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, 2006

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)

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

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

Registrant’s telephone number, including area code: 1-866-249-3302

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

Yes  þ     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ     Accelerated filer  o     Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o     No  þ

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

		Shares Outstanding
		April 28, 2006
Common stock, $1-2/3 par value		1,680,014,018

FORM 10-Q
CROSS-REFERENCE INDEX

PART I		Financial Information
Item 1.		Financial Statements		Page
		Consolidated Statement of Income			30
		Consolidated Balance Sheet			31
		Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income			32
		Consolidated Statement of Cash Flows			33
		Notes to Financial Statements			34
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
		Summary Financial Data			2
		Overview			3
		Critical Accounting Policies			6
		Earnings Performance			8
		Net Interest Income			8
		Noninterest Income			11
		Noninterest Expense			13
		Operating Segment Results			14
		Balance Sheet Analysis			15
		Securities Available for Sale (table on page 38)			15
		Loan Portfolio (table on page 39)			15
		Deposits			16
		Off-Balance Sheet Arrangements and Aggregate Contractual Obligations			16
		Risk Management			16
		Credit Risk Management Process			16
		Nonaccrual Loans and Other Assets			17
		Loans 90 Days or More Past Due and Still Accruing			18
		Allowance for Credit Losses (table on page 40)			18
		Asset/Liability and Market Risk Management			19
		Interest Rate Risk			19
		Mortgage Banking Interest Rate Risk			20
		Market Risk — Trading Activities			23
		Market Risk — Equity Markets			23
		Liquidity and Funding			24
		Capital Management			25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			19
Item 4.		Controls and Procedures			29
PART II		Other Information
Item 1A.		Risk Factors			27
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			70
Item 6.		Exhibits			70
Signature					72
EXHIBIT 10.(A)
EXHIBIT 12
EXHIBIT 31.(A)
EXHIBIT 31.(B)
EXHIBIT 32.(A)
EXHIBIT 32.(B)

PART I — FINANCIAL INFORMATION

FINANCIAL REVIEW

SUMMARY FINANCIAL DATA

														% Change
		Quarter ended												Mar. 31, 2006 from
		Mar. 31		,		Dec. 31		,		Mar. 31		,		Dec. 31		,		Mar. 31		,
($ in millions, except per share amounts)		2006				2005				2005				2005				2005
For the Quarter
Net income		$	2,018			$	1,930			$	1,856				5	%			9	%
Diluted earnings per common share			1.19				1.14				1.08				4				10
Profitability ratios (annualized)
Net income to average total assets (ROA)			1.72	%			1.63	%			1.75	%			6				(2	)
Net income applicable to common stock to average common stockholders’ equity (ROE)			19.89				19.22				19.60				3				1
Efficiency ratio (1)			59.3				57.5				58.0				3				2
Total revenue		$	8,555			$	8,492			$	8,089				1				6
Dividends declared per common share			.52				.52				.48				—				8
Average common shares outstanding			1,679.2				1,675.4				1,695.4				—				(1	)
Diluted average common shares outstanding			1,697.9				1,693.9				1,715.7				—				(1	)
Average loans		$	311,132			$	305,696			$	287,282				2				8
Average assets			475,195				468,481				430,990				1				10
Average core deposits (2)			254,012				253,386				231,847				—				10
Average retail core deposits (3)			212,921				210,729				192,621				1				11
Net interest margin			4.85	%			4.84	%			4.87	%			—				—
At Quarter End
Securities available for sale		$	51,195			$	41,834			$	31,685				22				62
Loans			306,676				310,837				290,588				(1	)			6
Allowance for loan losses			3,845				3,871				3,783				(1	)			2
Goodwill			11,050				10,787				10,645				2				4
Assets			492,428				481,741				435,643				2				13
Core deposits (2)			258,142				253,341				234,984				2				10
Stockholders’ equity			41,961				40,660				38,477				3				9
Tier 1 capital (4)			32,758				31,724				29,830				3				10
Total capital (4)			45,331				44,687				43,963				1				3
Capital ratios
Stockholders’ equity to assets			8.52	%			8.44	%			8.83	%			1				(4	)
Risk-based capital (4)
Tier 1 capital			8.30				8.26				8.40				—				(1	)
Total capital			11.49				11.64				12.37				(1	)			(7	)
Tier 1 leverage (4)			7.13				6.99				7.17				2				(1	)
Book value per common share		$	25.02			$	24.25			$	22.76				3				10
Team members (active, full-time equivalent)			152,000				153,500				147,000				(1	)			3
Common Stock Price
High		$	65.51			$	64.70			$	62.75				1				4
Low			60.62				57.62				58.15				5				4
Period end			63.87				62.83				59.80				2				7

(1)		The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(2)		Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, and market rate and other savings.
(3)		Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.
(4)		See Note 18 (Regulatory and Agency Capital Requirements) to Financial Statements for additional information.

This Report on Form 10-Q for the quarter ended March 31, 2006, including the Financial Review and the Financial Statements and related Notes, has forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results might differ significantly from our forecasts and expectations due to several factors. Some of these factors are described in the Financial Review and in the Financial Statements and related Notes. For a discussion of other factors, refer to the “Risk Factors” section in this Report and to the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2005 (2005 Form 10-K), filed with the Securities and Exchange Commission (SEC) and available on the SEC’s website at www.sec.gov.

OVERVIEW

Wells Fargo & Company is a $492 billion diversified financial services company providing banking, insurance, investments, mortgage banking and consumer finance through banking stores, the internet and other distribution channels to consumers, businesses and institutions in all 50 states of the U.S. and in other countries. We ranked fifth in assets and fourth in market value of our common stock among U.S. bank holding companies at March 31, 2006. When we refer to “the Company,” “we,” “our” and “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company.

In first quarter 2006, we achieved record diluted earnings per share of $1.19, up 10% from a year ago, and record net income of $2.0 billion, up 9% from a year ago. First quarter 2006 results were reduced by $52 million, or $.02 per share, for expensing stock options for the first time as required under Statement of Financial Accounting Standards No. 123R, Share-Based Payment (FAS 123R). Due to $33 million for immediate expensing of stock options for retirement-eligible team members, the $.02 per share for stock option expense in first quarter was $.01 per share more than our expected $.01 per share quarterly option expense for the remainder of 2006.

During first quarter 2006, we adopted fair value accounting for residential mortgage servicing rights (MSRs), which resulted in an addition to equity of $158 million pre tax ($101 million after tax). This was offset by $184 million in net MSRs valuation losses recorded in earnings (higher MSRs valuation during the quarter less economic hedging losses in a rising rate environment). As previously announced, we sold Island Finance’s operations in Puerto Rico, which resulted in a pre-tax gain of $127 million.

Our first quarter 2006 results reflected a continuation of the same trends we have seen for many quarters — double-digit earnings growth, with quarterly net income exceeding $2.0 billion for the first time. We had solid, broad-based, and, in many businesses, accelerating revenue growth, with revenue in businesses other than Wells Fargo Home Mortgage (Home Mortgage) up a combined 17% from a year ago. Our net interest margin was stable and reflected our success in growing core deposits as well as actions we took in 2005 and in first quarter 2006 to shed lower-yielding assets and boost earning asset yields, including sales of $51 billion of adjustable rate mortgages (ARMs) during the same periods. Credit quality was exceptionally strong and we continued to invest for future growth by adding more sales personnel, more stores and new technology and by sales, at a loss, of our lowest-yielding ARMs and debt securities. Many of our businesses achieved double-digit, year-over-year profit growth, including businesses that serve

our retail and small business customers in Community Banking — our regional banking groups, credit card, business direct, education financial services, and corporate trust; businesses that serve mid-sized and large corporations in Wholesale Banking — commercial banking, asset management, commercial real estate, international financial services, insurance, Eastdil Secured and specialized financial services; and our consumer finance business, Wells Fargo Financial.

Our vision is to satisfy all the financial needs of our customers, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Our primary strategy to achieve this vision is to increase the number of products our customers buy from us and to give them all of the financial products that fulfill their needs. Our cross-sell strategy and diversified business model facilitate growth in strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us. Our average retail banking household now has a record 4.9 products with us and our average Wholesale Banking customer has 5.7 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 8%, average core deposits up 10% and assets managed and administered up 16%. Our owned servicing portfolio surpassed $1 trillion in first quarter 2006, reaching a record $1.04 trillion at March 31, 2006.

