e10vqza

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)

420 Montgomery Street, San Francisco, California 94104
(Address of principal executive offices) (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Wells Fargo & Company (the Company) is filing this Amendment No. 1 on Form 10-Q/A to amend its Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 to account for certain automobile leases as operating leases instead of direct financing leases. This amendment reflects the guidance specified in Topic D-107, Lessor Consideration of Third-Party Residual Value Guarantees, issued in May 2003 by the Emerging Issues Task Force of the Financial Accounting Standards Board. The Company’s implementation of this guidance did not have a material effect on the Company’s results of operations or financial position for any period covered in the Amendment 1. This guidance resulted in auto leases being reclassified from loans to operating lease assets included in other assets on the balance sheet. In addition, the revised income statement presentation reflects a reduction of interest income related to direct financing leases and the recognition of rental income and depreciation expense on operating leases. Refer to Note 2 (Auto Lease Accounting and Reclassifications) to Financial Statements included in this Amendment No. 1 for a summary of the impact of applying the guidance in Topic D-107 on the Company’s current and prior period results of operations and financial condition.

•

Part I, Item 1(Financial Statements) and Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) to reflect the guidance specified in Topic D-107. In addition, the Company has reclassified other amounts to conform with current financial statement presentation including;

Certain mortgages, loan charge-offs and recoveries from junior lien mortgages to first mortgages,

Investment advisory fees from other noninterest income to trust and investment fees on the statement of income, and

In the statement of cash flows, provided separate presentation of mortgage servicing rights impairment;

•

Part I, Item 4 (Controls and Procedures) to comply with changes in SEC regulations which became effective after the original filing date of the report; and

•

Part II, Item 6 (Exhibits, Financial Statement Schedules, and Reports on Form 8-K) to revise Exhibits 99(a) and 99(b) to reflect the guidance set forth in Topic D-107, and to comply with changes in SEC regulations which became effective after the original filing date of the report.

This Amendment No. 1 does not change any information contained in any other item of the Company’s Form 10-Q as originally filed on May 8, 2003. This Amendment No. 1 also does not reflect events that have occurred after the original filing date of the Form 10-Q, except as described above with respect to changes in SEC regulations and does not change the “Factors That May Affect Future Results” discussion in the Form 10-Q. Refer to that section in the Company’s Form 10-Q for the quarter ended September 30, 2003 for a more current discussion of some of the factors that may cause actual results to differ from expectations.


PART I	Financial Information
Item 1.	Financial Statements	Page
	Consolidated Statement of Income		2
	Consolidated Balance Sheet		3
	Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income		4
	Consolidated Statement of Cash Flows		5
	Notes to Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
	Summary Financial Data		30
	Overview		31
	Critical Accounting Policies		33
	Earnings Performance		33
	Net Interest Income		33
	Noninterest Income		36
	Noninterest Expense		38
	Operating Segment Results		39
	Balance Sheet Analysis		40
	Securities Available for Sale		40
	Loan Portfolio		42
	Nonaccrual Loans and Other Assets		43
	Loans 90 Days Past Due and Still Accruing		44
	Allowance for Loan Losses		45
	Other Assets		46
	Deposits		47
	Regulatory and Agency Capital Requirements		47
	Off-Balance Sheet Arrangements and Contractual Obligations		48
	Asset/Liability and Market Risk Management		49
	Capital Management		53
	Factors that May Affect Future Results		53

Item 4.	Controls and Procedures		60

PART II	Other Information
Item 6.	Exhibits and Reports on Form 8-K		61

Signature			64



	Quarter
	ended March 31					,
(in millions, except per share amounts)	2003			2002

	(Revised)			(Revised)

INTEREST INCOME
Securities available for sale	$	453		$	656
Mortgages held for sale		814			591
Loans held for sale		67			69
Loans		3,332			3,188
Other interest income		62			73

Total interest income		4,728			4,577


INTEREST EXPENSE
Deposits		427			494
Short-term borrowings		95			174
Long-term debt		330			331
Guaranteed preferred beneficial interests in Company’s subordinated debentures		27			27

Total interest expense		879			1,026


NET INTEREST INCOME		3,849			3,551
Provision for loan losses		411			469

Net interest income after provision for loan losses		3,438			3,082


NONINTEREST INCOME
Service charges on deposit accounts		553			505
Trust and investment fees		460			461
Credit card fees		243			201
Other fees		366			311
Mortgage banking		561			359
Operating leases		251			306
Insurance		266			263
Net gains on debt securities available for sale		18			37
Net losses from equity investments		(98	)		(19	)
Other		213			183

Total noninterest income		2,833			2,607


NONINTEREST EXPENSE
Salaries		1,141			1,076
Incentive compensation		447			357
Employee benefits		419			329
Equipment		269			236
Net occupancy		296			269
Operating leases		187			226
Net gains on dispositions of premises and equipment		(4	)		(2	)
Other		1,202			1,063

Total noninterest expense		3,957			3,554


INCOME BEFORE INCOME TAX EXPENSE AND EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		2,314			2,135
Income tax expense		822			758


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


NET INCOME	$	1,492		$	1,101


NET INCOME APPLICABLE TO COMMON STOCK	$	1,491		$	1,100


EARNINGS PER COMMON SHARE BEFORE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Earnings per common share	$	.89		$	.81

Diluted earnings per common share	$	.88		$	.80


EARNINGS PER COMMON SHARE
Earnings per common share	$	.89		$	.65

Diluted earnings per common share	$	.88		$	.64


DIVIDENDS DECLARED PER COMMON SHARE	$	.30		$	.26

Average common shares outstanding		1,681.5			1,703.0

Diluted average common shares outstanding		1,694.1			1,718.9



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

	(Revised)			(Revised)			(Revised)

ASSETS
Cash and due from banks	$	16,011		$	17,820		$	14,559
Federal funds sold and securities purchased under resale agreements		4,982			3,174			2,788
Securities available for sale		26,168			27,947			40,085
Mortgages held for sale		62,610			51,154			26,266
Loans held for sale		7,075			6,665			5,315

Loans		201,822			192,478			173,290
Allowance for loan losses		3,840			3,819			3,793

Net loans		197,982			188,659			169,497


Mortgage servicing rights, net		4,183			4,489			7,138
Premises and equipment, net		3,680			3,688			3,660
Goodwill		9,799			9,753			9,733
Other assets		37,117			35,848			32,403


Total assets	$	369,607		$	349,197		$	311,444


LIABILITIES
Noninterest-bearing deposits	$	75,330		$	74,094		$	60,728
Interest-bearing deposits		160,544			142,822			128,840

Total deposits		235,874			216,916			189,568
Short-term borrowings		33,196			33,446			33,408
Accrued expenses and other liabilities		19,938			18,311			16,458
Long-term debt		46,982			47,320			40,839
Guaranteed preferred beneficial interests in Company’s subordinated debentures		2,885			2,885			2,885

STOCKHOLDERS’ EQUITY
Preferred stock		430			251			389
Unearned ESOP shares		(382	)		(190	)		(338	)

Total preferred stock		48			61			51
Common stock – $1-2/3 par value, authorized 6,000,000,000 shares; issued 1,736,381,025 shares		2,894			2,894			2,894
Additional paid-in capital		9,514			9,498			9,472
Retained earnings		20,310			19,355			16,568
Cumulative other comprehensive income		913			976			676
Treasury stock – 61,454,942 shares, 50,474,518 shares and 27,844,043 shares		(2,947	)		(2,465	)		(1,375	)

Total stockholders’ equity		30,732			30,319			28,286


Total liabilities and stockholders’ equity	$	369,607		$	349,197		$	311,444

WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME



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

														(Revised)									(Revised)

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

Comprehensive income
Net income															1,101									1,101
Other comprehensive income, net of tax:
Net unrealized losses on securities available for sale and other retained interests, net of reclassification of $26 million of net gains included in net income																					(137	)		(137	)
Net unrealized gains on derivatives and hedging activities, net of reclassification of $68 million of net losses on cash flow hedges included in net income																					61			61

Total comprehensive income																								1,025
Common stock issued		4,100,927										22			(54	)		175						143
Common stock issued for acquisitions		10,373,249										(5	)					458						453
Common stock repurchased		2,781,496																(131	)					(131	)
Preferred stock (238,000) issued to ESOP				238			(255	)				17												—
Preferred stock released to ESOP							71					(5	)											66
Preferred stock (66,611) converted to common shares		1,349,305		(67	)							7						60						—
Preferred stock dividends															(1	)								(1	)
Common stock dividends															(444	)								(444	)

Net change				171			(184	)		—		36			602			562			(76	)		1,111


BALANCE MARCH 31, 2002			$	389		$	(338	)	$	2,894	$	9,472		$	16,568		$	(1,375	)	$	676		$	28,286


BALANCE DECEMBER 31, 2002			$	251		$	(190	)	$	2,894	$	9,498		$	19,355		$	(2,465	)	$	976		$	30,319

Comprehensive income
Net income															1,492									1,492
Other comprehensive income, net of tax:
Translation adjustments																					8			8
Net unrealized losses on securities available for sale and other retained interests, net of reclassification of $8 million of net gains included in net income																					(113	)		(113	)
Net unrealized gains on derivatives and hedging activities, net of reclassification of $23 million of net losses on cash flow hedges included in net income																					42			42

Total comprehensive income																								1,429
Common stock issued		3,588,368										5			(30	)		171						146
Common stock repurchased		16,359,432																(744	)					(744	)
Preferred stock (260,200) issued to ESOP				260			(279	)				19												--
Preferred stock released to ESOP							87					(6	)											81
Preferred stock (80,585) converted to common shares		1,790,640		(81	)							(2	)					83						--
Preferred stock dividends															(1	)								(1	)
Common stock dividends															(506	)								(506	)
Change in Rabbi trust assets and similar arrangements (classified as treasury stock)																		8						8

Net change				179			(192	)		—		16			955			(482	)		(63	)		413


BALANCE MARCH 31, 2003			$	430		$	(382	)	$	2,894	$	9,514		$	20,310		$	(2,947	)	$	913		$	30,732



	Quarter ended March 31					,
(in millions)	2003			2002

	(Revised)			(Revised)

Cash flows from operating activities:
Net income	$	1,492		$	1,101
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		411			469
Net provision for mortgage servicing rights in excess of fair value		592			342
Depreciation and amortization		1,250			1,161
Net gains on securities available for sale		(13	)		(41	)
Net gains on mortgage loan origination/sales activities		(637	)		(120	)
Net losses (gains) on sales of loans		1			(6	)
Net gains on dispositions of premises and equipment		(4	)		(2	)
Net gains on dispositions of operations		(27	)		(3	)
Release of preferred shares to ESOP		81			66
Net decrease in trading assets		1,923			—
Deferred income tax expense		28			420
Net increase in accrued interest receivable		(46	)		(57	)
Net (decrease) increase in accrued interest payable		(9	)		3
Originations of mortgages held for sale		(90,520	)		(60,314	)
Proceeds from sales of mortgages held for sale		77,394			65,286
Principal collected on mortgages held for sale		824			276
Net increase in loans held for sale		(410	)		(570	)
Other assets, net		(720	)		(2,370	)
Other accrued expenses and liabilities, net		1,486			(658	)


Net cash (used) provided by operating activities		(6,904	)		4,983


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		818			2,084
Proceeds from prepayments and maturities		2,713			2,176
Purchases		(2,109	)		(3,050	)
Net cash paid for acquisitions		(763	)		(553	)
Net decrease (increase) in banking subsidiaries’ loan originations, net of collections		1,377			(4,160	)
Proceeds from sales (including participations) of loans by banking subsidiaries		599			355
Purchases (including participations) of loans by banking subsidiaries		(9,869	)		(250	)
Principal collected on nonbank entities’ loans		6,804			2,843
Loans originated by nonbank entities		(4,281	)		(3,175	)
Purchases of loans by nonbank entities		(3,682	)		—
Proceeds from dispositions of operations		30			3
Proceeds from sales of foreclosed assets		74			145
Net increase in federal funds sold and securities purchased under resale agreements		(1,808	)		(116	)
Net increase in mortgage servicing rights		(868	)		(1,426	)
Other, net		(1,166	)		658


Net cash used by investing activities		(12,131	)		(4,466	)


Cash flows from financing activities:
Net increase (decrease) in deposits		18,958			(2,013	)
Net decrease in short-term borrowings		(250	)		(5,261	)
Proceeds from issuance of long-term debt		7,364			7,489
Repayment of long-term debt		(7,769	)		(3,092	)
Proceeds from issuance of guaranteed preferred beneficial interests in Company’s subordinated debentures		—			450
Proceeds from issuance of common stock		137			114
Repurchase of common stock		(744	)		(131	)
Payment of cash dividends on preferred and common stock		(507	)		(445	)
Other, net		37			(37	)


Net cash provided (used) by financing activities		17,226			(2,926	)


Net change in cash and due from banks		(1,809	)		(2,409	)

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


Cash and due from banks at end of quarter	$	16,011		$	14,559


Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest	$	870		$	1,029
Income taxes		528			422
Noncash investing and financing activities:
Transfers from loans to foreclosed assets	$	135		$	162
Net transfers between loans and mortgages held for sale		43			1,232

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

The accounting and reporting policies of the Company conform with generally accepted accounting principles (GAAP) and prevailing practices in the financial services industry. Preparing the financial statements in conformity with GAAP requires management to 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. Certain amounts in the financial statements for prior years have been reclassified to conform with the current financial statement presentation, as discussed in Note 2 (Auto Lease Accounting and Reclassifications).

