Wells Fargo & Company is a $595$609 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,June 30, 2008. When we refer to “the Company,” “we,” “our” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company.

Our firstWe continued to profitably build our franchise in second quarter 2008, results reflectedat a combination of solid business growth, strong operating margins and further balance sheet strengthening.time when many in our industry have been primarily focused on fixing rather than growing their companies. Despite a $2.0$3.0 billion pre-tax provision for creditloan losses –in the quarter, including an additional $500 milliona $1.5 billion credit reserve build, we earned a $1.8 billion quarterly profit, generated return on equity of 14.6%, increased Tier 1 capital in the quarter – we earned $2.0 billion (after tax), or $0.60 per share. Our ability to earn through these higher net credit losses reflected the benefit of our diversified business model, as well as the attractive growth opportunities we are realizing in this challenging environment. Our first quarter 2008 results included double-digit revenue growth (up 12% year over year) and positive operating leverage. Even with higher credit costs, our return on assets (ROA) of 1.40% and return on equity (ROE) of 16.86% remained strong and at the higher end of our peers. Our net interest margin improved 7by 32 basis points to 4.69% on8.24%, and increased the combination of capital and loan loss allowance to 9.7% of average earning assets from 9.1% linked quarter. Our continued profitable growth is reflected in the growth of our pre-tax pre-provision income, up $1.4 billion, or 34%, from a linked-quarter basis, and was one of the highest among large U.S. bank holding companies. We increased our allowance for credit lossesyear ago, driven by providing $500 million in excess of net charge-offs in first quarter 2008 to build reserves for future credit losses inherent in our loan portfolio. Our capital ratios increased from year-end 2007 notwithstanding a 16% (annualized) linked-quarter20% increase in earning assets, a 16% increase in revenue, a 10% increase in noninterest income, record cross-sell of 5.64 products in our retail business and liquidity remained strong due6.3 products in our commercial business, a 3 basis point increase in the net interest margin to 4.92% (up 23 basis points linked quarter), and an increase in operating leverage, with expenses up only 2% versus 16% revenue growth.

In broad terms, the credit crisis itself 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 in the first half of 2008 from a year ago, roughly equal to continued core deposit growth.the increase in net charge-offs for the same period, even after adjusting charge-offs for the impact of our new charge-off policy for the National Home Equity Group (Home Equity).

Our vision is to satisfy all our customers’ financial needs, 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 5.65.64 products with us. Our goal is eight products per customer, which is currently half of our estimate of potential demand. Our core products grew this quarter from a year ago, with average loans up 19%18%, average core deposits up 9%6% and assets under management or administration up 11%2%.

Revenue, the sum of net interest income and noninterest income, grew 12%16% to $10.56$11.46 billion in firstsecond quarter 2008 from $9.44$9.89 billion in firstsecond quarter 20072007. Because of the opportunities to gain new business and included the $334 millionnew customers, gain more business from the Visa IPO. Once again, many ofexisting customers and add earning assets with better risk-adjusted spreads, our businessesrevenue growth accelerated through second quarter 2008. Businesses that achieved double-digit, year-over-year revenue growth including commercial banking,were broad-based and included asset-based lending, insurance, international, wealth management, regional banking, debit and credit cards, mortgage banking, business direct, Small Business Administration lending, insurance, international, specialized financial services and business payroll services. We continued to have a good balance between loan and deposit spread revenue and fee-based revenue, reflecting record cross-sell in both our retail and wholesale businesses.wealth management.

Noninterest expense was $5.46$5.86 billion for firstsecond quarter 2008, down $64up $133 million, or 1%2%, from first quarter 2007$5.73 billion for the same period of 2007. We continued to build distribution — opening 19 banking stores and included a $151 million reversal of Visa litigation expense related to the Visa IPO. First quarter 2008adding sales and service team members — while reducing most non-labor expenses, included higher salaries, sales-related insurance costs and net occupancy costs, more than offset by lower incentive compensation (reduced incentive compensation accruals), employee benefits andincluding year-over-year cost reductions in outside professional services, costs. We continued to invest in growing our businesses, opening 11 retail banking storestravel and converting 18 Greater Bay Bancorp stores during the quarter.entertainment, contract services, advertising and promotion, and postage. The efficiency ratio improved to 51.7%51.1% for firstsecond quarter 2008 from 58.5%57.9% a year ago.

