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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004

OR

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

Commission file number 001-2979

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)

Registrant’s telephone number, including area code: 1-800-292-9932

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

Yes  þ     No  o

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

Yes  þ     No  o

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

FORM 10-Q
CROSS-REFERENCE INDEX

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PART I — FINANCIAL INFORMATION

FINANCIAL REVIEW

SUMMARY FINANCIAL DATA

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This Report on Form 10-Q for the quarter ended March 31, 2004, including the Financial Review and the Financial Statements and related Notes, has forward-looking statements, which include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly from our forecasts and expectations. Please refer to “Factors that May Affect Future Results” for a discussion of some factors that may cause results to differ.

OVERVIEW

Wells Fargo & Company is a $397 billion diversified financial services company providing banking, insurance, investments, mortgage banking and consumer finance through banking stores, the internet and other distribution channels to consumers, businesses and institutions in all 50 states of the U.S. and in other countries. We ranked fifth in assets and third in market value of our common stock among U.S. bank holding companies at March 31, 2004. When we refer to “the Company”, “we”, “our” and “us” in this report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the Parent, we mean Wells Fargo & Company.

In first quarter 2004, we achieved record diluted earnings per share of $1.03, up 17 % from a year ago, and record net income of $1.77 billion, up 18% from a year ago. First quarter 2004 revenue grew 7% from a year ago, while expenses increased 2% — better than our long-term goal of growing revenue twice as fast as expenses. We had 15% revenue growth compared with a year ago in businesses other than Wells Fargo Home Mortgage (Home Mortgage). Revenue growth was broad-based, including double-digit growth in consumer lending, consumer finance, deposit services, asset-based lending, trade finance, small business lending, private client services and capital markets-related activities.

Our corporate vision is to satisfy all the financial needs of our customers, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Our primary strategy to achieve this vision is to increase the number of products we provide to our customers and to focus on providing each customer with all of the financial products that fulfill their needs. Our cross-sell strategy and diversified business model facilitates growth in strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us. We estimate that each of our current customers has an average of over four of our products. Our goal is eight products per customer, which is currently half of our estimate of potential demand. Our core products grew this quarter compared with a year ago, with average loans up 31% and average core deposits up 8%.

We believe it is important to maintain a well-controlled environment as we continue to grow our businesses. We manage our credit risk by maintaining prudent credit policies. In first quarter 2004, nonperforming loans and net charge-offs as a percentage of loans outstanding declined from the prior year. Asset quality improved in first quarter 2004 compared with a year ago, with net charge-offs down 3% and nonperforming assets (including nonaccrual loans and foreclosed assets) down 9%. At March 31, 2004 nonperforming assets were less than 1% of total assets. Loan losses declined to $404 million despite the continued growth in our loan portfolio. We manage the interest rate and market risks inherent in our asset and liability balances within prudent ranges, while ensuring adequate liquidity and funding. Wells Fargo Bank, N.A. is the

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only bank in the U.S. to be “Aaa” rated by Moody’s Investors Service, their highest rating. Our stockholder value has continued to increase due to customer satisfaction, strong financial results and the prudent way we attempt to manage our business risks.

Our financial results included the following:

Net income for the first quarter of 2004 was $1.77 billion, up 18%, compared with $1.49 billion for first quarter 2003. Diluted earnings per common share for first quarter 2004 were $1.03, up 17%, compared with $.88 for first quarter 2003. Return on average assets (ROA) increased to 1.84% and return on average common equity (ROE) increased to 20.31% for first quarter 2004, our best returns since the November 1998 Norwest-Wells Fargo merger.

Net interest income on a taxable-equivalent basis increased 5% from $4.07 billion for first quarter 2004, compared with $3.87 billion for first quarter 2003, based on 12% growth in earning assets, offset in part by a modest decline in the net interest margin. The net interest margin was 4.94% for first quarter 2004, compared with 5.27% for first quarter 2003.

Noninterest income increased 9% to $3.10 billion for first quarter 2004, compared with $2.83 billion for first quarter 2003. Excluding mortgage banking income, noninterest income increased 22%. The growth in our non-mortgage banking activities reflected improved business conditions and our broad-based growth, including particular strength in deposit service fees, insurance income, trust and investment fees, credit card fees and other fees. During the quarter, we also realized $95 million in equity gains.

Revenue, the sum of net interest income and noninterest income, increased 7% to $7.15 billion in first quarter 2004 from $6.68 billion in first quarter 2003. Due to the increase in mortgage interest rates late in 2003, Home Mortgage revenue declined from $1.2 billion in first quarter 2003 to $.8 billion in first quarter 2004. Apart from Home Mortgage, revenue growth accelerated to 15%.

