 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 also 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.
We did not record any compensation expense for the options granted under the plans during 2003, 2002 and 2001, as the exercise price was equal to the quoted market price of the stock at the date of grant. The total number of shares of common stock available for grant under the plans at December 31, 2003 was 59,214,303.

Holders of restricted shares and restricted share rights are entitled to the related shares of common stock at no cost generally over three to five years after the restricted shares or restricted share rights were granted. Holders of restricted shares generally are entitled to receive cash dividends paid on the shares. Holders of restricted share rights generally are entitled to receive cash payments equal to the cash dividends that would have been paid had the restricted share rights been issued and outstanding shares of common stock. Except in limited circumstances, restricted shares and restricted share rights are canceled when employment ends.
In 2003, 2002 and 2001, 61,740, 81,380 and 107,000 restricted shares and restricted share rights were granted, respectively, with a weighted-average grant-date per share fair value of $56.05, $45.47 and $46.73, respectively. At December 31, 2003, 2002 and 2001, there were 577,722, 656,124 and 888,234 restricted shares and restricted share rights outstanding, respectively. The compensation expense for the restricted shares and restricted share rights equals the quoted market price of the related stock at the date of grant and is accrued over the vesting period. We recognized total compensation expense for the restricted shares and restricted share rights of $4 million in 2003, $5 million in 2002 and $6 million in 2001.

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.



	Director Plans					Long-Term Incentive Plans					Broad-Based Plans
	Number			Weighted-average		Number			Weighted-average		Number			Weighted-average
				exercise price					exercise price					exercise price

Options outstanding as of December 31, 2000		432,678		$	27.23		74,784,628		$	32.39		50,460,305		$	39.41

2001:
Granted		49,635			47.55		19,930,772	⁽¹⁾		49.52		353,600			41.84
Canceled		—			—		(1,797,865	)		43.21		(5,212,550	)		41.81
Exercised		(169,397	)		19.42		(10,988,267	)		25.61		(191,440	)		21.43

Options outstanding as of December 31, 2001		312,916			34.69		81,929,268			37.23		45,409,915			39.23

2002:
Granted		44,786			50.22		23,790,286	⁽¹⁾		46.99		18,015,150			50.46
Canceled		—			—		(1,539,244	)		45.36		(10,092,056	)		42.15
Exercised		(8,594	)		30.56		(10,873,465	)		30.62		(3,249,213	)		30.54
Acquisitions		—			—		72,892			31.33		—			—

Options outstanding as of December 31, 2002		349,108			36.78		93,379,737			40.35		50,083,796			43.25

2003:
Granted		62,346			47.22		23,052,384	⁽¹⁾		46.04		—			—
Canceled		—			—		(1,529,868	)		46.76		(4,293,930	)		46.85
Exercised		(59,707	)		26.90		(13,884,561	)		31.96		(6,408,797	)		34.09
Acquisitions		4,769			31.42		889,842			25.89		—			—

Options outstanding as of December 31, 2003		356,516		$	40.19		101,907,534		$	42.56		39,381,069		$	44.35


Outstanding options exercisable as of:
December 31, 2001		312,916		$	34.69		46,937,295		$	33.44		1,264,015		$	20.29
December 31, 2002		349,108			36.78		54,429,329			36.94		9,174,196			31.35
December 31, 2003		353,131			40.08		63,257,541			40.33		12,063,244			35.21

This table is a summary of our stock option plans described on the preceding page.



	December 31, 2003
	Weighted-		Number		Weighted-
	average				average
	remaining				exercise
	contractual				price
	life (in yrs.)
RANGE OF EXERCISE PRICES
Director Plans
$.10
Options outstanding/exercisable		1.01		2,390	$	.10
$7.84-$13.48
Options outstanding/exercisable		2.01		3,210		10.80
$13.49-$16.00
Options outstanding/exercisable		1.29		18,410		15.21
$16.01-$25.04
Options outstanding/exercisable		1.83		49,967		21.68
$25.05-$38.29
Options outstanding/exercisable		3.81		48,606		32.99
$38.30-$51.00
Options outstanding/exercisable		7.62		211,733		46.53
$51.01-$69.01
Options outstanding		5.13		22,200		66.41
Options exercisable		4.34		18,815		69.01
Long-Term Incentive Plans
$3.37-$5.06
Options outstanding/exercisable		6.11		51,412		4.22
$5.07-$7.60
Options outstanding/exercisable		22.02		4,366		5.84
$7.61-$11.41
Options outstanding/exercisable		2.03		103,988		10.39
$11.42-$17.13
Options outstanding		1.21		1,364,797		14.04
Options exercisable		1.10		1,264,797		13.84
$17.14-$25.71
Options outstanding		2.19		764,541		20.87
Options exercisable		2.19		761,053		20.87
$25.72-$38.58
Options outstanding		4.86		30,541,526		33.99
Options exercisable		4.86		30,313,343		33.99
$38.59-$71.30
Options outstanding		7.56		69,076,904		47.22
Options exercisable		6.32		30,758,582		48.32
Broad-Based Plans
$16.56
Options outstanding/exercisable		2.56		580,251		16.56
$24.85-$37.81
Options outstanding/exercisable		4.41		10,651,863		35.25
$37.82-$46.50
Options outstanding		6.86		14,917,350		46.46
Options exercisable		6.85		586,700		46.49
$46.51-$51.15
Options outstanding		8.22		13,231,605		50.50
Options exercisable		8.22		244,430		50.50

EMPLOYEE STOCK OWNERSHIP PLAN Under the Wells Fargo & Company 401(k) Plan (the 401(k) Plan), a defined contribution employee stock ownership plan (ESOP), the 401(k) Plan may borrow money to purchase our common or preferred stock. Beginning in 1994, we have loaned money to the 401(k) Plan to purchase shares of our ESOP Preferred Stock. As we release and convert ESOP Preferred Stock into common shares, we record compensation expense equal to the

current market price of the common shares. Dividends on the common shares allocated as a result of the release and conversion of the ESOP Preferred Stock reduce retained earnings and the shares are considered outstanding for computing earnings per share. Dividends on the unallocated ESOP Preferred Stock do not reduce retained earnings, and the shares are not considered to be common stock equivalents for computing earnings per share. Loan principal and interest payments are made from our contributions to the 401(k) Plan, along with dividends paid on the ESOP Preferred Stock. With each principal and interest payment, a portion of the ESOP Preferred Stock is released and, after conversion of the ESOP Preferred Stock into common shares, allocated to the 401(k) Plan participants.

Total dividends paid to the 401(k) Plan on ESOP shares were:



(in millions)	Year ended December 31						,
	2003		2002		2001

ESOP Preferred Stock:
Common dividends	$	36	$	21	$	15
Preferred dividends		26		24		19
ESOP shares (acquired in acquisitions):
Common dividends		10		10		11

Total	$	72	$	55	$	45

The ESOP shares as of December 31, 2003, 2002 and 2001 were:



	December 31						,
	2003		2002		2001

ESOP Preferred Stock:
Allocated shares (common)		25,966,488		21,447,490		17,233,798
Unreleased shares (preferred)		214,100		177,560		145,287
ESOP shares:
Allocated shares (common)		5,961,494		7,974,031		9,809,875
Unreleased shares (common)		—		—		3,042
Fair value of unearned ESOP shares (in millions)	$	214	$	178	$	145

Deferred Compensation Plan for Independent Sales Agents
WF Deferred Compensation Holdings, Inc. is a wholly-owned subsidiary of the Parent formed solely to sponsor a deferred compensation plan for independent sales agents who provide investment, financial and other qualifying services for or with respect to participating affiliates. The plan, which became effective January 1, 2002, allows participants to defer all or part of their eligible compensation payable to them by a participating affiliate. The Parent has fully and unconditionally guaranteed WF Deferred Compensation Holdings, Inc.’s deferred compensation obligations under the plan.

Employee Benefits
We sponsor noncontributory qualified defined benefit retirement plans including the Cash Balance Plan. The Cash Balance Plan is an active plan, which covers eligible employees (except employees of certain subsidiaries).

Under the Cash Balance Plan, eligible employees’ Cash Balance Plan accounts are allocated a compensation credit based on a percentage of their certified compensation. The compensation credit percentage is based on age and years of credited service. In addition, investment credits are allocated to participants quarterly based on their accumulated balances. Employees become vested in their Cash Balance Plan accounts after completing five years of vesting service or reaching age 65, if earlier. Pension benefits accrued before the conversion to the Cash Balance Plan are guaranteed. In addition, certain employees are eligible for a special transition benefit.

In 2003, we contributed $383 million in total to the pension plans, which included $350 million related to the Cash Balance Plan. We funded the maximum amount deductible under the Internal Revenue Code. The minimum required contribution in 2004 for the Cash Balance Plan is estimated to be zero. The maximum contribution amount for the Cash Balance Plan is the maximum deductible contribution under the Internal Revenue Code, which is dependent on several factors including proposed legislation that will affect the interest rate used to determine the current liability. In addition, the decision to contribute the maximum amount is dependent on other factors including the actual investment performance of plan assets. Given these uncertainties, we are not able to reliably estimate the maximum deductible contribution or the amount that will be contributed in 2004 to the

Cash Balance Plan. For the unfunded nonqualified pension plans and postretirement benefit plans, we will contribute the minimum required amount in 2004, which is equal to the benefits paid under the plans. In 2003 we paid $65 million in benefits for the postretirement plans and $18 million for the unfunded pension plans.

We sponsor defined contribution retirement plans including the 401(k) Plan. Under the 401(k) Plan, after one month of service, eligible employees may contribute up to 25% of their pretax certified compensation, although there may be a lower limit for certain highly compensated employees in order to maintain the qualified status of the 401(k) Plan. Eligible employees who complete one year of service are eligible for matching company contributions, which are generally a 100% match up to 6% of an employee’s certified compensation. The matching contributions generally vest over four years.

Expenses for defined contribution retirement plans were $257 million, $248 million and $206 million in 2003, 2002 and 2001, respectively.

We provide health care and life insurance benefits for certain retired employees and reserve the right to terminate or amend any of the benefits described above at any time.

The information set forth in the following tables is based on current actuarial reports using the measurement date of November 30 for our pension and postretirement benefit plans.

This table shows the changes in the projected benefit obligation during 2003 and 2002 and the amounts included in the Consolidated Balance Sheet at December 31, 2003 and 2002.

This table shows the changes in the fair value of plan assets during 2003 and 2002.

This table reconciles the funded status of the plans to the amounts included in the Consolidated Balance Sheet at December 31, 2003 and 2002.



