SAN FRANCISCO, July 16 -- Wells Fargo issued the following news release:
     Wells Fargo & Company (NYSE:WFC) reported diluted earnings per common share of $0.53 for second quarter 2008 compared with $0.60 in first quarter 2008 and $0.67 in second quarter 2007. Net income was $1.75 billion compared with $2.00 billion in first quarter 2008 and $2.28 billion in second quarter 2007. The Company also announced a quarterly common stock dividend of 34 cents per share, up 10 percent from the previous dividend of 31 cents per share.
     "Wells Fargo continued to strengthen its franchise during the second quarter," said President and CEO John Stumpf. "Earnings per share were 14 cents below that of last year due to $2.3 billion of higher provision expense, including a credit reserve build of $1.5 billion (30 cents per share). We were able to lend more to current customers where we believed it was prudent and properly priced. We grew core deposits while reducing funding costs. We achieved record cross-sell results with our retail and commercial customers -- a testament to our relationship-based strategy and our 160,000 team members who serve our customers. We are open for business and getting lots of it. We also continued to benefit from opportunities in this environment to gain new business and customers through selective acquisitions. We maintained a strong balance sheet and, for the 21st consecutive year, increased our dividend. We're still affected by the weak economy, but we believe we're one of the best positioned in financial services to grow through this adversity and to build an even stronger company for our team members, customers, communities and shareholders."
     Financial Performance
     "Wells Fargo continued to profitably build its franchise this quarter, at a time when many in our industry are primarily focused on fixing rather than growing their companies," said Chief Financial Officer Howard Atkins. "Despite a $3 billion provision for loan losses in the quarter -- including a $1.5 billion credit reserve build -- the Company earned a $1.8 billion quarterly profit, generated a return on equity of 14.6 percent, increased Tier 1 capital in the quarter by 32 basis points to 8.24 percent, and increased the combination of capital and loan loss allowance to 9.7 percent of average earning assets from 9.1 percent linked quarter. The continued profitable growth in our franchise is reflected in the growth of our pre-tax pre-provision income to $5.6 billion, up $1.4 billion, or 34 percent, from a year ago, driven by a 20 percent increase in earning assets, a 16 percent increase in revenue, a 10 percent increase in noninterest income, record cross-sell of 5.64 products in our retail business and 6.3 products in our commercial business, an increase in the net interest margin to 4.92 percent, up 23 basis points linked quarter, and an increase in operating leverage, with expenses up only 2 percent versus 16 percent revenue growth.
     "In broad terms, the credit crisis has created incremental earnings opportunities for Wells Fargo largely offsetting our incremental charge-offs from the crisis. Year-to-date total net interest income, for example, was up $1.8 billion from the first half of 2007, roughly equal to the increase in net charge-offs for the same period, even after adjusting charge-offs for the impact of our National Home Equity Group's new charge-off policy. Few other large financial institutions have had the capacity to realize the opportunities generated by the credit crisis, and if opportunities to add attractive assets, add new customers and gain market share and wallet share continue, the long-term benefits could very well last beyond the peak in credit costs."
     As a result of the Company's performance and confidence in long-term growth, the Board of Directors increased the Company's third quarter common stock dividend to $0.34 per share, an increase of 10 percent from the second quarter dividend of $0.31 per share.
     Revenue was a record $11.5 billion, up $1.6 billion, or 16 percent, from a year ago, on strong, double-digit growth in both net interest income and noninterest income. "Because of the opportunities to gain new business and new customers, gain more business from existing customers and add earning assets with better risk-adjusted spreads, our revenue growth through second quarter 2008 was higher in the midst of the credit crisis than it was before this crisis," said Atkins. Businesses that achieved double-digit, year-over-year revenue growth were broad-based and included asset-based lending, credit cards, diversified products, mortgage banking, Small Business Administration lending, insurance, international, specialized financial services and wealth management.