Noninterest expense was $4.03 billion for first quarter 2004, up $72 million, or 2%, from first quarter 2003. Home Mortgage expenses declined approximately $115 million from first quarter 2003 reflecting lower production and staffing costs. Our operating efficiency improved to 56.4% in first quarter 2004 from 59.2% a year ago.

During first quarter 2004, net charge-offs were $404 million, or .63% of average total loans (annualized), compared with $415 million, or .86%, during first quarter 2003. The provision for loan losses was $404 million in first quarter 2004, compared with $411 million in first quarter 2003. The allowance for loan losses was $3.89 billion, or 1.47% of total loans, at March 31, 2004, compared with $3.89 billion, or 1.54%, at December 31, 2003 and $3.84 billion, or 1.90%, at March 31, 2003.

At March 31, 2004, total nonaccrual loans were $1.39 billion, or .52% of total loans, compared with $1.46 billion, or .58%, at December 31, 2003 and $1.56 billion, or .77%, at March 31, 2003. Foreclosed assets were $222 million at March 31, 2004, compared with $198 million at December 31, 2003 and $193 million at March 31, 2003.

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The ratio of common stockholders’ equity to total assets was 8.93% at March 31, 2004, compared with 8.89% at December 31, 2003 and 8.30% at March 31, 2003. Our total risk-based capital (RBC) ratio at March 31, 2004 was 12.18% and our Tier 1 RBC ratio was 8.48%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. Our RBC ratios at March 31, 2003 were 10.94% and 7.37%, respectively. Our Tier 1 leverage ratios were 7.13% and 6.42% at March 31, 2004 and March 31, 2003, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.

Recent Accounting Standards

On December 8, 2003 President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to plan sponsors that provide a benefit that is at least equivalent to Medicare. On January 12, 2004, the Financial Accounting Standards Board (FASB) issued Staff Position 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which includes a provision that allows a plan sponsor a one-time election to defer accounting for the Act that must be made before net periodic postretirement benefit costs for the period that includes the Act’s enactment date are first included in reported financial information. If deferral is elected, that election may not be changed and the deferral continues to apply until authoritative guidance on the accounting for the federal subsidy is issued. We have chosen to defer accounting for the Act until authoritative guidance is issued; therefore, the net periodic postretirement benefit cost in our first quarter 2004 financial statements does not reflect the effects of the Act on our postretirement health care plans. Specific authoritative guidance on the accounting for the federal subsidy has been proposed through FASB Staff Position 106-b, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Based on this proposed guidance, we estimate that accounting for the impact of the Act will not have a material effect on our financial statements. The proposed guidance is expected to be issued in the second quarter of 2004, and would be effective for us in the third quarter of 2004.

On March 9, 2004, Securities and Exchange Commission (SEC) Staff Accounting Bulletin 105 (SAB 105), Application of Accounting Principles to Loan Commitments, was issued. SAB 105 summarizes the views of the SEC staff regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. The adoption of SAB 105 did not have a material effect on our financial results.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are fundamental to understanding our results of operations and financial condition, because some accounting policies require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Three of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern the allowance for loan losses, the valuation of mortgage servicing rights and pension accounting. Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit and Examination Committee. These policies are described in “Financial Review — Critical Accounting Policies and Note 1

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(Summary of Significant Accounting Policies) to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2003 (2003 Form 10-K).

EARNINGS PERFORMANCE

NET INTEREST INCOME

Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid for deposits, long-term and short-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and debt. Net interest income and the net interest margin are presented on a taxable-equivalent basis to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% marginal tax rate.

Net interest income on a taxable-equivalent basis increased to $4.07 billion in first quarter 2004 from $3.87 billion in first quarter 2003, an increase of 5%. The increase was primarily due to strong growth in loans, increases in core deposits and significantly lower wholesale funding rates. These factors were partially offset by reduced loan yields as floating-rate loans repriced and fixed-rate loans matured or were prepaid and replaced with new loans at lower rates. In addition, a decline in investment portfolio yield occurred as higher yielding mortgage-backed securities were sold, prepaid or matured.

The net interest margin decreased to 4.94% in first quarter 2004 from 5.27% in first quarter 2003. The decrease was primarily due to lower average loan yields as new loans were added to the portfolio at yields below existing loans due to a lower interest rate environment. The net interest margin was essentially unchanged (down 3 basis points) from fourth quarter 2003 to first quarter 2004, with the benefit of the strategic actions taken in the second half of last year offsetting the impact of continued low interest rates on the margin.

Individual components of net interest income and the net interest margin are presented in the rate/yield table on page 6.

Average earning assets increased $35.3 billion due to an increase in average loans and debt securities available for sale, primarily offset by a decline in average mortgages held for sale. Loans averaged $256.4 billion in first quarter 2004, compared with $195.1 billion in first quarter 2003. Average mortgages held for sale decreased to $25.0 billion from $58.4 billion due to a decline in residential mortgage refinance activity. Debt securities available for sale averaged $31.5 billion during first quarter 2004 and $26.1 billion in first quarter 2003.