The information furnished in these unaudited interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q/A. The results of operations in the interim statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with the Company’s 2002 Annual Report on Form 10-K/A filed on January 16, 2004 (2002 Form 10-K/A).

Descriptions of the significant accounting policies of the Company are included in Note 1 (Summary of Significant Accounting Policies) to Financial Statements in the Company’s 2002 Form 10-K/A. There have been no significant changes to these policies.

The Company has several stock-based employee compensation plans, which are described more fully in Note 15 (Common Stock and Stock Plans) to Financial Statements in the Company’s 2002 Form 10-K/A. As permitted by Financial Accounting Standards Board (FASB) Statement No. 123 (FAS 123), Accounting for Stock-Based Compensation, the Company uses the intrinsic value method of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, to account for its stock-based employee compensation plans. As required by FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to FASB Statement 123, pro forma net income and earnings per common share information is provided, as if the Company accounted for its employee stock option plans under the fair value method of FAS 123. The fair value of options was estimated at the grant date using the Black-Scholes option pricing model, which was developed to estimate the fair value of traded

options that have no vesting restrictions and are fully transferable. Because the Company’s stock options have characteristics significantly more restrictive than those of traded or other freely transferable options, in management’s opinion, existing valuation models, including the Black-Scholes model, do not necessarily provide a reliable single measure of the fair value of stock options.

In May 2003, the Emerging Issues Task Force (EITF) published Topic D-107, Lessor Consideration of Third-Party Residual Value Guarantees, which clarifies accounting guidance for certain lease transactions with residual value guarantees. Based on this new guidance, the Company has determined that certain auto leases previously accounted for as direct financing leases should be recorded as operating leases. This guidance resulted in a reclassification of auto leases from loans to operating lease assets included in other assets on the balance sheet. In addition, the revised income statement presentation reflects a reduction of interest income related to direct financing leases and the recognition of rental income and depreciation expense on operating leases. Previously reported unaudited interim consolidated financial statements and the notes to those financial statements have been presented in conformity with the guidance in Topic D-107. The following tables present certain captions of the statements of income and cash flows for the quarters ended March 31, 2003 and 2002 and certain captions in the Company’s balance sheet at March 31, 2003 and 2002, revised to conform with the guidance in Topic D-107.



	Quarter ended March 31								,
	2003				2002
STATEMENT OF INCOME:	As		As		As		As
(in millions, except per share data)	Previously Reported		Revised		Previously Reported		Revised


Net interest income	$	3,927	$	3,849	$	3,655	$	3,551
Provision for loan losses		425		411		490		469
Net interest income after provision for loan losses		3,502		3,438		3,165		3,082
Operating lease income		—		251		—		306
Total noninterest income		2,582		2,833		2,301		2,607
Operating lease expense		—		187		—		226
Total noninterest expense		3,770		3,957		3,328		3,554
Income tax expense		822		822		759		758
Net income		1,492		1,492		1,103		1,101

Earnings per share:
Basic		.89		.89		.65		.65
Diluted		.88		.88		.64		.64

Other information:
Net loan charge-offs		425		415		487		471

In addition to the matter discussed above, the Company has reclassified other amounts to conform with current financial statement presentation including:

Certain mortgages, loan charge-offs and recoveries from junior lien mortgages to first mortgages;

Investment advisory fees from other noninterest income to trust and investment fees on the statement of income; and

In the statement of cash flows, provided separate presentation of mortgage servicing rights impairment.

The Company regularly explores opportunities to acquire financial institutions and related financial services businesses. Generally, the Company does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed.

The gross carrying amount and accumulated amortization for intangible assets are presented in the following table.

The following table shows the current period and estimated future amortization expense for amortized intangible assets:

The projections of amortization expense shown above for mortgage servicing rights are based on existing asset balances and the existing interest rate environment as of March 31, 2003. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

The following table summarizes changes in the carrying amount of goodwill as allocated to the Company’s operating segments for the purpose of goodwill impairment analysis.

Goodwill amounts allocated to the operating segments for goodwill impairment analysis differ from amounts allocated to the Company’s operating segments for management reporting discussed in Note 8 (Operating Segments). At March 31, 2003, the balance of goodwill for management reporting for Community Banking, Wholesale Banking and Wells Fargo Financial was $2.89 billion, $634 million and $346 million, respectively, with $5.93 billion recorded at the enterprise level. At March 31, 2002, the balance of goodwill for management reporting for Community Banking, Wholesale Banking and Wells Fargo Financial was $2.87 billion, $589 million and $343 million, respectively, with $5.93 billion recorded at the enterprise level.

The Company is authorized to issue 20 million shares of preferred stock and 4 million shares of preference stock, both without par value. All preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. No preference shares have been issued under this authorization.

The table below is a summary of the Company’s preferred stock. A detailed description of the Company’s preferred stock is provided in Note 14 (Preferred Stock) to Financial Statements in the Company’s 2002 Form 10-K/A.



	Shares issued and outstanding									Carrying amount (in millions)									Adjustable
	Mar. 31		,	Dec. 31		,	Mar. 31		,	Mar. 31		,	Dec. 31		,	Mar. 31		,	dividends rate
	2003			2002			2002			2003			2002			2002			Minimum			Maximum

Adjustable-Rate Cumulative, Series B (1)		1,460,000			1,460,000			1,460,000		$	73		$	73		$	73			5.50	%		10.50	%

2003 ESOP Cumulative Convertible (2)		183,143			—			—			183			—			—			8.50			9.50

2002 ESOP Cumulative Convertible (2)		60,521			64,049			174,913			60			64			175			10.50			11.50

2001 ESOP Cumulative Convertible (2)		46,126			46,126			58,426			46			46			58			10.50			11.50

2000 ESOP Cumulative Convertible (2)		34,742			34,742			39,812			35			35			40			11.50			12.50

1999 ESOP Cumulative Convertible (2)		13,222			13,222			15,552			13			13			15			10.30			11.30

1998 ESOP Cumulative Convertible (2)		5,095			5,095			6,145			5			5			6			10.75			11.75

1997 ESOP Cumulative Convertible (2)		5,876			5,876			7,576			6			6			8			9.50			10.50

1996 ESOP Cumulative Convertible (2)		5,407			5,407			7,707			6			6			8			8.50			9.50

1995 ESOP Cumulative Convertible (2)		3,043			3,043			5,543			3			3			5			10.00			10.00

ESOP Cumulative Convertible (2)		—			—			1,002			—			—			1			9.00			9.00

Unearned ESOP shares (3)		—			—			—			(382	)		(190	)		(338	)		—			—


Total		1,817,175			1,637,560			1,776,676		$	48		$	61		$	51

The table below shows earnings per common share, diluted earnings per common share and a reconciliation of the numerator and denominator of both earnings per common share calculations.



	Quarter ended March 31				,
(in millions, except per share amounts)	2003		2002


Net income before effect of change in accounting principle	$	1,492	$	1,377
Less: Preferred stock dividends		1		1

Net income applicable to common stock before effect of change in accounting principle (numerator)		1,491		1,376
Cumulative effect of change in accounting principle (numerator)		—		(276	)

Net income applicable to common stock (numerator)	$	1,491	$	1,100


EARNINGS PER COMMON SHARE
Average common shares outstanding (denominator)		1,681.5		1,703.0


Per share before effect of change in accounting principle	$	.89	$	.81
Per share effect of change in accounting principle		—		(.16	)

Per share	$	.89	$	.65


DILUTED EARNINGS PER COMMON SHARE
Average common shares outstanding		1,681.5		1,703.0
Add: Stock options		12.1		15.6
Restricted share rights		.5		.3

Diluted average common shares outstanding (denominator)		1,694.1		1,718.9


Per share before effect of change in accounting principle	$	.88	$	.80
Per share effect of change in accounting principle		—		(.16	)

Per share	$	.88	$	.64

At March 31, 2003 and 2002, options to purchase 73.2 million and 38.5 million shares, respectively, were outstanding but not included in the computation of earnings per share. The exercise price was higher than the market price, and the options were therefore antidilutive.

The Company has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. The results for those lines of business are based on the Company’s 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 GAAP. The management accounting process measures the performance of the operating segments based on the Company’s management structure and is not necessarily comparable with similar information for other financial services companies. The Company’s operating segments are defined by product type and customer segments. Changes in management structure and/or the allocation process may result in changes in allocations, transfers and assignments. In that case, results for prior periods would be (and have been) restated to allow comparability.

The Community Banking Group offers a complete line of diversified financial products and services to individual consumers and small businesses with annual sales predominantly 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 and securities brokerage 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 for sale to investors and servicing of mortgage loans. 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) and time deposits.

Community Banking provides access for customers through a wide range of channels, which encompass a network of traditional banking stores, banking centers, in-store banking centers, business centers and ATMs. Additionally, 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 predominantly 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 and 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 loans to consumers and purchase sales finance contracts from retail merchants from offices throughout the United States and 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 Reconciliation Column consists of Corporate level equity investment activities and balances and unallocated goodwill balances held at the enterprise level.

The following table provides the results for the Company’s three major operating segments.



(income/expense in millions,	Community				Wholesale					Wells Fargo					Reconciliation						Consolidated
average balances in billions)	Banking				Banking					Financial					column (2)						Company
Quarter ended March 31,	2003		2002		2003		2002			2003		2002			2003			2002			2003		2002

Net interest income (1)	$	2,777	$	2,547	$	551	$	566		$	523	$	441		$	(2	)	$	(3	)	$	3,849	$	3,551
Provision for loan losses		217		255		53		85			141		129			—			—			411		469
Noninterest income		2,109		1,914		652		584			91		91			(19	)		18			2,833		2,607
Noninterest expense		3,026		2,689		620		594			308		270			3			1			3,957		3,554

Income (loss) before income tax expense (benefit) and effect of change in accounting principle		1,643		1,517		530		471			165		133			(24	)		14			2,314		2,135
Income tax expense (benefit)		585		535		183		169			63		49			(9	)		5			822		758

Net income (loss) before effect of change in accounting principle		1,058		982		347		302			102		84			(15	)		9			1,492		1,377
Cumulative effect of change in accounting principle		—		—		—		(98	)		—		(178	)		—			—			—		(276	)

Net income (loss)	$	1,058	$	982	$	347	$	204		$	102	$	(94	)	$	(15	)	$	9		$	1,492	$	1,101


Average loans	$	128	$	103	$	49	$	50		$	18	$	14		$	—		$	—		$	195	$	167
Average assets		255		222		75		70			19		16			6			6			355		314
Average core deposits		176		160		21		18			—		—			—			—			197		178

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

The managed mortgage servicing portfolio totaled $635 billion at March 31, 2003, $613 billion at December 31, 2002 and $551 billion at March 31, 2002, and included loans subserviced for others of $29 billion, $36 billion and $56 billion, respectively.

