**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549-1004**

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**FORM 10-K**

 

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

The registrant meets theconditions set forth in

General InstructionI(1)(a) and (b) of Form 10-K and

is therefore filing thisForm with the reduced disclosure format.

 

**For thefiscal year ended December 31, 2001**

**Commissionfile number 2-80466**

 

**WELLS FARGO FINANCIAL, INC.**

(Exact name of registrantas specified in its charter)

 

**Iowa**

(State or otherjurisdiction of incorporation or organization)

 

**42 1186565**

(IRS EmployerIdentification No.)

 

**206 Eighth Street, Des Moines, Iowa**

(Address of principalexecutive offices)

 

**50309**

(Zip Code)

 

Registrant’s telephonenumber, including area code: **(515) 243-2131**

 

Securities**registeredpursuant to Section 12(b) of the Act:

 

| **Title of each class**                           |   | **Name of each exchange on which registered** |
|---------------------------------------------------|--------|-----------------------------------------------|
| 7% Senior Notes 2003  Series due January 15, 2003 |   | New York Stock Exchange                       |

 

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  ý No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  ý

 

State the aggregatemarket value of the voting stock held by non-affiliates of the registrant.  $0

 
| Indicate the number of shares outstanding of each of  the registrant’s classes of common stock, as of the latest practicable  date.  Common Stock (Without Par  Value): 1,000 shares outstanding as of March 26, 2002. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

PART I

 

 

*Item1.  Business.*

 

 

Wells Fargo Financial, Inc. (the“Company”) is an Iowa corporation organized on August 19, 1982, as thesuccessor to a business founded in 1897, and is a wholly-owned subsidiary ofWells Fargo Financial Services, Inc. (the “Parent”).  The Parent is a wholly-owned subsidiary of Wells Fargo &Company (“Wells Fargo”), a $308 billion diversified financial servicesorganization.  (Unless the contextotherwise requires, any reference to “Wells Fargo Financial” shall include theCompany and its subsidiaries.)

 

Wells Fargo Financial is a leading diversified consumer financecompany.  Wells Fargo Financial’sconsumer finance operations make loans to individuals and purchase salesfinance contracts through 929 consumer finance branches in 47 states, Guam,Saipan, Puerto Rico, and the ten Canadian provinces.  Wells Fargo Financial also issues credit cards primarily throughtwo banking subsidiaries.  Wells FargoFinancial’s automobile finance operations have 189 branches in 33 states andPuerto Rico and specialize in purchasing sales finance contracts directly fromautomobile dealers and making loans secured by automobiles.  Wells Fargo Financial also provides leasefinancing specializing in commercial equipment throughout the United States.  Lease finance receivables are generatedprimarily from equipment distributors ranging from small independently-ownedvendors to large equipment manufacturers. For additional information on the financial results of the Company’ssegments see note 14 to the consolidated financial statements.

 

The Company also has insurance subsidiaries which are primarily engagedin the business of providing, directly or through reinsurance arrangements,credit life and credit disability insurance as a part of Wells FargoFinancial’s consumer business and the consumer business of certainaffiliates.  Credit property andinvoluntary unemployment insurance are provided as part of Wells FargoFinancial’s consumer business. Such business is written, directly or throughreinsurance agreements, by the Company’s insurance subsidiaries, or it isoffered on an agency basis by Wells Fargo Financial.  Non-filing insurance was utilized in connection with Wells FargoFinancial’s consumer business until it was discontinued in December of 1999.  The Company also had insurance subsidiarieswhich wrote federally insured multiple peril crop insurance.  Effective June 1, 2000 the Companytransferred the common stock at net book value of its multiple peril cropinsurance companies to another affiliate of Wells Fargo.

 

The Company has subsidiaries engaged in other commercial financebusiness.  Prior to December 15, 1999information services were provided to Wells Fargo Financial and other financialservices companies by subsidiaries of the Company.  On that date the business of Wells Fargo Financial InformationServices, Inc. and its wholly-owned subsidiary (“WFFISI”) was transferred tothe Parent at net book value for cash.

 

Effective December 21, 2001, after recording a charge of $21 millionbefore tax to write down its investment in Argentina, the Company transferredthe common stock at net book value of Finvercon U.S.A. and its wholly ownedsubsidiary, Finvercon S.A., to the Parent. The Company continues to provide financing to Finvercon S.A. At December31, 2001 loans to Finvercon S.A. totaled $23.4 million.  All loans from Finvercon are fullyguaranteed by the Parent.  In December2001 the Company forgave $22.5 million of loans to enable Finvercon to meetminimum regulatory capital requirements in Argentina.  In accordance with the terms of the guarantee the obligation torepay the loans was assumed by the Parent. As a result, at December 31, 2001 the Company had no exposure toArgentina.  At the time of the transfer,the subsidiaries had assets of $85.3 million.

 

Effective January 31, 2001, the Company acquired substantially all ofthe assets and assumed certain liabilities of Conseco Finance Vendor ServicesCorporation, a leasing company based in Paramus, New Jersey.  The acquisition was accounted for as apurchase.  The assets and liabilities acquiredwere recorded at fair value, and the Company’s financial statements containonly the results of operations since the acquisition date.  Conseco Finance Vendor Services Corporationhad lease receivables outstanding of $825 million and had another $135 millionof lease receivables under management at the time of the acquisition.

 

 

2

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Effective December 20, 2000, the Company acquired substantially all ofthe assets and liabilities of Flagship Credit Corporation and its wholly ownedsubsidiaries (“Flagship”), an automobile finance company.  The acquisition was accounted for as apurchase.  At the time of theacquisition, Flagship had receivables outstanding included in its balance sheetof $713 million and another $206 million of receivables under management.

 

Effective September 1, 2000, one of the Company’s subsidiaries acquiredCharter Financial Company, a specialty finance and leasing company.  The acquisition was accounted for as apurchase.  Charter operates in Canadawhere its offers medium-term, fixed rate, full-payout leases and equipmentfinancing to clients in targeted industries. Charter had receivables under management of $190 million at the time ofthe acquisition.

 

On June 30, 2000, one of the Company’s banking subsidiaries purchasedapproximately $400 million of credit card receivables from Conseco FinanceCorp., a subsidiary of Conseco, Inc.

