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

FORM 10-Q

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004

OR

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

Commission file number 001-2979

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

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

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

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

Yes  þ No  o

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

Yes  þ No  o

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

FORM 10-Q
CROSS-REFERENCE INDEX

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PART I – FINANCIAL INFORMATION

FINANCIAL REVIEW

SUMMARY FINANCIAL DATA

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This Report on Form 10-Q for the quarter ended September 30, 2004, including the Financial Review and the Financial Statements and related Notes, has forward-looking statements, which include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly from our forecasts and expectations. Please refer to “Factors that May Affect Future Results” for a discussion of some factors that may cause results to differ.

OVERVIEW

Wells Fargo & Company is a $422 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 September 30, 2004. When we refer to “the Company”, “we”, “our” and “us” in this report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the Parent, we mean Wells Fargo & Company.

We continued to have double-digit earnings per share growth, with third quarter 2004 diluted earnings per share of $1.02, up 11% from a year ago, and net income of $1.75 billion, up 12% from a year ago. While third quarter 2004 revenue of $7.32 billion was flat, compared with a year ago, revenue grew 11% in businesses other than Wells Fargo Home Mortgage (Home Mortgage). Growth in these businesses was broad based, led by strong growth in consumer lending and deposits, small business banking, credit cards, debit cards and consumer finance. The lower revenue in Home Mortgage was due to a decline in mortgage originations driven by the increase in long-term rates from last year’s record lows. We continued to take advantage of unusually volatile markets in third quarter 2004 with repositioning actions resulting in $10 million of bond gains and $35 million of losses on loans, connected with the sale of approximately $4 billion of securities and adjustable rate mortgages following the big drop in long-term interest rates and narrowing of credit spreads. In addition, given the decline in long-term rates during the quarter, mortgage banking fees were reduced by $130 million, due primarily to the $211 million impairment valuation allowance for mortgage servicing rights (MSRs), offset by $81 million in net derivative gains.

Our corporate vision is to satisfy all the financial needs of our customers, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Our primary strategy to achieve this vision is to increase the number of products we provide to our customers and to focus on providing each customer with all of the financial products that fulfill their needs. Our cross-sell strategy and diversified business model facilitates growth in strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us. We estimate that our average banking household now has 4.5 products with us, which we believe is among the highest, if not the highest, in our industry. 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 27% and average core deposits up 10%, excluding mortgage escrow deposits.

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 and continuously

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examining our credit process. Despite the substantial loan growth we experienced in the last three years, nonperforming assets continued to trend lower and credit losses remained flat. In third quarter 2004, nonperforming loans and net charge-offs as a percentage of loans outstanding declined from the prior year. Asset quality improved in third quarter 2004 compared with a year ago, with net charge-offs down 4% and nonperforming assets (including nonaccrual loans and foreclosed assets) down 9%. We manage the interest rate and market risks inherent in our asset and liability balances within prudent ranges, while ensuring adequate liquidity and funding. Wells Fargo Bank, N.A. is the only bank in the U.S. to be “Aaa” rated by Moody’s Investors Service, their highest rating. Our stockholder value has increased over time due to customer satisfaction, strong financial results and the prudent way we attempt to manage our business risks.

Our financial results included the following:

Net income for third quarter 2004 was $1.75 billion, up 12%, compared with $1.56 billion for third quarter 2003. Diluted earnings per share for third quarter 2004 were $1.02, up 11%, compared with $.92 for third quarter 2003. Return on average assets (ROA) increased to 1.66% for third quarter 2004 from 1.57% a year ago and return on average equity (ROE) increased to 19.34% from 18.88% a year ago.

Net income for the first nine months of 2004 was $5.23 billion, up 14%, compared with $4.58 billion for the first nine months of 2003. Diluted earnings per share for the first nine months of 2004 were $3.05, up 13%, compared with $2.70 for the first nine months of 2003. ROA was 1.72% in the first nine months of 2004, compared with 1.63% for the first nine months of 2003. ROE was 19.74% in the first nine months of 2004, compared with 19.42% for the first nine months of 2003.