(in millions)	Year ended December 31																	,
	2003									2002
	Pension benefits									Pension benefits
				Non-			Other						Non-			Other
	Qualified			qualified			benefits			Qualified			qualified			benefits

Funded status⁽¹⁾	$	303		$	(202	)	$	(426	)	$	35		$	(215	)	$	(406	)
Employer contributions in December		—			2			7			—			—			7
Unrecognized net actuarial loss		523			1			128			660			40			66
Unrecognized net transition asset		(1	)		—			4			(1	)		—			4
Unrecognized prior service cost		(13	)		(8	)		(9	)		(15	)		(8	)		(11	)

Accrued benefit income (cost)	$	812		$	(207	)	$	(296	)	$	679		$	(183	)	$	(340	)


Amounts recognized in the balance sheet consist of:
Prepaid benefit cost	$	812		$	—		$	—		$	679		$	—		$	—
Accrued benefit liability		(2	)		(209	)		(296	)		(2	)		(183	)		(340	)
Intangible asset		1			—			—			2			—			—
Accumulated other comprehensive income		1			2			—			—			—			—

Accrued benefit income (cost)	$	812		$	(207	)	$	(296	)	$	679		$	(183	)	$	(340	)

The weighted-average assumptions used to determine the net periodic benefit cost (income) were:



	Year ended December 31																	,
	2003						2002						2001
	Pension			Other			Pension			Other			Pension			Other
	benefits		⁽¹⁾	benefits			benefits		⁽¹⁾	benefits			benefits		⁽¹⁾	benefits

Discount rate		7.0	%		7.0	%		7.5	%		7.5	%		7.5	%		7.5	%
Expected return on plan assets		9.0			9.0			9.0			9.0			9.0			9.0
Rate of compensation increase		4.0			—			4.0			—			5.0			—

(1)

Includes both qualified and nonqualified pension benefits.

The plans have a long-term rate of return assumption of 9%. The rate was derived based on a combination of factors including (1) long-term historical return experience for major asset class categories (i.e., large cap and small cap domestic equities, international equities and domestic fixed income), and (2) forward-looking return expectations for these major asset classes.

To account for postretirement health care plans we use a health care cost trend rate to recognize the effect of expected changes in future health care costs due to medical inflation,

utilization changes, new technology, regulatory requirements and Medicare cost shifting. We assumed average annual increases of 9.5% for HMOs and for all other types of coverage in the per capita cost of covered health care benefits for 2004. By 2008 and thereafter, we assumed rates of 5.5% for HMOs and for all other types of coverage. Increasing the assumed health care trend by one percentage point in each year would increase the benefit obligation as of December 31, 2003 by $57 million and the total of the interest cost and service cost components of the net periodic benefit cost for 2003 by $5 million. Decreasing the assumed health care trend by one percentage point in each year would decrease the benefit obligation as of December 31, 2003 by $51 million and the total of the interest cost and service cost components of the net periodic benefit cost for 2003 by $4 million.

The investment strategy for the postretirement plans is maintained separate from the strategy for the pension plans. The general target asset mix is 55–65% equities and 35–41% fixed income. In addition, the Retiree Medical Plan VEBA considers the effect of income taxes by utilizing a combination of variable annuity and low turnover investment strategies. Members of the EBRC formally review the investment risk and performance of the postretirement plans on a quarterly basis.

The components of income tax expense were:



(in millions)	Year ended December 31						,
	2003		2002		2001

Current:
Federal	$	1,298	$	2,529	$	2,329
State and local		165		273		282
Foreign		114		37		34

		1,577		2,839		2,645


Deferred:
Federal		1,492		268		(524	)
State and local		206		37		(72	)

		1,698		305		(596	)

Total	$	3,275	$	3,144	$	2,049

The tax benefit related to the exercise of employee stock options recorded in stockholders’ equity was $148 million, $73 million and $88 million for 2003, 2002 and 2001, respectively.

We had a net deferred tax liability of $4,517 million and $2,883 million at December 31, 2003 and 2002, respectively. The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2003 and 2002 are presented in the table to the right.

We have determined that a valuation reserve is not required for any of the deferred tax assets since it is more likely than not that these assets will be realized principally through carry back to taxable income in prior years, future reversals of existing taxable temporary differences, and, to a lesser extent, future taxable income and tax planning strategies. Our conclusion that it is “more likely than not” that the deferred tax assets will be realized is based on federal taxable income in excess of $13 billion in the carry-back period, substantial state taxable income in the carry-back period, as well as a history of growth in earnings and the prospects for continued earnings growth.



(in millions)	December 31				,
	2003		2002

Deferred Tax Assets
Allowance for loan losses	$	1,479	$	1,451
Net tax-deferred expenses		567		677
Other		102		242

Total deferred tax assets		2,148		2,370


Deferred Tax Liabilities
Core deposit intangibles		251		298
Leasing		2,225		2,145
Mark to market		1,026		296
Mortgage servicing		2,206		1,612
FAS 115 adjustment		559		611
FAS 133 adjustment		8		(17	)
Other		390		308

Total deferred tax liabilities		6,665		5,253

Net Deferred Tax Liability	$	4,517	$	2,883

The deferred tax liability related to 2003, 2002 or 2001 unrealized gains and losses on securities available for sale and 2003 derivatives and hedging activities had no effect on income tax expense as these gains and losses, net of taxes, were recorded in cumulative other comprehensive income.

We have unrecognized deferred income tax liabilities associated with undistributed earnings of foreign subsidiaries totaling $99 million. The earnings are indefinitely reinvested in the foreign subsidiaries and are therefore not taxable under current law. To the extent that we change our intent to indefinitely reinvest the undistributed earnings, we will recognize a deferred tax liability. A current tax liability will be recognized to the extent that we receive the undistributed earnings through a taxable event, such as a dividend, a sale of the company or as a result of a change in law.

The table below reconciles the statutory federal income tax expense and rate to the effective income tax expense and rate.



(in millions, except per share amounts)	Year ended December 31							,
	2003		2002			2001

Net income before effect of change in accounting principle	$	6,202	$	5,710		$	3,411
Less: Preferred stock dividends		3		4			14

Net income applicable to common stock before effect of change in accounting principle (numerator)		6,199		5,706			3,397
Cumulative effect of change in accounting principle (numerator)		—		(276	)		—

Net income applicable to common stock (numerator)	$	6,199	$	5,430		$	3,397


EARNINGS PER COMMON SHARE
Average common shares outstanding (denominator)		1,681.1		1,701.1			1,709.5

Per share before effect of change in accounting principle	$	3.69	$	3.35		$	1.99
Per share effect of change in accounting principle		—		(.16	)		—

Per share	$	3.69	$	3.19		$	1.99


DILUTED EARNINGS PER COMMON SHARE
Average common shares outstanding		1,681.1		1,701.1			1,709.5
Add: Stock options		16.0		16.6			16.8
Restricted share rights		.4		.3			.6

Diluted average common shares outstanding (denominator)		1,697.5		1,718.0			1,726.9


Per share before effect of change in accounting principle	$	3.65	$	3.32		$	1.97
Per share effect of change in accounting principle		—		(.16	)		—

Per share	$	3.65	$	3.16		$	1.97

The components of other comprehensive income and the related tax effects were:



(in millions)	Before			Tax			Net of
	tax			effect			tax

2001:
Translation adjustments	$	(5	)	$	(2	)	$	(3	)

Minimum pension liability adjustment		(68	)		(26	)		(42	)

Securities available for sale and other retained interest:
Net unrealized losses arising during the year		(574	)		(211	)		(363	)
Reclassification of net losses included in net income		601			228			373

Net unrealized gains arising during the year		27			17			10

Cumulative effect of the change in accounting principle for derivatives and hedging activities		109			38			71

Derivatives and hedging activities:
Net unrealized gains arising during the year		196			80			116
Reclassification of net losses on cash flow hedges included in net income		120			44			76

Net unrealized gains arising during the year		316			124			192

Other comprehensive income	$	379		$	151		$	228


2002:
Translation adjustments	$	1		$	—		$	1

Minimum pension liability adjustment		68			26			42

Securities available for sale and other retained interests:
Net unrealized gains arising during the year		414			159			255
Reclassification of net losses included in net income		369			140			229

Net unrealized gains arising during the year		783			299			484

Derivatives and hedging activities:
Net unrealized losses arising during the year		(800	)		(297	)		(503	)
Reclassification of net losses on cash flow hedges included in net income		318			118			200

Net unrealized losses arising during the year		(482	)		(179	)		(303	)

Other comprehensive income	$	370		$	146		$	224


2003:
Translation adjustments	$	42		$	16		$	26

Securities available for sale and other retained interests:
Net unrealized losses arising during the year		(117	)		(42	)		(75	)
Reclassification of net gains included in net income		(68	)		(26	)		(42	)

Net unrealized losses arising during the year		(185	)		(68	)		(117	)

Derivatives and hedging activities:
Net unrealized losses arising during the year		(1,629	)		(603	)		(1,026	)
Reclassification of net losses on cash flow hedges included in net income		1,707			628			1,079

Net unrealized gains arising during the year		78			25			53

Other comprehensive income	$	(65	)	$	(27	)	$	(38	)

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. In that case, results for prior periods would be (and have been) restated for comparability. Results for 2001 have been restated to eliminate goodwill amortization from the operating segments and to reflect changes in transfer pricing methodology applied in first quarter 2002.

The Community Banking Group offers a complete line of diversified financial products and services to consumers and small businesses with annual sales generally up to $10 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, insurance, securities brokerage and insurance through affiliates and venture capital financing. These products and services include Wells Fargo Funds^® , a family of mutual funds, as well as personal trust, employee benefit trust and agency assets. Loan products include lines of credit, equity lines and loans, equipment and transportation (auto, 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, medical 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,

PhoneBank^SM 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, online/electronic products, insurance brokerage services and investment banking services. Wholesale Banking includes the majority ownership 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, Canada and in the Caribbean. Automobile finance operations specialize in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles in the United States and Puerto Rico. Wells Fargo Financial also provides credit cards and lease and other commercial financing.

The Other Column consists of Corporate level investment activities and balances and unallocated goodwill balances held at the enterprise level. This column also includes separately identified transactions recorded at the enterprise level for management reporting.