 

Effective June 1, 2000, the Company transferred the common stock at netbook value of its multiple peril crop insurance subsidiary and its wholly ownedsubsidiary to the Parent, which subsequently transferred it to anotheraffiliate of Wells Fargo.  At the timeof the transfer, the multiple peril crop insurance subsidiaries had assets of$86.3 million and had incurred a $7.2 million loss for the year.

 

Effective January 1, 2000, the Parent made a capital contribution,without consideration, to the Company of the issued and outstanding shares ofcapital stock of two of the Parent’s consumer finance subsidiaries (the“Contributed Subsidiaries”).  Thiscapital contribution was accounted for as a merger of interests under commoncontrol.  Accordingly, the assetsacquired and liabilities assumed were recorded at historical cost.  The Contributed Subsidiaries had assetstotaling $237.8 million and 49 branch offices at the time of the contribution.

 

Effective January 21, 1999, the Parent made a capital contribution,without consideration, to the Company of the assets (along with and subject tothe liabilities) and other related leasehold or property interests or rightsformerly held by Mid-Penn Consumer Discount Company (“Mid-Penn”).  Immediately preceding the capitalcontribution, Mid-Penn had merged with and into the Parent, and the Parent wasthe surviving corporation.  This capitalcontribution was accounted for as a merger of interests under commoncontrol.  Mid-Penn’s headquarters werein Philadelphia, Pennsylvania and its principal business was consumerfinance.  Mid-Penn had financereceivables outstanding of $10 million at the time of the merger into theParent.

 

Effective January 1, 1999, the Parent made a capital contribution,without consideration, to the Company of the issued and outstanding shares ofcapital stock of Aman Collection Service, Inc. and Aman Collection Service 1,Inc. (collectively referred to as “Aman”). This capital contribution was accounted for as a merger of interestsunder common control.  Aman’s headquartersare in Aberdeen, South Dakota and its principal business is collection services.

 

3

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**CONSUMER AND AUTOMOBILE FINANCE OPERATIONS**

 

 

At December 31, 2001, consumer and automobile finance receivablesaccounted for 86% of Wells Fargo Financial’s total finance receivablesoutstanding.  The amount and type ofconsumer and automobile finance receivables outstanding are shown below:

 

Consumerand Automobile Finance Receivables Outstanding
|                                               |   |               |       |
|----------------------------------------------------|--------|--------------------|------------|
|                                               |   |               |       |
|                                               |   | **(In Thousands)** |       |
| United  States consumer finance:                   |   |               |       |
| Real  estate-secured loans                         |   | $                  | 2,984,226  |   |
| Consumer loans                                     |   | 1,483,055          |       |
|                                               |   |               |       |
| Total loans                                        |   | 4,467,281          |       |
|                                               |   |               |       |
| Sales finance  contracts                           |   | 1,228,396          |       |
| Credit cards                                       |   | 1,341,039          |       |
|                                               |   |               |       |
| Total United  States consumer finance              |   | 7,036,716          |       |
|                                               |   |               |       |
| Canadian  consumer finance:                        |   |               |       |
| Real  estate-secured loans                         |   | 90,919             |       |
| Consumer loans                                     |   | 461,668            |       |
|                                               |   |               |       |
| Total loans                                        |   | 552,587            |       |
|                                               |   |               |       |
| Sales finance  contracts                           |   | 585,725            |       |
| Credit cards                                       |   | 24,494             |       |
|                                               |   |               |       |
| Total Canadian  consumer finance                   |   | 1,162,806          |       |
|                                               |   |               |       |
| Automobile  finance                                |   | 3,375,101          |       |
|                                               |   |               |       |
| Total consumer  and automobile finance receivables |   | $                  | 11,574,623 |   |
|                                               |   |               |       |

 

4

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**Geography**

 

 

At December 31,2001, Wells Fargo Financial had consumer finance branch offices in 47 states,Guam, Saipan, Puerto Rico, and the ten Canadian provinces and automobilefinance branch offices in 33 states and Puerto Rico.  The number of branch offices and percentage of receivables forconsumer finance and for automobile finance at December 31, 2001, are shownbelow:

 

 

Consumer FinanceNumber of Branch Offices and Percent of Receivables

 

 
|           |   |        |   | **Percent of**  |   |                 |   |        |   | **Percent of**  |   |
|----------------|--------|-------------|--------|-----------------|--------|----------------------|--------|-------------|--------|-----------------|--------|
|           |   |        |   | **Consumer**    |   |                 |   |        |   | **Consumer**    |   |
|           |   | **Branch**  |   | **Finance**     |   |                 |   | **Branch**  |   | **Finance**     |   |
| **Location**   |   | **Offices** |   | **Receivables** |   | **Location**         |   | **Offices** |   | **Receivables** |   |
| Alabama        |   | 32          |   | 3.2             | %      | Oklahoma             |   | 14          |   | 1.4             | %      |
| Alaska         |   | 7           |   | 1.2             |   | Oregon               |   | 13          |   | 1.1             |   |
| Arizona        |   | 16          |   | 1.6             |   | Pennsylvania         |   | 25          |   | 2.8             |   |
| California     |   | 74          |   | 7.6             |   | Puerto Rico          |   | 3           |   | .3              |   |
| Colorado       |   | 14          |   | 1.7             |   | Rhode Island         |   | 2           |   | .4              |   |
| Connecticut    |   | 3           |   | .4              |   | Saipan               |   | 1           |   | .1              |   |
| Delaware       |   | 2           |   | .1              |   | South Carolina       |   | 23          |   | 2.3             |   |
| Florida        |   | 37          |   | 4.3             |   | South Dakota         |   | 2           |   | .3              |   |
| Georgia        |   | 21          |   | 2.3             |   | Tennessee            |   | 25          |   | 2.4             |   |
| Guam           |   | 3           |   | 1.1             |   | Texas                |   | 44          |   | 4.7             |   |
| Hawaii         |   | 10          |   | .8              |   | Utah                 |   | 13          |   | 1.3             |   |
| Idaho          |   | 10          |   | .9              |   | Virginia             |   | 10          |   | 1.2             |   |
| Illinois       |   | 26          |   | 2.7             |   | Washington           |   | 21          |   | 2.2             |   |
| Indiana        |   | 15          |   | 1.4             |   | West Virginia        |   | 6           |   | .7              |   |
| Iowa           |   | 14          |   | 1.6             |   | Wisconsin            |   | 14          |   | 1.3             |   |
| Kansas         |   | 6           |   | .7              |   | Wyoming              |   | 4           |   | .4              |   |
| Kentucky       |   | 12          |   | 1.2             |   |                 |   |        |   |            |   |
| Louisiana      |   | 29          |   | 2.4             |   | Total U.S.           |   | 769         |   | 82.9            | %      |
| Maine          |   | 2           |   | .2              |   |                 |   |        |   |            |   |
| Maryland       |   | 19          |   | 3.0             |   | Alberta              |   | 12          |   | 1.7             | %      |
| Massachusetts  |   | 11          |   | 1.5             |   | British Columbia     |   | 21          |   | 2.1             |   |
| Michigan       |   | 5           |   | .5              |   | Manitoba             |   | 5           |   | .6              |   |
| Minnesota      |   | 13          |   | 1.9             |   | New Brunswick        |   | 12          |   | .9              |   |
| Mississippi    |   | 15          |   | 1.4             |   | Newfoundland         |   | 15          |   | 1.0             |   |
| Missouri       |   | 25          |   | 2.4             |   | Nova Scotia          |   | 17          |   | 1.3             |   |
| Montana        |   | 7           |   | .7              |   | Ontario              |   | 49          |   | 6.4             |   |
| Nebraska       |   | 9           |   | 1.0             |   | Prince Edward Island |   | 2           |   | .2              |   |
| Nevada         |   | 12          |   | 1.3             |   | Quebec               |   | 22          |   | 2.4             |   |
| New Jersey     |   | 8           |   | 1.1             |   | Saskatchewan         |   | 5           |   | .5              |   |
| New Mexico     |   | 20          |   | 1.8             |   |                 |   |        |   |            |   |
| New York       |   | 12          |   | 1.9             |   | Total Canada         |   | 160         |   | 17.1            | %      |
| North Carolina |   | 27          |   | 2.7             |   |                 |   |        |   |            |   |
| North Dakota   |   | 5           |   | .5              |   | Total Consumer       |   |        |   |            |   |
| Ohio           |   | 28          |   | 2.9             |   | Finance              |   | 929         |   | 100.0           | %      |