Average core deposits are an important contributor to growth in net interest income and the net interest margin. This low-cost source of funding rose 8% from a year ago. Average core deposits were $213.1 billion and $196.8 billion and funded 55.1% and 55.4% of our average total assets in first quarter 2004 and 2003, respectively. Average mortgage escrow deposits were

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AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2)

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$12.5 billion for first quarter 2004, down $4.9 billion from a year ago. Excluding mortgage escrow deposits, total average core deposits grew $21 billion, or 12%, from a year ago. While savings certificates of deposit declined on average to $19.5 billion in first quarter 2004 from $22.0 billion in first quarter 2003, noninterest-bearing checking accounts and other core deposit categories increased on average from $174.8 billion in first quarter 2003 to $193.7 billion in first quarter 2004 reflecting growth in both commercial and consumer accounts. Total average interest-bearing deposits increased to $169.7 billion in first quarter 2004 from $152.1 billion in first quarter 2003.

NONINTEREST INCOME

Service charges on deposit accounts increased 11% due to continued growth in primary checking accounts and increased activity.

We earn trust, investment and IRA fees from managing and administering assets, which include mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At March 31, 2004, these assets totaled approximately $608 billion, up 21% from $504 billion at March 31, 2003. Generally, these fees are based on the market value of the assets that are managed, administered, or both. The increase in trust, investment and IRA fees of 16% for first quarter 2004 compared with first quarter 2003 was due primarily to growth in assets driven by a strong equity market, our successful efforts to grow these businesses and modest fill-in acquisitions such as Benson Associates, LLC.

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Additionally, we receive commissions and other fees for providing services to retail and discount brokerage customers. At March 31, 2004 and 2003, brokerage balances were approximately $77 billion and $67 billion, respectively. Generally, these fees are based on the number of transactions executed at the customer’s direction. The increase in commissions and all other fees of 18% for first quarter 2004 compared with first quarter 2003 was due to a higher number of brokerage transactions, stronger equity markets, increased sales of commission-based products and increased investment banking activity.

Credit card fees increased 6% from first quarter 2003 due to an increase in credit card accounts and credit and debit card transaction volume.

Mortgage banking noninterest income was $315 million in first quarter 2004, compared with $561 million in the same period of 2003. Origination and other closing fees decreased to $178 million from $276 million a year ago. Net gains on mortgage loan origination/sales activities declined $717 million from $637 million in first quarter 2003 to net losses of $80 million in first quarter 2004. This decline was primarily due to lower mortgage origination volume. Originations during first quarter 2004 declined to $65 billion from $103 billion during first quarter 2003. Most of the first quarter 2004 originations occurred late in the quarter as mortgage interest rates declined. With the application pipeline increasing to $72 billion at quarter end, we would expect originations and average mortgage loans held for sale in second quarter 2004 to be higher than first quarter.

Net servicing fees were a gain of $166 million in first quarter 2004, compared with a loss of $443 million in first quarter 2003. Servicing fees are presented net of amortization and impairment of mortgage servicing rights (MSRs) and gains and losses from hedge ineffectiveness, which are all influenced by both the level and direction of mortgage interest rates. Servicing fees in first quarter 2004, compared with a net loss a year ago, reflected a higher level of mortgage loans serviced for others and a lower level of amortization expense and impairment provision. The increase in mortgage loans serviced for others from $499 billion to $609 billion was due to originations exceeding payoffs during the past year. The decrease in amortization expense and impairment provision was primarily due to slower projected prepayments resulting from a lower weighted-average note rate in the servicing portfolio compared with the prior year.

During first quarter 2004 and 2003, we recognized a direct write-down of MSRs of $169 million and $311 million, respectively. See “Financial Review - Critical Accounting Policies — Mortgage Servicing Rights Valuation” in our 2003 Form 10-K for the method used to evaluate MSRs for impairment and to determine if such impairment is other-than-temporary.

The increase in insurance fees was due to higher wholesale brokerage fees, increased demand for crop and other loan-based insurance products, as well as continued cross-selling of all insurance products.

Net gains on debt securities were $33 million in first quarter 2004, compared with $18 million in first quarter 2003. Net gains from equity investments were $95 million in first quarter 2004, compared with losses of $98 million in first quarter 2003. We expect to recognize additional gains going forward, although not necessarily the same amount each quarter as this quarter.

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We routinely review our investment portfolios and recognize impairment write-downs based primarily on issuer-specific factors and results. We also consider general economic and market conditions, including industries in which venture capital investments are made, and adverse changes affecting the availability of venture capital. We determine impairment based on all of the information available at the time of the assessment, but new information or economic developments in the future could result in recognition of additional impairment.