     Average loans of $391.5 billion increased $59.6 billion, or 18 percent, from a year ago. On a linked-quarter basis, average loans grew $7.6 billion, or 8 percent (annualized). Average commercial and commercial real estate loans increased $33.9 billion, or 27 percent, from second quarter 2007 and increased $7.3 billion, or 19 percent (annualized), from first quarter 2008, making this the 15th consecutive quarter of double-digit, year-over-year growth. Average consumer loans increased $25.5 billion, or 13 percent, from second quarter 2007, but were essentially flat linked quarter. "We're lending to credit-worthy consumer and commercial customers, but continuing to exit, curtail or re-price higher risk and lower risk-adjusted return segments," said Atkins.
     Average core deposits of $318.4 billion increased $17.8 billion, or 6 percent, from a year ago and $1.1 billion, or 1 percent (annualized), linked quarter. Average mortgage escrow deposits were $22.7 billion, down $680 million from second quarter 2007 and up $2.3 billion linked quarter. Average retail core deposits grew $10.3 billion, or 5 percent, from second quarter 2007 and increased $1.9 billion, or 3 percent (annualized), linked quarter. Average consumer checking accounts grew a net 5.5 percent from second quarter 2007. Wholesale deposits were up 14 percent year over year, but declined modestly linked quarter.
     Net Interest Income
     Net interest income increased $1.1 billion, or 21 percent, from last year and $518 million, or 36 percent (annualized), linked quarter. The increase was driven by double-digit earning asset growth (up 20 percent year over year and 15 percent (annualized) linked quarter) combined with an increase in the net interest margin to 4.92 percent, up 23 basis points from first quarter and 3 basis points from a year ago. "The improvement in net interest margin reflects our focus on higher risk-adjusted yields on new loans and securities, a decline in funding costs, our disciplined deposit pricing, and the high percentage of checking and transaction accounts in our core deposit mix," said Atkins. "The effect of the industry-wide credit write-offs and the economic slowdown have been largely offset by earning asset growth and improved spreads across most asset classes and a steeper yield curve compared with a year ago."
     Noninterest Income
     Noninterest income rose to $5.2 billion, up 10 percent from second quarter 2007, and increased $378 million linked quarter. Fee income was broad-based across the Company. Deposit service charges increased 8 percent on solid deposit growth. Despite the 15 percent decline in the S&P500 year over year, trust and investment fees declined only 9 percent and were flat linked quarter. Card fees were up 14 percent year over year and 22 percent (annualized) linked quarter due to continued growth in new accounts and greater card activity. Insurance fees were up 27 percent year over year due to customer growth, higher crop insurance revenues and the fourth quarter 2007 acquisition of ABD Insurance, and 37 percent (annualized) linked quarter due to seasonally higher revenues, primarily from crop insurance. Charges and fees on loans were relatively flat, reflecting an increase in commercial loan fees due to strong loan demand offset by lower home equity fees due to the Company's efforts to curtail risk in that business.
     Net gains on mortgage loan origination/sales activities increased $609 million linked quarter due to wider margins, lower levels of additions to the repurchase reserve, lower write-downs of repurchased mortgage loans, an increase in the value of commercial mortgages held for sale, and an increase in the servicing value of the mortgage warehouse/pipeline. These improvements were largely driven by higher interest rates and more stable liquidity in the mortgage market during the second quarter. Second quarter results included a $65 million net reduction in the value of the mortgage servicing rights (MSRs) from market-related valuation changes, net of hedge results (reflected in net servicing income). On a linked-quarter basis, the value of interest-only investments associated with the Wells Fargo Home Mortgage (Home Mortgage) servicing portfolio increased $247 million (reflected in trading income) and gains on debt securities declined $414 million.
     Noninterest income also included $129 million of other-than-temporary impairment charges, which were largely recorded in net losses on debt securities. Equity investment gains were only $46 million in second quarter, down $196 million from last year and down $267 million linked quarter, which included our gain from the Visa initial public offering. Unrealized net losses on securities available for sale were $2.1 billion at June 30, 2008, compared with unrealized net losses of $598 million at March 31, 2008. The change in the value was largely due to the increase in market yields of mortgage-backed securities during the quarter.