 

 

 

5

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**Automobile Finance Number of BranchOffices and Percent of Receivables**

 
|         |   |        |   | **Percent of**  |   |             |   |        |   | **Percent of**  |   |
|--------------|--------|-------------|--------|-----------------|--------|------------------|--------|-------------|--------|-----------------|--------|
|         |   |        |   | **Automobile**  |   |             |   |        |   | **Automobile**  |   |
|         |   | **Branch**  |   | **Finance**     |   |             |   | **Branch**  |   | **Finance**     |   |
| **Location** |   | **Offices** |   | **Receivables** |   | **Location**     |   | **Offices** |   | **Receivables** |   |
| Alabama      |   | 5           |   | 1.0             | %      | Missouri         |   | 6           |   | 2.2             | %      |
| Arizona      |   | 8           |   | 3.7             |   | Nebraska         |   | 1           |   | .4              |   |
| California   |   | 32          |   | 9.4             |   | Nevada           |   | 3           |   | 1.2             |   |
| Colorado     |   | 6           |   | 1.9             |   | New Jersey       |   | 2           |   | .8              |   |
| Delaware     |   | 1           |   | .4              |   | New Mexico       |   | 1           |   | .7              |   |
| Florida      |   | 6           |   | 3.3             |   | North Carolina   |   | 1           |   | 3.6             |   |
| Georgia      |   | 14          |   | 5.6             |   | Ohio             |   | 12          |   | 3.1             |   |
| Illinois     |   | 10          |   | 4.1             |   | Oklahoma         |   | 3           |   | 1.5             |   |
| Indiana      |   | 5           |   | 2.1             |   | Oregon           |   | 1           |   | .3              |   |
| Iowa         |   | 1           |   | .2              |   | Pennsylvania     |   | 3           |   | 3.3             |   |
| Kansas       |   | 3           |   | 1.0             |   | Puerto Rico      |   | 3           |   | 22.4            |   |
| Kentucky     |   | 4           |   | 1.4             |   | South Carolina   |   | 2           |   | 1.0             |   |
| Louisana     |   | 4           |   | 1.5             |   | Tennessee        |   | 6           |   | 2.7             |   |
| Maryland     |   | 2           |   | 2.9             |   | Texas            |   | 12          |   | 7.7             |   |
| Michigan     |   | 1           |   | .6              |   | Utah             |   | 2           |   | .6              |   |
| Minnesota    |   | 14          |   | 4.4             |   | Washington       |   | 2           |   | .7              |   |
| Mississippi  |   | 5           |   | 1.7             |   | Wisconsin        |   | 8           |   | 2.6             |   |
|         |   |        |   |            |   |             |   |        |   |            |   |
|         |   |        |   |            |   | Total Automobile |   |        |   |            |   |
|         |   |        |   |            |   | Finance          |   | 189         |   | 100.0           | %      |

 

 

6

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### **Growth**

 

 

##### United States and Canadian Consumer Finance

The followingtable presents the growth of United States (“U.S.”) and Canadian consumerfinance loans and sales finance contracts for the five years ended December 31,2001 (U.S. and Canadian consumer finance are combined in the chart below sincetheir portfolios are similar).

 

 

Consumer FinanceReceivables and Number of Accounts Outstanding

 

|   |             |   |               |      |             |      | **Average**      |   |
|--------|------------------|--------|--------------------|-----------|------------------|-----------|------------------|--------|
|   |             |   | **Net**            |      | **Number**       |      | **Balance**      |   |
|   | **December 31,** |   | **Receivables**    |      | **of  Accounts** |      | **per  Account** |   |
|   |             |   | **(in thousands)** |      |             |      |             |   |   |
|   | 2001             |   | $                  | 6,833,989 |             | 3,075,000 |             | $      | 2,222 |   |
|   | 2000             |   | 6,298,272          |      | 3,060,000        |      | 2,058            |   |
|   | 1999             |   | 5,605,188          |      | 2,819,000        |      | 1,988            |   |
|   | 1998             |   | 5,138,427          |      | 3,175,000        |      | 1,618            |   |
|   | 1997             |   | 4,783,471          |      | 2,447,000        |      | 1,955            |   |
|        |                  |        |                    |           |                  |           |                  |        |  |  |

 

 

Wells FargoFinancial markets VISA® and MasterCard® credit cards to certain of itscustomers through its U.S. consumer finance branch offices.  These credit cards are issued by Wells FargoFinancial Bank, the Company’s state chartered bank subsidiary located in SiouxFalls, South Dakota.  In addition onJune 30, 2000 Wells Fargo Financial Bank purchased approximately $400 millionof credit card receivables from Conseco Finance Corporation, a subsidiary ofConseco, Inc.  Wells Fargo FinancialBank had 593,000 accounts at December 31, 2001; credit card receivablesoutstanding were $970.4 million.