The increase in “All other” was partly due to an increase in gains on trading securities, foreign exchange and other capital markets activities.

NONINTEREST EXPENSE

The 2% increase in noninterest expense was due primarily to higher salaries and benefits attributable to additional active, full-time equivalent team members, offset by a $115 million decrease in Home Mortgage expenses reflecting lower production volume.

OPERATING SEGMENT RESULTS

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

Community Banking’s net income was $1,167 million in first quarter 2004, compared with $1,058 million for the same period in 2003, an increase of 10%. Net interest income increased by $69 million, or 2%, compared with first quarter 2003, primarily due to growth in consumer loans and deposits, which more than offset the decrease in mortgages held for sale and the impact of a decline in the net interest margin. The provision for loan losses decreased by $3 million from 2003 due to the improved credit environment. Noninterest income was up $31 million in first

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quarter 2004 compared with 2003. Noninterest expense decreased by $32 million over 2003 primarily due to lower mortgage volume.

Wholesale Banking’s net income was $448 million in first quarter 2004, compared with $347 million in first quarter 2003. Net interest income increased to $562 million from $551 million in first quarter 2003. Average outstanding loan balances were $50.3 billion in first quarter 2004, up 2% from $49.3 billion in first quarter 2003. The provision for loan losses decreased by $30 million to $23 million for first quarter 2004 compared with first quarter 2003. Noninterest income increased to $828 million in 2004 from $652 million in 2003. Growth in revenue of 16% was primarily due to higher income from asset-based lending, insurance brokerage, fees and commissions and capital-markets related business. Noninterest expense increased to $669 million in first quarter 2004, up 8% from first quarter 2003, primarily due to higher personnel expense, including increased medical and benefit costs.

Wells Fargo Financial’s net income was $136 million in first quarter 2004, compared with $102 million in first quarter 2003, an increase of 33%. Net interest income increased $121 million, or 23%, due to growth in average loans. The provision for loan losses increased $26 million, or 18%, also due to growth in average loans. Noninterest income increased $11 million, or 12%, in first quarter 2004 compared with first quarter 2003, primarily due to a combination of a $2.5 million increase in gains on sales of investment securities and $6 million of unrealized gains related to interest rate swaps. Noninterest expense increased $58 million, or 19%, in first quarter 2004 compared with first quarter 2003, primarily due to increases in employee compensation and benefits and other costs relating to business expansion.

For a more complete description of our operating segments, including additional financial information and the underlying management accounting process, see Note 12 (Operating Segments) to Financial Statements.

BALANCE SHEET ANALYSIS

A comparison between first quarter 2004 and first quarter 2003 balance sheets is presented below.

SECURITIES AVAILABLE FOR SALE

Our securities available for sale portfolio includes both debt and marketable equity securities. We hold debt securities available for sale primarily for liquidity, interest rate risk management and yield enhancement purposes. Accordingly, this portfolio primarily includes very liquid, high quality federal agency debt securities. At March 31, 2004, we held $32.3 billion of debt securities available for sale, compared with $25.6 billion at March 31, 2003. We had a net unrealized gain on debt securities available for sale of $1.5 billion at both March 31, 2004 and 2003.

The weighted-average expected maturity of debt securities available for sale was 4.0 years at March 31, 2004. Since 76% of this portfolio is mortgage-backed securities, the expected remaining maturity may differ from contractual maturity because borrowers may have the right to prepay obligations before the underlying mortgages mature.

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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 shown below.

MORTGAGE-BACKED SECURITIES

See Note 3 (Securities Available for Sale) to Financial Statements for securities available for sale by security type.

LOAN PORTFOLIO

A comparative schedule of average loan balances is included in the table on page 6; quarter-end balances are in Note 4 (Loans and Allowance for Loan Losses) to Financial Statements.

Loans averaged $256.4 billion in first quarter 2004, compared with $195.1 billion in first quarter 2003, an increase of 31%. Total loans at March 31, 2004 were $264.2 billion, compared with $201.8 billion at March 31, 2003, an increase of 31%. The increases in total loans and average loans were due to the strong demand for consumer credit, including home equity, home mortgage, revolving credit and installment loan products. Mortgages held for sale decreased to $26.4 billion from $62.6 billion due to lower loan origination volume at the end of first quarter 2004.

DEPOSITS

The increase in deposits was predominantly due to normal growth from new products.

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OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. We also enter into certain contractual obligations. For additional information on off-balance sheet arrangements and other contractual obligations see “Financial Review — Off-Balance Sheet Arrangements and Aggregate Contractual Obligations” in our 2003 Form 10-K and Note 16 (Guarantees) to Financial Statements.