     Noninterest Expense
     Noninterest expense increased $133 million, or 2 percent, from second quarter 2007 and increased $398 million linked quarter. Of the linked-quarter increase, $151 million was due to the reversal in the first quarter of previously accrued litigation expense for Visa and $108 million was due to an increase in deferred compensation plan-related expenses, which was offset by an equivalent increase in trading income related to plan asset returns. "During the quarter, we continued to build distribution -- opening 19 banking stores and adding sales and service team members -- while reducing most non-labor expenses, including year-over-year cost reductions in outside professional services, travel and entertainment, contract services and postage," said Atkins.
     Credit Quality
     "Managing the challenges of the current credit cycle continues to be a top priority," said Chief Credit Officer Mike Loughlin. Second quarter 2008 net charge-offs were $1.5 billion (1.55 percent of average loans, annualized) compared with $1.5 billion (1.60 percent) in first quarter 2008 and $720 million in second quarter 2007 (0.87 percent). The second quarter 2008 provision was $3.0 billion, which included second quarter 2008 net charge-offs of $1.5 billion and an additional $1.5 billion credit reserve build, primarily for expected higher losses in the National Home Equity Group (Home Equity) and the unsecured retail loan portfolios. As previously announced, the Home Equity charge-off policy changed in the second quarter from 120 days to no more than 180 days to provide more time to work with customers to solve their credit problems and keep them in their homes. The Company has helped nearly 900 customers, and approximately $90 million of Home Equity loans have been modified due to this change. The policy change had the effect of deferring an estimated $265 million of charge-offs from the second quarter, but did not reduce provision expense in the second quarter since this loss content was included in the $1.5 billion credit reserve build.
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     Charge-offs in the real estate 1-4 family first mortgage portfolio increased $21 million linked quarter, including the $14 million increase from Wells Fargo Financial's residential real estate portfolio. "The increase in mortgage loss levels was expected given the continued declines in home prices," said Loughlin. "Credit card charge-offs increased $54 million in the second quarter, but continued to perform within an expected range. While the loss levels were higher than the historically low levels of recent years, many of our loan products continued to earn acceptable risk-adjusted returns. Losses in the Wells Fargo Financial auto portfolio declined $47 million from first quarter 2008. The process improvements and underwriting changes made in prior quarters continued to produce the desired results, however increased economic stress will place additional pressure on any portfolio closely tied to the consumer."
     Net credit losses in the real estate 1-4 family junior lien category were down $104 million compared with first quarter 2008, primarily due to the change in the Home Equity charge-off policy. "Although losses declined, the portfolio continued to deteriorate as property values search for a bottom," said Loughlin. "Given the continued decline in home prices, we had more accounts move into the higher combined loan-to-value segments, which directly impacts loss levels." Approximately 38 percent of our $73 billion core Home Equity portfolio and 71 percent of our $11 billion liquidating Home Equity portfolio had combined loan-to-value ratios above 90 percent as of June 30, 2008. The property values are primarily based on a combination of March 2008 automated value models and May 2008 home price indices. More information about the Home Equity portfolio is available on page 33.
     Commercial and commercial real estate charge-offs increased $74 million linked quarter, including about $30 million from charge-offs on loans originated through Wells Fargo's Business Direct small business lending group. "Although loss levels have increased, the majority of the wholesale businesses performed well and we continue to see good opportunities in this market," said Loughlin.