 

Wells FargoFinancial National Bank is a federally-chartered bank located in Las Vegas,Nevada.  The bank issues private labelcredit cards and dual-line Co-Branded MasterCard® credit cards for severalnational companies.  The dual-linecredit card serves as a private label credit card for use at any of theCo-Branders’ retail locations, as well as a traditional MasterCard credit cardfor use at locations around the world. Wells Fargo Financial National Bank had 255,000 accounts at December 31,2001; credit card receivables outstanding were $370.7 million.

 

 

###### Automobile Finance

The followingtable presents the growth of Wells Fargo Financial’s automobile financereceivables for the five years ended December 31, 2001.

 

Automobile FinanceReceivables and Number of Accounts Outstanding

 

|   |             |   |                |      | **Average**      |    |             |   |
|--------|------------------|--------|---------------------|-----------|------------------|---------|------------------|--------|
|   |             |   | **Net**             |      | **Number**       |    | **Balance**      |   |
|   | **December 31,** |   | **Receivables**     |      | **of  Accounts** |    | **per  Account** |   |
|   |             |   | **(in  thousands)** |      |             |    |             |   |
|   | 2001             |   | $                   | 3,375,101 |             | 317,000 |             | $      | 10,647 |   |
|   | 2000             |   | 3,078,026           |      | 312,000          |    | 9,865            |   |
|   | 1999             |   | 2,165,745           |      | 252,000          |    | 8,594            |   |
|   | 1998             |   | 1,981,816           |      | 235,000          |    | 8,433            |   |
|   | 1997             |   | 1,442,614           |      | 182,000          |    | 7,926            |   |
|        |                  |        |                     |           |                  |         |                  |        |  |  |

 

 

7

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**Regulation**

 

 

**U.S.Consumer Finance, Canadian Consumer Finance, Automobile Finance**

Wells FargoFinancial’s consumer finance and automobile finance operations in the UnitedStates are, for the most part, regulated by consumer finance laws or similarlegislation in each of the states or other jurisdictions where Wells FargoFinancial has branch offices.  Althoughconsumer finance laws have been in effect many years, amending and newlegislation is frequently enacted. Congress is considering, and a number of state and local governmentshave recently enacted or may be considering, various restrictions on certainloans secured by residences, including limitations on loan fees, terms andfeatures as well as conditions for the extension of credit. Additionally, insome jurisdictions new laws and rules, or in some cases pending legislation ifenacted, place certain restrictions on certain credit insurance terms thatrequire rate reductions, loss ratio increases or restrictions on the sale ofsingle premium credit insurance in connection with real estate loans.  With respect to the foregoing, Wells FargoFinancial’s consumer lending operations in Canada are, for the most part,essentially unregulated.

 

Consumer financelaws generally require that each branch office be licensed to conduct itsbusiness.  In most jurisdictions thegranting of licenses is dependent on a finding of financial responsibility,character and fitness of the applicant and, in some jurisdictions, publicconvenience and advantage.  Eachlicensed branch office is subject to state or provincial regulation andexamination.  In nearly all states areport of the activities of licensed branch offices must be made annually tothe appropriate state department. Licenses are revocable for cause and their continuance depends uponcompliance with the provisions of the applicable state or provincial law. WellsFargo Financial has never had any of its licenses revoked.

 

The FederalConsumer Credit Protection Act (the “Act”) requires a written statement showingthe annual percentage rate of finance charge and other information to be givento borrowers when consumer credit contracts are made.  When a closed-end loan (a loan which does not allow additionalborrowings) with rates or fees above a certain percentage or amount is securedby the borrower’s principal dwelling, additional disclosures must be given atleast three business days before the loan is consummated, and limits onprepayment penalties apply to the loan. The Act also requires certain disclosures to applicants concerningcredit reports that are used as a basis for denying or increasing the chargefor credit.

 

The Real EstateSettlement Procedures Act requires creditors to provide consumers withestimates of closing costs and other disclosures before loans secured byresidential real estate are made and disclosures of the actual closing costs atthe time the loan is made.

 

The Federal EqualCredit Opportunity Act prohibits discrimination against applicants with respectto any aspect of a credit transaction on the basis of sex, martial status,race, color, religion, national origin, age (provided the applicant has thecapacity to contract), or because all or part of the applicant’s income derivesfrom any public assistance program, or because the applicant has in good faithexercised any right under the Federal Consumer Credit Protection Act.

 

By virtue of aFederal Trade Commission rule, sales finance contracts and certain loans (thosemade for the borrower’s purchase of personal property from a seller having arelationship with the lender) contain a provision that the lender is subject toall claims and defenses which the borrower could assert against theseller.  However, the borrower’srecovery under such provision cannot exceed the amount paid under the contract.

 

A Federal TradeCommission trade regulation rule on creditor practices prohibits, among otherthings, the taking of a security interest (other than a purchase money securityinterest) in certain of a borrower’s household goods.

 

In Canada, thereare similar laws regarding the granting of credit.

 

8

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WellsFargo & Company is registered as a bank holding company and financialholding company under the Bank Holding Company Act of 1956, as amended by theGramm-Leach-Bliley Act.  As a subsidiaryof a bank holding company that has elected to become a financial holdingcompany pursuant to the BHC Act, Wells Fargo Financial may affiliate withsecurities firms and insurance companies and engage in other activities thatare financial in nature or incidental or complementary to activities that arefinancial in nature.  “Financial innature” activities include securities underwriting, dealing and market making,sponsoring mutual funds and investment companies, insurance underwriting andagency, merchant banking, and activities that the FRB, in consultation with theSecretary of the Treasury, determines from time to time to be financial innature or incidental to such financial activity or is complementary to afinancial activity and does not pose a safety and soundness risk.  A bank holding company that is not also afinancial holding company is limited to engaging in banking and such otheractivities as determined by the FRB to be so closely related to banking ormanaging or controlling banks as to be a proper incident thereto.

 

The laws of mostof the states in which Wells Fargo Financial operates regulate the sale ofinsurance to borrowers by prescribing, among other things, the maximum amountand term thereof and by fixing the permissible premium rates or authorizing thestate insurance commission or other state official to fix the maximum premiumrates on such insurance.  In severalstates such rates have been reduced in recent years.