Net of valuation allowance, mortgage servicing rights (MSRs) totaled $4.2 billion (.84% of the total mortgage servicing portfolio) at March 31, 2003, compared with $7.1 billion (1.63%) at March 31, 2002.

Each quarter, the Company evaluates mortgage servicing rights for possible impairment based on the difference between the carrying amount and current fair value of the mortgage servicing rights, in accordance with FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. If a temporary impairment exists, a valuation allowance is established for any excess of amortized cost, as adjusted for hedge accounting, over the current fair value through a charge to income. The Company has a policy of reviewing mortgage servicing rights for other-than-temporary impairment each quarter and recognizes 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 mortgage servicing rights asset and the valuation allowance, precluding subsequent reversals. (See Note 1 (Summary of Significant Accounting Policies – Transfer and Servicing of Financial Assets) to Financial Statements in the Company’s 2002 Form 10-K/A for additional discussion of the Company’s policy for valuation of mortgage servicing rights.) In first quarter 2003, the Company determined that a portion of the asset was not recoverable and reduced both the asset and the previously designated valuation allowance by a $311 million write-down.

The following table summarizes the changes in the valuation allowance for mortgage servicing rights:

On October 22, 2002, the Parent issued a full and unconditional guarantee of all outstanding term debt securities and commercial paper of its wholly owned subsidiary, WFFI. WFFI ceased filing periodic reports under the Securities Exchange Act of 1934 and is no longer a separately rated company. The Parent has also guaranteed all outstanding term debt and commercial paper of Wells Fargo Financial Canada Corporation (WFFC), WFFI’s wholly owned Canadian subsidiary. Presented below are the Condensed Consolidating Financial Statements:


Condensed Consolidating Statement of Income
	Quarter ended March 31, 2003
						Other
						consolidating					Consolidated
(in millions)	Parent			WFFI		subsidiaries		Eliminations			Company


Dividends from subsidiaries:
Bank	$	993		$	—	$	—	$	(993	)	$	—
Nonbank		45			—		—		(45	)		—
Interest income from loans		2			634		2,696		—			3,332
Interest income from subsidiaries		109			—		—		(109	)		—
Other interest income		16			19		1,361		—			1,396

Total interest income		1,165			653		4,057		(1,147	)		4,728

Short-term borrowings		23			22		66		(16	)		95
Long-term debt		122			146		122		(60	)		330
Other interest expense		—			—		454		—			454

Total interest expense		145			168		642		(76	)		879


NET INTEREST INCOME		1,020			485		3,415		(1,071	)		3,849
Provision for loan losses		—			144		267		—			411

Net interest income after provision for loan losses		1,020			341		3,148		(1,071	)		3,438


NONINTEREST INCOME
Fee income – non-affiliates		—			52		1,570		—			1,622
Other		30			49		1,154		(22	)		1,211

Total noninterest income		30			101		2,724		(22	)		2,833


NONINTEREST EXPENSE
Salaries and benefits		42			165		1,800		—			2,007
Other		10			129		1,822		(11	)		1,950

Total noninterest expense		52			294		3,622		(11	)		3,957


INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES		998			148		2,250		(1,082	)		2,314
Income tax (benefit) expense		(38	)		56		804		—			822
Equity in undistributed income of subsidiaries		456			—		—		(456	)		—


NET INCOME	$	1,492		$	92	$	1,446	$	(1,538	)	$	1,492


Condensed Consolidating Statement of Income
	Quarter ended March 31, 2002
						Other
						consolidating						Consolidated
(in millions)	Parent			WFFI		subsidiaries			Eliminations			Company


Dividends from subsidiaries:
Bank	$	293		$	—	$	—		$	(293	)	$	—
Nonbank		26			—		—			(26	)		—
Interest income from loans		—			539		2,649			—			3,188
Interest income from subsidiaries		87			—		—			(87	)		—
Other interest income		24			19		1,346			—			1,389

Total interest income		430			558		3,995			(406	)		4,577

Short-term borrowings		39			15		130			(10	)		174
Long-term debt		106			128		132			(35	)		331
Other interest expense		—			—		521			—			521

Total interest expense		145			143		783			(45	)		1,026


NET INTEREST INCOME		285			415		3,212			(361	)		3,551
Provision for loan losses		—			140		329			—			469

Net interest income after provision for loan losses		285			275		2,883			(361	)		3,082


NONINTEREST INCOME
Fee income – non-affiliates		—			49		1,429			—			1,478
Other		73			50		1,018			(12	)		1,129

Total noninterest income		73			99		2,447			(12	)		2,607


NONINTEREST EXPENSE
Salaries and benefits		27			140		1,595			—			1,762
Other		7			110		1,681			(6	)		1,792

Total noninterest expense		34			250		3,276			(6	)		3,554


INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE, EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES AND EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		324			124		2,054			(367	)		2,135
Income tax (benefit) expense		(44	)		45		757			—			758
Equity in undistributed income of subsidiaries		752			—		—			(752	)		—


NET INCOME BEFORE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		1,120			79		1,297			(1,119	)		1,377
Cumulative effect of change in accounting principle		(19	)		—		(257	)		—			(276	)

NET INCOME	$	1,101		$	79	$	1,040		$	(1,119	)	$	1,101


Condensed Consolidating Balance Sheet
	March 31, 2003
					Other
					consolidating					Consolidated
(in millions)	Parent		WFFI		subsidiaries		Eliminations			Company


ASSETS
Cash and cash equivalents due from:
Subsidiary banks	$	1,700	$	60	$	—	$	(1,760	)	$	—
Non-affiliates		279		183		20,531		—			20,993
Securities available for sale		952		1,609		23,613		(6	)		26,168
Mortgages and loans held for sale		—		—		69,685		—			69,685

Loans		2		17,918		183,902		—			201,822
Loans to nonbank subsidiaries		18,270		745		—		(19,015	)		—
Allowance for loan losses		—		634		3,206		—			3,840

Net loans		18,272		18,029		180,696		(19,015	)		197,982

Investments in subsidiaries:
Bank		32,001		—		—		(32,001	)		—
Nonbank		4,415		—		—		(4,415	)		—
Other assets		3,590		729		51,736		(1,276	)		54,779


Total assets	$	61,209	$	20,610	$	346,261	$	(58,473	)	$	369,607


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	—	$	96	$	237,545	$	(1,767	)	$	235,874
Short-term borrowings		3,718		4,800		36,409		(11,731	)		33,196
Accrued expenses and other liabilities		1,389		880		19,948		(2,279	)		19,938
Long-term debt		22,698		12,282		17,958		(5,956	)		46,982
Indebtedness to subsidiaries		722		—		—		(722	)		—
Guaranteed preferred beneficial interests in Company’s subordinated debentures		1,950		—		935		—			2,885
Stockholders’ equity		30,732		2,552		33,466		(36,018	)		30,732


Total liabilities and stockholders’ equity	$	61,209	$	20,610	$	346,261	$	(58,473	)	$	369,607


Condensed Consolidating Balance Sheet
	March 31, 2002
					Other
					consolidating					Consolidated
(in millions)	Parent		WFFI		subsidiaries		Eliminations			Company


ASSETS
Cash and cash equivalents due from:
Subsidiary banks	$	4,432	$	55	$	—	$	(4,487	)	$	—
Non-affiliates		110		166		17,071		—			17,347
Securities available for sale		1,192		1,422		37,476		(5	)		40,085
Mortgages and loans held for sale		—		—		31,581		—			31,581

Loans		2		13,966		159,322		—			173,290
Loans to nonbank subsidiaries		10,288		604		—		(10,892	)		—
Allowance for loan losses		—		534		3,259		—			3,793

Net loans		10,290		14,036		156,063		(10,892	)		169,497

Investments in subsidiaries:
Bank		30,616		—		—		(30,616	)		—
Nonbank		4,620		—		—		(4,620	)		—
Other assets		3,572		658		50,583		(1,879	)		52,934


Total assets	$	54,832	$	16,337	$	292,774	$	(52,499	)	$	311,444


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	—	$	84	$	193,975	$	(4,491	)	$	189,568
Short-term borrowings		5,686		4,138		30,063		(6,479	)		33,408
Accrued expenses and other liabilities		1,197		696		17,569		(3,004	)		16,458
Long-term debt		15,832		9,268		17,542		(1,803	)		40,839
Indebtedness to subsidiaries		1,881		—		—		(1,881	)		—
Guaranteed preferred beneficial interests in Company’s subordinated debentures		1,950		—		935		—			2,885
Stockholders’ equity		28,286		2,151		32,690		(34,841	)		28,286


Total liabilities and stockholders’ equity	$	54,832	$	16,337	$	292,774	$	(52,499	)	$	311,444


Condensed Consolidating Statement of Cash Flows
	Quarter ended March 31, 2003
							Other
							consolidating
							subsidiaries/			Consolidated
(in millions)	Parent			WFFI			eliminations			Company


Cash flows from operating activities:
Net cash provided (used) by operating activities	$	48		$	404		$	(7,356	)	$	(6,904	)


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		13			47			758			818
Proceeds from prepayments and maturities		40			52			2,621			2,713
Purchases		—			(175	)		(1,934	)		(2,109	)
Net cash paid for acquisitions		—			(600	)		(163	)		(763	)
Net decrease in banking subsidiaries’ loan originations, net of collections		—			—			1,377			1,377
Proceeds from sales (including participations) of banking subsidiaries’ loans		—			—			599			599
Purchases (including participations) of loans by banking subsidiaries		—			—			(9,869	)		(9,869	)
Principal collected on nonbank entities’ loans		3,682			2,977			145			6,804
Loans originated by nonbank entities		—			(4,105	)		(176	)		(4,281	)
Purchases of loans by nonbank entities		(3,682	)		—			—			(3,682	)
Net advances to nonbank entities		(1,224	)		—			1,224			—
Capital notes and term loans made to subsidiaries		(1,891	)		—			1,891			—
Principal collected on notes/loans made to subsidiaries		17			—			(17	)		—
Net increase in investment in subsidiaries		(41	)		—			41			—
Other, net		—			62			(3,800	)		(3,738	)

Net cash used by investing activities		(3,086	)		(1,742	)		(7,303	)		(12,131	)


Cash flows from financing activities:
Net increase in deposits		—			8			18,950			18,958
Net increase (decrease) in short-term borrowings		198			324			(772	)		(250	)
Proceeds from issuance of long-term debt		4,373			1,736			1,255			7,364
Repayment of long-term debt		(1,600	)		(782	)		(5,387	)		(7,769	)
Proceeds from issuance of common stock		137			—			—			137
Repurchase of common stock		(744	)		—			—			(744	)
Payment of cash dividends on preferred and common stock		(507	)		—			—			(507	)
Other, net		—			—			37			37

Net cash provided by financing activities		1,857			1,286			14,083			17,226

Net change in cash and due from banks		(1,181	)		(52	)		(576	)		(1,809	)
Cash and due from banks at beginning of quarter		3,160			295			14,365			17,820

Cash and due from banks at end of quarter	$	1,979		$	243		$	13,789		$	16,011


Condensed Consolidating Statement of Cash Flows
	Quarter ended March 31, 2002
							Other
							consolidating
							subsidiaries/			Consolidated
(in millions)	Parent			WFFI			eliminations			Company


Cash flows from operating activities:
Net cash (used) provided by operating activities	$	(704	)	$	271		$	5,416		$	4,983


Cash flows from investing activities:
Securities available for sale:
Proceeds from sales		255			159			1,670			2,084
Proceeds from prepayments and maturities		30			28			2,118			2,176
Purchases		(24	)		(249	)		(2,777	)		(3,050	)
Net cash (paid for) acquired from acquisitions		(455	)		(281	)		183			(553	)
Net increase in banking subsidiaries’ loan originations, net of collections		—			—			(4,160	)		(4,160	)
Proceeds from sales (including participations) of banking subsidiaries’ loans		—			—			355			355
Purchases (including participations) of loans by banking subsidiaries		—			—			(250	)		(250	)
Principal collected on nonbank entities’ loans		—			2,697			146			2,843
Loans originated by nonbank entities		—			(3,070	)		(105	)		(3,175	)
Net advances to nonbank entities		137			—			(137	)		—
Principal collected on notes/loans made to subsidiaries		214			—			(214	)		—
Net increase in investment in subsidiaries		(79	)		—			79			—
Other, net		—			64			(800	)		(736	)

Net cash provided (used) by investing activities		78			(652	)		(3,892	)		(4,466	)


Cash flows from financing activities:
Net increase (decrease) in deposits		—			6			(2,019	)		(2,013	)
Net increase (decrease) in short-term borrowings		895			(10	)		(6,146	)		(5,261	)
Proceeds from issuance of long-term debt		1,500			900			5,089			7,489
Repayment of long-term debt		(125	)		(524	)		(2,443	)		(3,092	)
Proceeds from issuance of guaranteed preferred beneficial interests in Company’s subordinated debentures		450			—			—			450
Proceeds from issuance of common stock		114			—			—			114
Repurchase of common stock		(131	)		—			—			(131	)
Payment of cash dividends on preferred and common stock		(445	)		(25	)		25			(445	)
Other, net		—			—			(37	)		(37	)

Net cash provided (used) by financing activities		2,258			347			(5,531	)		(2,926	)

Net change in cash and due from banks		1,632			(34	)		(4,007	)		(2,409	)
Cash and due from banks at beginning of quarter		2,910			255			13,803			16,968

Cash and due from banks at end of quarter	$	4,542		$	221		$	9,796		$	14,559

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 describes the disclosures to be made by a guarantor about obligations under certain guarantees the guarantor has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

Significant guarantees that the Company provides 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.