(income/expense in millions,
average balances in billions)	Community		Wholesale			Wells Fargo			Other		⁽³⁾	Consolidated
	Banking		Banking			Financial						Company

2003
Net interest income ⁽¹⁾	$	11,495	$	2,228		$	2,311		$	(27	)	$	16,007
Provision for loan losses ⁽²⁾		892		177			623			30			1,722
Noninterest income		9,218		2,766			378			20			12,382
Noninterest expense		13,214		2,579			1,343			54			17,190

Income (loss) before income tax expense (benefit)		6,607		2,238			723			(91	)		9,477
Income tax expense (benefit)		2,243		792			272			(32	)		3,275

Net income (loss)	$	4,364	$	1,446		$	451		$	(59	)	$	6,202


2002
Net interest income ⁽¹⁾	$	10,372	$	2,257		$	1,866		$	(13	)	$	14,482
Provision for loan losses ⁽²⁾		865		278			541			—			1,684
Noninterest income		8,085		2,316			354			12			10,767
Noninterest expense		11,241		2,367			1,099			4			14,711

Income (loss) before income tax expense (benefit) and effect of change in accounting principle		6,351		1,928			580			(5	)		8,854
Income tax expense (benefit)		2,235		692			220			(3	)		3,144

Net income (loss) before effect of change in accounting principle		4,116		1,236			360			(2	)		5,710
Cumulative effect of change in accounting principle		—		(98	)		(178	)		—			(276	)

Net income (loss)	$	4,116	$	1,138		$	182		$	(2	)	$	5,434


2001
Net interest income ⁽¹⁾	$	8,212	$	2,164		$	1,679		$	(79	)	$	11,976
Provision for loan losses ⁽²⁾		962		278			487			—			1,727
Noninterest income		6,503		2,117			371			14			9,005
Noninterest expense		9,840		2,300			1,028			626			13,794

Income (loss) before income tax expense (benefit)		3,913		1,703			535			(691	)		5,460
Income tax expense (benefit)		1,325		610			201			(87	)		2,049

Net income (loss)	$	2,588	$	1,093		$	334		$	(604	)	$	3,411


2003
Average loans	$	143.2	$	49.5		$	20.4		$	—		$	213.1
Average assets		273.5		75.8			22.2			6.1			377.6
Average core deposits		184.6		22.3			.1			—			207.0

2002
Average loans	$	109.9	$	49.4		$	15.2		$	—		$	174.5
Average assets		227.7		70.8			17.0			6.2			321.7
Average core deposits		165.6		18.4			.1			—			184.1

We routinely originate, securitize and sell into the secondary market home mortgage loans and, from time to time, other financial assets, including student loans, commercial mortgage loans, home equity loans, auto receivables and securities. We typically retain the servicing rights and may retain other beneficial interests from these sales. These securitizations are usually structured without recourse to us and with no restrictions on the retained interests. We do not have significant credit risks from the retained interests.

We recognized gains of $393 million from sales of financial assets in securitizations in 2003 and $100 million in 2002. Additionally, we had the following cash flows with our securitization trusts.



(in millions)	Year ended December 31									,
	2003				2002
	Mortgage		Other			Mortgage		Other
	loans		financial			loans		financial
			assets					assets

Sales proceeds from securitizations	$	23,870	$	132		$	15,718	$	102
Servicing fees		60		8			78		16
Cash flows on other retained interests		137		9			146		26

In the normal course of creating securities to sell to investors, we may sponsor special-purpose entities which hold, for the benefit of the investors, financial instruments that are the source of payment to the investors. Special-purpose entities are consolidated unless they meet the criteria for a qualifying special-purpose entity in accordance with FAS 140 or are not required to be consolidated under existing accounting guidance.

For securitizations completed in 2003 and 2002, we used the following assumptions to determine the fair value of mortgage servicing rights and other retained interests at the date of securitization.



	Mortgage						Other retained
	servicing rights						interests
	2003			2002				2003			2002

Prepayment speed (annual CPR ⁽¹⁾)⁽²⁾		15.1	%		12.7	%			18.0	%		16.0	%
Life (in years) ⁽²⁾		5.6			6.8				4.3			6.0
Discount rate ⁽²⁾		8.1	%		8.9	%			11.6	%		14.6	%

(1)		Constant prepayment rate
(2)		Represents weighted averages for all retained interests resulting from securitizations completed in 2003 and 2002.

At December 31, 2003, key economic assumptions and the sensitivity of the current fair value of mortgage servicing rights, both purchased and retained, and other retained interests related to residential mortgage loan securitizations to immediate adverse changes in those assumptions are presented in the table below.

These sensitivities are hypothetical and should be used with caution. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in the table below, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.



($ in millions)	Mortgage			Other retained
	servicing rights			interests

Fair value of retained interests	$	6,916		$	212
Expected weighted-average life (in years)		4.3			2.4

Prepayment speed assumption (annual CPR)		17.5	%		20.7	%
Decrease in fair value from 10% adverse change	$	339		$	9
Decrease in fair value from 25% adverse change		773			20

Discount rate assumption		9.6	%		11.1	%
Decrease in fair value from 100 basis point adverse change	$	236		$	5
Decrease in fair value from 200 basis point adverse change		455			11

This table presents information about the principal balances of managed and securitized loans.



(in millions)
	December 31									,	Year ended December 31				,
	Total loans				⁽¹⁾	Delinquent loans				⁽²⁾	Net charge-offs
	2003		2002			2003		2002			2003		2002

Commercial	$	48,729	$	47,292		$	679	$	888		$	420	$	554
Real estate 1-4 family first mortgage		136,137		155,733			671		412			37		31
Other real estate mortgage		50,963		31,478			480		214			30		14
Real estate construction		8,209		7,804			62		104			—		21
Consumer:
Real estate 1-4 family junior lien mortgage		36,629		28,147			118		68			64		45
Credit card		8,351		7,455			135		131			426		360
Other revolving credit and installment		41,249		34,330			414		377			641		590

Total consumer		86,229		69,932			667		576			1,131		995
Lease financing		4,477		4,085			73		79			33		27
Foreign		2,728		2,075			8		5			88		70

Total loans managed and securitized	$	337,472	$	318,399		$	2,640	$	2,278		$	1,739	$	1,712


Less:
Sold or securitized loans		47,875		68,102
Mortgages held for sale		29,027		51,154
Loans held for sale		7,497		6,665

Total loans held	$	253,073	$	192,478

Mortgage banking activities, included in the Community Banking and Wholesale Banking operating segments, consist of residential and commercial mortgage originations and servicing.

The components of mortgage banking noninterest income were:



(in millions)	Year ended December 31								,
	2003			2002			2001

Origination and other closing fees	$	1,218		$	1,048		$	737
Servicing fees, net of amortization and provision for impairment⁽¹⁾		(954	)		(737	)		(260	)
Net gains on securities available for sale		—			—			134
Net gains on mortgage loan originations/sales activities		1,801			1,038			705
All other		447			364			355

Total mortgage banking noninterest income	$	2,512		$	1,713		$	1,671

(1)

Includes impairment write-downs on other retained interests of $79 million, $567 million and $27 million for 2003, 2002 and 2001, respectively.

Net of valuation allowance, mortgage servicing rights (MSRs) totaled $6.9 billion (1.15% of the total mortgage servicing portfolio) at December 31, 2003, compared with $4.5 billion (.92%) at December 31, 2002.

This table summarizes the changes in mortgage servicing rights.



(in millions)	Year ended December 31								,
	2003			2002			2001

Mortgage servicing rights:
Balance, beginning of year	$	6,677		$	7,365		$	5,609
Originations⁽¹⁾		3,546			2,408			1,883
Purchases⁽¹⁾		2,140			1,474			962
Amortization		(2,760	)		(1,942	)		(914	)
Write-down		(1,338	)		(1,071	)		—
Other (includes changes in mortgage servicing rights due to hedging)		583			(1,557	)		(175	)

Balance, end of year	$	8,848		$	6,677		$	7,365


Valuation Allowance:
Balance, beginning of year	$	2,188		$	1,124		$	—
Provision for mortgage servicing rights in excess of fair value		1,092			2,135			1,124
Write-down of mortgage servicing rights		(1,338	)		(1,071	)		—

Balance, end of year	$	1,942		$	2,188		$	1,124

Mortgage servicing rights, net	$	6,906		$	4,489		$	6,241

(1)

Based on December 31, 2003 assumptions, the weighted-average amortization period for mortgage servicing rights added during the year was 5.6 years.

Each quarter, we evaluate MSRs for possible impairment based on the difference between the carrying amount and current fair value of the MSRs, in accordance with FAS 140. If a temporary impairment exists, we establish a valuation allowance for any excess of amortized cost, as adjusted for hedge accounting, over the current fair value through a charge to income. We have a policy of reviewing MSRs for other-than-temporary impairment each quarter and recognize a direct write-down when the recoverability of a recorded valuation allowance is determined to be remote. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the MSRs and the valuation allowance, precluding subsequent reversals. (See Note 1 -Transfer and Servicing of Financial Assets for additional discussion of our policy for valuation of MSRs.) In 2003 and 2002, we determined that a portion of the asset was not recoverable and reduced both the asset and the previously designated valuation allowance by a $1,338 million and $1,071 million write-down, respectively.