 

**Business Methods**

 

In order to make acareful selection of credit risks, Wells Fargo Financial reviews creditinformation concerning each applicant to determine income, living expenses,payment obligations, indebtedness, paying habits, and length and stability ofemployment.  The information is obtainedfrom the applicants, the applicants’ employers, creditors of the applicants andcredit reporting agencies.  Wells FargoFinancial believes that any risk to its business which may be created byunfavorable local conditions is minimized by the large number of customers,their broad range of occupations and geographical distribution.

 

 

United States andCanadian Consumer Finance

Loans aregenerally repayable in monthly installments and are made for periods of 180months or less.  Sales finance contractsmay be either open-end (revolving) or closed-end.  An open-end sales finance contract establishes an account thatcan be used from time to time for repeated purchases.  A closed-end sales finance contract covers only a singlepurchase.  At December 31, 2001, 75% ofsales finance receivables in the consumer finance operations wereopen-end.  Open-end sales financecontracts do not have an original maturity because the accounts created bythese contracts may be used for repeated transactions.  The minimum monthly payment of open-endsales finance contracts generally ranges from 1/12 to 1/30 of the highestunpaid balance of the account. Closed-end sales finance contracts are repayable in equal monthlyinstallments and generally have original maturities of 60 months or less.

 

In many cases loansare secured by liens on household goods, other personal property or realestate.  The decision to record a lienor to appraise or examine the title to collateral depends upon the size of loanand the type of collateral.  Generally,Wells Fargo Financial initiates legal proceedings on its loans, includingforeclosure on collateral, only when it appears that a recovery is likely whichwill justify the cost of bringing suit.

 

Generally, WellsFargo Financial carries only one loan with a borrower at any one time.  When a borrower wishes to obtain additionalmoney from Wells Fargo Financial before the loan is fully repaid, a new loan ismade sufficient to pay the balance on the old loan and supply the new money,provided the borrower’s credit is satisfactory.  Wells Fargo Financial’s policy is that loans are not made topresent customers to cure a default in principal or interest.

 

9

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The credit insurance operations have a close relationship with WellsFargo Financial’s consumer operations. Generally, where applicable laws permit, Wells Fargo Financial makescredit life, credit disability, property, and involuntary unemploymentinsurance available to borrowers.  Ifthe customer decides to purchase insurance, an additional charge is made.  Credit life insurance generally provides, ata minimum, for the repayment of the indebtedness upon the death of the insuredborrower.  Credit disability coverageprovides for the monthly payment of the indebtedness while the borrower isdisabled because of accident or illness. Property insurance provides for the payment of the value or cost ofrepairs or replacement of covered property of the borrower if the property isdamaged, destroyed or stolen. Involuntary unemployment insurance provides for the monthly payment ofthe indebtedness while the borrower is unemployed, if the borrower becomesunemployed due to layoff, termination, lockout, labor disputes or strike.  Non-filing insurance is an alternative toperfecting a security interest in property used as collateral.  Payment is provided, up to a specifiedlimit, when there is a loss with this coverage which resulted from the failureto perfect a security interest.  TheCompany discontinued the utilization of non-filing insurance in December of1999.

 

The laws of most of the states in which Wells Fargo Financial operatesregulate the sale of insurance to borrowers by prescribing, among other things,the maximum amount and term thereof and by fixing the permissible premium ratesor authorizing the state insurance commissioner or other state official to fixthe maximum premium rates on such insurance. In several states such rates have been reduced in recent years.

 

Income before income taxes from the underwriting (as principal), or thesale (as agent), of insurance for the years 2001 through 1997, was $63,680,000;$66,374,000; $71,916,000; $66,519,000; and $77,406,000, respectively for U.S.and Canadian consumer finance.

 

 

Automobile Finance

Loans aregenerally repayable in monthly installments and are made for periods of 60months or less.  Sales finance contractsare all closed-end.  These contracts arerepayable in equal monthly installments and generally have maturities of 60months or less.

 

Virtually allreceivables are secured by automobiles or other forms of security.  Wells Fargo Financial initiates legalproceedings on its receivables, including repossessions of collateral, when itappears that a recovery is likely which will justify the cost of bringing suit.

 

Credit insuranceoperations also have a close relationship with automobile finance operations;see the discussion of insurance included above.  Income before income taxes from the underwriting (as principal),or the sale (as agent), of insurance for the years 2001 through 1997, was$5,780,000; $4,768,000; $3,621,000; $3,183,000; and $1,668,000, respectively,for automobile finance.

 

 

10

----

 

 

### **Loss Experience**

 

 

All receivableswhich appear to be uncollectible or to require inordinate collection costs arewritten off.  In addition, consumerfinance receivables in the United States are generally written off if nopayment is applied during the three month period immediately preceding thebalance sheet date and the receivables are 90 days or more contractuallydelinquent.  Automobile financereceivables are written off when the receivable is 150 days or morecontractually delinquent.  All otherconsumer receivables are written off when the receivable is 180 days or morecontractually delinquent.  The Companyhas an established process to determine the adequacy of the allowance forcredit losses which assesses the risk and losses inherent in itsportfolio.  The risk assessment processemphasizes the development of forecasting models, which focus on recentdelinquency and loss trends in different portfolio segments to project relevantrisk metrics over an intermediate-term horizon.  The analysis is updated to capture the most recent behavioralcharacteristics of the portfolios, as well as any changes in management’s lossmitigation strategies in order to reduce the differences between estimated andobserved losses.  The allowance is anamount that management believes will be adequate to absorb probable losses onexisting receivables that may become uncollectible based on evaluations ofcollectibility of receivables and prior credit loss experience.

 

During the fourthquarter of 1998, the Company reviewed its policies involving the write-off ofreceivables that are a predetermined number of days delinquent.  As a result of the review, the Company madeseveral changes in its policies to reflect current trends andexpectations.  The changes resulted inadditional consumer write-offs of $37.4 million in the fourth quarter of 1998.

 

Write-offsafter recoveries, as a percent of average consumer and automobile financereceivables, were 4.06% in 2001.  Thenet write-off percentages were 3.32%; 3.01%; 4.28%, and 3.87% in 2000 through1997, respectively. Excluding the additional write-offs in 1998, the netwrite-off percent was 3.74%.  Theincreases in 2001 and 2000 were due to higher losses in the U.S. consumer loanand credit card portfolio.  The decreasein 1999 was due primarily to decreased net write-offs in the automobile financeportfolios.  The increase in 1998 wasdue primarily to the acquisition of Fidelity Acceptance Corporation in 1997.