Net charge-offs for firstsecond quarter 2008 were $1.5 billion (1.60%(1.55% of average total loans outstanding, annualized), compared with $1.2$1.5 billion (1.28%) for fourth quarter 2007 and $715 million (0.90%(1.60%) for first quarter 2008 and $720 million (0.87%) for second quarter 2007. During the first half of 2008, net charge-offs were $3.04 billion (1.58%), compared with $1.44 billion (0.89%) for the first half of 2007. Total provision expense in firstsecond quarter 2008 was $2.0$3.0 billion, including a $500 million$1.5 billion credit reserve build, primarily for expected higher losses in the National Home Equity Group (Home Equity) and Business Direct (primarily unsecured lines of credit to small businesses) portfolios. The $813 million increase in net credit losses from first quarter 2007 included $364 million in the real estate 1-4 family junior lien category, primarily from Home Equity and $166unsecured retail loan portfolios. As previously announced, the Home Equity charge-off policy changed in second quarter 2008 from 120 days to no more than 180 days, or earlier if warranted, to provide more time to work with customers to solve their credit problems and keep them in their homes. 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 second quarter 2008 since this loss content was included in the commercial category, primarily from Business Direct. Residential real estate values continued to decline in the quarter and the number of markets adversely impacted continued to increase. As previously disclosed, we segregated approximately $12$1.5 billion of Home Equity loans into a liquidating portfolio in fourth quarter 2007, which has decreased to $11.5 billion at March 31, 2008. The liquidating portfolio produced $163 million in net charge-offs in first quarter 2008, for an annualized quarterly loss rate of 5.58%.credit reserve build.

Other consumer portfolios performed as expected during the quarter. Net charge-offs in the real estate 1-4 family first mortgage portfolio increased $57$77 million in firstsecond quarter 2008 from firstsecond quarter 2007, including an increase of $23$36 million in thefrom Wells Fargo Financial debt consolidation portfolio and $21 million in the Home Mortgage portfolio, but were still at relatively low levels.Financial’s residential real estate portfolio. The increase in mortgage loss rateslevels was consistent withexpected given the continued declines in home prices. Despite the $123 million increase inCredit card net charge-offs increased $168 million from firsta year ago, as expected, due to the effect of the current economic environment on consumers. While the loss levels in second quarter 2007,2008 were higher than the credit card portfoliohistorically low levels of recent years, many of our loan products continued to perform as expected. Delinquencyearn acceptable risk-adjusted returns. Net charge-offs in ourthe auto portfolio improved in firstsecond quarter 2008. This portfolio has received significant management attention2008 were up $30 million from a year ago and thedown $47 million linked quarter. The process improvements and underwriting changes in underwriting and collections made in 2006 and 2007 have stabilized losses.prior quarters continued to produce the desired results; however, increased economic stress will place additional pressure on any portfolio closely tied to the consumer.

Commercial and commercial real estate net charge-offs increased $166 million to $268$235 million in firstsecond quarter 2008 from $102second quarter 2007. Commercial and commercial real estate charge-offs include Business Direct (primarily unsecured lines of credit to small businesses), which increased $106 million in firstsecond quarter 2007. The vast majority of commercial loans (other real estate mortgage, real estate constructionfrom a year ago and lease financing) continued to perform as expected and losses remained modest. However, losses have increased in the Business Direct portfolio, with net charge-offs up $92$30 million from first quarter 2007. These loans have tended to perform like credit cards. Most of the increase in Business Direct losses occurred in certain metropolitan areas within California, Nevada and Florida, and appears to be concentrated in industries related to real estate or where the business owner may be experiencing difficulty with a home loan.linked quarter.

The provision for credit losses was $3.0 billion in second quarter 2008, $2.0 billion in first quarter 2008 $2.6 billion in fourth quarter 2007 and $715$720 million in firstsecond quarter 2007. The provision for firstsecond quarter 2008 included an additional $500 million$1.5 billion in credit reserve build, due to higher creditprimarily for losses inherent in the loan portfolio.Home Equity, Wells Fargo Financial real estate, and unsecured consumer portfolios. We have provided $3.4 billion in excess of net charge-offs since the beginning of fourth quarter 2007, including $2.0 billion in the first half of 2008. The allowance for credit losses, which consists of the allowance for loan losses and the reserve for unfunded credit commitments, was $6.01$7.52 billion (1.56%(1.88% of total loans) at March 31,June 30, 2008, compared with $5.52 billion (1.44%) at December 31, 2007, and $3.97$4.01 billion (1.22%(1.17%) at March 31,June 30, 2007.