The components of the managed servicing portfolio were:



(in billions)	December 31				,
	2003		2002

Loans serviced for others	$	598	$	487
Owned loans serviced (portfolio and held for sale)		112		94

Total owned servicing		710		581
Sub-servicing		21		36

Total managed servicing portfolio	$	731	$	617


Condensed Consolidating Statement of Income

(in millions)	Parent			WFFI		Other		Eliminations			Consolidated
						consolidating					Company
						subsidiaries

Year ended December 31, 2003

Dividends from subsidiaries:
Bank	$	5,194		$	—	$	—	$	(5,194	)	$	—
Nonbank		841			—		—		(841	)		—
Interest income from loans		2			2,799		11,136		—			13,937
Interest income from subsidiaries		567			—		—		(567	)		—
Other interest income		75			77		5,329		—			5,481

Total interest income		6,679			2,876		16,465		(6,602	)		19,418


Short-term borrowings		81			73		413		(245	)		322
Long-term debt		560			730		321		(256	)		1,355
Other interest expense		—			—		1,734		—			1,734

Total interest expense		641			803		2,468		(501	)		3,411


NET INTEREST INCOME		6,038			2,073		13,997		(6,101	)		16,007
Provision for loan losses		—			814		908		—			1,722

Net interest income after provision for loan losses		6,038			1,259		13,089		(6,101	)		14,285


NONINTEREST INCOME
Fee income — nonaffiliates		—			209		6,664		—			6,873
Other		167			239		5,195		(92	)		5,509

Total noninterest income		167			448		11,859		(92	)		12,382


NONINTEREST EXPENSE
Salaries and benefits		134			745		7,567		—			8,446
Other		18			583		8,301		(158	)		8,744

Total noninterest expense		152			1,328		15,868		(158	)		17,190


INCOME BEFORE INCOME TAX EXPENSE (BENEFIT) AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES		6,053			379		9,080		(6,035	)		9,477
Income tax expense (benefit)		(48	)		143		3,180		—			3,275
Equity in undistributed income of subsidiaries		101			—		—		(101	)		—


NET INCOME	$	6,202		$	236	$	5,900	$	(6,136	)	$	6,202


Condensed Consolidating Statements of Income

(in millions)	Parent			WFFI		Other			Eliminations			Consolidated
						consolidating						Company
						subsidiaries

Year ended December 31, 2002

Dividends from subsidiaries:
Bank	$	3,561		$	—	$	—		$	(3,561	)	$	—
Nonbank		234			—		—			(234	)		—
Interest income from loans		—			2,295		10,750			—			13,045
Interest income from subsidiaries		365			—		—			(365	)		—
Other interest income		78			78		5,270			(12	)		5,414

Total interest income		4,238			2,373		16,020			(4,172	)		18,459


Short-term borrowings		127			96		347			(34	)		536
Long-term debt		457			549		571			(173	)		1,404
Other interest expense		—			—		2,037			—			2,037

Total interest expense		584			645		2,955			(207	)		3,977

NET INTEREST INCOME		3,654			1,728		13,065			(3,965	)		14,482
Provision for loan losses		—			556		1,128			—			1,684

Net interest income after provision for loan losses		3,654			1,172		11,937			(3,965	)		12,798


NONINTEREST INCOME
Fee income — nonaffiliates		—			202		6,156			—			6,358
Other		164			222		4,088			(65	)		4,409

Total noninterest income		164			424		10,244			(65	)		10,767


NONINTEREST EXPENSE
Salaries and benefits		162			560		6,650			—			7,372
Other		27			466		6,911			(65	)		7,339

Total noninterest expense		189			1,026		13,561			(65	)		14,711


INCOME BEFORE INCOME TAX EXPENSE (BENEFIT), EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES AND EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		3,629			570		8,620			(3,965	)		8,854
Income tax expense (benefit)		(222	)		210		3,156			—			3,144
Equity in undistributed income of subsidiaries		1,602			—		—			(1,602	)		—


NET INCOME BEFORE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		5,453			360		5,464			(5,567	)		5,710
Cumulative effect of change in accounting principle		(19	)		—		(257	)		—			(276	)

NET INCOME	$	5,434		$	360	$	5,207		$	(5,567	)	$	5,434


Year ended December 31, 2001

Dividends from subsidiaries:
Bank	$	2,360		$	—	$	—		$	(2,360	)	$	—
Nonbank		218			—		—			(218	)		—
Interest income from loans		—			2,136		12,438			(597	)		13,977
Interest income from subsidiaries		566			—		—			(566	)		—
Other interest income		128			79		5,034			(501	)		4,740

Total interest income		3,272			2,215		17,472			(4,242	)		18,717


Short-term borrowings		305			187		2,063			(1,282	)		1,273
Long-term debt		691			498		777			(140	)		1,826
Other interest expense		—			—		3,910			(268	)		3,642

Total interest expense		996			685		6,750			(1,690	)		6,741


NET INTEREST INCOME		2,276			1,530		10,722			(2,552	)		11,976
Provision for loan losses		—			526		1,201			—			1,727

Net interest income after provision for loan losses		2,276			1,004		9,521			(2,552	)		10,249


NONINTEREST INCOME
Fee income — nonaffiliates		2			199		5,506			—			5,707
Other		99			208		5,897			(2,906	)		3,298

Total noninterest income		101			407		11,403			(2,906	)		9,005


NONINTEREST EXPENSE
Salaries and benefits		(11	)		523		5,670			—			6,182
Other		159			465		9,869			(2,881	)		7,612

Total noninterest expense		148			988		15,539			(2,881	)		13,794


INCOME BEFORE INCOME TAX EXPENSE (BENEFIT) AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES		2,229			423		5,385			(2,577	)		5,460
Income tax expense (benefit)		(230	)		159		2,120			—			2,049
Equity in undistributed income of subsidiaries		952			—		—			(952	)		—

NET INCOME	$	3,411		$	264	$	3,265		$	(3,529	)	$	3,411


Condensed Consolidating Balance Sheets

(in millions)	Parent		WFFI		Other		Eliminations			Consolidated
					consolidating					Company
					subsidiaries

December 31, 2003

ASSETS
Cash and cash equivalents due from:
Subsidiary banks	$	6,590	$	19	$	—	$	(6,609	)	$	—
Nonaffiliates		215		142		17,935		—			18,292
Securities available for sale		1,405		1,695		29,858		(5	)		32,953
Mortgages and loans held for sale		—		—		36,524		—			36,524
Loans		1		24,000		229,072		—			253,073
Loans to non subsidiaries		26,196		825		—		(27,021	)		—
Allowance for loan losses		—		823		3,068		—			3,891

Net loans		26,197		24,002		226,004		(27,021	)		249,182

Investments in subsidiaries:
Bank		32,578		—		—		(32,578	)		—
Nonbank		3,948		—		—		(3,948	)		—
Other assets		3,377		750		47,938		(1,218	)		50,847

Total assets	$	74,310	$	26,608	$	358,259	$	(71,379	)	$	387,798


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	—	$	110	$	254,027	$	(6,610	)	$	247,527
Short-term borrowings		724		4,978		30,422		(11,465	)		24,659
Accrued expenses and other liabilities		1,832		895		16,561		(1,787	)		17,501
Long-term debt		35,009		18,511		23,239		(13,117	)		63,642
Indebtedness to subsidiaries		2,276		—		—		(2,276	)		—

Total liabilities		39,841		24,494		324,249		(35,255	)		353,329
Stockholders’ equity		34,469		2,114		34,010		(36,124	)		34,469

Total liabilities and stockholders’ equity	$	74,310	$	26,608	$	358,259	$	(71,379	)	$	387,798


December 31, 2002

ASSETS
Cash and cash equivalents due from:
Subsidiary banks	$	2,919	$	—	$	—	$	(2,919	)	$	—
Nonaffiliates		241		295		20,488		(30	)		20,994
Securities available for sale		1,009		1,527		25,417		(6	)		27,947
Mortgages and loans held for sale		—		—		57,819		—			57,819
Loans		2		16,247		176,229		—			192,478
Loans to nonbank subsidiaries		15,172		755		—		(15,927	)		—
Allowance for loan losses		—		593		3,226		—			3,819

Net loans		15,174		16,409		173,003		(15,927	)		188,659

Investments in subsidiaries:
Bank		31,705		—		—		(31,705	)		—
Nonbank		4,273		—		—		(4,273	)		—
Other assets		2,434		720		50,835		(211	)		53,778

Total assets	$	57,755	$	18,951	$	327,562	$	(55,071	)	$	349,197


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	—	$	88	$	216,964	$	(136	)	$	216,916
Short-term borrowings		3,550		4,476		29,134		(3,714	)		33,446
Accrued expenses and other liabilities		1,297		702		27,055		(10,743	)		18,311
Long-term debt		19,947		11,234		19,957		(3,818	)		47,320
Indebtedness to subsidiaries		692		—		—		(692	)		—
Guaranteed preferred beneficial interests in Company’s subordinated debentures		1,950		—		935		—			2,885

Total liabilities		27,436		16,500		294,045		(19,103	)		318,878
Stockholders’ equity		30,319		2,451		33,517		(35,968	)		30,319

Total liabilities and stockholders’ equity	$	57,755	$	18,951	$	327,562	$	(55,071	)	$	349,197


Condensed Consolidating Statement of Cash Flows

(in millions)	Parent			WFFI			Other			Consolidated
							consolidating			Company
							subsidiaries/
							eliminations

Year ended December 31, 2003

Cash flows from operating activities:
Net cash provided by operating activities	$	6,352		$	1,271		$	23,572		$	31,195


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		146			347			6,864			7,357
Proceeds from prepayments and maturities		150			223			12,779			13,152
Purchases		(655	)		(732	)		(23,744	)		(25,131	)
Net cash paid for acquisitions		(55	)		(600	)		(167	)		(822	)
Increase in banking subsidiaries’ loan originations, net of collections		—			—			(36,235	)		(36,235	)
Proceeds from sales (including participations) of loans by banking subsidiaries		—			—			1,590			1,590
Purchases (including participations) of loans by banking subsidiaries		—			—			(15,087	)		(15,087	)
Principal collected on nonbank entities’ loans		3,683			13,335			620			17,638
Loans originated by nonbank entities		—			(21,035	)		(757	)		(21,792	)
Purchases of loans by nonbank entities		(3,682	)		—			—			(3,682	)
Net advances to nonbank entities		(2,570	)		—			2,570			—
Capital notes and term loans made to subsidiaries		(14,614	)		—			14,614			—
Principal collected on notes/loans made to subsidiaries		6,160			—			(6,160	)		—
Net decrease (increase) in investment in subsidiaries		122			—			(122	)		—
Other, net		—			107			(74	)		33

Net cash used by investing activities		(11,315	)		(8,355	)		(43,309	)		(62,979	)


Cash flows from financing activities:
Net increase in deposits		—			22			28,621			28,643
Net decrease in short-term borrowings		(1,182	)		(676	)		(7,043	)		(8,901	)
Proceeds from issuance of long-term debt		15,656			10,355			3,479			29,490
Repayment of long-term debt		(3,425	)		(2,151	)		(12,355	)		(17,931	)
Proceeds from issuance of guaranteed preferred beneficial interests in Company’s subordinated debentures		700			—			—			700
Proceeds from issuance of common stock		944			—			—			944
Redemption of preferred stock		(73	)		—			—			(73	)
Repurchase of common stock		(1,482	)		—			—			(1,482	)
Payment of cash dividends on preferred and common stock		(2,530	)		(600	)		600			(2,530	)
Other, net		—			—			651			651

Net cash provided by financing activities		8,608			6,950			13,953			29,511

Net change in cash and due from banks		3,645			(134	)		(5,784	)		(2,273	)
Cash and due from banks at beginning of year		3,160			295			14,365			17,820

Cash and due from banks at end of year	$	6,805		$	161		$	8,581		$	15,547


Condensed Consolidating Statement of Cash Flows

(in millions)	Parent			WFFI			Other			Consolidated
							consolidating			Company
							subsidiaries/
							eliminations