 

 

11

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Informationconcerning consumer and automobile finance loss experience and allowance forcredit losses is shown below:

 

U.S. and Canadianconsumer finance:
|                                                                                                             |   |                          |          |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------------|
|                                                                                                             |   | **Years  Ended December 31,** |          |
|                                                                                                             |   | **2001**                      |          | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                                                                                                             |   |                          |          |   | **(Dollars  In Thousands)** |   |   |   |   |
| Allowance,  beginning  of year                                                                                   |   |                          |          |   |   |   |   |   |   |   |   |
|                                                                                                             | $      | 323,712                       |          | $ | 223,609 |   | $ | 213,579 |   | $ | 164,236 |   | $ | 152,934 |   |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Write-offs:                                                                                                      |   |                          |          |   |   |   |   |   |   |   |   |
| Loans                                                                                                            |   | (184,893                      | )             | (143,496 | ) | (102,478 | ) | (121,527 | ) | (122,956 | ) |
| Sales finance                                                                                                    |   | (75,156                       | )             | (75,984 | ) | (64,907 | ) | (73,744 | ) | (65,120 | ) |
| Credit cards                                                                                                     |   | (116,500                      | )             | (50,188 | ) | (22,920 | ) | (22,294 | ) | (21,901 | ) |
| Total write-offs                                                                                                 |   | (376,549                      | )             | (269,668 | ) | (190,305 | ) | (217,565 | ) | (209,977 | ) |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Recoveries:                                                                                                      |   |                          |          |   |   |   |   |   |   |   |   |
| Loans                                                                                                            |   | 20,571                        |          | 17,761 |   | 16,842 |   | 16,836 |   | 16,299 |   |
| Sales finance                                                                                                    |   | 11,323                        |          | 11,627 |   | 10,529 |   | 10,094 |   | 5,831 |   |
| Credit cards                                                                                                     |   | 7,360                         |          | 3,595 |   | 3,520 |   | 3,137 |   | 2,481 |   |
| Total recoveries                                                                                                 |   | 39,254                        |          | 32,983 |   | 30,891 |   | 30,067 |   | 24,611 |   |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Provision for  credit losses charged to expense                                                                  |   | 362,655                       |          | 323,902 |   | 169,444 |   | 217,028 |   | 191,807 |   |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Allowance  related to businesses acquired or contributed - net                                                   |   | 563                           |          | 12,886 |   |   |   | 19,813 |   | 4,861 |   |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Allowance, end  of year:                                                                                         |   |                          |          |   |   |   |   |   |   |   |   |
| Loans                                                                                                            |   | 165,440                       |          | 159,120 |   | 118,917 |   | 117,373 |   | 85,495 |   |
| Sales finance                                                                                                    |   | 73,895                        |          | 82,691 |   | 76,785 |   | 73,272 |   | 59,071 |   |
| Credit cards                                                                                                     |   | 110,300                       |          | 81,901 |   | 27,907 |   | 22,934 |   | 19,670 |   |
| Total allowance                                                                                                  |   | $                             | 349,635       |   | $ | 323,712 |   | $ | 223,609 |   | $ | 213,579 |   | $ | 164,236 |   |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Ending  receivables as a percent of total consumer receivables:                                                  |   |                          |          |   |   |   |   |   |   |   |   |
| Loans                                                                                                            |   | 61                            | %             | 60 | % | 63 | % | 62 | % | 64 | % |
| Sales finance                                                                                                    |   | 22                            |          | 24 |   | 27 |   | 29 |   | 28 |   |
| Credit cards                                                                                                     |   | 17                            |          | 16 |   | 10 |   | 9 |   | 8 |   |
|                                                                                                             |   | 100                           | %             | 100 | % | 100 | % | 100 | % | 100 | % |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Allowance as a  percent of ending receivables                                                                    |   | 4.26                          | %             | 4.34 | % | 3.60 | % | 3.79 | % | 3.15 | % |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Write-offs after  recoveries as a percent of average consumer receivables                                        |   | 4.42                          | %             | 3.47 | % | 2.75 | % | 3.52 | % | 3.62 | % |
|                                                                                                             |   |                          |          |   |   |   |   |   |   |   |   |
| Consumer  receivables outstanding more than three payments contractually delinquent and  still accruing interest |   | $                             |  172,005 |   | $ |  159,489 |   | $ |  110,340 |   | $ |  103,656 |   | $ |  117,050 |   |

 

 

U.S. and Canadianconsumer finance receivables do not have non-accrual receivables since interestcontinues to accrue until the receivable is either collected or writtenoff.  When a receivable is written off,accrued and unpaid interest is charged against finance charges and interest.

 

12

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Automobilefinance:

 
|                                                                                |   | **Years  Ended December 31,** |          |
|-------------------------------------------------------------------------------------|--------|-------------------------------|---------------|
|                                                                                |   | **2001**                      |          | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                                                                                |   |                          |          |   | **(Dollars  In Thousands)** |   |   |   |   |
| Allowance,  beginning of year                                                       |   | $                             |  120,224 |   | $ |  118,207 |   | $ |  116,627 |   | $ |  127,214 |   | $ |  10,049 |   |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Write-offs                                                                          |   | (132,837                      | )             | (87,721 | ) | (97,808 | ) | (128,166 | ) | (47,150 | ) |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Recoveries                                                                          |   | 30,228                        |          | 22,805 |   | 19,338 |   | 17,670 |   | 7,652 |   |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Provision for  credit losses charged to expense                                     |   | 102,739                       |          | 29,363 |   | 80,050 |   | 77,132 |   | 41,011 |   |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Allowance  related to businesses acquired or contributed - net                      |   |                          |          | 37,570 |   |   |   | 22,777 |   | 115,652 |   |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Allowance, end  of year                                                             |   | 120,354                       |          | 120,224 |   | 118,207 |   | 116,627 |   | 127,214 |   |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Allowance as a  percent of ending receivables                                       |   | 3.57                          | %             | 3.91 | % | 5.46 | % | 5.77 | % | 8.82 | % |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Write-offs after  recoveries as a percent of average automobile finance receivables |   | 3.20                          | %             | 2.88 | % | 3.77 | % | 6.75 | % | 5.70 | % |
|                                                                                |   |                          |          |   |   |   |   |   |   |   |   |
| Non-accrual  automobile finance receivables outstanding                             |   | $                             |  46,014  |   | $ |  30,598 |   | $ |  24,206 |   | $ |  26,425 |   | $ |  25,567 |   |

 

 

Automobile finance receivables that are past due for90 days or more are placed on non-accrual status.