Total nonaccrual loans were $3.26$4.07 billion (0.84%(1.02% of total loans) at March 31,June 30, 2008, compared withup from $2.68 billion (0.70%) at December 31, 2007, and $1.75$1.73 billion (0.54%(0.51%) at March 31, 2007.June 30, 2007, reflecting economic conditions, primarily in portfolios affected by residential real estate conditions and the associated impact on the consumer. The majority of the increase in nonaccrual loans from a year ago was caused in portfolios affectedpart by the residential real estate issues,our active loss mitigation strategies, including anproactively working with customers on restructuring their loan terms to align with their current financial capacity, at Wells Fargo Financial, Home Equity and Home Mortgage. The $2.34 billion increase of $517from a year ago included $582 million in Wells Fargo Financial real estate, $283 million in commercial lending, primarily in loans to home builders and developers, and $182$472 million in Home Equity. Equity and $327 million in Home Mortgage. The change in the Home Equity charge-off policy also contributed to the increase in nonaccrual loans, as fewer loans were charged off in the quarter.

Total nonperforming assets (NPAs) were $4.50$5.23 billion (1.16%(1.31% of total loans) at March 31,June 30, 2008, compared with $3.87 billion (1.01%) at December 31, 2007, and $2.67$2.72 billion (0.82%(0.79%) at March 31,June 30, 2007. As in the prior quarter, we continued to hold more foreclosed properties than we have historically.historically, given a combination of higher foreclosure rates and less liquidity in the distressed loan market. Foreclosed assets were $1,215$1,130 million at March 31,June 30, 2008, $1,184 million at December 31, 2007, and $909$977 million at March 31,June 30, 2007. Foreclosed assets, a component of total NPAs, included $578$535 million, $535 million and $381$423 million of foreclosed real estate securing Government National Mortgage Association (GNMA) loans at March 31,June 30, 2008, December 31, 2007 and March 31,June 30, 2007, respectively, consistent with regulatory reporting requirements. The foreclosed real estate securing GNMA loans of $578$535 million represented 1513 basis points of the ratio of NPAs to loans at March 31,June 30, 2008. Both principal and interest for GNMA loans secured by the foreclosed real estate are collectible because the GNMA loans are

insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs.

The Company and each of its subsidiary banks continued to remain well-capitalized. The ratio of stockholders’ equity to total assets was 8.09%7.87% at March 31,June 30, 2008, 8.28% at December 31, 2007, and 9.48%8.75% at March 31,June 30, 2007. Our total risk-based capital (RBC) ratio at March 31,June 30, 2008, was 11.01%11.23% and our Tier 1 RBC ratio was 7.92%8.24%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. Our total RBC ratio was 10.68% and 12.09%11.71% at December 31, 2007 and March 31,June 30, 2007, respectively, and our Tier 1 RBC ratio was 7.59% and 8.68%8.55% for the same periods. Our Tier 1 leverage ratio was 7.04%7.35%, 6.83% and 7.81%7.89% at March 31,June 30, 2008, December 31, 2007 and March 31,June 30, 2007, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies.

On November 5, 2007, the Securities and Exchange Commission (SEC) issued SAB 109, which provides the staff’s views on the accounting for written loan commitments recorded at fair value under U.S. generally accepted accounting principles (GAAP). To make the staff’s views consistent with current authoritative accounting guidance, SAB 109 revises and rescinds portions of SAB 105,Application of Accounting Principles to Loan Commitments. Specifically, SAB 109 states the expected net future cash flows associated with the servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The provisions of SAB 109, which we adopted on January 1, 2008, are applicable to written loan commitments recorded at fair value that are entered into beginning on or after January 1, 2008. The implementation of SAB 109 did not have a material impact on our first quarter 2008 results or the valuation of our loan commitments.

On March 19, 2008, the FASB issued FAS 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. FAS 161 changes the disclosure requirements for derivative instruments and hedging activities. It requires enhanced disclosures about how and why an entity uses derivatives, how derivatives and related hedged items are accounted for, and how derivatives and hedged items affect an entity’s financial position, performance, and cash flows. The provisions of FAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. Because FAS 161 amends only the disclosure requirements for derivative instruments and hedged items, the adoption of FAS 161 will not affect our consolidated financial statements.

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. Five 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 (MSRs) and financial instruments, pension accounting and income taxes. Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit and Examination Committee.Committee of the Board of Directors. These policies are described in “Financial Review –— Critical Accounting Policies” and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2007 Form 10-K.