We believe it is important to maintain a well-controlled environment as we continue to grow our businesses. We manage our credit risk by maintaining prudent credit policies for underwriting and effective procedures for monitoring and review. We manage the interest rate and market risks inherent in our asset and liability balances within prudent ranges, while ensuring adequate liquidity and funding. Our stockholder value has increased over time due to customer satisfaction, strong financial results, investment in our businesses and the prudent way we attempt to manage our business risks.

Our financial results included the following:

Net income for first quarter 2006 increased 9% to $2.02 billion from $1.86 billion for first quarter 2005. Diluted earnings per share for first quarter 2006 increased 10%, from $1.08 for first quarter 2005. Return on average assets (ROA) was 1.72% and return on average common equity (ROE) was 19.89% for first quarter 2006.

Net interest income on a taxable-equivalent basis increased 9% to $4.89 billion for first quarter 2006 on 9% earning assets growth, from $4.48 billion for first quarter 2005. Despite the flat to inverted yield curve during the quarter, the net interest margin was 4.85% for first quarter 2006, compared with 4.87% for first quarter 2005. Our margin has remained relatively stable in the last year and reflected our ability to continue to grow checking and savings deposits, and the benefit of our balance sheet repositioning actions, including the sale of our lowest-yielding ARMs and debt securities.

Noninterest income increased 1% to $3.69 billion for first quarter 2006, from $3.64 billion for first quarter 2005. Excluding mortgage banking, noninterest income increased 16% from first quarter 2005, reflecting strong year-over-year growth in service charges on deposit accounts, up 8%; trust and investment fees, up 10%; other fees, largely loan-related, up 8%; insurance, up 8%; and equity investments, up $119 million. First quarter 2006 results also included the $127 million gain related to the sale of Island Finance’s operations in Puerto Rico, $9 million in

losses related to the sale of ARMs and $35 million in net debt securities losses related to repositioning for higher debt securities yields in our corporate and Home Mortgage portfolios. Mortgage banking noninterest income declined $399 million, due to the $184 million net MSRs valuation loss that was recorded to earnings ($522 million fair value gain less $706 million economic hedging loss), compared with a $271 million valuation allowance release (income) and an $85 million ineffective hedge gain in first quarter 2005.

Revenue, the sum of net interest income and noninterest income, grew $466 million, or 6%, to $8.56 billion in first quarter 2006 from $8.09 billion in first quarter 2005. Home Mortgage revenue declined $665 million from $1.5 billion in first quarter 2005 to $853 million in first quarter 2006. Combined revenue of businesses other than Home Mortgage grew 17% from first quarter 2005 to first quarter 2006. Revenue growth was broad based and included double-digit, year-over-year growth in regional banking, Wells Fargo Financial, and many of our wholesale and commercial businesses. Revenue growth was driven by continued growth in average loans (up 8% in total year-over-year and up 17% excluding real estate 1-4 family first mortgage loans, the loan category impacted by our ARMs sales,) and in average core deposits (up 10% year over year), a stable net interest margin and growth in assets under management, up 16% year over year.

Noninterest expense was $5.07 billion for first quarter 2006, up $382 million, or 8%, from first quarter 2005. The increase was primarily driven by continued investment in our businesses, both additional sales personnel and new stores. During the quarter, we opened 23 regional banking stores, two commercial banking offices and renovated 72 banking stores. Noninterest expense included $52 million, or $.02 a share, in stock option expense as required under FAS 123R.

Net charge-offs for first quarter 2006 were $433 million (.56% of average loans outstanding, annualized), compared with $703 million (.91%) during fourth quarter 2005, which included $171 million (.22%) for incremental bankruptcies above normalized levels, and $585 million (.83%) during first quarter 2005, which included $163 million (.23%) related to changes in loss recognition rules at Wells Fargo Financial to conform to Federal Financial Institutions Examination Council (FFIEC) bank standards for recognizing credit losses. After the October 2005 legislation change, personal bankruptcy levels fell significantly below historic run rates and remained at this low level during first quarter 2006.

The allowance for credit losses, which consists of the allowance for loan losses and the reserve for unfunded credit commitments, was $4.03 billion, or 1.31% of total loans, at March 31, 2006, compared with $4.06 billion, or 1.31%, at December 31, 2005, and $3.95 billion, or 1.36%, at March 31, 2005.

Total nonaccrual loans were $1.39 billion, or .45% of total loans, at March 31, 2006, compared with $1.34 billion, or .43%, at December 31, 2005, and $1.20 billion, or .41%, at March 31, 2005. Total nonperforming assets (NPAs) were $1.85 billion, or .60% of total loans, at March 31, 2006, compared with $1.53 billion, or .49%, at December 31, 2005, and $1.41 billion, or .48%, at March 31, 2005. Foreclosed assets were $455 million at March 31, 2006, compared with $191 million at December 31, 2005, and $207 million at March 31, 2005. Foreclosed assets, a component of total NPAs, included for the first time an additional $227 million of foreclosed real estate securing Government National Mortgage Association (GNMA) loans in first quarter 2006, due to a change in regulatory reporting

requirements effective January 1, 2006. These assets are fully collectible because the corresponding GNMA loans are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs. The remaining quarterly increase in NPAs was a natural consequence of continued growth in several of our residential real estate and automobile portfolios. Commercial and commercial real estate NPAs decreased $187 million from a year ago.

The ratio of stockholders’ equity to total assets was 8.52% at March 31, 2006, 8.44% at December 31, 2005, and 8.83% at March 31, 2005. Our total risk-based capital (RBC) ratio at March 31, 2006, was 11.49% and our Tier 1 RBC ratio was 8.30%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. Our RBC ratios at March 31, 2005, were 12.37% and 8.40%, respectively. Our Tier 1 leverage ratios were 7.13% and 7.17% at March 31, 2006 and 2005, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are fundamental to understanding our results of operations and financial condition, because some accounting policies require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Three of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern the allowance for credit losses, the valuation of residential mortgage servicing rights and pension accounting. Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit and Examination Committee. Policies covering the allowance for credit losses and pension accounting are described in “Financial Review — Critical Accounting Policies” and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2005 Form 10-K. Due to adoption of Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140 (FAS 156), our accounting policy covering the valuation of residential mortgage servicing rights has been updated and is described below.

VALUATION OF RESIDENTIAL MORTGAGE SERVICING RIGHTS

We recognize as assets the rights to service mortgage loans for others, or mortgage servicing rights (MSRs), whether we purchase the servicing rights, or the servicing rights result from the sale or securitization of loans we originate (asset transfers). Effective January 1, 2006, under FAS 156, we elected to initially measure and carry our MSRs related to residential mortgage loans (residential MSRs) using the fair value measurement method. Under this method, purchased MSRs and MSRs from asset transfers are capitalized and carried at fair value. Prior to the adoption of FAS 156, we capitalized purchased residential MSRs at cost, and MSRs from asset transfers based on the relative fair value of the servicing right and the residential mortgage loan at the time of sale, and carried both purchased MSRs and MSRs from asset transfers at the lower of cost or market. Effective January 1, 2006, upon the re-measurement of our residential MSRs at fair value, we recorded a cumulative-effect adjustment to the 2006 beginning balance of

retained earnings of $101 million after tax ($158 million pre tax) in our Statement of Changes in Stockholders’ Equity.

At the end of each quarter, we determine the fair value of MSRs using a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, ancillary income and late fees. The valuation of MSRs is discussed further in this section and in Note 1 (Summary of Significant Accounting Policies) and Note 15 (Mortgage Banking Activities) to Financial Statements in this Report and in Note 20 (Securitizations and Variable Interest Entities) and Note 21 (Mortgage Banking Activities) to Financial Statements in our 2005 Form 10-K.