 

13

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### **LEASINGOPERATIONS**

 

 

Wells Fargo Financial Leasing, Inc. (“WFFLI”) is headquartered in DesMoines, Iowa.  WFFLI specializes infinancing commercial equipment such as office copiers, telephone systems,health care equipment, small computers, and light industrial equipment.  The cost of this equipment generally rangesfrom $2,000 to above $200,000.  Financereceivables are generated primarily from equipment distributors ranging fromsmall independently-owned vendors to large equipment manufacturers.

 

Generally, an end-user will enter into a lease or rental agreement witha vendor.  After approving the credit,WFFLI purchases the contract from the vendor and collects the lease paymentsfrom the end-user.  Billing is oftendone in the vendor’s name, as are any customer service functions that mightbecome necessary in connection with the lease or rental agreement (thusproviding the vendor with a “private label” financing service).  In some instances, WFFLI purchases theequipment and leases it to the end-user, with billing and other customercontacts being done in the name of WFFLI. Leases and other commercial finance receivables acquired by WFFLIgenerally provide for equal monthly payments and normally have an initial termof 60 months or less.

 

In January 2001, the Company acquired substantially all of the assetsand business relationships of Conseco Finance Vendor Services Corporation(“Conseco”).  This purchase includedapproximately $825 million in receivables owned by Conseco and an additional$135 million in receivables under their management.  At December 31, 2001, receivables in the leasing operationsaccounted for 10% of Wells Fargo Financial’s total finance receivablesoutstanding.  The following tablepresents Wells Fargo Financial’s leasing receivables outstanding for the fiveyears ended December 31, 2001.

 

 

Leasing FinanceReceivables Outstanding

 

 

|   |             |   | **Leasing**                |      | **Percentage**          |   |
|--------|------------------|--------|----------------------------|-----------|-------------------------|--------|
|   |             |   | **Finance**                |      | **Increase (Decrease)** |   |
|   | **December 31,** |   | **Receivables**            |      | **From  Previous Year** |   |
|   |             |   | **(Dollars in Thousands)** |      |                    |   |
|   | 2001             |   | $                          | 1,290,658 |                    | 192    | % |
|   | 2000             |   | 442,665                    |      | 14                      |   |
|   | 1999             |   | 387,575                    |      | 2                       |   |
|   | 1998             |   | 379,175                    |      | (4                      | )      |
|   | 1997             |   | 396,673                    |      | 5                       |   |
|        |                  |        |                            |           |                         |        |  |

 

 

14

----

 

### **LossExperience**

 

 

The allowance for losses on leasingreceivables is based on loss experience in relation to leasing receivablesoutstanding. All such receivables which appear to be uncollectible or torequire inordinate collection costs are written off.  In addition, receivables are generally written off when thereceivable is 180 days or more contractually delinquent.  On January 31, 2001, the Company acquiredapproximately $825 million of lease receivables from Conseco Finance VendorServices Corporation.  The lossexperience presented below contains only the activity of the acquired receivablessince the acquisition date.

 

 

Informationconcerning leasing loss experience and allowance for credit losses is shownbelow:

 
|                                                                           |   | **Years  Ended December 31,** |         |
|--------------------------------------------------------------------------------|--------|-------------------------------|--------------|
|                                                                           |   | **2001**                      |         | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                                                                           |   |                          |         |   | **(Dollars  In Thousands)** |   |   |   |   |
| Allowance,  beginning of year                                                  |   | $                             |  6,950  |   | $ |  4,950 |   | $ |  4,850 |   | $ |  5,350 |   | $ |  5,150 |   |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Write-offs                                                                     |   | (36,441                       | )            | (4,183 | ) | (3,348 | ) | (3,921 | ) | (3,452 | ) |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Recoveries                                                                     |   | 5,846                         |         | 678 |   | 948 |   | 936 |   | 743 |   |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Provision for  credit losses charged to expense                                |   | 30,595                        |         | 5,505 |   | 2,500 |   | 2,485 |   | 2,909 |   |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Allowance  related to businesses acquired                                      |   | 39,012                        |         |   |   |   |   |   |   |   |   |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Allowance, end  of year                                                        |   | $                             | 45,962       |   | $ | 6,950 |   | $ | 4,950 |   | $ | 4,850 |   | $ | 5,350 |   |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Allowance as a  percent of ending receivables                                  |   | 3.56                          | %            | 1.57 | % | 1.28 | % | 1.28 | % | 1.35 | % |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Write-offs after  recoveries as a percent of average lease finance receivables |   | 2.52                          | %            | 0.88 | % | 0.63 | % | 0.77 | % | 0.67 | % |
|                                                                           |   |                          |         |   |   |   |   |   |   |   |   |
| Non-accrual  lease finance receivables outstanding                             |   | $                             |  27,513 |   | $ |  3,494 |   | $ |  2,693 |   | $ |  2,240 |   | $ |  3,247 |   |

 

 

Leasing receivables that are past due for 90 days or more are placed onnon-accrual status.  Finance charges andinterest that would have been recorded had non-accrual leasing receivables beencurrent in accordance with their original terms would have been $2,783,000;$345,000; and $302,000 during 2001, 2000, and 1999, respectively.  The amount of finance charges and interestactually recorded on these receivables was $1,227,000; $308,000; and $263,000during 2001, 2000, and 1999, respectively.

 

 

15

----

 

 

# **OTHER OPERATIONS**

 

 

Other operations consist of rediscounting, information services,collection services, other insurance operations and Finvercon.  On December 21, 2001 the Company transferredthe common stock of Finvercon U.S.A. at net book value to the Parent.  On December 15, 1999 the business of WFFISIwas transferred to the Parent at net book value for cash.