Year ended December 31, 2002

Cash flows from operating activities:
Net cash provided (used) by operating activities	$	4,366		$	956		$	(20,780	)	$	(15,458	)


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		531			769			10,563			11,863
Proceeds from prepayments and maturities		150			143			9,391			9,684
Purchases		(201	)		(1,030	)		(6,030	)		(7,261	)
Net cash acquired from (paid for) acquisitions		(589	)		(281	)		282			(588	)
Increase in banking subsidiaries’ loan originations, net of collections		—			—			(18,992	)		(18,992	)
Proceeds from sales (including participations) of loans by banking subsidiaries		—			—			948			948
Purchases (including participations) of loans by banking subsidiaries		—			—			(2,818	)		(2,818	)
Principal collected on nonbank entities’ loans		—			10,984			412			11,396
Loans originated by nonbank entities		—			(13,996	)		(625	)		(14,621	)
Net advances to nonbank entities		(2,728	)		—			2,728			—
Capital notes and term loans made to subsidiaries		(2,262	)		—			2,262			—
Principal collected on notes/loans made to subsidiaries		457			—			(457	)		—
Net decrease (increase) in investment in subsidiaries		507			—			(507	)		—
Other, net		—			(179	)		(907	)		(1,086	)

Net cash used by investing activities		(4,135	)		(3,590	)		(3,750	)		(11,475	)


Cash flows from financing activities:
Net increase in deposits		—			9			25,041			25,050
Net increase (decrease) in short-term borrowings		(2,444	)		329			(3,109	)		(5,224	)
Proceeds from issuance of long-term debt		8,495			4,126			9,090			21,711
Repayment of long-term debt		(3,150	)		(1,745	)		(6,007	)		(10,902	)
Proceeds from issuance of guaranteed preferred beneficial interests in Company’s subordinated debentures		450			—			—			450
Proceeds from issuance of common stock		578			—			—			578
Repurchase of common stock		(2,033	)		—			—			(2,033	)
Payment of cash dividends on preferred and common stock		(1,877	)		(45	)		45			(1,877	)
Other, net		—			—			32			32

Net cash provided by financing activities		19			2,674			25,092			27,785

Net change in cash and due from banks		250			40			562			852
Cash and due from banks at beginning of year		2,910			255			13,803			16,968

Cash and due from banks at end of year	$	3,160		$	295		$	14,365		$	17,820


Condensed Consolidating Statement of Cash Flows

(in millions)	Parent			WFFI			Other			Consolidated
							consolidating			Company
							subsidiaries/
							eliminations
Year ended December 31, 2001

Cash flows from operating activities:
Net cash provided (used) by operating activities	$	1,932		$	903		$	(12,947	)	$	(10,112	)


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		626			445			18,515			19,586
Proceeds from prepayments and maturities		85			150			6,495			6,730
Purchases		(462	)		(732	)		(27,859	)		(29,053	)
Net cash acquired from (paid for) acquisitions		(370	)		(325	)		236			(459	)
Increase in banking subsidiaries’ loan originations, net of collections		—			—			(11,866	)		(11,866	)
Proceeds from sales (including participations) of loans by banking subsidiaries		—			—			2,305			2,305
Purchases (including participations) of loans by banking subsidiaries		—			—			(1,104	)		(1,104	)
Principal collected on nonbank entities’ loans		—			9,677			287			9,964
Loans originated by nonbank entities		—			(11,395	)		(256	)		(11,651	)
Net advances to nonbank entities		(722	)		—			722			—
Capital notes and term loans made to subsidiaries		(159	)		—			159			—
Principal collected on notes/loans made to subsidiaries		1,304			—			(1,304	)		—
Net decrease (increase) in investment in subsidiaries		(609	)		—			609			—
Other, net		—			(267	)		(2,932	)		(3,199	)

Net cash used by investing activities		(307	)		(2,447	)		(15,993	)		(18,747	)


Cash flows from financing activities:
Net increase in deposits		—			6			17,701			17,707
Net increase (decrease) in short-term borrowings		(331	)		445			8,679			8,793
Proceeds from issuance of long-term debt		4,573			2,904			7,181			14,658
Repayment of long-term debt		(3,066	)		(1,736	)		(5,823	)		(10,625	)
Proceeds from issuance of guaranteed preferred beneficial interests in Company’s subordinated debentures		1,500			—			—			1,500
Proceeds from issuance of common stock		484			—			—			484
Redemption of preferred stock		(200	)		—			—			(200	)
Repurchase of common stock		(1,760	)		—			—			(1,760	)
Payment of cash dividends on preferred and common stock		(1,724	)		(125	)		125			(1,724	)
Other, net		—			130			(114	)		16

Net cash provided (used) by financing activities		(524	)		1,624			27,749			28,849

Net change in cash and due from banks		1,101			80			(1,191	)		(10	)
Cash and due from banks at beginning of year		1,809			175			14,994			16,978

Cash and due from banks at end of year	$	2,910		$	255		$	13,803		$	16,968

Significant guarantees that we provide to third parties include standby letters of credit, various indemnification agreements, guarantees accounted for as derivatives, contingent consideration related to business combinations and contingent performance guarantees.

We issue standby letters of credit, which include performance and financial guarantees, for customers in connection with contracts between the customers and third parties. Standby letters of credit assure that the third parties will receive specified funds if customers fail to meet their contractual obligations. We are obliged to make payment if a customer defaults. Standby letters of credit were $8.3 billion and $6.3 billion at December 31, 2003 and 2002, respectively, including financial guarantees of $4.7 billion and $3.0 billion, respectively, that we had issued or purchased participations in. Standby letters of credit are reported net of participations sold to other institutions of $1.5 billion and $1.1 billion at December 31, 2003 and 2002, respectively. We consider the credit risk in standby letters of credit in determining the allowance for loan losses. Deferred fees for these standby letters of credit were not significant to our financial statements. We also had commitments for commercial and similar letters of credit of $810 million and $719 million at December 31, 2003 and 2002, respectively.

We enter into indemnification agreements in the ordinary course of business under which we agree to indemnify third parties against any damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with us. These relationships or transactions include those arising from service as a director or officer of the Company, underwriting agreements relating to our securities, securities lending, acquisition agreements, and various other business transactions or arrangements. Because the extent of our obligations under these agreements depends entirely upon the occurrence of future events, our potential future liability under these agreements is not determinable.

We write options, floors and caps. Options are exercisable based on favorable market conditions. Periodic settlements occur on floors and caps based on market conditions. At December 31, 2003, the fair value of the written options liability in our balance sheet was $382 million and the written floors and caps liability was $213 million. Our ultimate obligation under written options, floors and caps is based on future market conditions and is only quantifiable at settlement. We offset substantially all options written to customers with purchased options; we enter into other written options to mitigate balance sheet risk.

We also enter into credit default swaps under which we buy protection from or sell protection to a counterparty in the event of default of a reference obligation. At December 31, 2003, the gross carrying amount of the contracts sold was a $5.0 million liability. The maximum amount we would be required to pay under the swaps in which we sold protection, assuming all reference obligations default at a total loss, without recoveries, was $2.7 billion. We have bought protection of $2.8 billion of notional exposure. Almost all of the protection purchases offset (i.e., use the same reference obligation and maturity) the contracts in which we are providing protection to a counterparty.

In connection with certain brokerage, asset management and insurance agency acquisitions we have made, the terms of the acquisition agreements provide for deferred payments or additional consideration based on certain performance targets. At December 31, 2003, the amount of contingent consideration we expected to pay was not significant to our financial statements.

We have entered into various contingent performance guarantees through credit risk participation arrangements with terms ranging from 1 to 30 years. We will be required to make payments under these guarantees if a customer defaults on its obligation to perform under certain credit agreements with third parties. Because the extent of our obligations under these guarantees depends entirely on future events, our potential future liability under these agreements is not fully determinable, although most of these agreements are contractually limited to a total liability of approximately $330 million.

The Company and each of its subsidiary banks are subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board and the OCC, respectively. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required that the federal regulatory agencies adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

Quantitative measures, established by the regulators to ensure capital adequacy, require that the Company and each of the subsidiary banks maintain minimum ratios (set forth in the table on the following page) of capital to risk-weighted assets. There are three categories of capital under the guidelines. Tier 1 capital includes common stockholders’ equity, qualifying preferred stock and trust preferred securities, less goodwill and certain other deductions (including the unrealized net gains and losses, after applicable taxes, on securities available for sale carried at fair value). Tier 2 capital includes preferred stock not qualifying as Tier 1 capital, subordinated debt, the allowance for loan losses and net unrealized gains on marketable equity securities, subject to limitations by the guidelines. Tier 2 capital is limited to the amount of Tier 1 capital (i.e., at least half of the total capital must be in the form of Tier 1 capital). Tier 3 capital includes certain qualifying unsecured subordinated debt.

On December 31, 2003, we deconsolidated our wholly-owned trusts (the Trusts) that were formed to issue trust preferred securities and related common securities of the Trusts. The $3.8 billion of junior subordinated debentures were reflected as long-term debt on the consolidated balance sheet at December 31, 2003. (See Note 12.) The debentures issued to the Trusts, less the common securities of the Trusts, continue to qualify as Tier 1 capital under guidance issued by the Federal Reserve Board.

Under the guidelines, capital is compared with the relative risk related to the balance sheet. To derive the risk included in the balance sheet, a risk weighting is applied to each balance sheet and off-balance sheet asset, primarily based on the relative credit risk of the counterparty. For example, claims guaranteed by the U.S. government or one of its agencies are risk-weighted at 0% and certain real estate related loans risk-weighted at 50%. Off-balance sheet items, such as loan commitments and derivatives, are also applied a risk weight after calculating balance sheet equivalent amounts. A credit conversion factor is assigned to loan commitments based on the likelihood of the off-balance sheet item becoming an asset. For example, certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivatives are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. (See Notes 5 and 27 for further discussion of off-balance sheet items.) Effective January 1, 2002, federal banking agencies amended the regulatory capital guidelines regarding the treatment of certain recourse obligations, direct credit substitutes, residual interests in asset securitization, and other securitized transactions that expose institutions primarily to credit risk. The amendment creates greater differentiation in the capital treatment of residual interests. The capital amounts and classification under the guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Management believes that, as of December 31, 2003, the Company and each of the covered subsidiary banks met all capital adequacy requirements to which they are subject.

The most recent notification from the OCC categorized each of the covered subsidiary banks as well capitalized, under the FDICIA prompt corrective action provisions applicable to banks. To be categorized as well capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. There are no conditions or events since that notification that management believes have changed the risk-based capital category of any of the covered subsidiary banks.