The Company issues standby letters of credit on behalf of customers in connection with contracts between the customers and third parties whereby the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. Standby letters of credit totaled $7.1 billion at March 31, 2003. Certain of these standby letters of credit back financial instruments and are considered financial guarantees. The Company had issued or purchased participations in these financial guarantees of approximately $3.6 billion at March 31, 2003. Substantially all fees received from the issuance of standby letters of credit are deferred and, at March 31, 2003, were immaterial to the Company’s financial statements.

The Company enters into indemnification agreements in the ordinary course of business under which the Company agrees to indemnify third parties against any damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company. These relationships or transactions include those arising from service as a director or officer of the Company, underwriting agreements relating to the Company’s securities, securities lending, acquisition agreements, and various other business transactions or arrangements. Because the extent of the Company’s obligations under these indemnification agreements depends entirely upon the occurrence of future events, the Company cannot estimate its potential future liability under these agreements.

The Company enters into written options with its customers and to hedge the Company’s servicing assets and mortgage loan commitments. These options are exercisable by the option holder based on favorable market conditions. Additionally, the Company enters into written floors and caps with its customers. Periodic settlements can occur with customers based on market conditions. At March 31, 2003, the gross carrying amount of the written options liability was $202 million and the written floors and caps liability was $252 million. Because the Company’s ultimate obligation under written options, floors and caps is based on future market conditions, the Company is unable to estimate the amount of maximum exposure it has related to written options, floors and caps. As part of its risk management strategy, the Company purchases offsetting positions to minimize its obligations associated with its written options, floors and caps.

The Company also enters into credit default swaps under which it buys protection from or sells protection to a counterparty in the event of default of a reference obligation. At March 31, 2003,

the gross carrying amount of the contracts sold was a $51 million liability. The maximum amount the Company would be required to pay under those swaps in which it sold protection, assuming all reference obligations default at a total loss, without recoveries, was $2.4 billion. The Company has bought protection of $2.3 billion of notional exposure. Almost all of the protection purchases offset (i.e., use the same reference obligation and maturity) the contracts in which the Company is providing protection to a counterparty.

In connection with certain brokerage, asset management and insurance agency acquisitions made by the Company, the terms of the acquisition agreement provide for deferred payments or additional consideration based on certain performance targets. At March 31, 2003, the amount of contingent consideration expected to be paid was not material to the Company’s financial statements.

The Company has entered into various contingent performance guarantees through credit risk participation arrangements with terms ranging from 1 to 30 years. The Company 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 the Company’s obligations under these contingent performance guarantees depends entirely upon future events, the Company cannot estimate its potential future liability under these agreements.

Fair Value Hedges
The Company uses derivative contracts to manage the risk associated with changes in the fair value of mortgage servicing rights and other retained interests. Changes in options valuations 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 overall evaluation of hedge effectiveness, but are still reflected in earnings. The change in value of derivatives excluded from the assessment of hedge effectiveness was a net gain of $348 million in the first quarter of 2003 and $275 million in the same period of 2002. Also, the Company recognized a net gain from ineffectiveness in these hedging relationships of $202 million in the first quarter of 2003 and $297 million in the first quarter of 2002. The gains were more than offset by higher valuation provision for impairment and amortization expense on mortgage servicing rights and other retained interests of $1,482 million in the first quarter of 2003 and $1,107 million in the first quarter of 2002. The total gains on the mortgage-related derivative contracts, amortization expense and valuation provision for impairment are included in mortgage banking noninterest income. (See Note 9 (Mortgage Banking Activities).)

In the fourth quarter of 2002, the Company began using derivative contracts to hedge changes in fair value of its commercial real estate mortgages and franchise loans due to changes in LIBOR interest rates. The Company originates these loans with the intent to sell them. The ineffective portion of these fair value hedges was a net loss of $6 million for the first quarter of 2003, recorded in mortgage banking noninterest income. All components of gain or loss on these derivative contracts are included in the assessment of hedge effectiveness.

The Company also enters into interest rate swaps, designated as fair value hedges, to convert certain of its fixed-rate long-term debt to floating-rate debt. The ineffective portion of these fair value hedges was not material in the first quarter of 2003 and 2002.

As of March 31, 2003, all designated fair value hedges continued to qualify as fair value hedges.

Cash Flow Hedges
The Company uses derivative contracts to convert commercial floating-rate loans to fixed rates and to hedge forecasted sales of its mortgage loans. The Company recognized a net loss of $38 million in the first quarter of 2003, which represents the total ineffectiveness of cash flow hedges, compared with a net loss of $108 million in the first quarter of 2002. All components of gain or loss on these derivative contracts are included in the assessment of hedge effectiveness, except for volatility and the passage of time related to options hedging commercial loans indexed to LIBOR. As of March 31, 2003, all designated cash flow hedges continued to qualify as cash flow hedges.

At March 31, 2003, the Company expected that $43 million of deferred net losses on derivative instruments included in other comprehensive income will be reclassified to earnings during the next twelve months, compared with $191 million of deferred net gains at March 31, 2002. The change was primarily due to growth in mortgages held for sale and changes in interest rates, causing greater losses deferred to cumulative other comprehensive income at March 31, 2003.

These deferred losses will be reclassified to earnings in the period the gains on the hedged item affect earnings. Gains and losses on derivative contracts that are reclassified from cumulative other comprehensive income to current period earnings are included in the same line item in which the hedged item’s effect in earnings is recorded. The Company is hedging its 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 and one year for hedges of forecasted sales of mortgage loans.

The following table summarizes the credit risk amount and estimated net fair value for the Company’s derivative financial instruments.



										% Change
	Quarter ended									Mar. 31, 2003 from
	Mar. 31		,	Dec. 31		,	Mar. 31		,	Dec. 31		,	Mar. 31		,
(in millions, except per share amounts)	2003			2002			2002			2002			2002

For the Period

Before effect of change in accounting principle (1)
Net income	$	1,492		$	1,472		$	1,377			1	%		8	%
Diluted earnings per common share		.88			.86			.80			2			10

Profitability ratios (annualized)
Net income to average total assets (ROA)		1.70	%		1.72	%		1.78	%		(1	)		(4	)
Net income applicable to common stock to average common stockholders’ equity (ROE)		19.80			19.44			20.01			2			(1	)

After effect of change in accounting principle
Net income	$	1,492		$	1,472		$	1,101			1			36
Diluted earnings per common share		.88			.86			.64			2			38

Profitability ratios (annualized)
ROA		1.70	%		1.72	%		1.42	%		(1	)		20
ROE		19.80			19.44			16.00			2			24
Efficiency ratio (2)		59.2			59.3			57.7			—			3
Total revenue	$	6,682		$	6,665		$	6,158			—			9

Dividends declared per common share		.30			.28			.26			7			15

Average common shares outstanding		1,681.5			1,690.4			1,703.0			(1	)		(1	)
Diluted average common shares outstanding		1,694.1			1,704.0			1,718.9			(1	)		(1	)

Average loans	$	195,057		$	179,515		$	166,830			9			17
Average assets		355,108			340,193			314,273			4			13
Average core deposits		196,802			194,850			177,646			1			11

Net interest margin		5.27	%		5.41	%		5.63	%		(3	)		(6	)

At Period End
Securities available for sale	$	26,168		$	27,947		$	40,085			(6	)		(35	)
Loans		201,822			192,478			173,290			5			16
Allowance for loan losses		3,840			3,819			3,793			1			1
Goodwill		9,799			9,753			9,733			—			1
Assets		369,607			349,197			311,444			6			19
Core deposits		203,185			198,234			181,659			2			12
Common stockholders’ equity		30,684			30,258			28,235			1			9
Stockholders’ equity		30,732			30,319			28,286			1			9
Tier 1 capital (3)		21,951			21,473			19,612			2			12
Total capital (3)		32,577			31,910			28,419			2			15

Capital ratios
Common stockholders’ equity to assets		8.30	%		8.67	%		9.07	%		(4	)		(8	)
Stockholders’ equity to assets		8.31			8.68			9.08			(4	)		(8	)
Risk-based capital (3)
Tier 1 capital		7.37			7.70			7.74			(4	)		(5	)
Total capital		10.94			11.44			11.21			(4	)		(2	)
Tier 1 leverage (3)		6.42			6.57			6.49			(2	)		(1	)

Book value per common share	$	18.32		$	17.95		$	16.53			2			11

Staff (active, full-time equivalent)		131,600			127,500			123,200			3			7

Common Stock Price
High	$	49.13		$	51.60		$	50.75			(5	)		(3	)
Low		43.27			43.30			42.90			—			1
Period end		44.99			46.87			49.40			(4	)		(9	)

This report on Form 10-Q/A for the quarter ended March 31, 2003, including Item 1( Financial Statements) and Item 2 (Management Discussion and Analysis of Financial Condition and Results of Operations) of Part I, contains forward-looking statements about the Company. Broadly speaking, forward-looking statements include forecasts of future financial results and condition, expectations for future operations and business, and any assumptions underlying those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual outcomes and results might differ significantly from forecasts and expectations. Please refer to “Factors that May Affect Future Results” for a discussion of some of the factors that may cause results to differ.

Wells Fargo & Company is a $370 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, commercial businesses and financial institutions in all 50 states of the U.S. and in other countries. It ranked fourth in assets and third in market capitalization among U.S. bank holding companies at March 31, 2003. In this Form 10-Q/A, Wells Fargo & Company and Subsidiaries (consolidated) is referred to as the Company and Wells Fargo & Company alone is referred to as the Parent.

Certain amounts in the Financial Review for prior quarters have been reclassified to conform with the current financial statement presentation.

Net income for the first quarter of 2003 increased 8% to $1.49 billion, from $1.38 billion before the effect of an accounting change related to FAS 142, Goodwill and Other Intangible Assets, for the first quarter of 2002. On the same basis, diluted earnings per common share for the first quarter of 2003 were $.88, compared with $.80 for the first quarter of 2002, up 10%. On the same basis, return on average assets (ROA) and return on average common equity (ROE) for the first quarter of 2003 were 1.70% and 19.80%, respectively, compared with 1.78% and 20.01%, respectively, for the first quarter of 2002.

Net income for the first quarter of 2003 was $1.49 billion, compared with $1.10 billion for the first quarter of 2002. Diluted earnings per common share for the first quarter of 2003 were $.88, compared with $.64 for the first quarter of 2002. ROA was 1.70% and ROE was 19.80% for the first quarter of 2003, compared with 1.42% and 16.00%, respectively, for the first quarter of 2002.

Net interest income on a taxable-equivalent basis was $3.87 billion for the first quarter of 2003, compared with $3.58 billion for the first quarter of 2002, up 8%. The Company’s net interest margin was 5.27% for the first quarter of 2003, compared with 5.63% for the first quarter of 2002.