To reduce the sensitivity of earnings to interest rate and market value fluctuations, we economically hedge the risk of changes in the fair value of MSRs primarily with free-standing derivative contracts. The resulting gains or losses for the hedges are reflected in income. Changes in the fair value of the MSRs from changing mortgage interest rates are generally offset by gains or losses in the fair value of the derivatives depending on the amount of MSRs we hedge. We may choose not to fully hedge MSRs, partly because origination volume tends to act as a “natural hedge.” For example, as interest rates decline, servicing values decrease and fees from origination volume increase. Conversely, as interest rates increase, the fair value of the MSRs increases, while fees from origination volume tend to decline.

Servicing income, a component of mortgage banking noninterest income, includes the changes from period to period in fair value of both our residential MSRs and the free-standing derivatives used to economically hedge our residential MSRs. Changes in the fair value of residential MSRs from period to period result from (1) changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment assumptions, primarily due to changes in interest rates) and (2) other changes, representing changes due to collection/realization of expected cash flows. Prior to the adoption of FAS 156, we carried residential MSRs at the lower of cost or market, with amortization of MSRs and changes in the MSRs valuation allowance recognized in servicing income.

We use a dynamic and sophisticated model to estimate the value of our MSRs. This model is validated by an independent internal model validation group operating in accordance with a model valuation policy approved by the Corporate Asset/Liability Management Committee. Senior management reviews all significant assumptions quarterly. Mortgage loan prepayment speed — a key assumption in the model — is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate used to determine the present value of estimated future net servicing income — another key assumption in the model — is the required rate of return the market would expect for an asset with similar risk. To determine the discount rate, we consider the risk premium for uncertainties from servicing operations (e.g., possible changes in future servicing costs, ancillary income and earnings on escrow accounts). Both assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. For example, an increase in either the prepayment speed or discount rate assumption results in a decrease in the fair value of the MSRs, while a decrease in either assumption would result in an increase in the fair value of the MSRs. In recent years, there have been significant market-driven fluctuations in loan prepayment speeds

and the discount rate. These fluctuations can be rapid and may be significant in the future. Therefore, estimating prepayment speeds within a range that market participants would use in determining the fair value of MSRs requires significant management judgment.

These key economic assumptions and the sensitivity of the fair value of MSRs to an immediate adverse change in those assumptions are shown in Note 20 (Securitizations and Variable Interest Entities) to Financial Statements in our 2005 Form 10-K.

EARNINGS PERFORMANCE

NET INTEREST INCOME

Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid for deposits and long-term and short-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented in the table on page 10 on a taxable-equivalent basis to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% marginal tax rate.

Net interest income on a taxable-equivalent basis increased 9% to $4.89 billion in first quarter 2006 from $4.48 billion in first quarter 2005, primarily driven by a 9% growth in average earning assets.

Despite the flat to inverted yield curve during the quarter, the net interest margin was 4.85% in first quarter 2006 and 4.87% in first quarter 2005. Our stable margin reflected our ability to continue to grow checking and savings deposits and the benefit of our continued focus on balance sheet repositioning actions, including the sale of our lowest-yielding ARMs and debt securities.

Average earning assets increased $35.0 billion to $407.5 billion in first quarter 2006 from $372.5 billion in first quarter 2005, due to an increase in average loans, mortgage-backed securities and mortgages held for sale, partly offset by a decrease in average loans held for sale. Loans averaged $311.1 billion in first quarter 2006, compared with $287.3 billion in first quarter 2005. The increase was predominantly due to an increase in commercial loans and other revolving credit and installment loans, partly offset by the sale of $51 billion of ARMs since the beginning of 2005.

Average mortgages held for sale increased to $39.5 billion in first quarter 2006 from $31.6 billion in first quarter 2005, due to higher origination volume. Average loans held for sale decreased to $651 million in first quarter 2006 from $9.1 billion in first quarter 2005, due to the transfer of student loans from loans held for sale to loans held for investment in first quarter 2005. Our decision to hold these loans for investment was based on yields at that time and our intent and ability to hold this portfolio for the foreseeable future. Debt securities available for sale averaged $43.5 billion during first quarter 2006 and $32.0 billion in first quarter 2005.

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 10% from a year ago. Average core deposits were $254.0 billion and $231.8 billion in first quarter 2006 and 2005, respectively. Total average retail core deposits, which exclude Wholesale Banking core deposits and retail mortgage escrow deposits, for first quarter 2006 grew $20.3 billion, or 11%, from a year ago. Average mortgage escrow deposits were $15.5 billion for first quarter 2006, up $1.6 billion from a year ago. Savings certificates of deposits increased on average from $19.5 billion in first quarter 2005 to $28.7 billion in first quarter 2006 and noninterest-bearing checking accounts and other core deposit categories increased on average from $212.4 billion in first quarter 2005 to $225.3 billion in first quarter 2006. Total average interest-bearing deposits increased to $215.9 billion in first quarter 2006 from $189.1 billion in first quarter 2005.

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

		Quarter ended March 31																						,
		2006												2005
										Interest												Interest
		Average				Yields/				income/				Average				Yields/				income/
(in millions)		balance				rates				expense				balance				rates				expense
EARNING ASSETS
Federal funds sold, securities purchased under resale agreements and other short-term investments		$	5,192				4.21	%		$	54			$	5,334				2.40	%		$	32
Trading assets			6,099				4.61				69				5,525				3.22				44
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies			866				4.30				9				930				3.93				9
Securities of U.S. states and political subdivisions			3,106				8.13				60				3,572				8.41				71
Mortgage-backed securities:
Federal agencies			27,718				5.92				406				20,079				6.01				291
Private collateralized mortgage obligations			6,562				6.46				104				3,993				5.44				53
Total mortgage-backed securities			34,280				6.02				510				24,072				5.91				344
Other debt securities (4)			5,280				7.86				104				3,388				7.20				57
Total debt securities available for sale (4)			43,532				6.36				683				31,962				6.26				481
Mortgages held for sale (3)			39,523				6.16				609				31,636				5.44				430
Loans held for sale (3)			651				6.93				11				9,062				5.02				112
Loans:
Commercial and commercial real estate:
Commercial			62,769				7.71				1,195				55,178				6.20				844
Other real estate mortgage			28,686				7.01				497				29,869				5.88				433
Real estate construction			13,850				7.59				259				9,178				6.08				138
Lease financing			5,436				5.80				79				5,126				6.14				79
Total commercial and commercial real estate			110,741				7.42				2,030				99,351				6.09				1,494
Consumer:
Real estate 1-4 family first mortgage			74,383				6.82				1,259				84,589				6.00				1,261
Real estate 1-4 family junior lien mortgage			59,972				7.65				1,131				53,059				6.01				787
Credit card			11,765				13.23				389				10,157				11.92				303
Other revolving credit and installment			48,329				9.39				1,120				35,887				8.95				793
Total consumer			194,449				8.10				3,899				183,692				6.91				3,144
Foreign			5,942				12.57				185				4,239				13.82				146
Total loans (5)			311,132				7.95				6,114				287,282				6.73				4,784
Other			1,389				4.62				16				1,726				4.32				19
Total earning assets		$	407,518				7.50				7,556			$	372,527				6.42				5,902
FUNDING SOURCES
Deposits:
Interest-bearing checking		$	4,069				2.23				22			$	3,365				1.05				9
Market rate and other savings			134,228				2.08				687				127,346				1.04				325
Savings certificates			28,718				3.45				245				19,487				2.48				119
Other time deposits			33,726				4.48				373				28,814				2.53				180
Deposits in foreign offices			15,152				4.16				155				10,095				2.38				59
Total interest-bearing deposits			215,893				2.78				1,482				189,107				1.48				692
Short-term borrowings			26,180				4.17				270				25,434				2.38				149
Long-term debt			81,686				4.49				910				75,680				3.08				579
Total interest-bearing liabilities			323,759				3.33				2,662				290,221				1.98				1,420
Portion of noninterest-bearing funding sources			83,759				—				—				82,306				—				—
Total funding sources		$	407,518				2.65				2,662			$	372,527				1.55				1,420
Net interest margin and net interest income on a taxable-equivalent basis (6)							4.85	%		$	4,894								4.87	%		$	4,482
NONINTEREST-EARNING ASSETS
Cash and due from banks		$	12,897											$	13,090
Goodwill			10,963												10,657
Other			43,817												34,716
Total noninterest-earning assets		$	67,677											$	58,463
NONINTEREST-BEARING FUNDING SOURCES
Deposits		$	86,997											$	81,649
Other liabilities			23,320												20,739
Stockholders’ equity			41,119												38,381
Noninterest-bearing funding sources used to fund earning assets			(83,759	)											(82,306	)
Net noninterest-bearing funding sources		$	67,677											$	58,463
TOTAL ASSETS		$	475,195											$	430,990

(1)		Our average prime rate was 7.43% and 5.44% for the quarters ended March 31, 2006 and 2005, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 4.76% and 2.84% 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 the periods presented.