RISK MANAGEMENT

CREDIT RISK MANAGEMENT PROCESS

Our credit risk management process provides for decentralized management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, frequent and detailed risk measurement and modeling, and a continual loan audit review process. In addition, the external auditor and regulatory examiners review and perform detail tests of our credit underwriting, loan administration and allowance processes.

Nonaccrual Loans and Other Assets

The table below shows the comparative data for nonaccrual loans and other assets. We generally place loans on nonaccrual status (1) when they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest or principal (unless both well-secured and in the process of collection), (2) when the full and timely collection of interest or principal becomes uncertain or (3) when part of the principal balance has been charged off. Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2003 Form 10-K describes our accounting policy for nonaccrual loans.

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NONACCRUAL LOANS AND OTHER ASSETS

We expect that the amount of nonaccrual loans will change due to portfolio growth, routine problem loan recognition and resolution through collections, sales or charge-offs. The performance of any loan can be affected by external factors, such as economic conditions, or factors particular to a borrower, such as actions of a borrower’s management. In addition, from time to time, we purchase loans from other financial institutions that we classify as nonaccrual based on our policies.

Loans 90 Days or More Past Due and Still Accruing

Loans included in this category are 90 days or more past due as to interest or principal and still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family first mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual.

The total of loans 90 days past due and still accruing was $2,293 million, $2,337 million and $626 million at March 31, 2004, December 31, 2003 and March 31, 2003, respectively. At March 31, 2004 and December 31, 2003, the total included $1,631 million and $1,641 million, respectively, in advances pursuant to our servicing agreements to Government National Mortgage Association (GNMA) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Prior to clarifying guidance issued in 2003 as to classification as loans, GNMA advances were included in other assets.

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LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
(EXCLUDING INSURED/GUARANTEED GNMA ADVANCES)

Allowance for Loan Losses

The allowance for loan losses is management’s estimate of credit losses inherent in the loan portfolio, including unfunded commitments, at the balance sheet date. We assume that the allowance for loan losses as a percentage of charge-offs and nonperforming loans will change at different points in time based on credit performance, loan mix and collateral values. The analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by loan category, is presented in Note 4 (Loans and Allowance for Loan Losses) to Financial Statements.

We consider the allowance for loan losses of $3.89 billion adequate to cover credit losses inherent in the loan portfolio, including unfunded commitments, at March 31, 2004. The process for determining the adequacy of the allowance for loan losses is critical to our financial results. It requires management to make difficult, subjective and complex judgments, as a result of the need to make estimates about the effect of matters that are uncertain. See “Financial Review – Critical Accounting Policies – Allowance for Loan Losses” in our 2003 Form 10-K. Therefore, we cannot provide assurance that, in any particular period, we will not have sizeable loan losses in relation to the amount reserved. We may need to significantly increase the allowance for loan losses, considering current factors at the time, including economic conditions and ongoing internal and external examination processes. Our process for determining the adequacy of the allowance for loan losses is discussed in Note 5 (Loans and Allowance for Loan Losses) to Financial Statements in our 2003 Form 10-K.

ASSET/LIABILITY AND MARKET RISK MANAGEMENT

Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk, liquidity and funding. The Corporate Asset/Liability Management Committee (Corporate ALCO) – which oversees these risks and reports periodically to the Finance Committee of the Board of Directors – consists of senior financial and business executives. Each of our principal business groups – Community Banking (including Mortgage Banking), Wholesale Banking and Wells Fargo Financial – have individual asset/liability management committees and processes linked to the Corporate ALCO process.

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INTEREST RATE RISK

Interest rate risk, which potentially can have a significant earnings impact, is an integral part of being a financial intermediary. We are subject to interest rate risk because:

•		assets and liabilities may mature or re-price at different times (for example, if assets re-price faster than liabilities and interest rates are generally falling, earnings will initially decline);
•		assets and liabilities may re-price at the same time but by different amounts (for example, when the general level of interest rates is falling, we may reduce rates paid on checking and savings deposit accounts by an amount that is less than the general decline in market interest rates);
•		short-term and long-term market interest rates may change by different amounts (i.e., the shape of the yield curve may affect new loan yields and funding costs differently); or
•		the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change (for example, if long-term mortgage interest rates decline sharply, mortgage-backed securities held in the securities available for sale portfolio may prepay significantly earlier than anticipated – which could reduce portfolio income). In addition, interest rates may have an indirect impact on loan demand, credit losses, mortgage origination volume, the value of mortgage servicing rights, the value of the pension liability and other sources of earnings.

We assess interest rate risk by comparing our most likely earnings plan with various earnings models using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. For example, if we assume an increase of 350 basis points in the federal funds rate from its level at March 31, 2004 and an increase of 265 basis points in the 10 year Constant Maturity Treasury bond yield during the same period, estimated earnings would be within 1% of our most likely earnings plan for 2004. Simulation estimates depend on, and will change with, the size and mix of our actual and projected balance sheet at the time of each simulation.