Net interest income on a taxable-equivalent basis was $4.45 billion and $12.77 billion for the third quarter and first nine months of 2004, respectively, compared with $4.16 billion and $12.02 billion for the same periods of 2003. Net interest income for third quarter 2004 increased 7%, compared with the prior year. Despite the decline in mortgages held for sale from last year, earning assets were up 9%, due to the 27% growth in average commercial and commercial real estate and consumer loans. The net interest margin was 4.89% for both the third quarter and first nine months of 2004, compared with 5.01% and 5.12% for the same periods of 2003. The margin increased from 4.83% in second quarter 2004 to 4.89% in third quarter 2004, the first increase in the margin in 10 consecutive quarters, partly due to balance sheet repositioning activities taken in the last few quarters.

Noninterest income was $2.90 billion and $9.20 billion for the third quarter and first nine months of 2004, respectively, compared with $3.19 billion and $8.98 billion for the same periods of 2003. Excluding mortgage banking fee income, noninterest income increased 9% from third quarter 2003. The increase in fee income in our non-mortgage banking activities reflected improved business conditions and growth across the Company, with solid year-over-year growth in deposit, loan, credit card and debit card fees, and growth in the international, institutional investment, capital markets and Acordia insurance businesses. During third quarter 2004, $48 million of equity investment gains were realized compared with $58 million a year ago.

Revenue, the sum of net interest income and noninterest income, was $7.32 billion in third quarter 2004, essentially flat compared with $7.33 billion in third quarter 2003, reflecting the

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impact of lower revenue from Home Mortgage. Revenue increased 5% to $21.89 billion in the first nine months of 2004 from $20.95 billion in the first nine months of 2003.

Noninterest expense was $4.22 billion and $12.60 billion for the third quarter and first nine months of 2004, respectively, compared with $4.58 billion and $12.69 billion for the same periods of 2003. Home Mortgage expense in third quarter 2004 declined approximately $370 million from third quarter 2003 reflecting lower production and staffing costs.

During third quarter 2004, net charge-offs were $407 million, or .59% of average total loans (annualized), compared with $424 million, or .78%, during third quarter 2003. The provision for credit losses, which relates to loans and unfunded credit commitments, was $408 million and $1,252 million in the third quarter and first nine months of 2004, respectively, compared with $426 million and $1,258 million in the same periods of 2003. Effective September 30, 2004, we reclassified the portion of the allowance for loan losses related to commercial lending commitments and letters of credit, or $163 million, to other liabilities. The resulting allowance for credit losses (including both the allowance for loan losses and the reserve for unfunded credit commitments) was $3.95 billion, or 1.41% of total loans, at September 30, 2004, compared with $3.89 billion, or 1.54%, at December 31, 2003 and $3.85 billion, or 1.69%, at September 30, 2003.

At September 30, 2004, total nonaccrual loans were $1.38 billion, or .49% of total loans, compared with $1.46 billion, or .58%, at December 31, 2003 and $1.52 billion, or .66%, at September 30, 2003. Foreclosed assets were $190 million at September 30, 2004, compared with $198 million at December 31, 2003 and $196 million at September 30, 2003.

The ratio of stockholders’ equity to total assets was 8.70% at September 30, 2004, compared with 8.89% at December 31, 2003 and 8.27% at September 30, 2003. Our total risk-based capital (RBC) ratio at September 30, 2004 was 12.15% and our Tier 1 RBC ratio was 8.40%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. Our RBC ratios at September 30, 2003 were 11.62% and 8.14%, respectively. Our Tier 1 leverage ratios were 6.97% and 6.43% at September 30, 2004 and September 30, 2003, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.

Recent Accounting Standards

On December 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to plan sponsors that provide a benefit that is at least equivalent to Medicare. Specific authoritative guidance on the accounting for the federal subsidy has been issued through the Financial Accounting Standards Board (FASB) Staff Position 106-2 (FSP 106-2), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was issued in May 2004. We adopted FSP 106-2 prospectively effective July 1, 2004 and the adoption did not have a material impact on either our accumulated postretirement benefit obligation or our net periodic postretirement benefit cost for third quarter 2004.