NONINTEREST INCOME

						Quarter
		ended March 31						,		%
(in millions)		2006				2005				Change
Service charges on deposit accounts		$	623			$	578				8	%
Trust and investment fees:
Trust, investment and IRA fees			491				445				10
Commissions and all other fees			172				157				10
Total trust and investment fees			663				602				10
Card fees			384				326				18
Other fees:
Cash network fees			44				43				2
Charges and fees on loans			242				245				(1	)
All other			202				165				22
Total other fees			488				453				8
Mortgage banking:
Servicing income, net			81				456				(82	)
Net gains on mortgage loan origination/sales activities			273				293				(7	)
All other			61				65				(6	)
Total mortgage banking			415				814				(49	)
Operating leases			201				208				(3	)
Insurance			364				337				8
Trading assets			134				143				(6	)
Net losses on debt securities available for sale			(35	)			(4	)			775
Net gains from equity investments			190				71				168
Net gains (losses) on sales of loans			3				(39	)			—
Net gains on dispositions of operations			137				1				—
All other			118				146				(19	)
Total		$	3,685			$	3,636				1

We earn trust, investment and IRA fees from managing and administering assets, including mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At March 31, 2006, these assets totaled $808 billion, up 16% from $698 billion at March 31, 2005. Generally, trust, investment and IRA fees are based on the market value of the assets that are managed, administered, or both. The increase from 2005 was due to continued strong momentum in growth of separate account and mutual fund managed assets.

Also, we receive commissions and other fees for providing services to retail and discount brokerage customers. At March 31, 2006 and 2005, brokerage balances were $103 billion and $85 billion, respectively. Generally, these fees are based on the number of transactions executed at the customer’s direction.

Card fees increased 18% from first quarter 2005, due to growth in distribution of debit and credit cards to our customers and increased usage. Purchase volume on these cards was up 29% from a year ago and average balances were up 12%.

Mortgage banking noninterest income was $415 million in first quarter 2006, compared with $814 million in the same period of 2005. The decrease of $399 million year over year was primarily due to lower servicing income resulting from changes in the valuation of our MSRs and related hedging gains and losses. With the adoption of FAS 156 in first quarter 2006 and measuring our residential MSRs at fair value, servicing income includes both changes in the fair

value of MSRs during the period as well as changes in derivatives used to economically hedge the MSRs. Prior to adoption of FAS 156, servicing income included net derivative gains and losses (primarily the ineffective portion of the change in value of derivatives used to hedge MSRs under FAS 133), amortization and MSRs impairment, which are all influenced by both the level and direction of mortgage interest rates. First quarter 2006 net servicing income included a $184 million net MSRs valuation loss that was recorded to earnings ($522 million fair value gain less $706 million economic hedging loss), compared with a $271 million valuation allowance release (income) and an $85 million ineffective hedge gain in first quarter 2005. An additional $158 million ($101 million after tax) increase in the value of MSRs upon re-measurement to fair value under FAS 156 in 2006 was recorded as an adjustment to retained earnings in total stockholders’ equity.

Servicing fees increased to $747 million in first quarter 2006 from $570 million in first quarter 2005, due to growth in loans serviced for others. Our portfolio of loans serviced for others was $931 billion at March 31, 2006, up 29% from $724 billion at March 31, 2005.

Net losses on debt securities were $35 million in first quarter 2006, compared with $4 million in first quarter 2005. Net gains from equity investments were $190 million in first quarter 2006 and $71 million in first quarter 2005.

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

Net gains on dispositions in first quarter 2006 included a $127 million gain on the sale of Island Finance’s operations in Puerto Rico.

NONINTEREST EXPENSE

		Quarter
		ended March 31						,		%
(in millions)		2006				2005				Change
Salaries		$	1,672			$	1,480				13	%
Incentive compensation			668				465				44
Employee benefits			589				547				8
Equipment			335				370				(9	)
Net occupancy			336				404				(17	)
Operating leases			161				158				2
Outside professional services			193				163				18
Contract services			132				139				(5	)
Travel and entertainment			130				110				18
Outside data processing			104				106				(2	)
Advertising and promotion			106				89				19
Postage			81				72				13
Telecommunications			70				72				(3	)
Insurance			76				79				(4	)
Stationery and supplies			51				45				13
Operating losses			62				78				(21	)
Security			43				41				5
Core deposit intangibles			29				32				(9	)
Charitable donations			17				22				(23	)
Net gains from debt extinguishment			(2	)			(1	)			100
All other			221				221				—
Total		$	5,074			$	4,692				8

The 8% increase in noninterest expense was due primarily to the increase in salary, incentive compensation and benefit expense from an additional 5,000 full-time equivalent (FTE) team members, largely sales people, across our businesses, and the 2006 adoption of FAS 123R requiring the expensing of stock option grants. We recognized $52 million in stock option expense as incentive compensation for the first time in first quarter 2006, which included $33 million for the immediate expensing of stock options for retirement-eligible team members.

OPERATING SEGMENT RESULTS

Our lines of business for management reporting are Community Banking, Wholesale Banking and Wells Fargo Financial. For a more complete description of our operating segments, including additional financial information and the underlying management accounting process, see Note 13 (Operating Segments) to Financial Statements.

Community Banking’s net income decreased 11% to $1.21 billion in first quarter 2006 from $1.35 billion in first quarter 2005, due to a decline in Home Mortgage net income. Net interest income increased 5% to $3.26 billion in first quarter 2006 from $3.09 billion in first quarter 2005, primarily due to growth in earning assets and deposits. Average loans were $190.4 billion in first quarter 2006, up 4% from $183.9 billion in first quarter 2005. Noninterest income in first quarter 2006 decreased $232 million, or 10%, from $2.38 billion in first quarter 2005, due primarily to lower mortgage banking revenue, partially offset by higher equity investment gains and higher deposit service charges and card fees.

Wholesale Banking’s net income increased 17% to $528 million in first quarter 2006 from $451 million in first quarter 2005. Revenue was $1,776 million, up 17% from $1,517 million in first quarter 2005, due to increased earning assets, a wider net interest margin, strong growth in the capital markets-related businesses, underwriting gains in the crop insurance business and additional revenue from the Secured Capital acquisition. Average loans increased 14% and average core deposits grew 1% from first quarter 2005. Noninterest expense increased 18% to $992 million in first quarter 2006 from $842 million in first quarter 2005, driven by staffing, merit and incentive increases and additional expenses from the Secured Capital acquisition.

Wells Fargo Financial’s net income increased to $280 million in first quarter 2006 from $52 million in first quarter 2005, driven by strong performance in auto and real estate lending, the sale of Island Finance’s operations in Puerto Rico and a decrease in the provision for credit losses. The sale included $636 million of receivables in Puerto Rico, about 1% of Wells Fargo Financial’s total receivables. Total revenue rose 25% in first quarter 2006, reaching $1.38 billion, compared with $1.11 billion in first quarter 2005. Net interest income increased $138 million, or 17%, to $934 million in first quarter 2006 from $796 million in first quarter 2005, due to growth in average loans. Average real estate secured receivables increased 35% to $19.7 billion and average auto finance receivables rose 21% to $22.4 billion. The provision for credit losses decreased by $148 million from first quarter 2005 to first quarter 2006, due to the $163 million charge in the first quarter 2005 to conform Wells Fargo Financial’s charge-off practices with FFIEC guidelines. Noninterest expense increased $65 million, or 10%, in first quarter 2006 from first quarter 2005, reflecting normal annual increases for employee compensation and benefit costs and other costs associated with business expansion and additional team members.