We use exchange-traded and over-the-counter interest rate derivatives to hedge our interest rate exposures. The credit risk amount and estimated net fair values of these derivatives as of March 31, 2004 and December 31, 2003 are presented in Note 18 (Derivatives) to Financial Statements. We use derivatives for asset/liability management in three ways:

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

MORTGAGE BANKING INTEREST RATE RISK

We originate, fund and service mortgage loans, which subjects us to a number of risks, including credit, liquidity and interest rate risks. We manage credit and liquidity risk by selling or securitizing most of the mortgage loans we originate. Changes in interest rates, however, may have a significant effect on mortgage banking income in any quarter and over time. Interest rates impact both the value of the mortgage servicing rights (MSRs), which is adjusted to the lower of

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cost or fair value, and the future earnings of the mortgage business, which are driven by origination volume and the duration of our servicing. We manage both risks by hedging the impact of interest rates on the value of the MSRs using derivatives, combined with the “natural hedge” provided by the origination and servicing components of the mortgage business; however, we do not hedge 100% of these two risks.

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

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

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

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

Our MSRs totaled $6.1 billion, net of a valuation allowance of $2.2 billion, at March 31, 2004, and $4.2 billion, net of a valuation allowance of $2.5 billion, at March 31, 2003. The increase in MSRs was primarily due to the growth in the servicing portfolio resulting from originations and purchases. Our MSRs were 1.0% of mortgage loans serviced for others at March 31, 2004, compared with 1.15% at December 31, 2003 and .84% at March 31, 2003.

MARKET RISK — TRADING ACTIVITIES

From a market risk perspective, our net income is exposed to changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices and their implied volatilities. The primary purpose of our trading businesses is to accommodate customers in the management of their market price risks. Also, we take positions based on market expectations or to benefit from price differences between financial instruments and markets, subject to risk limits established and monitored by Corporate ALCO. All securities, loans, foreign exchange transactions, commodity transactions and derivatives – transacted with customers or used to hedge capital market transactions with customers – are carried at fair value. The Institutional Risk Committee establishes and monitors counterparty risk limits. The notional or contractual amount, credit risk amount and estimated net fair value of all customer accommodation derivatives at

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March 31, 2004 and December 31, 2003 are included in Note 18 (Derivatives) to Financial Statements. Open, “at risk” positions for all trading business are monitored by Corporate ALCO.

The standardized approach for monitoring and reporting market risk for the trading activities is the value-at-risk (VAR) metrics complemented with factor analysis and stress testing. Value-at-risk measures the worst expected loss over a given time interval and within a given confidence interval. We measure and report daily VAR at 99% confidence interval based on actual changes in rates and prices over the past 250 days. The analysis captures all financial instruments that are considered trading positions. The average one day VAR throughout first quarter 2004 was $13 million, with a lower bound of $11 million and an upper bound of $17 million.

MARKET RISK — EQUITY MARKETS

We are directly and indirectly affected by changes in the equity markets. We make and manage direct equity investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by management and the Board of Directors. The Board reviews business developments, key risks and historical returns for the private equity investments at least annually. Management reviews these investments at least quarterly and assesses them for possible other-than-temporary impairment. For nonmarketable investments, the analysis is based on facts and circumstances of each individual investment and the expectations for that investment’s cash flows and capital needs, the viability of its business model and our exit strategy. At March 31, 2004, private equity investments totaled $1,693 million, compared with $1,644 million at March 31, 2003.

We also have marketable equity securities in the available for sale investment portfolio, including shares distributed from our venture capital activities. We manage these investments within capital risk limits approved by management and the Board and monitored by Corporate ALCO. Gains and losses on these securities are recognized in net income when realized and, in addition, other-than-temporary impairment may be periodically recorded. The initial indicator of impairment for marketable equity securities is a sustained decline in market price below the amount recorded for that investment. We consider a variety of factors, such as the length of time and the extent to which the market value has been less than cost; the issuer’s financial condition, capital strength, and near-term prospects; any recent events specific to that issuer and economic conditions of its industry; and, to a lesser degree, our investment horizon in relationship to an anticipated near-term recovery in the stock price, if any. At March 31, 2004, the fair value of marketable equity securities was $577 million and cost was $414 million, compared with $525 million and $569 million, respectively, at March 31, 2003.

Changes in equity market prices may also indirectly affect our net income (1) by affecting the value of third party assets under management and, hence, fee income, (2) by affecting particular borrowers, whose ability to repay principal and/or interest may be affected by the stock market, or (3) by affecting brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.