Noninterest income was $2.83 billion for the first quarter of 2003, compared with $2.61 billion for the first quarter of 2002.

Revenue, the sum of net interest income and noninterest income, increased 9% to $6.68 billion in the first quarter of 2003 from $6.16 billion in the first quarter of 2002.

Noninterest expense totaled $3.96 billion for the first quarter of 2003, compared with $3.55 billion for the first quarter of 2002, an increase of 11%.

During the first quarter of 2003, net charge-offs were $415 million, or .86% of average total loans (annualized), compared with $471 million, or 1.14%, during the first quarter of 2002. The provision for loan losses was $411 million in the first quarter of 2003, compared with $469 million in the first quarter of 2002. The allowance for loan losses was $3.84 billion, or 1.90% of total loans, at March 31, 2003, compared with $3.82 billion, or 1.98%, at December 31, 2002 and $3.79 billion, or 2.19%, at March 31, 2002.

At March 31, 2003, total nonaccrual loans were $1.56 billion, or .8% of total loans, compared with $1.49 billion, or .8%, at December 31, 2002 and $1.62 billion, or .9%, at March 31, 2002. Foreclosed assets were $193 million at March 31, 2003, compared with $195 million at December 31, 2002 and $177 million at March 31, 2002.

The ratio of common stockholders’ equity to total assets was 8.30% at March 31, 2003, compared with 8.67% at December 31, 2002 and 9.07% at March 31, 2002. The Company’s total risk-based capital (RBC) ratio at March 31, 2003 was 10.94% and its Tier 1 RBC ratio was 7.37%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. The Company’s RBC ratios at March 31, 2002 were 11.21% and 7.74%, respectively. The Company’s Tier 1 leverage ratios were 6.42% and 6.49% at March 31, 2003 and March 31, 2002, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. The Company adopted the disclosure provisions of FIN 46 effective December 31, 2002. On February 1, 2003, the Company adopted the recognition and measurement provisions of FIN 46 for variable interest entities (VIEs) formed after January 31, 2003, and, on December 31, 2003, for all existing VIEs. The adoption of FIN 46 did not have a material effect on the Company’s financial statements.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (FAS 149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities, to provide clarification on the meaning of an underlying, the characteristics of a derivative that contains financing components and the meaning of an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. This statement will be applied prospectively and is effective for contracts entered into or modified after June 30, 2003. The statement will be applicable to existing contracts and new contracts entered into after June 30, 2003 if those contracts relate to forward purchases or sales of when-issued securities or other securities that do not yet exist. The Company does not expect that the adoption of FAS 149 will have a material effect on the Company’s financial statements.

In May 2003, the Emerging Issues Task Force published Topic D-107, Lessor Consideration of Third-Party Residual Value Guarantees, which clarified accounting guidance for certain lease transactions with residual value guarantees. Based on this guidance, the Company determined that certain auto leases previously accounted for as direct finance leases should be recorded as operating leases. The Company’s implementation of this guidance on January 16, 2004 did not have a material effect on the Company’s results of operations or financial position for any period in which such leasing activities were present (1998 through 2003).

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The Company has identified three policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loan losses, the valuation of mortgage servicing rights and pension accounting. The Company, in consultation with the Audit and Examination Committee of the Board of Directors, has reviewed and approved these critical accounting policies, which are further described in “Financial Review – Critical Accounting Policies” and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in the Company’s 2002 Form 10-K/A.

Net interest income is the difference between interest income (which includes yield-related loan fees) and interest expense. Net interest income on a taxable-equivalent basis increased to $3.87 billion in first quarter 2003 from $3.58 billion in first quarter 2002, an increase of 8%. The increase was primarily due to strong growth in mortgages held for sale and loans. In addition, lower funding costs were also a significant factor, due in large part to lower rates on interest-bearing deposits and short- and long-term borrowings. These factors were partially offset by a decline in investment portfolio income following the sale and prepayment of mortgage-backed securities.

Net interest income on a taxable-equivalent basis expressed as a percentage of average total earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. The net interest margin decreased to 5.27% in first quarter 2003 from 5.63% in first quarter 2002. During the past several quarters, the Company has shortened the duration of its investment portfolio through sales and prepayments of long-term mortgage-backed securities. While this has had a modest adverse impact on net interest margin, it will provide flexibility to add securities in the event that interest rates rise and mortgages held for sale begin to decline.

Individual components of net interest income and the net interest margin are presented in the rate/yield table on page 35.

Earning assets increased $40.1 billion due to increases in average loans and mortgages held for sale, offset by a decrease in debt securities available for sale. Loans averaged $195.1 billion in the first quarter of 2003, compared with $166.8 billion in the first quarter of 2002. Average mortgages held for sale increased to $58.4 billion from $37.1 billion due to increased originations, including refinancing activity. Debt securities available for sale averaged $26.1 billion during the first quarter of 2003 and $39.2 billion in the first quarter of 2002.

An important contributor to the growth in net interest income and net interest margin was an 11% increase in core deposits, the Company’s low-cost source of funding. Average core deposits were $196.8 billion and $177.6 billion and funded 55.4% and 56.5% of the Company’s average total assets in the first quarter of 2003 and 2002, respectively. While savings certificates of deposit declined on average to $22.0 billion in first quarter 2003 from $25.7 billion in first quarter 2002, noninterest-bearing checking accounts and other core deposit categories increased on average from $151.9 billion in first quarter 2002 to $174.8 billion in first quarter 2003 reflecting a combination of growth in mortgage escrow deposits, resulting from higher origination volume, and growth in primary account relationships. Total average interest-bearing deposits increased to $152.1 billion in first quarter 2003 from $129.6 billion in the first quarter of 2002. For the same periods, total average noninterest-bearing deposits increased to $71.6 billion from $59.5 billion.



	Quarter ended March 31																,
	2003								2002
							Interest								Interest
	Average			Yields/			income/		Average			Yields/			income/
(in millions)	balance			rates			expense		balance			rates			expense


EARNING ASSETS
Federal funds sold and securities purchased under resale agreements	$	3,101			1.32	%	$	10	$	2,391			1.88	%	$	11
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies		1,294			5.31			16		2,044			5.85			29
Securities of U.S. states and political subdivisions		2,040			8.76			42		2,080			8.31			41
Mortgage-backed securities:
Federal agencies		17,709			7.82			321		29,146			7.09			504
Private collateralized mortgage obligations		2,025			7.27			35		2,692			6.91			46

Total mortgage-backed securities		19,734			7.76			356		31,838			7.08			550
Other debt securities (4)		3,013			7.56			56		3,198			7.69			58

Total debt securities available for sale (4)		26,081			7.69			470		39,160			7.13			678
Mortgages held for sale (3)		58,422			5.57			814		37,149			6.34			591
Loans held for sale (3)		7,002			3.88			67		5,084			5.51			69
Loans:
Commercial		47,007			6.26			727		46,667			7.04			810
Real estate 1-4 family first mortgage		45,193			5.96			671		28,773			7.09			509
Other real estate mortgage		25,385			5.68			357		25,286			6.40			400
Real estate construction		7,908			5.27			103		8,032			5.73			113
Consumer:
Real estate 1-4 family junior lien mortgage		28,596			6.19			436		22,306			7.29			402
Credit card		7,400			12.44			230		6,572			12.24			202
Other revolving credit and monthly payment		27,383			9.69			656		23,548			10.49			611

Total consumer		63,379			8.43			1,322		52,426			9.35			1,215
Lease financing		4,234			6.15			64		4,063			6.48			66
Foreign		1,951			18.60			91		1,583			19.76			78

Total loans (5)		195,057			6.90			3,335		166,830			7.72			3,191
Other		7,115			2.92			52		6,104			4.17			62

Total earning assets	$	296,778			6.48			4,748	$	256,718			7.25			4,602


FUNDING SOURCES
Deposits:
Interest-bearing checking	$	2,406			.36			2	$	2,399			.83			5
Market rate and other savings		100,816			.75			187		90,091			.95			211
Savings certificates		22,004			2.76			150		25,700			3.58			227
Other time deposits		20,531			1.36			69		4,691			2.04			24
Deposits in foreign offices		6,337			1.22			19		6,712			1.65			27

Total interest-bearing deposits		152,094			1.14			427		129,593			1.54			494
Short-term borrowings		31,473			1.22			95		41,627			1.69			174
Long-term debt		46,662			2.84			330		37,661			3.53			331
Guaranteed preferred beneficial interests in Company’s subordinated debentures		2,885			3.83			27		2,460			4.52			27

Total interest-bearing liabilities		233,114			1.52			879		211,341			1.96			1,026
Portion of noninterest-bearing funding sources		63,664			—			—		45,377			—			—

Total funding sources	$	296,778			1.21			879	$	256,718			1.62			1,026

Net interest margin and net interest income on a taxable-equivalent basis (6)					5.27	%	$	3,869					5.63	%	$	3,576


NONINTEREST-EARNING ASSETS
Cash and due from banks	$	13,691							$	14,559
Goodwill		9,789								9,732
Other		34,850								33,264

Total noninterest-earning assets	$	58,330							$	57,555


NONINTEREST-BEARING FUNDING SOURCES
Deposits	$	71,576							$	59,456
Other liabilities		19,810								15,525
Preferred stockholders’ equity		60								61
Common stockholders’ equity		30,548								27,890
Noninterest-bearing funding sources used to fund earning assets		(63,664	)							(45,377	)

Net noninterest-bearing funding sources	$	58,330							$	57,555


TOTAL ASSETS	$	355,108							$	314,273



	Quarter
	ended March 31					,	%
(in millions)	2003			2002			Change


Service charges on deposit accounts	$	553		$	505			10	%
Trust and investment fees:
Trust, investment and IRA fees		324			336			(4	)
Commissions and all other fees		136			125			9

Total trust and investment fees		460			461			—

Credit card fees		243			201			21

Other fees:
Cash network fees		42			48			(13	)
Charges and fees on loans		180			133			35
All other		144			130			11

Total other fees		366			311			18

Mortgage banking:
Origination and other closing fees		276			220			25
Servicing fees, net of amortization and provision for impairment		(443	)		(73	)		507
Net gains on mortgage loan origination/sales activities		637			120			431
All other		91			92			(1	)

Total mortgage banking		561			359			56

Operating leases		251			306			(18	)
Insurance		266			263			1
Net gains on debt securities available for sale		18			37			(51	)
Net losses from equity investments		(98	)		(19	)		416
Net (losses) gains on sales of loans		(1	)		6			—
Net gains on dispositions of operations		27			3			800
All other		187			174			7


Total	$	2,833		$	2,607			9	%

Service charges on deposit accounts increased 10% due to growth in primary accounts and increased activity.

Credit card fees increased 21% predominantly due to an increase in credit card accounts and credit and debit card transaction volume.

Mortgage banking noninterest income was $561 million in first quarter 2003, compared with $359 million in first quarter 2002. Origination and other closing fees increased to $276 million and net gains on mortgage loan origination/sales activities increased to $637 million in first quarter 2003 from first quarter 2002. A major portion of the increase was due to higher mortgage origination volume. Originations during the first quarter of 2003 grew to $103 billion from $70 billion during the same period of 2002. Mortgages held for sale increased to $62.6 billion at March 31, 2003 from $51.2 billion at December 31, 2002 and $26.3 billion at March 31, 2002.

Net servicing fees were a loss of $443 million and $73 million in first quarter 2003 and 2002, respectively, reflecting increased amortization and valuation provision for impairment of mortgage servicing rights (MSRs) offset by an increase in gross servicing fees due to portfolio growth and lower amortization relating to declining balances of other retained interests.

At March 31, 2003, the Federal National Mortgage Association (FNMA) Current Coupon rate (i.e., the secondary market par mortgage yield for 30 year fixed-rate mortgages) was 4.97%, compared with 6.59% at March 31, 2002. Consequently, assumed prepayment speeds, an important element in determining the fair value of MSRs, increased in the first quarter of 2003 resulting in higher amortization and valuation provision for impairment of $803 million and $592 million, respectively, compared with $370 million and $342 million, respectively, in the first quarter of 2002.