On December 12, 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 03-3 (SOP 03-3), Accounting for Certain Loans or Debt Securities Acquired in a Transfer, which addresses

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the accounting for certain loans acquired in a transfer when it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. SOP 03-3 is to be applied prospectively, effective for loans acquired in years beginning after December 15, 2004. SOP 03-3 requires acquired loans with evidence of credit deterioration to be recorded at fair value and prohibits recording any valuation allowance related to such loans at the time of purchase. This SOP limits the yield that may be accreted on such loans to the excess of the investor’s estimated cash flows over its initial investment in the loan. The excess of contractual cash flows over cash flows expected to be collected is not to be recognized as an adjustment of yield. Subsequent increases in cash flows expected to be collected are recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected are recognized as impairment. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3.

On July 16, 2004, the FASB ratified the decisions reached by the Emerging Issues Task Force (EITF) with respect to Issue 02-14 (EITF 02-14), Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means. The EITF reached a consensus that an investor should apply the equity method of accounting when it has investments in either common stock or “in-substance common stock” of a corporation, provided that the investor has the ability to exercise significant influence over the operating and financial policies of the investee. In-substance common stock, as defined in the consensus, is an investment that has risk and reward characteristics, among other factors, that are substantially the same as common stock. We adopted the consensus reached in EITF 02-14 during third quarter 2004 and the adoption did not have a material effect on our financial statements.

On October 13, 2004, the FASB ratified the consensus reached by the EITF at its September 29-30 and June 30-July 1 meetings with respect to Issue No. 04-8 (EITF 04-8), The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share. This consensus would require instruments with contingent conversion features that are based on the market price of an entity’s own stock, such as our Floating Rate Convertible Senior Debentures due 2033 (the debentures) in their current form, to be included in the computation of diluted earnings per share, even though the market price trigger has not been met. EITF 04-8 becomes effective for periods ending after December 15, 2004, and must be applied retroactively by restating any periods during which the instruments were outstanding. However, the determination of the dilutive effect upon adoption of EITF 04-8, if any, is based on the form of the instrument that exists at December 31, 2004.

According to the terms of the indenture related to the debentures, we have the right to elect to deliver, in lieu of common stock, cash or a combination of cash and common stock upon conversion of the debentures. However, the indenture currently prohibits us from paying cash upon a conversion of the debentures if an event of default, as defined in the indenture, has occurred and is continuing at that time. We are therefore seeking consents from holders of the debentures to amend the indenture to eliminate this prohibition. After effectiveness of the amendment, we will make an irrevocable election under the indenture before the end of 2004, that will obligate us to deliver, upon conversion of the debentures, (i) cash in an amount equal to the lesser of the conversion value of the debentures as determined under the indenture or the

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accreted principal amount of the debentures, and (ii) cash or common stock or a combination of cash and common stock for any conversion value of the debentures in excess of the accreted principal amount. As a result of these actions, none of the shares of the common stock underlying the debentures currently would be considered outstanding for purposes of calculating diluted earnings per share under EITF 04-8.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are fundamental to understanding our results of operations and financial condition, because some accounting policies require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Three of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern the allowance for loan losses, the valuation of mortgage servicing rights and pension accounting. Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit and Examination Committee. These policies are described in “Financial Review – Critical Accounting Policies” and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2003 (2003 Form 10-K).

EARNINGS PERFORMANCE

NET INTEREST INCOME

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

Net interest income on a taxable-equivalent basis increased 7% to $4.45 billion in third quarter 2004 from $4.16 billion in third quarter 2003, primarily due to strong consumer loan growth, particularly in mortgage products. The benefit of this growth was partially offset by higher market funding costs, due to higher interest rates, and lower loan yields as new loans were added with yields below the existing portfolio average.

The net interest margin decreased to 4.89% in third quarter 2004 from 5.01% in third quarter 2003. The decline was primarily due to lower investment portfolio yields following maturities and prepayments of higher yielding mortgage-backed securities, and the addition of new consumer and commercial loans with yields below the existing portfolio average. These factors were partially offset by balance sheet repositioning actions taken in 2004.

Individual components of net interest income and the net interest margin are presented in the rate/yield table on pages 8 and 9.

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