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

FORM 10-Q

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005

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 Exchange Act).

Yes   þ     No  o

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

FORM 10-Q
CROSS-REFERENCE INDEX

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PART I – FINANCIAL INFORMATION

FINANCIAL REVIEW

SUMMARY FINANCIAL DATA

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This Report on Form 10-Q for the quarter ended March 31, 2005, 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 unduly rely on forward-looking statements. Actual results might differ significantly from our forecasts and expectations. Please refer to “Factors that May Affect Future Results” in this Report for a discussion of some factors that may cause results to differ.

OVERVIEW

Wells Fargo & Company is a $436 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, 2005. 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 2005, we achieved record diluted earnings per share of $1.08, up 5% from a year ago, and record net income of $1.86 billion, up 5% from a year ago. First quarter 2005 results included pre-tax charges or losses of $410 million for several actions designed to further strengthen our balance sheet. First, in a step toward bringing our mortgage, home equity and consumer finance businesses onto common systems and conforming credit charge-off practices with the more stringent standards of the Federal Financial Institutions Examination Council (FFIEC), Wells Fargo Financial recognized $163 million in credit losses in its portfolios. Second, we incurred $117 million in expenses upon adjusting the estimated lives of certain depreciable assets. Finally, we realized $130 million of losses related to the sale of $18 billion of our lowest-yielding adjustable rate mortgages (ARMs) and auto loans. During the past 12 months, there have been market opportunities to improve asset yields and margins by selling our lowest-yielding loans. The note rates at which we are now beginning to replace these ARMs through new originations are 80-90 basis points higher than the note rates on the ARMs sold during the past 12 months. The yield on the first mortgage portfolio was 6.0%, compared with 5.3% a year ago and 5.7% in fourth quarter 2004.

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 4.6 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 12% and average core deposits up 9%.

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

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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 2005 was $1.86 billion, up 5%, compared with $1.77 billion for first quarter 2004. Diluted earnings per share for first quarter 2005 were $1.08, up 5%, compared with $1.03 for first quarter 2004. Return on average assets (ROA) was 1.75% and return on average common equity (ROE) was 19.60% for first quarter 2005.

Net interest income on a taxable-equivalent basis increased 10% to $4.48 billion for first quarter 2005 on 12% earning asset growth, compared with $4.07 billion for first quarter 2004. The net interest margin was 4.87% for first quarter 2005, compared with 4.94% for first quarter 2004.

Noninterest income increased 17% to $3.64 billion for first quarter 2005, compared with $3.10 billion for first quarter 2004. The increase was driven by growth across our businesses, with particular strength in trust and investment fees, credit and debit card fees, consumer loan fees and mortgage banking. Substantially all of the increase in trust and investment fees was due to the acquisition of assets under management from Strong Financial Corporation (Strong Financial), which closed December 31, 2004. Mortgage banking noninterest income reflected the benefit of a larger servicing portfolio, which resulted in higher servicing fees compared with first quarter 2004, and higher interest rates, which resulted in a mortgage servicing rights (MSRs) impairment recovery.

Revenue, the sum of net interest income and noninterest income, grew $942 million, or 13%, to $8.09 billion in first quarter 2005 from $7.15 billion in first quarter 2004. Revenue growth was broad based, with particularly strong double-digit growth in regional banking, institutional investments, debit cards, small business lending, corporate trust, consumer credit, consumer finance, home mortgage and corporate banking.

Noninterest expense was $4.69 billion for first quarter 2005, up $663 million, or 16%, from first quarter 2004. The increase was primarily due to a $332 million increase in salary and benefit expense from additional employees and higher occupancy and equipment costs, which included a $117 million expense taken during first quarter 2005 to adjust the estimated lives for certain depreciable assets, primarily building improvements.

Total first quarter net charge-offs were $585 million (.83% of average loans outstanding, annualized), including $163 million (.23%) related to the timing of credit loss recognition at Wells Fargo Financial upon adoption of FFIEC guidelines, compared with $465 million (.66%) in fourth quarter 2004 and $404 million (.63%) in first quarter 2004. Unlike our banks, Wells Fargo Financial is not subject to the FFIEC guidelines, but we believe these are sound business practices that will also provide consistent loss recognition across all Wells Fargo business units. The FFIEC’s Uniform Retail Credit Classification and Account Management Policy includes requirements for the classification and treatment of retail credit in financial institutions, such as the timeframes when delinquent retail loans and lines of credit should be written off.

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The allowance for credit losses, which consists of the allowance for loan losses and the reserve for unfunded credit commitments, was $3.95 billion, or 1.36% of total loans, at March 31, 2005, $3.95 billion, or 1.37%, at December 31, 2004, and $3.89 billion, or 1.47%, at March 31, 2004.