     Nonperforming Assets
     Total nonperforming assets were $5.23 billion (1.31 percent of total loans) at June 30, 2008, and included $4.07 billion of nonperforming loans, $535 million of insured Government National Mortgage Association (GNMA) loan repurchases, and $619 million of foreclosed and repossessed real estate and vehicles. This compares with $4.50 billion (1.16 percent) at March 31, 2008, consisting of $3.26 billion of nonperforming loans, $578 million of GNMA loan repurchases and $658 million of foreclosed and repossessed assets. "The increases in nonperforming assets continued to be centered in portfolios affected by the residential real estate issues and the associated impact on the consumer," said Loughlin. "The combination of higher foreclosure rates and less liquidity in the distressed loan sales market caused us to hold more assets on the balance sheet for a longer time. The increase in nonperforming loans was caused in part by our active loss mitigation strategies at Home Equity, Home Mortgage and Wells Fargo Financial. A primary goal of our loan servicing operation is to work with customers to keep them in their homes. We actively work to contact delinquent customers. We gather and analyze information regarding their financial circumstances and can frequently work with customers to modify their loan to improve affordability and allow them to remain in their home. However, accounting conventions require us to classify these restructured loans as nonperforming until the customer demonstrates the ability to make payments under the revised terms. We require six monthly payments before returning the loan to accrual status. We will continue to work with our delinquent customers even though it will cause a continued increase in nonperforming loans." The Home Equity charge-off policy change also contributed to the increase in nonperforming loans as fewer loans were charged off in the quarter.
     Loans 90 days or more past due and still accruing totaled $7.26 billion, $6.92 billion and $4.99 billion at June 30, 2008, March 31, 2008, and June 30, 2007, respectively. For the same periods, the totals included $5.48 billion, $5.29 billion and $3.91 billion, respectively, in advances pursuant to our servicing agreement to GNMA mortgage pools and similar loans whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veteran Affairs.
     Loans 90 Days or More Past Due and Still Accruing
     (Excluding Insured/Guaranteed GNMA and Similar Loans)
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     Allowance for Credit Losses
     The allowance for credit losses, including unfunded commitments, totaled $7.52 billion at June 30, 2008, compared with $6.01 billion at March 31, 2008, and $4.01 billion at June 30, 2007. Second quarter 2008 results included a credit reserve build of $1.5 billion primarily for expected higher credit losses in the loan portfolio. Since the beginning of fourth quarter 2007, the Company has provided $3.4 billion in excess of net charge-offs. "During the quarter, revised estimates for the reserve for unfunded commitments decreased from the prior quarter as our updated evaluation indicated lower loss content from open commitment exposures," said Loughlin. "We believe the allowance was adequate for losses inherent in the portfolio at June 30, 2008."
     Business Segment Performance
     Wells Fargo has three lines of business for management reporting: Community Banking, Wholesale Banking and Wells Fargo Financial. Net income (loss) for each of the three business segments was:
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     More financial information about the business segments is on pages 28 and 29.
     Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including investment, insurance and trust services primarily in 23 midwestern and western states, and mortgage and home equity loans in all 50 states.
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     Community Banking reported net income of $1.2 billion in second quarter 2008, down $268 million from a year ago, affected by the $1.1 billion credit reserve build. Pre-tax pre-provision income (i.e., revenue less operating expense) increased $1.2 billion, or 48 percent from a year ago. Revenue increased $1.4 billion, or 22 percent, driven by strong balance sheet growth and strong fee income growth in retail banking and mortgage. Average loans of $215.9 billion in second quarter 2008 grew 16 percent and average core deposits of $252.6 billion grew 4 percent, with a portion of the growth due to acquisitions. Noninterest income increased $465 million from second quarter 2007 driven by double-digit growth in cards and mortgage banking, and strong growth in deposit service charges. Noninterest expense increased $147 million, or 4 percent, driven by investments in technology, new stores and sales staff, partially offset by continued expense management. The provision for credit losses increased $1.6 billion (including a $1.1 billion credit reserve build) from second quarter 2007, with over half of the increase related to the Home Equity portfolio.