FAIR VALUE OF FINANCIAL INSTRUMENTS

We use fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures. (See our 2007 Form 10-K for the complete critical accounting policy related to fair value of financial instruments.)

Approximately 23%24% of total assets ($136.7144.7 billion) at March 31,June 30, 2008, and 22% of total assets ($123.8 billion) at December 31, 2007, consisted of financial instruments recorded at fair value on a recurring basis. At March 31,June 30, 2008, approximately 83%77% of these financial instruments used valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements, to measure fair value. The remaining 17%23% of these financial instruments (4%(6% of total assets) were measured using model-based techniques, or Level 3 measurements. Substantially all of ourOur financial assets valued using Level 3 measurements predominantly consisted of MSRs, or investments in asset-backed securities collateralized by auto leases.leases and certain mortgages held for sale. In firstsecond quarter 2008, $1.1transfers to Level 3 from Level 2 consisted of $3.3 billion of residential mortgages held for sale were transferred into Level 3 from Level 2and $1.7 billion of debt securities available for sale for which significant inputs to the valuation became unobservable, largely due to reduced levels of market liquidity for certain residential mortgage loans.liquidity. Approximately 1% of total liabilities ($6.27.0 billion) at March 31,June 30, 2008, and 0.5% ($2.6 billion) at December 31, 2007, consisted of financial instruments recorded at fair value on a recurring basis. Liabilities valued using Level 3 measurements were $408$443 million at March 31,June 30, 2008.

See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional detail for firstsecond quarter 2008. See Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2007 Form 10-K for a detailed discussion of the key assumptions used to determine the fair value of our MSRs and the related sensitivity analysis.

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 on a taxable-equivalent basis to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.

Net interest income on a taxable-equivalent basis increased 15%21% to $5.81$6.33 billion in firstsecond quarter 2008 from $5.04$5.23 billion in firstsecond quarter 2007, primarily2007. The increase was driven by strong20% earning asset growth in both loans and interest-bearing deposits. The net interest margin increased 7 basis points to 4.69% for first quarter 2008 from fourth quarter 2007 as the benefit of lower funding costs offset the growth in earning assets. The declinecombined with an increase in the net interest margin to 4.92%, up 3 basis points from 4.95% fora year ago and up 23 basis points linked quarter. The improvement in the 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. For the first quarter 2007 was largely due to the 21%half of 2008, growth in earning assets.net interest income has largely offset the impact of the credit crisis on charge-offs.

Average earning assets increased $86.1$86.6 billion (21%(20%) to $496.9$515.8 billion in firstsecond quarter 2008 from $410.8$429.2 billion in firstsecond quarter 2007. Average loans increased to $383.9$391.5 billion in firstsecond quarter 2008 from $321.4$332.0 billion a year ago. Average mortgages held for sale decreased to $26.3$28.0 billion in firstsecond quarter 2008 from $32.3$36.1 billion a year ago. Average debt securities available for sale increased to $75.2$84.7 billion in firstsecond quarter 2008 from $44.7$49.5 billion a year ago.

Core deposits are an important contributor to growth in net interest income and the net interest margin, and are a low-cost source of funding. Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances). Average core deposits rose 9%6% to $317.3$318.4 billion for firstsecond quarter 2008 from $290.6$300.5 billion for firstsecond quarter 2007 and funded 83%81% and 90%91% of average loans in firstsecond quarter 2008 and 2007, respectively. Total average retail core deposits, which exclude Wholesale Banking core deposits and retail mortgage escrow deposits, grew $11.5$10.3 billion (5%) to $228.4$230.4 billion for firstsecond quarter 2008 from a year ago. Average mortgage escrow deposits were $20.4$22.7 billion for firstsecond quarter 2008, down $205$680 million from a year ago. Average savings certificates of deposits increaseddecreased to $41.9$37.6 billion in firstsecond quarter 2008 from $38.5$39.7 billion a year ago and average noninterest-bearing checking accounts and other core deposit categories (interest-bearing checking and market rate and other savings) increased to $250.0$255.3 billion in firstsecond quarter 2008 from $234.3$241.6 billion a year ago. Total average interest-bearing deposits increased to $258.4$262.5 billion in firstsecond quarter 2008 from $221.0$227.5 billion a year ago.

The following table presents the individual components of net interest income and the net interest margin.

NONINTEREST INCOME