Segment results for prior periods have been revised due to the realignment of our automobile financing businesses into Wells Fargo Financial in third quarter 2005 and the realignment of our insurance business into Wholesale Banking in first quarter 2006, designed to leverage the expertise, systems and resources of the existing businesses.

BALANCE SHEET ANALYSIS

SECURITIES AVAILABLE FOR SALE

Our securities available for sale portfolio consists of both debt and marketable equity securities. We hold debt securities available for sale primarily for liquidity, interest rate risk management and yield enhancement. Accordingly, this portfolio primarily includes very liquid, high-quality federal agency debt securities. At March 31, 2006, we held $50.3 billion of debt securities available for sale, compared with $40.9 billion at December 31, 2005, with a net unrealized gain of $269 million and $591 million for the same periods, respectively. We also held $875 million of marketable equity securities available for sale at March 31, 2006, and $900 million at December 31, 2005, with a net unrealized gain of $319 million and $342 million for the same periods, respectively.

The weighted-average expected maturity of debt securities available for sale was 6.0 years at March 31, 2006. Since 80% of this portfolio was mortgage-backed securities, the expected remaining maturity may differ from contractual maturity because borrowers may have the right to prepay obligations before the underlying mortgages mature.

The estimated effect of a 200 basis point increase or decrease in interest rates on the fair value and the expected remaining maturity of the mortgage-backed securities available for sale portfolio is shown below.

MORTGAGE-BACKED SECURITIES

Fair

Net unrealized

Remaining

(in billions)

value

gain (loss)

maturity

At March 31, 2006

$

40.0

$

.1

5.4 yrs.

At March 31, 2006, assuming a 200 basis point:

Increase in interest rates

36.7

(3.2

)

7.3 yrs.

Decrease in interest rates

41.5

1.6

1.9 yrs.

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

LOAN PORTFOLIO

A discussion of average loan balances is included in “Earnings Performance — Net Interest Income” on page 8 and a comparative schedule of average loan balances is included in the table on page 10; quarter-end balances are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements.

Total loans at March 31, 2006, were $306.7 billion, compared with $290.6 billion at March 31, 2005, an increase of 6%. Commercial and commercial real estate loans increased $11.6 billion, or 12%, from first quarter 2005. Mortgages held for sale increased to $43.5 billion at March 31, 2006, from $38.7 billion a year ago, due to higher origination volume. Loans held for sale decreased to $629 million at March 31, 2006, from $1.8 billion at March 31, 2005, due to sales of auto loans.

DEPOSITS

		March 31		,		December 31		,		March 31		,
(in millions)		2006				2005				2005
Noninterest-bearing		$	88,701			$	87,712			$	82,872
Interest-bearing checking			3,459				3,324				3,010
Market rate and other savings			136,605				134,811				129,039
Savings certificates			29,377				27,494				20,063
Core deposits			258,142				253,341				234,984
Other time deposits			33,317				46,488				28,145
Deposits in foreign offices			16,846				14,621				10,034
Total deposits		$	308,305			$	314,450			$	273,163

Average core deposits increased $22.2 billion to $254.0 billion in first quarter 2006 from first quarter 2005, primarily due to growth in market rate and other savings and savings certificates.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. We also enter into certain contractual obligations. For additional information on off-balance sheet arrangements and other contractual obligations see “Financial Review — Off-Balance Sheet Arrangements and Aggregate Contractual Obligations” in our 2005 Form 10-K and Note 17 (Guarantees) to Financial Statements in this Report.

RISK MANAGEMENT

CREDIT RISK MANAGEMENT PROCESS

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

Nonaccrual Loans and Other Assets

The table below shows the comparative data for nonaccrual loans and other assets. We generally place loans on nonaccrual status when:

	•		the full and timely collection of interest or principal becomes uncertain;
	•		they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest or principal (unless both well-secured and in the process of collection); or
	•		part of the principal balance has been charged off.

Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2005 Form 10-K describes our accounting policy for nonaccrual loans.

NONACCRUAL LOANS AND OTHER ASSETS

		Mar. 31		,		Dec. 31		,		Mar. 31		,
(in millions)		2006				2005				2005
Nonaccrual loans:
Commercial and commercial real estate:
Commercial		$	256			$	286			$	357
Other real estate mortgage			163				165				191
Real estate construction			21				31				51
Lease financing			31				45				59
Total commercial and commercial real estate			471				527				658
Consumer:
Real estate 1-4 family first mortgage			508				471				327
Real estate 1-4 family junior lien mortgage			190				144				101
Other revolving credit and installment			188				171				87
Total consumer			886				786				515
Foreign			37				25				23
Total nonaccrual loans (1)			1,394				1,338				1,196
As a percentage of total loans			.45	%			.43	%			.41	%
Foreclosed assets:
GNMA loans (2)			227				—				—
Other			228				191				207
Real estate investments (3)			—				2				2
Total nonaccrual loans and other assets		$	1,849			$	1,531			$	1,405
As a percentage of total loans			.60	%			.49	%			.48	%

(1)		Includes impaired loans of $137 million, $190 million and $297 million at March 31, 2006, December 31, 2005, and March 31, 2005, respectively. See Note 5 to Financial Statements in this Report and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in our 2005 Form 10-K for further information on impaired loans.
(2)		As a result of a change in regulatory reporting requirements effective January 1, 2006, foreclosed real estate securing GNMA loans has been classified as nonperforming. These assets are fully collectible because the corresponding GNMA loans are insured by the FHA or guaranteed by the Department of Veterans Affairs.
(3)		Real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans. Real estate investments totaled $91 million, $84 million and $12 million at March 31, 2006, December 31, 2005, and March 31, 2005, respectively.

We expect that the amount of nonaccrual loans will change due to portfolio growth, portfolio seasoning, routine problem loan recognition and resolution through collections, sales or charge-offs. The performance of any one loan can be affected by external factors, such as economic conditions, or factors particular to a borrower, such as actions of a borrower’s management.

Loans 90 Days or More Past Due and Still Accruing

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

The total of loans 90 days or more past due and still accruing was $3,412 million, $3,606 million and $2,581 million at March 31, 2006, December 31, 2005, and March 31, 2005, respectively. At March 31, 2006, December 31, 2005, and March 31, 2005, the total included $2,680 million, $2,923 million and $1,946 million, respectively, in advances pursuant to our servicing agreements to GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the Department of Veterans Affairs.

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

		Mar. 31		,		Dec. 31		,		Mar. 31		,
(in millions)		2006				2005				2005
Commercial and commercial real estate:
Commercial		$	17			$	18			$	24
Other real estate mortgage			4				13				26
Real estate construction			13				9				14
Total commercial and commercial real estate			34				40				64
Consumer:
Real estate 1-4 family first mortgage			92				103				108
Real estate 1-4 family junior lien mortgage			47				50				32
Credit card			158				159				146
Other revolving credit and installment			364				290				247
Total consumer			661				602				533
Foreign			37				41				38
Total		$	732			$	683			$	635

Allowance for Credit Losses

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

We consider the allowance for credit losses of $4.03 billion adequate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at March 31, 2006. The process for determining the adequacy of the allowance for credit losses is critical to our financial results. It requires difficult, subjective and complex judgments, as a result of the need to make estimates about the effect of matters that are uncertain. (See “Financial Review — Critical Accounting Policies — Allowance for Credit Losses” in our 2005 Form 10-K.) Therefore, we

cannot provide assurance that, in any particular period, we will not have sizeable credit losses in relation to the amount reserved. We may need to significantly adjust the allowance for credit losses, considering current factors at the time, including economic conditions and ongoing internal and external examination processes. Our process for determining the adequacy of the allowance for credit losses is discussed in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in our 2005 Form 10-K.