     Regional Banking
     Core product solutions (sales) of 5.67 million, up 18 percent from prior year
     Core sales per platform banker FTE (active, full-time equivalent) of 5.24 per day, up from 4.78 in prior year
     Record retail bank household cross-sell of 5.64 products per household; 23 percent of our retail bank households have 8 or more products, our long-term goal
     Sales of Wells Fargo Packages (a checking account and at least three other products) up 33 percent from prior year, purchased by 72 percent of new checking account customers
     Consumer checking accounts up a net 5.5 percent from prior year
     Customer loyalty scores up 6 percent and welcoming and wait time scores up 7 percent from prior year (based on customers conducting transactions with tellers)
     Added 1,269 platform banker FTEs from prior year through hiring and acquisitions
     Opened 19 banking stores, bringing our total retail stores to 3,330
     Added 26 webATM machines bringing network total to 6,950 and converted 24 to Envelope-FreeSM webATM machines, bringing network total to 1,474
     Business Banking
     Store-based business solutions up 18 percent from prior year
     Loans to small businesses (loans primarily less than $100,000 on our Business Direct platform) up 10 percent from prior year
     Business checking accounts up a net 2.4 percent from prior year
     Business Banking household cross-sell of 3.6 products per household
     Sales of Wells Fargo Business Services Packages (a business checking account and at least three other business products) up 31 percent from prior year, purchased by 48 percent of new business checking account customer
     "Our amazing, hardworking, dedicated team continued to help our customers reach their financial goals by providing 5.67 million core product solutions in the second quarter, up 18 percent from the prior year," said Carrie Tolstedt, senior EVP, Community Banking. "Of our 23 banking states, 19 had double-digit core product solutions growth from the prior year, and five of those, including California, Texas, and Arizona, had more than 20 percent growth. We focused on small business appreciation during the quarter through community celebrations and customized offers. Sales of store-based business solutions increased an impressive 18 percent from prior year, and sales of Wells Fargo Business Services Packages rose 31 percent. We continue our focus on the customer experience. For customers transacting at the teller line, welcoming and wait time survey scores were up 50 percent, and customer loyalty scores improved 41 percent, since we began surveying in January 2004. In addition, we're proud and excited to welcome our new customers and team members from United Bancorporation of Wyoming, which we acquired on July 1, 2008. Wells Fargo is now the largest bank in Wyoming, number one in market share."
     Home Mortgage
     Home Mortgage retail originations of $31 billion, flat from prior year
     Mortgage applications of $100 billion, down 12 percent from prior year
     Mortgage application pipeline of $47 billion, down 16 percent from prior year
     Record owned mortgage servicing portfolio of $1.55 trillion, up 7 percent from prior year and 3 percent (annualized) from prior quarter
     "Our mortgage team continued to manage very well through another challenging quarter, and again produced strong results," said Mark Oman, senior EVP, Home and Consumer Finance Group. "Home Mortgage's balanced business model positions us well in the current housing environment because its servicing portfolio is a 'natural business hedge' of the slowdown in home originations in the quarter. As mortgage rates have increased, and refinancing and purchase activity slowed, our prepayments decline, benefiting our servicing business. Despite the economic slowdown, our servicing portfolio continued to perform relatively well. For our largest product category, prime conventional first mortgages representing 5.6 million customers and over $1 trillion of servicing, 97.5 out of every 100 customers are current with their payments.
     "Home Mortgage results reflected our long-term commitment to responsible lending and responsible servicing principles. Our disciplined approach to the business and willingness to give up market share to aggressive competitors when the risks outweighed the returns allowed Home Mortgage to avoid many of the issues our competitors now face. The overall market shift towards a greater percentage of agency and government product has benefited Home Mortgage as we remained focused on these segments even when the industry was rapidly growing the Alt-A and nonprime volume in recent years. Government and agency products represented 95 percent of our second quarter originations."
     Wealth Management Group
     Revenue up 13 percent from prior year
     Net income up 29 percent from prior year
     Private Bank revenue up 54 percent, net income up 85 percent from prior year
     Private Bank average core deposits up 64 percent, average loans up 28 percent from prior year
     WellsTrade revenue up 42 percent from prior year
     Online Banking
     10.6 million active online consumers, up 14 percent from prior year; 67 percent of all consumer checking accounts are online
     5.2 million online money movement customers, up 17 percent from prior year
     1.1 million active online small business customers, up 20 percent from prior year
     Wholesale Banking serves customers coast to coast, including middle market banking, corporate banking, commercial real estate, treasury management, asset-based lending, insurance brokerage, foreign exchange, trade services, specialized lending, equipment finance, corporate trust, capital markets activities and asset management.
     Selected Financial Information
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     Record cross-sell of 6.3 products
     Acquired insurance brokerages in Indiana, California and Missouri
     Acquired premium finance company Flatiron Credit Company, Inc.