(in billions)															To be well
															capitalized under
															the FDICIA
							For capital								prompt corrective
	Actual						adequacy purposes								action provisions
	Amount			Ratio			Amount				Ratio				Amount				Ratio
As of December 31, 2003:
Total capital (to risk-weighted assets)
Wells Fargo & Company		$	37.3		12.21	%		³	$	24.4		³	8.00	%
Wells Fargo Bank, N.A.			22.6		11.17			³		16.2		³	8.00			³	$	20.2		³	10.00	%
Wells Fargo Bank Minnesota, N.A.			3.8		14.22			³		2.1		³	8.00			³		2.6		³	10.00

Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company		$	25.7		8.42	%		³	$	12.2		³	4.00	%
Wells Fargo Bank, N.A.			15.2		7.53			³		8.1		³	4.00			³	$	12.1		³	6.00	%
Wells Fargo Bank Minnesota, N.A.			3.5		13.14			³		1.1		³	4.00			³		1.6		³	6.00

Tier 1 capital (to average assets)
(Leverage ratio)
Wells Fargo & Company		$	25.7		6.93	%		³	$	14.8		³	4.00	%(1)
Wells Fargo Bank, N.A.			15.2		6.22			³		9.8		³	4.00	(1)		³	$	12.2		³	5.00	%
Wells Fargo Bank Minnesota, N.A.			3.5		7.00			³		2.0		³	4.00	(1)		³		2.5		³	5.00

Our approach to managing interest rate risk includes the use of derivatives. This helps minimize significant unplanned fluctuations in earnings, fair values of assets and liabilities, and cash flows caused by interest rate volatility. This approach involves modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates do not have a significant adverse effect on the net interest margin and cash flows. As a result of interest rate fluctuations, hedged assets and liabilities will gain or lose market value. In a fair value hedging strategy, the effect of this unrealized gain or loss will generally be offset by income or loss on the derivatives linked to the hedged assets and liabilities. In a cash flow hedging strategy, we manage the variability of cash payments due to interest rate fluctuations by the effective use of derivatives linked to hedged assets and liabilities.

We use derivatives as part of our interest rate risk management, including interest rate swaps and floors, interest rate futures and forward contracts, and options. We also offer various derivatives, including interest rate, commodity, equity, credit and foreign exchange contracts, to our customers but usually offset our exposure from such contracts by purchasing other financial contracts. The customer accommodations and any offsetting financial

contracts are treated as free-standing derivatives. Free-standing derivatives also include derivatives we enter into for risk management that do not otherwise qualify for hedge accounting. To a lesser extent, we take positions based on market expectations or to benefit from price differentials between financial instruments and markets.

By using derivatives, we are exposed to credit risk if counterparties to financial instruments do not perform as expected. If a counterparty fails to perform, our credit risk is equal to the fair value gain in a derivative contract. We minimize credit risk through credit approvals, limits and monitoring procedures. Credit risk related to derivatives is considered and, if material, provided for separately. As we generally enter into transactions only with counterparties that carry high quality credit ratings, losses from counterparty nonperformance on derivatives have not been significant. Further, we obtain collateral where appropriate to reduce risk. To the extent the master netting arrangements meet the requirements of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, as amended by FASB Interpretation No. 41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements, amounts are shown net in the balance sheet.

Our derivative activities are monitored by the Corporate Asset/Liability Management Committee. Our Treasury function, which includes asset/liability management, is responsible for various hedging strategies developed through analysis of data from financial models and other internal and industry sources. We incorporate the resulting hedging strategies into our overall interest rate risk management and trading strategies.

Fair Value Hedges

We use derivatives to manage the risk of changes in the fair value of mortgage servicing rights and other retained interests. Derivative gains or losses caused by market conditions (volatility) and the spread between spot and forward rates priced into the derivative contracts (the passage of time) are excluded from the evaluation of hedge effectiveness, but are reflected in earnings. The change in value of derivatives excluded from the assessment of hedge effectiveness was a net gain of $908 million and $1,201 million in 2003 and 2002, respectively, and a net loss of $181 million in 2001. The ineffective portion of the change in value of these derivatives was a net gain of $203 million, $1,125 million, and $702 million in 2003, 2002, and 2001, respectively. The net derivative gain of $1,111 million, $2,326 million and $521 million in 2003, 2002 and 2001, respectively, was primarily offset by the valuation provision on mortgage servicing rights of $1,092 million, $2,135 million, and $1,124 million in 2003, 2002 and 2001, respectively. The total gains on the mortgage-related derivatives and the valuation provision for impairment are included in “Servicing fees, net of provision for impairment and amortization” in Note 22.

In 2002, we began using derivatives to hedge changes in fair value of our commercial real estate mortgages due to changes in LIBOR interest rates. We originate a portion of these loans with the intent to sell them. The ineffective portion of these fair value hedges was a net loss of $22 million and $3 million in 2003 and 2002, respectively, recorded as part of mortgage banking noninterest income in the statement of income. For the commercial real estate hedges, all parts of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

We also enter into interest rate swaps, designated as fair value hedges, to convert certain of our fixed-rate long-term debt to floating-rate debt. The ineffective part of these fair value hedges was not significant in 2003 or 2002 and was a net gain of $11 million in 2001. For long-term debt, all parts of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

At December 31, 2003, all designated fair value hedges continued to qualify as fair value hedges.

Cash Flow Hedges

We use derivatives to convert floating-rate loans and certain of our floating-rate senior debt to fixed rates and to hedge forecasted sales of mortgage loans. We recognized a net gain of $72 million in 2003, which represents the total ineffectiveness of cash flow hedges, compared with a net loss of $311 million and $120 million in 2002 and 2001, respectively. Gains and losses on derivatives that are reclassified from cumulative other comprehensive income to current period earnings, are included in the line item in which the hedged item’s effect in earnings is recorded. All parts of gain or loss on these derivatives are included in the assessment of hedge effectiveness. As of December 31, 2003, all designated cash flow hedges continued to qualify as cash flow hedges.

At December 31, 2003, we expected that $9 million of deferred net losses on derivatives in other comprehensive income will be reclassified as earnings during the next twelve months, compared with $125 million of deferred net losses and $110 million of deferred net gains at December 31, 2002 and 2001, respectively. We are hedging our exposure to the variability of future cash flows for all forecasted transactions for a maximum of two years for hedges converting floating-rate loans to fixed, four years for hedges converting floating-rate senior debt to fixed and one year for hedges of forecasted sales of mortgage loans.

Free-Standing Derivatives

We enter into various derivatives primarily to provide derivative products to customers. To a lesser extent, we take positions based on market expectations or to benefit from price differentials between financial instruments and markets. These derivatives are not linked to specific assets and liabilities on the balance sheet or to forecasted transactions in an accounting hedge relationship and, therefore, do not qualify for hedge accounting. They are carried at fair value with changes in fair value recorded as part of other noninterest income in the statement of income.

Interest rate lock commitments for residential mortgage loans that we intend to resell are considered free-standing derivatives. Our interest rate exposure on these commitments is economically hedged with options, futures and forwards. The commitments and free-standing derivatives are carried at fair value with changes in fair value recorded as a part of mortgage banking noninterest income in the statement of income.

We also use derivatives that are classified as free-standing instruments, which include swaps, futures, forwards, floors and caps purchased and written, and options purchased and written.

The total notional or contractual amounts, credit risk amount and estimated net fair value for derivatives at December 31, 2003 and 2002 were:



(in millions)	December 31,
	2003							2002
	Notional or		Credit		Estimated			Notional or		Credit		Estimated
	contractual		risk		net fair			contractual		risk		net fair
	amount		amount⁽¹⁾		value			amount		amount⁽¹⁾		value
ASSET/LIABILITY MANAGEMENT
HEDGES
Interest rate contracts:
Swaps	$	22,570	$	1,116	$	1,035		$	24,533	$	2,238	$	2,180
Futures		5,027		—		—			16,867		—		—
Floors purchased		—		—		—			500		11		11
Options purchased		115,810		440		440			90,959		520		520
Options written		42,106		—		(47	)		74,589		—		(236	)
Forwards		93,977		291		118			116,164		669		156
CUSTOMER ACCOMMODATIONS
AND TRADING
Interest rate contracts:
Swaps		65,181		2,005		102			68,164		2,606		1
Futures		49,397		—		—			83,351		—		—
Floors and caps purchased		28,591		153		153			29,381		299		299
Floors and caps written		26,411		—		(173	)		30,400		—		(274	)
Options purchased		5,523		66		66			5,484		108		108
Options written		24,894		40		(55	)		58,846		328		280
Forwards		54,725		12		(90	)		51,088		2		(383	)
Commodity contracts:
Swaps		897		61		(1	)		206		11		1
Futures		4		—		—			—		—		—
Floors and caps purchased		319		39		40			168		17		17
Floors and caps written		322		—		(40	)		166		—		(14	)
Options purchased		1		14		14			—		—		—
Options written		1		—		(14	)		—		—		—
Equity contracts:
Options purchased		1,109		136		136			382		29		29
Options written		1,121		—		(143	)		389		—		(49	)
Foreign exchange contracts:
Swaps		292		17		17			—		—		—
Futures		148		—		—			—		—		—
Options purchased		1,930		84		84			749		20		20
Options written		1,904		—		(84	)		735		—		(20	)
Forwards and spots		22,444		479		42			14,596		251		30
Credit contracts:
Swaps		5,416		37		(16	)		4,735		52		(11	)

(1)

Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by all counterparties.

FAS 107, Disclosures about Fair Value of Financial Instruments, requires that we disclose estimated fair values for our financial instruments. This disclosure should be read with the financial statements and Notes to Financial Statements in this Annual Report. The carrying amounts in the table on page 107 are recorded in the Consolidated Balance Sheet under the indicated captions.

We base fair values on estimates or calculations using present value techniques when quoted market prices are not available. Because broadly-traded markets do not exist for most of our financial instruments, we try to incorporate the effect of current market conditions in the fair value calculations. These valuations are our estimates, and are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the financial instruments and other such factors. These calculations are subjective, involve uncertainties and significant judgment and do not include tax ramifications. Therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results.

We have not included certain material items in our disclosure, such as the value of the long-term relationships with our deposit, credit card and trust customers, since these intangibles are not financial instruments. For all of these reasons, the total of the fair value calculations presented do not represent, and should not be construed to represent, the underlying value of the Company.