During first quarter 2003, the Company recognized a direct write-down of the mortgage servicing asset of $311 million. See “Financial Review – Critical Accounting Policies – Mortgage Servicing Rights Valuation” in the Company’s 2002 Form 10-K/A 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 and 22 (Securitizations) to Financial Statements in the Company’s 2002 Form 10-K/A.

Net losses from equity investments during the first quarter of 2003 were $98 million, reflecting other-than-temporary impairment in the valuation of publicly-traded and private equity securities, compared with $19 million for the same period of 2002.

The Company routinely reviews its investment portfolios for impairment. Such write-downs are based primarily on issuer-specific factors and results. General economic and market conditions, including those events occurring in the technology and telecommunications industries and adverse changes impacting the availability of venture capital financing are also taken into account. While the determination of impairment is based on all of the information available at the time of the assessment, new information or economic developments in the future could lead to additional impairment.



	Quarter
	ended March 31					,	%
(in millions)	2003			2002			Change


Salaries	$	1,141		$	1,076			6	%
Incentive compensation		447			357			25
Employee benefits		419			329			27
Equipment		269			236			14
Net occupancy		296			269			10
Operating leases		187			226			(17	)
Net gains on dispositions of premises and equipment		(4	)		(2	)		100
Outside professional services		112			99			13
Contract services		155			117			32
Outside data processing		98			84			17
Telecommunications		78			92			(15	)
Travel and entertainment		85			75			13
Advertising and promotion		81			65			25
Postage		84			65			29
Stationery and supplies		54			57			(5	)
Insurance		50			52			(4	)
Operating losses		57			45			27
Security		42			40			5
Core deposit intangibles		37			41			(10	)
All other		269			231			16


Total	$	3,957		$	3,554			11	%

The increase in salaries resulted from additional active, full-time equivalent team members. Incentive compensation increased predominantly due to commission expense resulting from higher mortgage origination volume. Employee benefits expense increased mostly due to higher pension and healthcare costs.

The increases in advertising and promotion, contract services and postage were mostly due to the increase in mortgage origination volume.

Community Banking’s net income was $1,058 million in the first quarter, compared with $982 million for the same period in 2002, an increase of 8%. Net interest income increased by $230 million, or 9%, compared with first quarter 2002. The increase was primarily due to growth in consumer loans, mortgages held for sale and deposits. The provision for loan losses decreased by $38 million from 2002 due to the improved credit environment. Noninterest income was up $195 million in first quarter 2003 compared with 2002, primarily due to increased mortgage related business as well as service charges, credit card fees and other fees. Noninterest expense increased by $337 million over 2002 primarily due to increased mortgage originations.

Wholesale Banking’s net income was $347 million in the first quarter of 2003, compared with $302 million before the effect of change in accounting principle in the first quarter of 2002. Net interest income decreased to $551 million from $566 million in the first quarter of 2002. Average outstanding loan balances were $49 billion in the first quarter of 2003, down 2% from $50 billion in the first quarter of 2002. Deposit balances grew to $21 billion in the first quarter of 2003 from $18 billion in the first quarter of 2002, an increase of 17%. Noninterest income increased to $652 million in 2003 from $584 million in 2002 due to higher income from asset-based lending, gains from commercial mortgage sales and securitizations, insurance and institutional brokerage. Noninterest expense was $620 million in the first quarter of 2003 and $594 million for the same period in 2002. The provision for loan losses decreased by $32 million to $53 million for the first quarter of 2003 compared with the first quarter of 2002.

Wells Fargo Financial’s net income was $102 million in the first quarter of 2003, compared with $84 million before the effect of change in accounting principle in the first quarter of 2002, an increase of 21%. Net interest income increased $82 million, or 19%, due to lower funding costs combined with growth in average loans. The provision for loan losses increased $12 million, or 9%, due to the growth in average loans.

The following table provides the cost and fair value for the major components of securities available for sale carried at fair value. There were no securities classified as held to maturity at the end of the periods presented.



	Mar. 31				,	Dec. 31				,	Mar. 31				,
	2003					2002					2002
			Estimated					Estimated					Estimated
			fair					fair					fair
(in millions)	Cost		value			Cost		value			Cost		value


Securities of U.S. Treasury and federal agencies	$	1,138	$	1,195		$	1,315	$	1,381		$	1,856	$	1,900
Securities of U.S. states and political subdivisions		2,192		2,330			2,232		2,382			2,391		2,454
Mortgage-backed securities:
Federal agencies		15,994		17,154			17,766		19,090			29,161		29,578
Private collateralized mortgage obligations (1)		2,205		2,297			1,775		1,880			2,817		2,824

Total mortgage-backed securities		18,199		19,451			19,541		20,970			31,978		32,402
Other		2,584		2,667			2,608		2,658			2,558		2,588

Total debt securities		24,113		25,643			25,696		27,391			38,783		39,344
Marketable equity securities		569		525			598		556			684		741


Total	$	24,682	$	26,168		$	26,294	$	27,947		$	39,467	$	40,085

The decrease in federal agencies mortgage-backed securities was predominantly due to the prepayment of mortgage-backed securities held and sales of certain longer-maturity securities subject to prepayment risk.

The following table provides the components of the estimated unrealized net gains on securities available for sale. The estimated unrealized net gains on securities available for sale are reported on an after-tax basis as a component of cumulative other comprehensive income.

The following table provides the components of the realized net gains on the sales of securities from the securities available for sale portfolio, including those related to marketable equity securities.

The weighted average expected remaining maturity of the debt securities portion of the securities available for sale portfolio was 5 years and 2 months at March 31, 2003. Remaining maturities will differ from contractual maturities because mortgage debt issuers may have the right to prepay obligations prior to contractual maturity.

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 indicated below.



										% Change
										Mar. 31, 2003 from
	Mar. 31		,	Dec. 31		,	Mar. 31		,	Dec. 31		,	Mar. 31		,
(in millions)	2003			2002			2002			2002			2002


Commercial (1)	$	48,147		$	47,292		$	47,388			2	%		2	%
Real estate 1-4 family first mortgage		48,337			44,119			33,169			10			46
Other real estate mortgage (2)		25,629			25,312			25,555			1			—
Real estate construction		8,032			7,804			7,999			3			—
Consumer:
Real estate 1-4 family junior lien mortgage		29,329			28,147			23,043			4			27
Credit card		7,359			7,455			6,497			(1	)		13
Other revolving credit and monthly payment		28,361			26,353			23,953			8			18

Total consumer		65,049			61,955			53,493			5			22
Lease financing		4,567			4,085			4,070			12			12
Foreign		2,061			1,911			1,616			8			28


Total loans (net of unearned income, including net deferred loan fees, of $3,735, $3,699 and $3,376)	$	201,822		$	192,478		$	173,290			5	%		16	%

The table below presents comparative data for nonaccrual loans and other assets. A loan is placed on nonaccrual status (a) upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), (b) when the full timely collection of interest or principal becomes uncertain or (c) when a portion of the principal balance has been charged off. Real estate 1-4 family loans (first and junior liens) are placed on nonaccrual status within 120 days of becoming past due as to interest or principal, regardless of security. Management’s classification of a loan as nonaccrual does not necessarily indicate that the principal of the loan is uncollectible in whole or in part. The table below excludes certain loans that are 90 days or more past due and still accruing that are presented in the table on the following page .

The Company generally identifies loans to be evaluated for impairment when such loans are over $1 million and on nonaccrual. However, not all nonaccrual loans are impaired. Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. See Note 1 to Financial Statements in the Company’s 2002 Form 10-K/A for further discussion of impaired loans.

The table below shows the recorded investment in impaired loans and the method used to measure impairment for the periods presented:

The average recorded investment in impaired loans was $645 million and $791 million during the first quarter of 2003 and 2002, respectively. Total interest income recognized on impaired loans was $3 million for both the first quarter of 2003 and 2002, which was predominantly 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.

The following table shows loans contractually past due 90 days or more as to interest or principal, but still accruing. All loans in this category are (a) both well-secured and in the process of collection or (b) real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual. Real estate 1-4 family loans (first and junior liens) are placed on nonaccrual within 120 days of becoming past due and are excluded from the following table.



	Quarter ended March 31					,
(in millions)	2003			2002


Balance, beginning of period	$	3,819		$	3,717

Allowances related to business combinations/other		25			78

Provision for loan losses		411			469

Loan charge-offs:
Commercial		(153	)		(194	)
Real estate 1-4 family first mortgage		(13	)		(9	)
Other real estate mortgage		(2	)		(10	)
Real estate construction		(3	)		(20	)
Consumer:
Real estate 1-4 family junior lien mortgage		(18	)		(10	)
Credit card		(112	)		(103	)
Other revolving credit and monthly payment		(198	)		(213	)

Total consumer		(328	)		(326	)
Lease financing		(11	)		(3	)
Foreign		(20	)		(20	)

Total loan charge-offs		(530	)		(582	)


Loan recoveries:
Commercial		36			31
Real estate 1-4 family first mortgage		2			2
Other real estate mortgage		2			4
Real estate construction		5			2
Consumer:
Real estate 1-4 family junior lien mortgage		3			2
Credit card		12			11
Other revolving credit and monthly payment		51			56

Total consumer		66			69
Lease financing		1			—
Foreign		3			3

Total loan recoveries		115			111

Net loan charge-offs		(415	)		(471	)


Balance, end of period	$	3,840		$	3,793


Net loan charge-offs (annualized) as a percentage of average total loans		.86	%		1.14	%


Allowance as a percentage of total loans		1.90	%		2.19	%

The Company considers the allowance for loan losses of $3.84 billion adequate to cover losses inherent in loans, loan commitments and standby and other letters of credit at March 31, 2003. The Company’s determination of the level of the allowance for loan losses rests upon various judgments and assumptions, including (1) general economic conditions, (2) loan portfolio composition, (3) prior loan loss experience, (4) the evaluation of credit risk related to both individual borrowers and pools of homogenous loans, (5) periodic use of sensitivity analysis and expected loss simulation modeling and (6) the Company’s ongoing examination process and that of its regulators.



	Mar. 31		,	Dec. 31		,	Mar. 31		,
(in millions)	2003			2002			2002


Trading assets	$	8,244		$	10,167		$	6,308
Accounts receivable		5,364			5,219			2,803
Nonmarketable equity investments:
Private equity investments		1,644			1,657			1,706
Federal bank stock		1,498			1,591			1,335
All other		1,467			1,473			1,183

Total nonmarketable equity investments		4,609			4,721			4,224
Operating lease assets		4,072			4,104			5,102
Government National Mortgage Association (GNMA) pool buy-outs		2,454			2,336			2,931
Interest receivable		1,185			1,139			1,341
Core deposit intangibles		831			868			981
Interest-earning deposits		538			352			1,262
Foreclosed assets		193			195			177
Due from customers on acceptances		83			110			71
Other		9,544			6,637			7,203


Total other assets	$	37,117		$	35,848		$	32,403

Trading assets consist largely of securities, including corporate debt and U.S. government agency obligations, and fair value of derivative instruments held for customer accommodation purposes. Interest income from trading assets was $31 million and $45 million in the first quarter of 2003 and 2002, respectively. Noninterest income from trading assets of $141 million and $94 million in the first quarter of 2003 and 2002, respectively, is included in the “other” category of noninterest income.

Net losses from nonmarketable equity investments were $96 million and $20 million for the first quarter of 2003 and 2002, respectively, and included other-than-temporary impairment of $113 million and $43 million for the same periods, respectively.

GNMA pool buy-outs are advances made to GNMA mortgage pools that are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). These advances are made to buy out delinquent loans under the Company’s servicing agreements. The Company undertakes the collection and foreclosure process for the FHA and VA. After the foreclosure process is complete, the Company is reimbursed for substantially all costs incurred, including the advances.

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

The Company and each of the subsidiary banks are subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. Risk-based capital (RBC) guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.