ASSET/LIABILITY AND MARKET RISK MANAGEMENT

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

Interest Rate Risk

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

	•		assets and liabilities may mature or reprice at different times (for example, if assets reprice faster than liabilities and interest rates are generally falling, earnings will initially decline);
	•		assets and liabilities may reprice at the same time but by different amounts (for example, when the general level of interest rates is falling, we may reduce rates paid on checking and savings deposit accounts by an amount that is less than the general decline in market interest rates);
	•		short-term and long-term market interest rates may change by different amounts (for example, the shape of the yield curve may affect new loan yields and funding costs differently); or
	•		the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change (for example, if long-term mortgage interest rates decline sharply, mortgage-backed securities held in the securities available for sale portfolio may prepay significantly earlier than anticipated — which could reduce portfolio income).

Interest rates may also have a direct or indirect effect on loan demand, credit losses, mortgage origination volume, the value of MSRs, the value of the pension liability and other sources of earnings.

We assess interest rate risk by comparing our most likely earnings plan with various earnings simulations using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. For example, as of March 31, 2006, our most recent simulation indicated estimated earnings at risk of less than 1% of our most likely earnings plan over the next 12 months to a scenario in which the federal funds rate dropped 275 basis points to 2.00% and the Constant Maturity Treasury bond yield dropped 160 basis points to 3.25% over the same period. Simulation estimates depend on, and will change with, the size and mix of our actual and projected balance

sheet at the time of each simulation. Due to timing differences between the quarterly valuation of MSRs and the eventual impact of interest rates on mortgage banking volumes, earnings at risk in any particular quarter could be higher than the average earnings at risk over the twelve month simulation period, depending on the path of interest rates and on our MSRs hedging strategies. See “Mortgage Banking Interest Rate Risk” below.

We use exchange-traded and over-the-counter interest rate derivatives to hedge our interest rate exposures. The credit risk amount and estimated net fair values of these derivatives as of March 31, 2006, and December 31, 2005, are presented in Note 19 (Derivatives) to Financial Statements. We use derivatives for asset/liability management in three ways:

	•		to convert a major portion of our long-term fixed-rate debt, which we issue to finance the Company, from fixed-rate payments to floating-rate payments by entering into receive-fixed swaps;
	•		to convert the cash flows from selected asset and/or liability instruments/portfolios from fixed-rate payments to floating-rate payments or vice versa; and
	•		to hedge our mortgage origination pipeline, funded mortgage loans and MSRs using interest rate swaps, swaptions, futures, forwards and options.

Mortgage Banking Interest Rate Risk

We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity and interest rate risks. We reduce unwanted credit and liquidity risks by selling or securitizing virtually all of the long-term fixed-rate mortgage loans we originate and most of the ARMs we originate. From time to time, we hold originated ARMs in portfolio as an investment for our growing base of core deposits. We determine whether the loans will be held for investment or held for sale at the time of origination. We may subsequently change our intent to hold loans for investment and sell some or all of our ARMs as part of our corporate asset/liability management.

While credit and liquidity risks have historically been relatively low for mortgage banking activities, interest rate risk can be substantial. Changes in interest rates may potentially impact total origination and servicing fees, the value of our residential MSRs measured at fair value and the associated income and loss reflected in mortgage banking noninterest income, the income and expense associated with instruments used to economically hedge changes in the fair value of MSRs, and the value of derivative loan commitments extended to mortgage applicants.

Interest rates impact the amount and timing of origination and servicing fees because consumer demand for new mortgages and the level of refinancing activity are sensitive to changes in mortgage interest rates. Typically, a decline in mortgage interest rates will lead to an increase in mortgage originations and fees and may also lead to an increase in servicing fee income, depending on the level of new loans added to the servicing portfolio and prepayments. Given the time it takes for consumer behavior to fully react to interest rate changes, as well as the time required for processing a new application, providing the commitment, and securitizing and selling the loan, interest rate changes will impact origination and servicing fees with a lag. The amount and timing of the impact on origination and servicing fees will depend on the magnitude, speed and duration of the change in interest rates.

Under FAS 156, which we adopted effective January 1, 2006, we have elected to use the fair value measurement method to initially measure and carry our residential MSRs, which represent substantially all of our MSRs. Under this method, the carrying value of MSRs is adjusted to fair value at the end of each quarter and changes are included in servicing income, a component of mortgage banking noninterest income. If the fair value of the MSRs increases, income is recognized; if the fair value of the MSRs decreases, a loss is recognized. We use a dynamic and sophisticated model to estimate the fair value of our MSRs. While the valuation of MSRs can be highly subjective and involve complex judgments by management about matters that are inherently unpredictable, changes in interest rates influence a variety of assumptions included in the periodic valuation of MSRs. Assumptions affected include prepayment speed, expected returns and potential risks on the servicing asset portfolio, the value of escrow balances and other servicing valuation elements impacted by interest rates.

We economically hedge the risk of changes in the fair value of residential MSRs with market-based free-standing derivative instruments, such as swaps, swaptions, Treasury futures and options, Eurodollar futures and options, and forward contracts, and we also use securities available for sale. Changes in the fair value of these free-standing derivatives, based on quoted market prices, as well as changes in the fair value of MSRs determined by our valuation model, are both included in servicing income. Changes in fair value of securities available for sale (unrealized gains and losses) are not included in servicing income, but are reported in cumulative other comprehensive income (net of tax) or, upon sale, are reported in gains (losses) on debt securities available for sale.

A decline in interest rates increases the propensity for refinancing, reduces the expected duration of the servicing portfolio and therefore reduces the estimated fair value of MSRs. This reduction in fair value causes a charge to income (net of any gains on free-standing derivatives used to economically hedge MSRs). We typically do not fully economically hedge all of the potential decline in the value of our MSRs resulting from a decline in interest rates because the potential increase in origination/servicing fees in that scenario provides a partial “natural business hedge.” In a rising rate period, when the MSRs may not be fully economically hedged with derivatives, the change in the fair value of the MSRs that can be recaptured into income will typically — although not always — exceed the losses on any derivatives economically hedging the MSRs. Our servicing hedge somewhat underperformed the change in fair value of the MSRs in first quarter 2006, due to the unusual combination of rising rates, a flatter yield curve, lower option volatility and spread compression.

Hedging the various sources of interest rate risk in mortgage banking is a complex process that requires sophisticated modeling and constant monitoring. While we attempt to balance these various aspects of the mortgage business, there are several potential risks to earnings:

	•		MSRs valuation changes associated with interest rate changes are recorded in earnings immediately within the accounting period in which those interest rate changes occur, whereas the impact of those same changes in interest rates on origination and servicing fees occur with a lag and over time. Thus, the mortgage business could be protected from adverse changes in interest rates over a period of time on a cumulative basis but still display large variations in income in any accounting period.
	•		The degree to which the “natural business hedge” offsets changes in MSRs valuations is imperfect, varies at different points in the interest rate cycle, and depends not just on the

			direction of interest rates but on the pattern of quarterly interest rate changes. For example, given the relatively high level of refinancing activity in recent years and the increase in interest rates during the same period, any significant increase in refinancing activity would likely occur only if rates drop substantially from year-end 2005 levels.
	•		Origination volumes, the valuation of MSRs and hedging results and associated costs are also impacted by many factors. Such factors include the mix of new business between ARMs and fixed-rated mortgages, the relationship between short-term and long-term interest rates, the degree of volatility in interest rates, the relationship between mortgage interest rates and other interest rate markets, and other interest rate factors. Many of these factors are hard to predict and we may not be able to directly or perfectly hedge their effect.
	•		While our hedging activities are designed to balance our mortgage banking interest rate risks, the financial instruments we use may not perfectly correlate with the values and income being hedged.

The total carrying value of our residential and commercial MSRs was $13.9 billion at March 31, 2006, and $12.5 billion, net of a valuation allowance of $1.2 billion, at December 31, 2005. The weighted-average note rate on the owned servicing portfolio was 5.75% at March 31, 2006, and 5.72% at December 31, 2005. Our total MSRs were 1.50% of mortgage loans serviced for others at March 31, 2006, compared with 1.44% at December 31, 2005.