Financial Assets

SHORT-TERM FINANCIAL ASSETS

Short-term financial assets include cash and due from banks, federal funds sold and securities purchased under resale agreements and due from customers on acceptances. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

SECURITIES AVAILABLE FOR SALE

The fair value of securities available for sale at December 31, 2003 and 2002 is reported in Note 4.

MORTGAGES HELD FOR SALE

The fair value of mortgages held for sale is based on quoted market prices.

LOANS HELD FOR SALE

The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics.

LOANS

The fair valuation calculation differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment estimates are evaluated by product and loan rate.

The fair value of commercial loans, other real estate mortgage loans and real estate construction loans is calculated by discounting contractual cash flows using discount rates that reflect our current pricing for loans with similar characteristics and remaining maturity.

For real estate 1-4 family first and junior lien mortgages, fair value is calculated by discounting contractual cash flows, adjusted for prepayment estimates, using discount rates based on current industry pricing for loans of similar size, type, remaining maturity and repricing characteristics.

For consumer finance and credit card loans, the portfolio’s yield is equal to our current pricing and, therefore, the fair value is equal to book value.

For other consumer loans, the fair value is calculated by discounting the contractual cash flows, adjusted for prepayment estimates, based on the current rates we offer for loans with similar characteristics.

Loan commitments, standby letters of credit and commercial and similar letters of credit not included in the table on page 107 had contractual values of $126.0 billion, $8.3 billion and $810 million, respectively, at December 31, 2003, and $113.2 billion, $6.3 billion and $719 million, respectively, at December 31, 2002. These instruments generate ongoing fees at our current pricing levels. Of the commitments at December 31, 2003, 38% mature within one year. Deferred fees on commitments and standby letters of credit totaled $38 million and $30 million at December 31, 2003 and 2002, respectively. Carrying cost estimates fair value for these fees.

TRADING ASSETS

Trading assets, which are carried at fair value, are reported in Note 6.

NONMARKETABLE EQUITY INVESTMENTS

There are generally restrictions on the sale and/or liquidation of our nonmarketable equity investments, including federal bank stock. Federal bank stock carrying value approximates

fair value. We use all facts and circumstances available to estimate the fair value of our cost method investments. We typically consider our access to and need for capital (including recent or projected financing activity), qualitative assessments of the viability of the investee, and prospects for its future.

Financial Liabilities

DEPOSIT LIABILITIES

FAS 107 states that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and market rate and other savings, is equal to the amount payable on demand at the measurement date. The amount included for these deposits in the following table is their carrying value at December 31, 2003 and 2002. The fair value of other time deposits is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for like wholesale deposits with similar remaining maturities.

SHORT-TERM FINANCIAL LIABILITIES

Short-term financial liabilities include federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

LONG-TERM DEBT AND GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY’S SUBORDINATED DEBENTURES

The discounted cash flow method is used to estimate the fair value of our fixed rate long-term debt and trust

preferred securities. Contractual cash flows are discounted using rates currently offered for new notes with similar remaining maturities.

Derivatives

The fair values of derivatives at December 31, 2003 and 2002 are reported in Note 27.

Limitations

We make these fair value disclosures to comply with the requirements of FAS 107. The calculations represent management’s best estimates; however, due to the lack of broad markets and the significant items excluded from this disclosure, the calculations do not represent the underlying value of the Company. The information presented is based on fair value calculations and market quotes as of December 31, 2003 and 2002. These amounts have not been updated since year end; therefore, the valuations may have changed significantly since that point in time.

As discussed above, some of our asset and liability financial instruments are short-term, and therefore, the carrying amounts in the Consolidated Balance Sheet approximate fair value. Other significant assets and liabilities, which are not considered financial assets or liabilities and for which fair values have not been estimated, include premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities.

This table is a summary of financial instruments, as defined by FAS 107, excluding short-term financial assets and liabilities, for which carrying amounts approximate fair value, trading assets (Note 6), which are carried at fair value, securities available for sale (Note 4) and derivatives (Note 27).

We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wells Fargo & Company and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1, 8 and 18 to the consolidated financial statements, the Company changed its method of accounting for goodwill in 2002.



(in millions, except per share amounts)	2003												2002
	Quarter ended												Quarter ended
	Dec. 31			Sept. 30			June 30			Mar. 31			Dec. 31			Sept. 30			June 30			Mar. 31
INTEREST INCOME	$	4,856		$	4,979		$	4,855		$	4,728		$	4,744		$	4,610		$	4,530		$	4,577
INTEREST EXPENSE		812			837			882			879			959			1,004			988			1,026

NET INTEREST INCOME		4,044			4,142			3,973			3,849			3,785			3,606			3,542			3,551
Provision for loan losses		465			426			421			411			426			389			400			469

Net interest income after provision for loan losses		3,579			3,716			3,552			3,438			3,359			3,217			3,142			3,082

NONINTEREST INCOME
Service charges on deposit accounts		613			607			587			553			567			560			547			505
Trust and investment fees		504			504			470			460			480			462			472			461
Credit card fees		252			251			257			243			255			242			223			201
Other fees		412			422			373			366			375			372			326			311
Mortgage banking		636			773			543			561			515			426			412			359
Operating leases		211			229			245			251			252			268			289			306
Insurance		264			252			289			266			231			234			269			263
Net gains (losses) on debt securities available for sale		(12	)		(23	)		20			18			91			121			45			37
Net gains (losses) from equity investments		143			58			(47	)		(98	)		(96	)		(152	)		(58	)		(19	)
Other		378			118			220			213			210			80			142			183

Total noninterest income		3,401			3,191			2,957			2,833			2,880			2,613			2,667			2,607

NONINTEREST EXPENSE
Salaries		1,351			1,185			1,155			1,141			1,091			1,110			1,106			1,076
Incentive compensation		483			621			503			447			541			446			362			357
Employee benefits		417			374			350			419			287			304			364			329
Equipment		375			298			305			269			317			232			228			236
Net occupancy		310			283			288			296			281			278			274			269
Operating leases		162			175			178			187			184			187			205			226
Other		1,402			1,639			1,379			1,198			1,253			1,037			1,071			1,061

Total noninterest expense		4,500			4,575			4,158			3,957			3,954			3,594			3,610			3,554

INCOME BEFORE INCOME TAX EXPENSE
AND EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE		2,480			2,332			2,351			2,314			2,285			2,236			2,199			2,135
Income tax expense		856			771			826			822			813			793			781			758

NET INCOME BEFORE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE		1,624			1,561			1,525			1,492			1,472			1,443			1,418			1,377
Cumulative effect of change in accounting principle		—			—			—			—			—			—			—			(276	)

NET INCOME	$	1,624		$	1,561		$	1,525		$	1,492		$	1,472		$	1,443		$	1,418		$	1,101

NET INCOME APPLICABLE TO
COMMON STOCK	$	1,624		$	1,560		$	1,524		$	1,491		$	1,471		$	1,442		$	1,417		$	1,100

EARNINGS PER COMMON SHARE
BEFORE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Earnings per common share	$	.96		$	.93		$	.91		$	.89		$	.87		$	.85		$	.83		$	.81

Diluted earnings per common share	$	.95		$	.92		$	.90		$	.88		$	.86		$	.84		$	.82		$	.80

EARNINGS PER COMMON SHARE
Earnings per common share	$	.96		$	.93		$	.91		$	.89		$	.87		$	.85		$	.83		$	.65

Diluted earnings per common share	$	.95		$	.92		$	.90		$	.88		$	.86		$	.84		$	.82		$	.64

DIVIDENDS DECLARED PER COMMON SHARE	$	.45		$	.45		$	.30		$	.30		$	.28		$	.28		$	.28		$	.26

Average common shares outstanding		1,690.2			1,677.2			1,675.7			1,681.5			1,690.4			1,700.7			1,710.4			1,703.0

Diluted average common shares outstanding		1,712.6			1,693.9			1,690.6			1,694.1			1,704.0			1,717.8			1,730.8			1,718.9

(1)		Includes impaired loans of $629 million, $612 million, $823 million, $504 million and $258 million at December 31, 2003, 2002, 2001, 2000 and 1999, respectively. (See Notes 1 (Significant Accounting Policies) and 5 (Loans and Allowance for Loan Losses) to Financial Statements for further discussion of impaired loans.)
(2)		Real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans.
		Real estate investments totaled $9 million, $9 million, $24 million, $56 million and $89 million at December 31, 2003, 2002, 2001, 2000 and 1999, respectively.



(in millions)	December 31										,
	2003		2002		2001		2000		1999

Commercial	$	48,729	$	47,292	$	47,547	$	50,518	$	41,671
Real estate 1-4 family first mortgage		83,535		44,119		29,317		19,321		13,586
Other real estate mortgage		27,592		25,312		24,808		23,972		20,899
Real estate construction		8,209		7,804		7,806		7,715		6,067
Consumer:
Real estate 1-4 family junior lien mortgage		36,629		28,147		21,801		17,361		12,869
Credit card		8,351		7,455		6,700		6,616		5,805
Other revolving credit and installment		33,100		26,353		23,502		23,974		20,617

Total consumer		78,080		61,955		52,003		47,951		39,291
Lease financing		4,477		4,085		4,017		4,350		3,586
Foreign		2,451		1,911		1,598		1,624		1,600

Total loans	$	253,073	$	192,478	$	167,096	$	155,451	$	126,700



(in millions)	December 31				,
	2003		2002

Commercial	$	52,211	$	47,700
Real estate 1-4 family first mortgage		6,428		6,849
Other real estate mortgage		1,961		2,111
Real estate construction		5,644		3,581
Consumer:
Real estate 1-4 family junior lien mortgage		23,436		19,907
Credit card		24,831		21,380
Other revolving credit and installment		11,219		11,451

Total consumer		59,486		52,738
Foreign		238		175

Total loan commitments	$	125,968	$	113,154

	•		Average loans grew by 22%;
	•		Average core deposits grew by 12%;
	•		Mortgage loan originations increased 41% to $470 billion, an industry record;
	•		Assets managed and administered were up 13%; and
	•		We processed more than one billion electronic deposit transactions, up 18%.

	•		For retail loans, a 20 basis point increase in estimated loss rates from historical loss levels; and
	•		For wholesale loans, which are dissimilar in nature, a migration of certain loans to lower risk grades, resulting in a 30% increase in the balance of nonperforming loans and related impairment.

	•		For retail loans, a 10 basis point decrease in estimated loss rates from historical loss levels; and
	•		For wholesale loans, a negligible change in nonperforming loans and related impairment.