												To be well
												capitalized under
												the FDICIA
						For capital						prompt corrective
	Actual					adequacy purposes						action provisions
(in billions)	Amount		Ratio			Amount			Ratio			Amount			Ratio

As of March 31, 2003:
Total capital (to risk-weighted assets)
Wells Fargo & Company	$	32.6		10.94	%	³	$	23.8	³	8.00	%
Wells Fargo Bank, N.A.		19.0		11.41		³		13.3	³	8.00		³	$	16.6	³	10.00	%
Wells Fargo Bank Minnesota, N.A.		3.6		12.29		³		2.4	³	8.00		³		2.9	³	10.00

Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company	$	22.0		7.37	%	³	$	11.9	³	4.00	%
Wells Fargo Bank, N.A.		12.2		7.37		³		6.7	³	4.00		³	$	10.0	³	6.00	%
Wells Fargo Bank Minnesota, N.A.		3.3		11.33		³		1.2	³	4.00		³		1.8	³	6.00

Tier 1 capital (to average assets)
(Leverage ratio)
Wells Fargo & Company	$	22.0		6.42	%	³	$	13.7	³	4.00	%(1)
Wells Fargo Bank, N.A.		12.2		6.69		³		7.3	³	4.00	(1)	³	$	9.2	³	5.00	%
Wells Fargo Bank Minnesota, N.A.		3.3		6.25		³		2.1	³	4.00	(1)	³		2.7	³	5.00

To remain a seller/servicer in good standing, the Company’s mortgage banking affiliate must maintain specified levels of shareholders’ equity as required by the United States Department of Housing and Urban Development, Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association. The equity requirements are generally based on the size of the loan portfolio being serviced for each investor. At March 31, 2003, the equity requirements for these agencies ranged from $1 million to $179 million. The mortgage banking affiliate had agency capital levels in excess of these requirements.

As more fully described in Note 1 to Financial Statements in the Company’s 2002 Form 10-K/A, the Company consolidates majority-owned subsidiaries. Affiliates in which there is at least 20 percent ownership are generally accounted for under the equity method of accounting and affiliates in which there is less than 20 percent ownership are generally carried at cost.

In the ordinary course of business, the Company engages in financial transactions, in accordance with generally accepted accounting principles (GAAP), that are not recorded on the Company’s balance sheet or may be recorded on the Company’s balance sheet in amounts that are different than the full contract or notional amount of the transaction. Such transactions are structured to meet the financial needs of customers, manage the Company’s credit, market or liquidity risks, diversify funding sources or optimize capital.

Off-balance sheet arrangements include (1) securitization activities in the ordinary course of business, including mortgage loans and other financial assets (student loans, commercial mortgages and automobile receivables), (2) investment vehicles, typically in the form of collateralized debt obligations and (3) unconsolidated joint ventures, used to support origination activities of the Company’s mortgage banking affiliate or formed with third parties for economies of scale.

In the ordinary course of operations, the Company enters into certain contractual obligations. Such obligations include (1) the acceptance of deposits, (2) the funding of operations through debt issuances, (3) leases for premises and equipment, (4) purchase obligations and (5) certain derivative instrument contracts.

For additional information on off-balance sheet arrangements and other contractual obligations see Note 11 (Guarantees) to Financial Statements and “Financial Review – Overview – Recent Accounting Standards” in this report and “Financial Review – Off-Balance Sheet Arrangements and Other Contractual Obligations” in the Company’s 2002 Form 10-K/A.

Asset/liability management consists of the evaluation, monitoring, and management of the Company’s interest rate risk, market risk and liquidity and funding. The Corporate Asset/Liability Management Committee (Corporate ALCO) maintains oversight of these risks. The Committee consists of senior financial and senior business executives. Each of the Company’s principal business groups – Community Banking (including Mortgage Banking) and Wholesale Banking – have individual asset/liability management committees and processes that are linked to the Corporate ALCO process.

Interest rate risk, one of the more prominent risks in terms of potential earnings impact, is an inevitable part of being a financial intermediary. For more information, see “Financial Review – Asset/Liability and Market Risk Management – Interest Rate Risk” in the Company’s 2002 Form 10-K/A. The principal tool used to evaluate Company interest rate risk is a simulation of net income under various economic and interest rate scenarios.

The Company assesses its interest rate risk by comparing its most likely earnings plan over a twelve-month period to various earnings simulations performed under multiple 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, earnings simulated assuming a gradual increase of 175 basis points in the federal funds rate, as well as earnings simulated assuming a gradual reduction of 75 basis points in the federal funds rate, were both within 1% of the Company’s most likely earnings plan for 2003. Simulation estimates are highly dependent on and will change with the size and mix of the Company’s actual and projected balance sheet at the time each simulation is done.

The Company uses exchange-traded and over-the-counter interest rate derivatives to hedge its interest rate exposures. The credit risk amount and estimated net fair values of these derivatives as of March 31, 2003 and December 31, 2002 are indicated in Note 12 (Derivative Instruments and Hedging Activities) to Financial Statements. Derivatives are used for asset/liability management in three ways: (a) most of the Company’s long-term fixed-rate debt is converted to floating-rate payments by entering into received-fixed swaps at issuance; (b) the cash flows from selected asset and/or liability instruments/portfolios are converted from fixed to floating payments or vice versa; and (c) the Company’s mortgage operation actively uses swaptions, futures, forwards and rate options to hedge the mortgage pipeline, funded mortgage loans and the mortgage servicing rights asset.

The Company originates, funds and services mortgage loans. These activities subject the Company to a number of risks, including credit, liquidity and interest rate risks. The Company manages credit and liquidity risk by selling or securitizing most of the loans it originates. Changes in interest rates, however, may have a potentially large impact on mortgage banking income in any calendar quarter and over time. The Company manages both the risk to net income over time from all sources as well as the risk to an immediate reduction in the fair value of its mortgage servicing rights. The Company relies on mortgage loans held on its balance sheet and derivative instruments to maintain these risks within Corporate ALCO parameters.

At March 31, 2003, the Company had capitalized mortgage servicing rights of $4.2 billion. The value of its servicing rights portfolio is influenced by prepayment speed assumptions affecting the duration of the mortgage loans to which the servicing rights 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. The Company mitigates this risk in two ways. First, a significant portion of the mortgage servicing rights asset is hedged with derivative contracts. 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 the mortgage servicing rights for any given change in long-term interest rates. Second, a portion of the potential reduction in the value of the mortgage servicing rights asset for a given decline in interest rates is offset by estimated increases in origination and servicing fees over a twelve month period from new mortgage activity or refinancing associated with that decline in interest rates. In a scenario of much lower long-term interest rates, the decline in the value of the mortgage servicing rights and its impact on net income would be immediate whereas the additional fee income accrues over time. Under GAAP, impairment of the Company’s servicing rights, due to a decrease in long-term rates or other reasons, is reflected as a charge to earnings. Net of impairment reserves, the capitalized mortgage servicing rights asset was valued at .84% of the total servicing portfolio at March 31, 2003, down from .92% of the servicing portfolio at December 31, 2002.

The Company incurs interest rate risk, foreign exchange risk, equity price risk and commodity price 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. Additionally, the Company takes positions based on market expectations or to benefit from price differentials between financial instruments and markets. All securities, loans, foreign exchange transactions, commodity transactions and derivatives transacted with customers or used to hedge capital market transactions done with customers are carried at fair value. Counterparty risk limits are established and monitored by the Institutional Risk Committee. Open, “at risk” positions for all trading business are monitored by Corporate ALCO.

Equity markets impact the Company in both direct and indirect ways. For more information, see “Financial Review – Asset/Liability and Market Risk Management – Market Risk – Equity Markets” in the Company’s 2002 Form 10-K/A. The Company makes and manages direct equity investments in start up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. The Company also invests in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by the Company’s management or its Board of Directors. Management reviews these investments at least quarterly and assesses them for possible other-than-temporary impairment. At March 31, 2003, private equity investments totaled $1,644 million, compared with $1,657 million at December 31, 2002.

The Company has marketable equity securities in its securities available for sale investment portfolio, including shares distributed from the Company’s venture capital activities. These securities are managed within capital risk limits approved by management. Gains and losses on these securities are recognized in net income when realized and, in addition, other-than-temporary impairment may be periodically recorded. At March 31, 2003, the fair value of marketable equity securities was $525 million and cost was $569 million, compared with $556 million and $598 million, respectively, at December 31, 2002.

The objective of effective liquidity management is to ensure that the Company can efficiently meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments under both normal operating conditions and under unforeseen and 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. To ensure that the Parent is a source of strength for its regulated, deposit-taking subsidiary banks, the Company sets liquidity management guidelines for both the consolidated and Parent balance sheets.

In addition to the immediately liquid resources of cash and due from banks and federal funds sold and securities purchased under resale agreements, asset liquidity is provided by the debt securities in the securities available for sale portfolio. Asset liquidity is further enhanced by the Company’s ability to sell or securitize loans in secondary markets.

Customer core deposits have historically provided the Company with a sizeable source of relatively stable and low-cost funds.

The remaining funding of assets is mostly provided 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. Liquidity for the Company is also available through the Company’s ability to raise funds in a variety of domestic and international money and capital markets.

Parent. The Parent has registered with the Securities and Exchange Commission (SEC) to issue a variety of securities, including senior and subordinated notes and preferred and common securities to be issued by one or more trusts that are directly or indirectly owned by the Company and consolidated in the financial statements. In March 2003, the Parent registered for issuance an additional $15.3 billion in senior and subordinated notes and preferred and common securities. During the first quarter of 2003, the Parent issued a total of $4.4 billion of senior notes, leaving unused issuance capacity of $18.0 billion at March 31, 2003. The Company used the proceeds from securities issued in the first quarter of 2003 for general corporate purposes and expects that it will use the proceeds from the future issuance of any securities for general corporate purposes as well. The Parent also issues commercial paper and has two back-up credit facilities amounting to $2 billion.

On April 15, 2003, the Company issued $3 billion of convertible senior debentures as a private placement. If the price per share of the Company’s common stock exceeds $120.00 per share, or approximately 150% above the closing stock price of $47.45 on April 8, 2003, 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 the Company has the ability to settle the entire amount of the conversion rights granted in this convertible debt offering in cash, common stock or a combination, the Company intends 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. The Company 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 OCC regulations. During the first quarter of 2003, Wells Fargo Bank, N.A. issued $4.4 billion in senior long-term notes. At March 31, 2003, the remaining issuance authority under the long-term portion was $19.9 billion.

Wells Fargo Financial. During the first quarter of 2003, Wells Fargo Financial Canada Corporation, a wholly owned Canadian subsidiary of Wells Fargo Financial, Inc., issued $200 million (Canadian) in senior notes, leaving at March 31, 2003 a total of $750 million (Canadian) available for issuance.

The Company has an active program for managing stockholder capital. The objective of effective capital management is to produce above market long-term returns by opportunistically using capital when returns are perceived to be high and issuing/accumulating capital when costs are perceived to be low.

The Company uses capital to fund organic growth, acquire banks and other financial services companies, pay dividends and repurchase its shares. During the first quarter of 2003, the Company’s consolidated assets increased by $20 billion, or 6%. During 2002, the Board of Directors authorized the repurchase of up to 50 million additional shares of the Company’s outstanding common stock. During the first quarter of 2003, the Company repurchased approximately 16 million shares of its common stock for a total of $744 million. At March 31, 2003 the total remaining common stock repurchase authority was approximately 41 million shares. In January 2003, the Board of Directors approved an increase in the Company’s quarterly common stock dividend to 30 cents per share from 28 cents per share, representing a 7% increase in the quarterly dividend rate.

The Company’s potential sources of capital include retained earnings, common and preferred stock issuance and issuance of subordinated debt and trust preferred securities. In the first quarter of 2003, net income was $1.5 billion and retained earnings increased by $955 million, after payment of $506 million in common stock dividends. In the first quarter of 2003, the Company issued a total of $227 million in common stock for various employee stock plans, which included $81 million related to the conversion of preferred stock to common stock under the Employee Stock Ownership Plan.

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. Broadly speaking, 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 non-performing 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; and

•

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

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 of the Company are described in our 2002 Form 10-K/A. Any factor described in this report or in our 2002 Form 10-K/A could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition. There are factors not described in this report or in our 2002 Form 10-K/A that could cause results to differ from our expectations.

As a financial services company, our earnings are significantly affected by general business and economic conditions.

Our business and earnings are impacted 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, increase in unemployment, or other events that negatively impact household and/or corporate incomes could decrease the demand for the Company’s 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 impact 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 including the aftermath of the war with Iraq, could impact business and economic conditions in the U.S. and abroad. The terrorist attacks in 2001, for example, caused an immediate decrease in demand for air travel, which adversely affected not only the airline industry but also other travel-related and leisure industries, such as 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 impact our net interest margin, and 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 or anticipate.