     Acquired Transcap Associates, Inc. -- factoring and trade finance business
     "Current market conditions combined with our relationship banking model are giving us the opportunity to bring in new customers and do more business with our existing customers," said Dave Hoyt, senior EVP, Wholesale Banking Group. "Our team continues to provide dependable, reliable and innovative financial products and services that businesses nationwide expect from Wells Fargo. We help our customers manage the risks in today's environment. We now have 6.3 products per wholesale relationship. Our loan balances rose 32 percent and deposits rose 14 percent from the same period last year.
     "We're constantly working to strengthen our electronic infrastructure to compete in the digital world. Based on customer feedback, we added wire transfer services and image positive pay functionality to our patent pending CEO MobileSM service, the only browser-based mobile banking service for commercial customers."
     Wholesale Banking reported net income of $557 million in second quarter 2008, down $64 million from a year ago partly due to the $143 million credit reserve build. Revenue increased $191 million, driven by strong loan and deposit growth and higher fee income. Average loans grew to $107.6 billion, up 32 percent from a year ago, with double-digit increases across nearly all wholesale lending businesses. Average core deposits were $65.8 billion, up 14 percent from a year ago, all in interest-bearing balances. Noninterest income increased $59 million from second quarter 2007, including higher deposit service charges, foreign exchange, financial products and insurance revenue, offset by a lower level of commercial real estate brokerage and capital markets activity. Noninterest expense increased $74 million from a year ago, mainly due to higher personnel-related costs, including additional team members, as well as insurance commissions and expenses related to higher financial product sales. The provision for credit losses was $245 million, an increase of $244 million from second quarter 2007, and included $102 million from higher net charge-offs and $143 million of additional provision taken to build reserves for the wholesale portfolio.
     Wells Fargo Financial offers consumer loans primarily through real estate-secured debt consolidation products, automobile financing, consumer and private-label credit cards and commercial services to consumers and businesses throughout the United States, Canada, Puerto Rico and the Pacific Rim.
     Selected Financial Information
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     Average loans of $68 billion, up 6 percent from second quarter 2007
     Real estate-secured receivables up 16 percent to $28.7 billion
     Auto finance receivables/operating leases down 10 percent to $27.5 billion
     "Wells Fargo Financial lost $38 million this quarter reflecting higher credit costs, including a $265 million credit reserve build primarily driven by continued softening in the real estate market," said Tom Shippee, Wells Fargo Financial CEO. "During the past 18 months, we've taken numerous actions to reduce credit risk and, in the process, right-size our expense base by curtailing higher-risk loan products and exiting certain higher-risk/lower-return businesses.
     "In the first half of this year, we continued to tighten underwriting standards in our real estate, auto and credit cards businesses to effectively manage risk in this difficult credit environment. Our second quarter U.S. real estate originations were down 36 percent from a year ago and auto originations declined 40 percent as we intentionally shrank the U.S. auto portfolio. Our auto group is focusing on its core business of nonprime and near-prime lending through both the indirect and direct channels. We're particularly pleased with the growth and performance of our direct auto channel, which we integrated into our consumer store network two years ago and now comprises 30 percent of our new auto originations in the U.S. We've decided to stop originating new auto leases effective the end of July. Second quarter lease volumes were approximately 6 percent of our total auto volume. The prime auto lease business is no longer a strategic fit for us, partly because the returns are not acceptable. However, we will continue to service our existing lease contracts."
     Second quarter revenue of $1.4 billion was flat from a year ago. Average loans increased 6 percent from second quarter 2007. The provision for credit losses increased $405 million from second quarter 2007, and included $265 million of additional provision taken to build reserves. Noninterest expense declined 11 percent from second quarter 2007.
     Recorded Message
     A recorded message reviewing Wells Fargo's results is available at 5:30 a.m. Pacific Time through July 19, 2008. Dial 877-660-6853 (domestic) or 201-612-7415 (international). Enter account number 286 and conference ID 289469. The call is also available on the internet at and
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