(1)		Our average prime rate was 4.12%, 4.68%, 6.91%, 9.24% and 8.00% for 2003, 2002, 2001, 2000 and 1999, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 1.22%, 1.80%, 3.78%, 6.52% and 5.42% for the same years, 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 all years presented.


Table 8: Contractual Obligations

(in millions)	Note(s)		Less than		1-3		3-5		More than		Indeterminate			Total
			1 year		years		years		5 years		maturity		⁽¹⁾

Contractual payments by period:

Deposits		9	$	49,010	$	5,032	$	1,628	$	419	$	191,438		$	247,527
Long-term debt ⁽²⁾		6,11		12,294		21,065		12,090		18,193		—			63,642
Operating leases		6		505		747		505		867		—			2,624
Purchase obligations ⁽³⁾				146		192		19		—		—			357

Total contractual obligations			$	61,955	$	27,036	$	14,242	$	19,479	$	191,438		$	314,150

(1)		Represents interest- and noninterest-bearing checking, market rate and other savings accounts.
(2)		Includes capital leases of $25 million.
(3)		Represents agreements to purchase goods or services.


Table 9: Nonaccrual Loans and Other Assets

(in millions)	December 31														,
	2003			2002			2001			2000			1999

Nonaccrual loans:
Commercial	$	592		$	796		$	827		$	739		$	374
Real estate 1-4 family first mortgage		274			230			205			128			144
Other real estate mortgage		285			192			210			113			118
Real estate construction		56			93			145			57			11
Consumer:
Real estate 1-4 family junior lien mortgage		87			49			22			22			17
Other revolving credit and installment		88			48			59			36			27

Total consumer		175			97			81			58			44
Lease financing		73			79			163			92			24
Foreign		3			5			9			7			9

Total nonaccrual loans ⁽¹⁾		1,458			1,492			1,640			1,194			724
As a percentage of total loans		.58	%		.78	%		.98	%		.77	%		.57	%

Foreclosed assets		198			195			160			120			148
Real estate investments ⁽²⁾		6			4			2			27			33


Total nonaccrual loans and other assets	$	1,662		$	1,691		$	1,802		$	1,341		$	905

	•		assets and liabilities may mature or re-price at different times (for example, if assets re-price faster than liabilities and interest rates are generally falling, earnings will initially decline);
	•		assets and liabilities may re-price 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 (i.e., 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). In addition, interest rates may have an indirect impact on loan demand, credit losses, mortgage origination volume, the value of mortgage servicing rights, the value of the pension liability and other sources of earnings.

	•		to convert most of the long-term fixed-rate debt to floating-rate payments by entering into receive-fixed swaps at issuance,
	•		to convert the cash flows from selected asset and/or liability instruments/portfolios from fixed to floating payments or vice versa, and
	•		to hedge the mortgage origination pipeline, funded mortgage loans and mortgage servicing rights using swaptions, futures, forwards and options.

	•		projections of our revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items;
	•		descriptions of plans or objectives of our management for future operations, products or services, including pending acquisitions;
	•		forecasts of our future economic performance; and
	•		descriptions of assumptions underlying or relating to any of the foregoing.

	•		future credit losses and nonperforming assets;
	•		the future value of mortgage servicing rights;
	•		the future value of equity securities, including those in our venture capital portfolios;
	•		the impact of new accounting standards;
	•		future short-term and long-term interest rate levels and their impact on our net interest margin, net income, liquidity and capital; and
	•		the impact of the VISA USA Inc. settlement on our earnings.

	•		significantly increase our allowance for loan losses and/or sustain loan losses that are significantly higher than the reserve provided;
	•		recognize significant provision for impairment of our mortgage servicing rights; or
	•		significantly increase our pension liability.

	•		actual or anticipated variations in our quarterly operating results;
	•		recommendations by securities analysts;
	•		new technology used, or services offered, by our competitors;
	•		significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
	•		failure to integrate our acquisitions or realize anticipated benefits from our acquisitions;

	•		operating and stock price performance of other companies that investors deem comparable to us;
	•		news reports relating to trends, concerns and other issues in the financial services industry;
	•		changes in government regulations; and
	•		geopolitical conditions such as acts or threats of terrorism or military conflicts.

•		the issuer’s financial condition, capital strength, and near-term prospects; and
•		to a lesser degree, our investment horizon in relationship to an anticipated near-term recovery in the stock price, if any.

•		The cause of the price decline-general level of interest rates and broad industry factors or issuer-specific;
•		The issuer’s financial condition and current ability to make future payments in a timely manner;
•		Our investment horizon;
•		The issuer’s past ability to service debt; and
•		Any change in agencies’ ratings at evaluation date from acquisition date and any likely imminent action.

(1)		Consists of 14 acquisitions of asset management, commercial real estate brokerage, bankruptcy and insurance brokerage businesses.
(2)		Consists of 6 acquisitions of asset management, securities brokerage and insurance brokerage businesses.
(3)		Consists of 5 acquisitions of trust, consumer finance, securities brokerage and insurance brokerage businesses.

(1)		Substantially all private collateralized mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential first mortgages.
(2)		At December 31, 2003, we held no securities of any single issuer (excluding the U.S.Treasury and federal agencies) with a book value that exceeded 10% of stockholders’ equity.



(in millions)	December 31, 2003
	Less than 12 months					12 months or more					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	gross			value		gross			value		gross			value
	losses					losses					losses

Securities of U.S. Treasury and federal agencies	$	(1	)	$	188	$	—		$	—	$	(1	)	$	188
Securities of U.S. states and political subdivisions		(4	)		127		(1	)		25		(5	)		152
Mortgage-backed securities:
Federal agencies		(22	)		1,907		—			—		(22	)		1,907
Private collateralized mortgage obligations		(8	)		520		—			—		(8	)		520

Total mortgage-backed securities		(30	)		2,427		—			—		(30	)		2,427
Other		(16	)		544		(12	)		82		(28	)		626

Total debt securities	$	(51	)	$	3,286	$	(13	)	$	107	$	(64	)	$	3,393



(in millions)	December 31, 2003
Three months or less	$	28,671
After three months through six months		1,201
After six months through twelve months		1,102
After twelve months		2,284

Total	$	33,258

N/A – Not applicable.
(1)		Highest month-end balance in each of the last three years was in January 2003, January 2002 and October 2001.
(2)		Highest month-end balance in each of the last three years was in April 2003, January 2002 and September 2001.

(1)		We entered into interest rate swap agreements for substantially all of these notes, whereby we receive fixed-rate interest payments approximately equal to interest on the notes and make interest payments based on an average three-month or six-month London Interbank Offered Rate (LIBOR).
(2)		The extendable notes are floating-rate securities with an initial maturity of 13 months, which can be extended on a rolling monthly basis, at the investor’s option, to a final maturity of 5 years.
(3)		These notes are linked to baskets of equities or equity indices.
(4)		On April 15, 2003, we issued $3 billion of convertible senior debentures as a private placement. If the price per share of our common stock exceeds $120.00 per share on or before April 15, 2008, the holders will have the right to convert the convertible debt securities to common stock at an initial conversion price of $100.00 per share. While we are able to settle the entire amount of the conversion rights granted in this convertible debt offering in cash, common stock or a combination,we intend to settle the principal amount in cash and to settle the conversion spread (the excess conversion value over the principal) in either cash or stock. We can also redeem all or some of the convertible debt securities for cash at any time on or after May 5, 2008, at their principal amount plus accrued interest, if any.
(5)		See Note 12 (Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures).
(6)		These notes are tied to affordable housing.

(1)		On November 15, 2003, all shares were redeemed at the stated liquidation price of $50 plus accrued dividends.
(2)		On October 1, 2001, all shares were redeemed at the stated liquidation price of $50 plus accrued dividends.
(3)		Liquidation preference $1,000.
(4)		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. For information on dividends paid, see Note 14.



	Percentage of plan assets at December 31											,
	2003						2002
	Pension			Other			Pension			Other
	plan			benefit			plan			benefit
	assets			plan assets			assets			plan assets

Equity securities		66	%		49	%		63	%		45	%
Debt securities		31			46			33			50
Real estate		2			1			3			1
Other		1			4			1			4

Total		100	%		100	%		100	%		100	%



(in millions, except per	Year ended December 31, 2001
share amounts)

NET INCOME
Reported net income	$	3,411
Goodwill amortization, net of tax		571

Adjusted net income	$	3,982


EARNINGS PER COMMON SHARE
Reported earnings per common share	$	1.99
Goodwill amortization, net of tax		.34

Adjusted earnings per common share	$	2.33


DILUTED EARNINGS PER COMMON SHARE
Reported diluted earnings per common share	$	1.97
Goodwill amortization, net of tax		.33

Adjusted diluted earnings per common share	$	2.30



(in millions)	Translation			Minimum			Net			Net			Cumulative
	adjustments			pension			unrealized			unrealized			other
				liability			gains			gains			comprehensive
				adjustment			(losses) on			(losses) on			income
							securities			derivatives
							and other			and other
							retained			hedging
							interests			activities

Balance, December 31, 2000	$	(12	)	$	—		$	536		$	—		$	524

Net change		(3	)		(42	)		10			263			228


Balance, December 31, 2001		(15	)		(42	)		546			263			752

Net change		1			42			484			(303	)		224


Balance, December 31, 2002		(14	)		—			1,030			(40	)		976

Net change		26			—			(117	)		53			(38	)


Balance, December 31, 2003	$	12		$	—		$	913		$	13		$	938

(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 the other segments.
(2)		Generally, the provision for loan losses represents actual net charge-offs for each operating segment.
(3)		For 2003, the reconciling items for revenue (net interest income plus noninterest income) and net income principally relate to Corporate level equity investment activities and other separately identified transactions recorded at the enterprise level for management reporting, including a $30 million non-recurring loss on sale of a sub-prime credit card portfolio and $51 million of other charges related to employee benefits and software. For 2002, the reconciling items for revenue and net income are Corporate level equity investment activities. For 2001, revenue includes Corporate level equity investment activities of $28 million and unallocated items of $(93) million and net income includes Corporate level equity investment activities of $15 million and unallocated items of $(619) million. The primary reconciling item in 2001 for noninterest expense is amortization of goodwill. Results for 2001 have been restated to reclassify goodwill amortization from the three operating segments to the other column for comparability. The primary reconciling item for average assets for all periods presented is unallocated goodwill.

(1)		Represents loans on the balance sheet or that have been securitized, but excludes securitized loans that we continue to service but as to which we have no other continuing involvement.
(2)		Includes nonaccrual loans and loans 90 days past due and still accruing.