We operate in a highly competitive industry which could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can now merge by creating a new type of financial services company called 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.

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 changes in 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, our failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies and damage to our reputation. For more information, refer to the “Regulation and Supervision” section and to Notes 4 (Cash, Loan and Dividend Restrictions) and 26 (Regulatory and Agency Capital Requirements) to Financial Statements in the Company’s 2002 Form 10-K/A.

Various legislation, including proposals to substantially change the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced in the Congress. This legislation may change banking

statutes and the operating environment of the Company and its subsidiaries 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 implementing regulations, would have on the financial condition or results of operations of the Company or any of its subsidiaries.

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 impacted to the extent we rely 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 are allowing parties to complete financial transactions that historically have involved banks. For example, consumers can now 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.

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 on financial services companies 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-based services, could require us to make substantial expenditures to modify or adapt our existing products and services. We might not successfully introduce new products and services, achieve market acceptance of our products and services, and/or develop and maintain loyal customers.

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 the Company’s 2002 Form 10-K/A.

Our accounting policies and methods are key to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently 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 that not only do they comply with generally accepted accounting principles but also that they reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. 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 to Financial Statements in the Company’s 2002 Form 10-K/A describes our significant accounting policies.

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 mitigate the impact to the Company when downturns affect any one segment of our industry, it also means that our earnings could be subject to different risks and uncertainties. We discuss some examples below.

Merchant Banking. Our merchant banking activities include venture capital investments, which have a much greater risk of capital losses than our traditional banking activities. Also, it is difficult to predict the timing of any gains from these activities. 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 deterioration in capital spending on technology and telecommunications equipment, 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 impact of interest rates on our mortgage banking business can be large and complex. Changes in interest rates can impact 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. Although the Company uses dynamic and sophisticated models to assess the impact of interest rates on mortgage fees, amortization of mortgage servicing rights, and the value of mortgage servicing assets, the estimates of net income and fair value produced by these models are dependent on estimates and assumptions of future loan demand, prepayment speeds and other factors which may overstate or understate actual subsequent experience. In addition, although the Company uses derivative instruments to hedge the value of its servicing portfolio, the hedges do not cover the full value of the portfolio and the Company can provide no assurances that the hedges will be effective to offset significant decreases in the value of the portfolio. For more information, see “Financial Review—Critical Accounting Policies—Mortgage Servicing Rights Valuation and Risk Management—Asset /Liability and Market Risk Management” in the Company’s 2002 Form 10-K/A.

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

Our ability to successfully complete an acquisition generally is subject to regulatory approval, and 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 divest 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. Specifically, the integration process could result in higher than

expected deposit attrition (run-off), loss of key employees, the 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 impact of any divestitures required by regulatory authorities in connection with acquisitions or business combinations may be greater than expected.

Our business model is dependent on sharing information between 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 impact our revenue and profit.

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities engaged in by the Company can be intense. We may not be able to hire people or to keep them.

Our stock price can fluctuate widely in response to a variety of factors including:

•

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.

General market fluctuations, industry factors and general economic and political conditions and events, such as the recent terrorist attacks, economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, also could cause our stock price to decrease regardless of our operating results.

As required by SEC rules, the Company’s management evaluated the effectiveness, as of March 31, 2003, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and the chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2003.

No change occurred during the first quarter of 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

3(a)

Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(b) to the Company’s Current Report on Form 8-K dated June 28, 1993. Certificates of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated July 3, 1995 (authorizing preference stock), Exhibits 3(b) and 3(c) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (changing the Company’s name and increasing authorized common and preferred stock, respectively) and Exhibit 3(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (increasing authorized common stock)

(b)

Certificate of Change of Location of Registered Office and Change of Registered Agent, incorporated by reference to Exhibit 3(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999

(c)

Certificate of Designations for the Company’s ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1994

(d)

Certificate of Designations for the Company’s 1995 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995

(e)

Certificate Eliminating the Certificate of Designations for the Company’s Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the Company’s Current Report on Form 8-K dated November 1, 1995

(f)

Certificate Eliminating the Certificate of Designations for the Company’s 10.24% Cumulative Preferred Stock, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated February 20, 1996

(g)

Certificate of Designations for the Company’s 1996 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated February 26, 1996

3(h)

Certificate of Designations for the Company’s 1997 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated April 14, 1997

(i)

Certificate of Designations for the Company’s 1998 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated April 20, 1998

(j)

Certificate of Designations for the Company’s Adjustable Cumulative Preferred Stock, Series B, incorporated by reference to Exhibit 3(j) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998

(k)

Certificate Eliminating the Certificate of Designations for the Company’s Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(a) to the Company’s Current Report on Form 8-K dated April 21, 1999

(l)

Certificate of Designations for the Company’s 1999 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3(b) to the Company’s Current Report on Form 8-K dated April 21, 1999

(m)

Certificate of Designations for the Company’s 2000 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3(o) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000

(n)

Certificate of Designations for the Company’s 2001 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated April 17, 2001

(o)

Certificate of Designations for the Company’s 2002 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated April 16, 2002

(p)

Certificate of Designations for the Company’s 2003 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 15, 2003

(q)

Certificate Eliminating the Certificate of Designations for the Company’s ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated April 15, 2003

(r)

By-Laws, incorporated by reference to Exhibit 3(m) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998


	4(a)		See Exhibits 3(a) through 3(r)

	(b)		The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.

	31(a)		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

	(b)		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

	32(a)		Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350, furnished herewith

	(b)		Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350, furnished herewith

	99(a)		Computation of Ratios of Earnings to Fixed Charges, filed herewith. The ratios of earnings to fixed charges, including interest on deposits, were 3.50 and 3.00 for the quarters ended March 31, 2003 and 2002, respectively. The ratios of earnings to fixed charges, excluding interest on deposits, were 5.64 and 4.71 for the quarters ended March 31, 2003 and 2002, respectively.

	(b)		Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends, filed herewith. The ratios of earnings to fixed charges and preferred dividends, including interest on deposits, were 3.49 and 2.99 for the quarters ended March 31, 2003 and 2002, respectively. The ratios of earnings to fixed charges and preferred dividends, excluding interest on deposits, were 5.62 and 4.69 for the quarters ended March 31, 2003 and 2002, respectively.

(b)

The Company filed the following reports on Form 8-K during the first quarter of 2003:

(1)

January 21, 2003, under Item 5, regarding the Company’s financial results for the quarter and year ended December 31, 2002

(2)

March 5, 2003, under Item 7, filing the Form of the Note related to the Company’s issuance of its Basket Linked Notes due April 15, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Shares Outstanding
		April 30, 2003
Common stock, $1-2/3 par value		1,675,110,108


PART I — FINANCIAL INFORMATION
		CONSOLIDATED STATEMENT OF INCOME
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO FINANCIAL STATEMENTS
	NONINTEREST EXPENSE
		OPERATING SEGMENT RESULTS
	BALANCE SHEET ANALYSIS
		SECURITIES AVAILABLE FOR SALE
		LOAN PORTFOLIO
		NONACCRUAL LOANS AND OTHER ASSETS
		Loans 90 Days or More Past Due and Still Accruing
		ALLOWANCE FOR LOAN LOSSES
		OTHER ASSETS
		DEPOSITS
		REGULATORY AND AGENCY CAPITAL REQUIREMENTS
		OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
		ASSET/LIABILITY AND MARKET RISK MANAGEMENT
		CAPITAL MANAGEMENT
		FACTORS THAT MAY AFFECT FUTURE RESULTS
	CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)
Exhibit 99(a)
Exhibit 99(b)



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


Amortized intangible assets:
Mortgage servicing rights, before valuation allowance (1)	$	12,306	$	5,654	$	11,861	$	3,257
Core deposit intangibles		2,415		1,584		2,414		1,433
Other		380		261		294		191

Total	$	15,101	$	7,499	$	14,569	$	4,881


Unamortized intangible asset (trademark)	$	14			$	14



	Quarter ended March 31					,
(in millions)	2003			2002


Balance, beginning of quarter	$	6,677		$	7,365
Originations (1)		603			662
Purchases (1)		394			402
Amortization		(803	)		(370	)
Write-down		(311	)		—
Other (includes changes in mortgage servicing rights due to hedging)		92			545

Balance before valuation allowance, end of quarter		6,652			8,604
Less: Valuation allowance		2,469			1,466


Balance, end of quarter	$	4,183		$	7,138



	Quarter ended March 31					,
(in millions)	2003			2002


Balance, beginning of quarter	$	2,188		$	1,124
Provision for mortgage servicing rights in excess of fair value		592			342
Write-down of mortgage servicing rights		(311	)		—


Balance, end of quarter	$	2,469		$	1,466


Delaware (State or other jurisdiction of incorporation or organization)		41-0449260 (I.R.S. Employer Identification No.)



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


Quarter ended March 31, 2003 (actual)	$	803	$	37	$	6	$	846

Nine months ended December 31, 2003 (estimate)		1,871		105		16		1,992

Estimate for year ended December 31,
2004		1,743		131		20		1,894
2005		1,104		120		16		1,240
2006		686		108		13		807
2007		442		99		11		552
2008		286		91		10		387

(1)		Liquidation preference $50.
(2)		Liquidation preference $1,000.
(3)		In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, the Company 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.

(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 actual 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)		The reconciling items for revenue (i.e., net interest income plus noninterest income) and net income are Corporate level equity investment activities. The material item in the reconciliation column for average assets is unallocated goodwill held at the enterprise level.



	March 31, 2003					December 31, 2002
	Credit		Estimated			Credit		Estimated
	risk		net fair			risk		net fair
(in millions)	amount (2)		value			amount (2)		value


ASSET/LIABILITY MANAGEMENT HEDGES (1)
Interest rate contracts	$	2,795	$	2,456		$	3,438	$	2,631

CUSTOMER ACCOMMODATIONS AND TRADING (1)
Interest rate contracts		3,190		259			3,343		31
Commodity contracts		45		(6	)		28		4
Equity contracts		52		13			29		(20	)
Foreign exchange contracts		272		41			271		30
Credit contracts		44		(13	)		52		(11	)

(1)		The Company anticipates that substantially all of the counterparties will perform in accordance with these contracts or the underlying financial instruments.
(2)		Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by all counterparties.

(1)		Change in accounting principle relates to transitional goodwill impairment charge recorded in first quarter 2002 related to the adoption of FAS 142, Goodwill and Other Intangible Assets.
(2)		The efficiency ratio is defined as noninterest expense divided by the total revenue (net interest income and noninterest income).
(3)		See the Regulatory and Agency Capital Requirements section for additional information.

(1)		The average prime rate of the Company was 4.25% and 4.75% for the quarters ended March 31, 2003 and 2002, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 1.33% and 1.91% for the same quarters, 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 both quarters presented.

(1)		Includes agricultural loans (loans to finance agricultural production and other loans to farmers) of $3,946 million, $4,473 million and $3,975 million at March 31, 2003, December 31, 2002 and March 31, 2002, respectively.
(2)		Includes agricultural loans that are secured by real estate of $1,116 million, $1,111 million and $1,255 million at March 31, 2003, December 31, 2002 and March 31, 2002, respectively.

(1)		Includes commercial agricultural loans of $45 million, $48 million and $69 million at March 31, 2003, December 31, 2002 and March 31, 2002, respectively.
(2)		Includes agricultural loans secured by real estate of $30 million, $30 million and $18 million at March 31, 2003, December 31, 2002 and March 31, 2002, respectively.
(3)		Includes impaired loans of $671 million, $612 million and $742 million at March 31, 2003, December 31, 2002 and March 31, 2002, respectively.
(4)		Represents the amount of real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if such assets were recorded as loans. Real estate investments totaled $9 million, $9 million and $23 million at March 31, 2003, December 31, 2002 and March 31, 2002, respectively.


Dated: January 16, 2004	WELLS FARGO & COMPANY

	By:	/s/ RICHARD D. LEVY

		Richard D. Levy
		Senior Vice President and Controller
		(Principal Accounting Officer)