At March 31, 2005, total nonaccrual loans were $1.20 billion, or .41% of total loans, compared with $1.36 billion, or .47%, at December 31, 2004, and $1.39 billion, or .52%, at March 31, 2004. Total nonperforming assets (NPAs) were $1.41 billion, or .48% of total loans, at March 31, 2005, compared with $1.57 billion, or .55%, at December 31, 2004, and $1.61 billion, or .61%, at March 31, 2004. The $167 million decline in NPAs from December 31, 2004, primarily reflected lower consumer NPAs due to the impact of the higher charge-offs at Wells Fargo Financial to conform its credit write-off practices with FFIEC standards and the continued decline in commercial NPAs due to overall economic improvements. Foreclosed assets were $207 million at March 31, 2005, compared with $212 million at December 31, 2004, and $222 million at March 31, 2004.

The ratio of stockholders’ equity to total assets was 8.83% at March 31, 2005, 8.85% at December 31, 2004, and 8.92% at March 31, 2004. Our total risk-based capital (RBC) ratio at March 31, 2005, was 12.37% 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 March 31, 2004, were 12.18% and 8.48%, respectively. Our Tier 1 leverage ratios were 7.17% and 7.13% at March 31, 2005 and 2004, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.

Recent Accounting Standards

On December 16, 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R), which replaces FAS 123, Accounting for Stock-Based Compensation, and supercedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Securities and Exchange Commission (SEC) registrants originally would have been required to adopt FAS 123R’s provisions at the beginning of their first interim period after June 15, 2005. On April 14, 2005, the SEC announced that registrants could delay adoption of FAS 123R’s provisions until the beginning of their next fiscal year. We currently expect to adopt FAS 123R on January 1, 2006, as required, using the “modified prospective” transition method. The scope of FAS 123R includes a wide range of stock-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans. FAS 123R will require us to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost must be recognized in the income statement over the vesting period of the award. Under the “modified prospective” transition method, awards that are granted, modified or settled beginning at the date of adoption will be measured and accounted for in accordance with FAS 123R. In addition, expense must be recognized in the statement of income for unvested awards that were granted prior to the date of adoption. The expense will be based on the fair value determined at the grant date. We currently estimate that the adoption of FAS 123R will reduce earnings by approximately $.06 per share in 2006 and we will continue to evaluate the impact of adoption on our financial statements.

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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 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, 2004 (2004 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 following table 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 10% to $4.48 billion in first quarter 2005 from $4.07 billion in first quarter 2004, primarily driven by a 12% increase in earning assets. These results include the impact from balance sheet repositioning actions over the past twelve months in which we sold lower-yielding assets to further strengthen our balance sheet and better position the Company for rising interest rates.

The net interest margin decreased to 4.87% in first quarter 2005 from 4.94% in first quarter 2004. The decrease was primarily due to higher market funding costs following Federal Reserve actions to raise interest rates. This impact was moderated by the benefits of the balance sheet repositioning actions referenced above, improved loan yields and strong core deposit growth.

Individual components of net interest income and the net interest margin are presented in the following table.

Average earning assets increased $40.5 billion to $372.5 billion in first quarter 2005 from $332.0 billion in first quarter 2004 due to an increase in average loans and mortgages held for sale. Loans averaged $287.3 billion in first quarter 2005, compared with $256.4 billion in first quarter 2004. The increase was largely due to growth in home equity and commercial products.

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

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Average mortgages held for sale increased to $31.6 billion from $25.0 billion in first quarter 2004 due to a redesignation of our lowest-yielding mortgages from the held for investment portfolio. Debt securities available for sale averaged $32.0 billion during first quarter 2005 and $31.5 billion in first quarter 2004.

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 9% from a year ago. Average core deposits were $231.8 billion and $213.1 billion in first quarter 2005 and 2004, respectively. Total average retail core deposits, which exclude Wholesale Banking core deposits and mortgage escrow deposits, for first quarter 2005, grew $16.4 billion, or 9%, from a year ago. Average mortgage escrow deposits were $13.6 billion for first quarter 2005, up $1.4 billion from a year ago. While savings certificates of deposits remained flat at $19.5 billion in first quarter 2005 from first quarter 2004, noninterest-bearing checking accounts and other core deposit categories increased on average from $193.6 billion in first quarter 2004 to $212.3 billion in first quarter 2005, reflecting growth in both commercial and consumer accounts. Total average interest-bearing deposits increased to $189.1 billion in first quarter 2005 from $169.7 billion in first quarter 2004.

NONINTEREST INCOME