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LIQUIDITY AND FUNDING

The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, Corporate ALCO establishes and monitors liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. We set liquidity management guidelines for both the consolidated balance sheet as well as for the Parent specifically to ensure that the Parent is a source of strength for its regulated, deposit-taking banking subsidiaries. Debt securities in the securities available for sale portfolio provide asset liquidity, in addition to the immediately liquid resources of cash and due from banks and federal funds sold and securities purchased under resale agreements. Asset liquidity is further enhanced by our ability to sell or securitize loans in secondary markets through whole-loan sales and securitizations.

Core customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. The remaining assets were funded by long-term debt, deposits in foreign offices, short-term borrowings (federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings) and trust preferred securities.

Liquidity is also available through our ability to raise funds in a variety of domestic and international money and capital markets. We access capital markets for long-term funding by issuing registered debt, private placements and asset-based secured funding. In September 2003, Moody’s Investors Service raised Wells Fargo Bank, N.A.’s rating to “Aaa,” its highest investment grade, from “Aa1” and raised the Company’s senior debt rating to “Aa1” from “Aa2.” In October 2003, Standard & Poor’s Ratings Service raised the counterparty ratings on the Company to “AA-minus/A-1-plus” from “A-plus/A-1” and the revised outlook for the Company to stable from positive. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix and level and quality of earnings.

Parent. In March 2003, the Parent registered with the Securities and Exchange Commission (SEC) for issuance an additional $15.3 billion in senior and subordinated notes and preferred and common securities. During first quarter 2004, the Parent issued a total of $6.0 billion of senior and subordinated notes. At March 31, 2004, the Parent’s remaining issuance capacity under effective registration statements was $3.0 billion. We used the proceeds from securities issued in first quarter 2004 for general corporate purposes and expect that the proceeds in the future will also be used for general corporate purposes. The Parent also issues commercial paper and has a $1 billion back-up credit facility. In April 2004, the Parent issued $500 million in subordinated debt and $500 million in junior subordinated debentures (See Note 8 (Guaranteed Preferred Beneficial Interests in Company’s Subordinated Debentures) to Financial Statements for additional information). Also, in April 2004, the Parent filed a registration statement with the SEC for issuance of $20 billion in senior and subordinated notes, preferred stock and other securities.

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

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program updates and supercedes the bank note program established in February 2001. Securities are issued under this program as private placements in accordance with Office of the Comptroller of the Currency (OCC) regulations. During first quarter 2004, Wells Fargo Bank, N.A. issued $4.2 billion in senior long-term notes. At March 31, 2004, the remaining issuance authority under the long-term portion was $10.7 billion.

Wells Fargo Financial. In November 2003, Wells Fargo Financial Canada Corporation (WFFCC), a wholly-owned Canadian subsidiary of Wells Fargo Financial, Inc. (WFFI), qualified for distribution with the provincial securities exchanges in Canada $1.5 billion (Canadian) in senior debt and, at March 31, 2004, no issuances have been made. During first quarter 2004, WFFI entered into a secured borrowing arrangement for $500 million (US). Under the terms of the arrangement WFFI pledged auto loans as security for the borrowing.

CAPITAL MANAGEMENT

We have an active program for managing stockholder capital. Our objective is to produce above market long-term returns by opportunistically using capital when returns are perceived to be high and issuing/accumulating capital when such costs are perceived to be low.

We use capital to fund organic growth, acquire banks and other financial services companies, pay dividends and repurchase our shares. During first quarter 2004, consolidated assets increased by $10 billion, or 2%.

From time to time our Board of Directors authorizes the Company to repurchase shares of its common stock. Although we announce when our Board authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for acquisitions and employee benefit plans, market conditions (including the trading price of our stock), and legal considerations. These factors can change at any time, and there can be no assurance as to the number of shares we will repurchase or when we will repurchase them.

Historically, our policy has been to repurchase shares under the “safe harbor” conditions of Rule 10b-18 of the Exchange Act including a limitation on the daily volume of repurchases. In November 2003, the SEC amended Rule 10b-18 to impose an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of our stock will constitute some or all of the consideration. Our management may determine that during a pending stock merger or acquisition when the safe harbor would otherwise be available, it is in the Company’s best interest to repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in compliance with the other conditions of the safe harbor, including the standing daily volume limitation that applies whether or not there is a pending stock merger or acquisition.

During 2002, the Board of Directors authorized the repurchase of up to 50 million additional shares of our outstanding common stock. During first quarter 2004, we repurchased approximately 11 million shares of our common stock. At March 31, 2004, the total remaining common stock repurchase authority under the 2002 authorization was approximately 16 million shares. In April 2004, the Board authorized the repurchase of up to 25 million additional shares

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of common stock. (For additional information regarding share repurchases and repurchase authorizations, see Part II Item 2 on page 57.) Total common stock dividend payments in first quarter 2004 were $765 million.