As part of our mortgage banking activities, we enter into commitments to fund residential mortgage loans at specified times in the future. A mortgage loan commitment is an interest rate lock that binds us to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock. These loan commitments are derivative loan commitments if the loans that will result from the exercise of the commitments will be held for sale. Under FAS 133, Accounting for Derivative Instruments and Hedging Activities (as amended), these derivative loan commitments are recognized at fair value on the consolidated balance sheet with changes in their fair values recorded as part of mortgage banking noninterest income. Consistent with Emerging Issues Task Force No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities, and SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments, we record no value for the loan commitment at inception. Subsequent to inception, we recognize the fair value of the derivative loan commitment based on estimated changes in the fair value of the underlying loan that would result from the exercise of that commitment and on changes in the probability that the loan will not fund within the terms of the commitment (referred to as a fall-out factor). The value of that loan is affected primarily by changes in interest rates and the passage of time. The value of the MSRs is recognized only after the servicing asset has been contractually separated from the underlying loan by sale or securitization.

Outstanding derivative loan commitments expose us to the risk that the price of the loans underlying the commitments might decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. To minimize this risk, we utilize Treasury futures, forwards and options, Eurodollar futures and forward contracts to economically hedge the potential decreases in the values of the loans that could result from the exercise of the loan commitments. We expect that these derivative financial instruments will experience changes in

fair value that will either fully or partially offset the changes in fair value of the derivative loan commitments.

Market Risk — Trading Activities

From a market risk perspective, our net income is exposed to changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices and their implied volatilities. The primary purpose of our trading businesses is to accommodate customers in the management of their market price risks. Also, we take positions based on market expectations or to benefit from price differences between financial instruments and markets, subject to risk limits established and monitored by Corporate ALCO. All securities, foreign exchange transactions, commodity transactions and derivatives — transacted with customers or used to hedge capital market transactions with customers — are carried at fair value. The Institutional Risk Committee establishes and monitors counterparty risk limits. The credit risk amount and estimated net fair value of all customer accommodation derivatives at March 31, 2006, and December 31, 2005, are included in Note 19 (Derivatives) to Financial Statements. Open, “at risk” positions for all trading business are monitored by Corporate ALCO.

The standardized approach for monitoring and reporting market risk for the trading activities is the value-at-risk (VAR) metrics complemented with factor analysis and stress testing. VAR measures the worst expected loss over a given time interval and within a given confidence interval. We measure and report daily VAR at a 99% confidence interval based on actual changes in rates and prices over the past 250 days. The analysis captures all financial instruments that are considered trading positions. The average one-day VAR throughout first quarter 2006 was $12.5 million, with a lower bound of $11.1 million and an upper bound of $14.0 million.

Market Risk — Equity Markets

We are directly and indirectly affected by changes in the equity markets. We make and manage direct equity investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by management and the Board of Directors (the Board). The Board reviews business developments, key risks and historical returns for the private equity investments at least annually. Management reviews these investments at least quarterly and assesses them for possible other-than-temporary impairment. For nonmarketable investments, the analysis is based on facts and circumstances of each individual investment and the expectations for that investment’s cash flows and capital needs, the viability of its business model and our exit strategy. Private equity investments totaled $1,603 million at March 31, 2006, compared with $1,537 million at December 31, 2005.

We also have marketable equity securities in the available for sale investment portfolio, including securities relating to our venture capital activities. We manage these investments within capital risk limits approved by management and the Board and monitored by Corporate ALCO. Gains and losses on these securities are recognized in net income when realized and other-than-temporary impairment may be periodically recorded when identified. The initial 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. The fair value of marketable equity securities was $875 million and cost was $556 million at March 31, 2006, compared with $900 million and $558 million, respectively, at December 31, 2005.

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

Liquidity And Funding

The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, Corporate ALCO establishes and monitors liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. We set these guidelines for both the consolidated balance sheet and for the Parent to ensure that the Parent is a source of strength for its regulated, deposit-taking banking subsidiaries.

Debt securities in the securities available for sale portfolio provide asset liquidity, in addition to the immediately liquid resources of cash and due from banks and federal funds sold and securities purchased under resale agreements. Asset liquidity is further enhanced by our ability to sell or securitize loans in secondary markets through whole-loan sales and securitizations.

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

Liquidity is also available through our ability to raise funds in a variety of domestic and international money and capital markets. We access capital markets for long-term funding by issuing registered debt, private placements and asset-backed secured funding. In September 2003, Moody’s Investors Service rated Wells Fargo Bank, N.A. as “Aaa,” its highest investment grade, and rated the Company’s senior debt as “Aa1.” 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 July 2005, the Parent’s registration statement with the SEC for issuance of $30 billion in senior and subordinated notes, preferred stock and other securities became effective. During first quarter 2006, the Parent issued a total of $6.8 billion of registered senior notes, including $.9 billion (denominated in pounds sterling) sold primarily in the United Kingdom and $1.2 billion (denominated in Eurodollars) sold primarily in Europe. At March 31, 2006, the Parent’s remaining issuance capacity under its effective registration statements was $19.1 billion.

Also, in first quarter 2006, the Parent issued $.5 billion (denominated in Australian dollars) in private placements under the Parent’s Australian debt issuance program. We used the proceeds from securities issued in first quarter 2006 for general corporate purposes and expect that the proceeds in the future will also be used for general corporate purposes. The Parent also issues commercial paper from time to time.

Wells Fargo Bank, N.A. 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 notes. Securities are issued under this program as private placements in accordance with Office of the Comptroller of the Currency (OCC) regulations. During first quarter 2006, Wells Fargo Bank, N.A. issued $50 million in long-term senior notes. At March 31, 2006, the remaining long-term issuance authority was $6.7 billion.

Wells Fargo Financial. In January 2006, Wells Fargo Financial Canada Corporation (WFFCC), a wholly-owned Canadian subsidiary of Wells Fargo Financial, Inc. (WFFI), qualified for distribution with the provincial securities exchanges in Canada $7.0 billion (Canadian) of issuance authority. During first quarter 2006, WFFCC issued $.5 billion (Canadian) in senior notes. At March 31, 2006, the remaining issuance capacity for WFFCC was $6.5 billion (Canadian). WFFI issued $.5 billion (U.S.) in private placements in March 2006.

CAPITAL MANAGEMENT

We have an active program for managing stockholder capital. We use capital to fund organic growth, acquire banks and other financial services companies, pay dividends and repurchase our shares. Our objective is to produce above market long-term returns by opportunistically using capital when returns are perceived to be high and issuing/accumulating capital when such costs are perceived to be low.

From time to time our Board of Directors authorizes the Company to repurchase shares of our 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. Rule 10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of our stock will constitute some or all of the consideration. Our management may determine that during a pending stock merger or acquisition when the safe harbor would otherwise be available, it is in our best interest to repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in compliance with the other conditions of the safe harbor, including the standing daily volume limitation that applies whether or not there is a pending stock merger or acquisition.

In 2005, the Board authorized the repurchase of up to 75 million additional shares of our outstanding common stock. During first quarter 2006, we repurchased approximately 10 million shares of our common stock. At March 31, 2006, the total remaining common stock repurchase authority under the 2005 authorizations was approximately 25 million shares. (For additional information regarding share repurchases and repurchase authorizations, see Part II Item 2 of this Report.)

Our potential sources of capital include retained earnings, and issuances of common and preferred stock and subordinated debt. In first quarter 2006, retained earnings increased $1.2 billion, predominantly resulting from net income of $2.0 billion and $.1 billion from the adoption of FAS 156 upon re-measurement of our residential MSRs to fair value, less dividends of $.9 billion. In first quarter 2006, we issued $590 million of common stock under various employee benefit and director plans and under our dividend reinvestment and direct stock repurchase programs.

At March 31, 2006, the Company and each of our covered subsidiary banks were “well capitalized” under applicable regulatory capital adequacy guidelines. See Note 18 (Regulatory and Agency Capital Requirements) to Financial Statements for additional information.

RISK FACTORS

An investment in the Company has risk. In addition, this Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about:

	•		the expected impact of expensing stock options on quarterly earnings per share for the remainder of 2006;
	•		future credit losses and nonperforming assets, including changes in the amount of nonaccrual loans due to portfolio growth, portfolio seasoning, and other factors;
	•		the extent to which changes in the fair value of derivative financial instruments will offset changes in the fair value of derivative loan commitments;
	•		future short-term and long-term interest rate levels and their impact on net interest margin, net income, liquidity and capital;
	•		the anticipated use of proceeds from the issuance of securities;
	•		the amount and timing of future contributions to the Cash Balance Plan;
	•		the recovery of our investment in variable interest entities;
	•		future reclassification to earnings of deferred net gains on derivatives;
	•		expected completion dates of pending business combinations and other acquisitions; and
	•		the amount of contingent consideration payable in connection with certain acquisitions.