Our potential sources of capital include retained earnings, and issuances of common and preferred stock and subordinated debt. In first quarter 2004, retained earnings increased $954 million, predominantly as a result of net income of $1.8 billion less dividends of $765 million. In first quarter 2004, we issued $487 million of common stock under various employee benefit and director plans and under our dividend reinvestment program.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Forward-looking statements include:

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

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

•		future credit losses and nonperforming assets;
•		the future value of mortgage servicing rights;
•		the future value of equity securities, including those in our venture capital portfolios;
•		the impact of new accounting standards;
•		the future level of mortgage originations and mortgages held for sale;
•		the future level of gains from equity investments; 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

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supervision are described in our 2003 Form 10-K. Any factor described in this report or in our 2003 Form 10-K could by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition. There are also other factors that we have not described in this report or in our 2003 Form 10-K that could cause results to differ from our expectations.

Industry Factors

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

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

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

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

Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large part our cost of funds for lending and investing and the return we earn on those loans and investments, both of which affect our net interest margin. They also can materially affect the value of financial instruments we hold, such as debt securities. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal Reserve Board policies are beyond our control and hard to predict.

The financial services industry is highly competitive.

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

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such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and some have lower cost structures.

We are heavily regulated by federal and state agencies.

The holding company, its subsidiary banks and many of its nonbank subsidiaries are heavily regulated at the federal and state levels. This regulation is to protect depositors, federal deposit insurance funds and the banking system as a whole, not security holders. Congress and state legislatures and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways including limiting the types of financial services and products we may offer and/or increasing the ability of nonbanks to offer competing financial services and products. Also, if we do not comply with laws, regulations or policies, we could receive regulatory sanctions and damage to our reputation. For more information, refer to the “Regulation and Supervision” and to Notes 3 (Cash, Loan and Dividend Restrictions) and 26 (Regulatory and Agency Capital Requirements) to Financial Statements in our 2003 Form 10-K.

Future legislation could change our competitive position.

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

We depend on the accuracy and completeness of information about customers and counterparties.

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

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Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes now allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly without banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits.

Company Factors

Maintaining or increasing our market share depends on market acceptance of new products and services.

Our success depends, in part, on our ability to adapt our products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, could require us to make substantial expenditures to modify or adapt our existing products and services. We might not be successful in introducing new products and services, achieving market acceptance of our products and services, or developing and maintaining loyal customers.

Negative public opinion could damage our reputation and adversely impact our earnings.

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

The holding company relies on dividends from its subsidiaries for most of its revenue.

The holding company is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the holding company’s common and preferred stock and interest and principal on its debt. Various federal and/or state laws and regulations limit the amount of dividends that our bank and certain of our nonbank subsidiaries may pay to the holding company. Also, the holding company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. For more information, refer to “Regulation and Supervision—Dividend Restrictions” and “—Holding Company Structure” in our 2003 Form 10-K.

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Our accounting policies and methods are key to how we report our financial condition and results of operations. They may require management to make estimates about matters that are uncertain.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in our reporting materially different amounts than would have been reported under a different alternative. Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2003 Form 10-K describes our significant accounting policies.

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

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

For more information, see “Critical Accounting Policies” in our 2003 Form 10-K and refer in this report to “Balance Sheet Analysis” and “Asset/Liability and Market Risk Management.”

We have businesses other than banking.

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

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

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Mortgage Banking. The effect of interest rates on our mortgage business can be large and complex. Changes in interest rates can affect loan origination fees and loan servicing fees, which account for a significant portion of mortgage-related revenues. A decline in mortgage rates generally increases the demand for mortgage loans as borrowers refinance, but also generally leads to accelerated payoffs in our mortgage servicing portfolio. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and a decline in payoffs in our servicing portfolio. We use dynamic, sophisticated models to assess the effect of interest rates on mortgage fees, amortization of mortgage servicing rights, and the value of mortgage servicing rights. The estimates of net income and fair value produced by these models, however, depend on assumptions of future loan demand, prepayment speeds and other factors that may overstate or understate actual experience. We use derivatives to hedge the value of our servicing portfolio but they do not cover the full value of the portfolio. We cannot assure that the hedges will offset significant decreases in the value of the portfolio. For more information, see in our 2003 Form 10-K “Critical Accounting Policies—Valuation of Mortgage Servicing Rights” and in this report “Asset /Liability and Market Risk Management.”

We rely on other companies to provide key components of our business infrastructure.

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

We have an active acquisition program.

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

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

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

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Legislative Risk

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

Our business could suffer if we fail to attract and retain skilled people.

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

Our stock price can be volatile.

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 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.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of March 31, 2004, 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, 2004.

Internal Control Over Financial Reporting

No change occurred during the first quarter of 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME

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WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

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