Refer to our 2005 Form 10-K, including “Risk Factors,” for information about factors that could cause our financial results and condition to vary significantly from period to period and/or cause us not to realize expectations for our future financial or business performance that we may express in forward-looking statements. The information in this Report, including the discussion below and under “Risk Management” in the Financial Review section, supplements, and in some cases modifies, the information in our 2005 Form 10-K.

Changes in interest rates could also reduce the value of our mortgage servicing rights and earnings.

We have a sizeable portfolio of mortgage servicing rights. A mortgage servicing right (MSR) is the right to service a mortgage loan — collect principal, interest, escrow amounts, etc. — for a fee. We acquire MSRs when we originate mortgage loans and keep the servicing rights after we sell or securitize the loans or when we purchase the servicing rights to mortgage loans originated by other lenders. Effective January 1, 2006, upon adoption of FAS 156, we elected to initially measure and carry our residential MSRs using the fair value measurement method. Fair value is the present value of estimated future net servicing income, calculated based on a number of variables, including assumptions about the likelihood of prepayment by borrowers.

Changes in interest rates can affect prepayment assumptions and thus fair value. When interest rates fall, borrowers are more likely to prepay their mortgage loans by refinancing them at a lower rate. As the likelihood of prepayment increases, the fair value of our MSRs can decrease. Each quarter we evaluate the fair value of our MSRs, and any decrease in fair value reduces earnings in the period in which the decrease occurs.

For more information, refer to “Critical Accounting Policies” and “Risk Management — Asset/Liability and Market Risk Management — Mortgage Banking Interest Rate Risk” in the Financial Review section of this Report.

Our mortgage banking revenue can be volatile from quarter to quarter.

We earn revenue from fees we receive for originating mortgage loans and for servicing mortgage loans. When rates rise, the demand for mortgage loans tends to fall, reducing the revenue we receive from loan originations. At the same time, revenue from our MSRs can increase, through increases in fair value. When rates fall, mortgage originations tend to increase and the value of our MSRs tends to decline, also with some offsetting revenue effect. Even though they can act as a “natural hedge,” the hedge is not perfect, either in amount or timing. For example, the negative effect on revenue from a decrease in the fair value of residential MSRs is immediate, but any offsetting revenue benefit from more originations and the MSRs relating to the new loans would accrue over time.

We typically use derivatives and other instruments to hedge our mortgage banking interest rate risk. We generally do not hedge all of our risk, and the fact that we attempt to hedge any of the risk does not mean we will be successful. Hedging is a complex process, requiring sophisticated models and constant monitoring, and is not a perfect science. We may use hedging instruments tied to U.S. Treasury rates or Eurodollars that may not perfectly correlate with the value or income being hedged. We could incur losses from our hedging activities. There may be periods where we elect not to use derivatives and other instruments to hedge mortgage banking interest rate risk.

For more information, refer to “Risk Management — Asset/Liability and Market Risk Management — Mortgage Banking Interest Rate Risk” in the Financial Review section of this Report.

We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.

We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations. However, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. For example, we are subject to regulations issued by the Office of Foreign Assets Control (OFAC) that prohibit financial institutions from participating in the transfer of property belonging to the governments of certain foreign countries and designated nationals of those countries. OFAC may impose penalties for inadvertent or unintentional violations even if reasonable processes are in place to prevent the violations. Therefore, the establishment and maintenance of systems and procedures reasonably designed to ensure compliance cannot guarantee that we will be able to avoid a fine or penalty for noncompliance. There may be other negative consequences resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage our reputation (see “Negative publicity could damage our reputation” under “Risk Factors” in our 2005 Form 10-K) and could restrict the ability of institutional investment managers to invest in our securities.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of March 31, 2006, 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 chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2006.

Internal Control Over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:

	•		pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the company;
	•		provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
	•		provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during first quarter 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME

		Quarter ended March 31						,
(in millions, except per share amounts)		2006				2005
INTEREST INCOME
Trading assets		$	69			$	44
Securities available for sale			663				456
Mortgages held for sale			609				430
Loans held for sale			11				112
Loans			6,110				4,780
Other interest income			70				51
Total interest income			7,532				5,873
INTEREST EXPENSE
Deposits			1,482				692
Short-term borrowings			270				149
Long-term debt			910				579
Total interest expense			2,662				1,420
NET INTEREST INCOME			4,870				4,453
Provision for credit losses			433				585
Net interest income after provision for credit losses			4,437				3,868
NONINTEREST INCOME
Service charges on deposit accounts			623				578
Trust and investment fees			663				602
Card fees			384				326
Other fees			488				453
Mortgage banking			415				814
Operating leases			201				208
Insurance			364				337
Net losses on debt securities available for sale			(35	)			(4	)
Net gains from equity investments			190				71
Other			392				251
Total noninterest income			3,685				3,636
NONINTEREST EXPENSE
Salaries			1,672				1,480
Incentive compensation			668				465
Employee benefits			589				547
Equipment			335				370
Net occupancy			336				404
Operating leases			161				158
Other			1,313				1,268
Total noninterest expense			5,074				4,692
INCOME BEFORE INCOME TAX EXPENSE			3,048				2,812
Income tax expense			1,030				956
NET INCOME		$	2,018			$	1,856
EARNINGS PER COMMON SHARE		$	1.20			$	1.09
DILUTED EARNINGS PER COMMON SHARE		$	1.19			$	1.08
DIVIDENDS DECLARED PER COMMON SHARE		$	.52			$	.48
Average common shares outstanding			1,679.2				1,695.4
Diluted average common shares outstanding			1,697.9				1,715.7

The accompanying notes are an integral part of these statements.

WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

		March 31		,		December 31		,		March 31		,
(in millions, except shares)		2006				2005				2005
ASSETS
Cash and due from banks		$	13,224			$	15,397			$	13,467
Federal funds sold, securities purchased under resale agreements and other short-term investments			4,954				5,306				4,784
Trading assets			9,930				10,905				8,487
Securities available for sale			51,195				41,834				31,685
Mortgages held for sale			43,521				40,534				38,724
Loans held for sale			629				612				1,769
Loans			306,676				310,837				290,588
Allowance for loan losses			(3,845	)			(3,871	)			(3,783	)
Net loans			302,831				306,966				286,805
Mortgage servicing rights:
Measured at fair value (residential MSRs beginning 2006)			13,800				—				—
Amortized			142				12,511				8,972
Premises and equipment, net			4,493				4,417				3,898
Goodwill			11,050				10,787				10,645
Other assets			36,659				32,472				26,407
Total assets		$	492,428			$	481,741			$	435,643
LIABILITIES
Noninterest-bearing deposits		$	88,701			$	87,712			$	82,872
Interest-bearing deposits			219,604				226,738				190,291
Total deposits			308,305				314,450				273,163
Short-term borrowings			21,350				23,892				24,451
Accrued expenses and other liabilities			36,312				23,071				22,649
Long-term debt			84,500				79,668				76,903
Total liabilities			450,467				441,081				397,166
STOCKHOLDERS’ EQUITY
Preferred stock			634				325				535
Common stock — $1-2/3 par value, authorized 6,000,000,000 shares; issued 1,736,381,025 shares			2,894				2,894				2,894
Additional paid-in capital			10,373				9,934				9,843
Retained earnings			31,750				30,580				27,512
Cumulative other comprehensive income			576				665				693
Treasury stock — 57,562,467 shares, 58,797,993 shares and 44,059,109 shares			(3,587	)			(3,390	)			(2,428	)
Unearned ESOP shares			(679	)			(348	)			(572	)
Total stockholders’ equity			41,961				40,660				38,477
Total liabilities and stockholders’ equity		$	492,428			$	481,741			$	435,643