 

At December 31, 2001, other finance receivables accounted for 4% ofWells Fargo Financial’s total finance receivables outstanding.  The following table presents Wells FargoFinancial’s other finance receivables outstanding for the five years endedDecember 31, 2001:

 

### **OtherFinance Receivables**

 

** **

 

|   |             |   | **Other**                  |    | **Percentage**          |   |
|--------|------------------|--------|----------------------------|---------|-------------------------|--------|
|   |             |   | **Finance**                |    | **Increase (Decrease)** |   |
|   | **December 31,** |   | **Receivables**            |    | **From  Previous Year** |   |
|   |             |   | **(Dollars In Thousands)** |    |                    |   |
|   | 2001             |   | $                          | 568,288 |                    | 32     | % |
|   | 2000             |   | 429,115                    |    | 39                      |   |
|   | 1999             |   | 309,644                    |    | 35                      |   |
|   | 1998             |   | 229,487                    |    | 233                     |   |
|   | 1997             |   | 68,928                     |    | (40                     | )      |
|        |                  |        |                            |         |                         |        |  |

 

 

### **LossExperience**

 

The allowance for losses on other financereceivables is based on loss experience in relation to other financereceivables outstanding.  All suchreceivables which appear to be uncollectible or to require inordinatecollection costs are written off. In addition, receivables are generallywritten off when the receivable is 180 days or more contractually delinquent.

 

Information concerning other loss experience and allowance for creditlosses is shown below:

 
|                                                                     |   | **Years  Ended December 31,** |         |
|--------------------------------------------------------------------------|--------|-------------------------------|--------------|
|                                                                     |   | **2001**                      |         | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                                                                     |   |                          |         |   | **(Dollars  In Thousands)** |   |   |   |   |
| Allowance,  beginning of year                                            |   | $                             |  11,669 |   | $ |  20,946 |   | $ |  15,928 |   | $ |  1,000 |   | $ |  1,000 |   |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Write-offs                                                               |   | (18,003                       | )            | (10,342 | ) | (15,753 | ) | (681 | ) | (861 | ) |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Recoveries                                                               |   | 3,794                         |         | 1,527 |   | 629 |   | 780 |   | 711 |   |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Provision for  credit losses charged to expense                          |   | 30,147                        |         | (462 | ) | 20,142 |   | 7,629 |   | 150 |   |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Allowance  related to businesses transferred, net                        |   | (21,610                       | )            |   |   |   |   | 7,200 |   |   |   |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Allowance, end  of year                                                  |   | $                             | 5,997        |   | $ | 11,669 |   | $ | 20,946 |   | $ | 15,928 |   | $ | 1,000 |   |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Allowance as a  percent of ending finance receivables                    |   | 1.06                          | %            | 2.72 | % | 6.76 | % | 6.94 | % | 1.45 | % |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Write-offs after  recoveries as a percent of average finance receivables |   | 2.72                          | %            | 2.38 | % | 6.13 | % | 0.00 | % | 0.24 | % |
|                                                                     |   |                          |         |   |   |   |   |   |   |   |   |
| Non-accrual  other finance receivables outstanding                       |   | $                             |  2,436  |   | $ |  23,904 |   | $ |  14,394 |   | $ |  24,765 |   | $ |  874 |   |

 

16

----

 

Finvercon

In January 1998, the Company acquired Finvercon, aconsumer lender based in Buenos Aires, Argentina, which provided an entry intothe South American market.  Finverconmarkets small loans to members of labor associations.  Effective December 21, 2001, after recording a charge of $21million before tax to write down its investment in Argentina, the Companytransferred the common stock at net book value of Finvercon U.S.A. and itswholly owned subsidiary, Finvercon S.A., to the Parent.  As a result, at December 31, 2001 the Companyhad no exposure to Argentina.  At thetime of the transfer, the subsidiaries had assets of $85.3 million.

 

 

Wells Fargo Financial Preferred Capital, Inc.

Wells Fargo Financial Preferred Capital, Inc. (“WFFPC”) providesfinancing via secured lines of credit to consumer finance companies which inturn provide financing to their customers. The business of these consumer finance companies is similar in nature tothat of Wells Fargo Financial.  Thistype of lending is often referred to as rediscounting.  WFFPC had finance receivables outstanding of$420.6 million at December 31, 2001.

 

 

#### WellsFargo Equipment Finance Company 

In September 2000, the Company acquired Charter Financial Company, aspecialty financing and leasing company operating in Canada.  Charter subsequently changed its name toWells Fargo Equipment Finance Company (“WFEFC”).  It offers medium-term, fixed rate full-payout leases andequipment financing to clients in targeted industries.  WFEFC had finance receivables outstandingincluded in the Company’s consolidated balance sheet of $19.8 million andanother $187.6 million of finance receivables under management at December 31,2001.

 

 

**OtherInsurance Operations**

 

One of the Company’s foreign insurance subsidiaries reinsures creditlife and disability insurance written by a non-affiliated company.  Income before income taxes from otherinsurance operations for the years 2001 through 1997 was $6,383,000;$5,527,000; $10,882,000; $16,928,000; and $15,790,000, respectively.  In addition, the Company had insurancesubsidiaries which are licensed to write federally insured multiple peril cropinsurance throughout the United States. Multiple peril crop insurance is a federally regulated subsidized cropinsurance program that insures a producer of crops with varying levels ofprotection against loss of yield from substantially all natural perils togrowing crops.  Effective June 1, 2000,the Company transferred the common stock at net book value of its multiple perilinsurance subsidiaries to another affiliate of Wells Fargo.

 

 

**ASSETS UNDER MANAGEMENT**

 

Island Finance

Island Finance, a group of seven consumer finance companiesheadquartered in San Juan, Puerto Rico, was acquired by Wells Fargo in May1995.  Wells Fargo Financial managesIsland Finance.  Island Finance providesdirect loans to individuals through 85 consumer finance offices located inPuerto Rico, the U.S. Virgin Islands, Netherlands Antilles, Panama andAruba.  Receivables outstanding onDecember 31, 2001, totaled $596 million.

 

Island Finance’s financial results and receivables are not included inthe Company’s consolidated statements of income or consolidated balance sheets,however, Wells Fargo Financial provides a portion of the funding for IslandFinance.  At December 31, 2001, Wells FargoFinancial had loans of $378 million with Island Finance Puerto Rico, Inc.(“IFPR”), one of the companies in the Island Finance group.  The loans have a weighted average interestrate of 9.00% and mature in 2002 and 2007. Other entities in the Island Finance group obtain funding by borrowingfrom commercial banks and other affiliates.

 

 

17

----

 

**SOURCES OF FUNDS**

 

 

Wells Fargo Financial funds its operations through payments ofprincipal and interest from finance receivables, capital funds, the sale ofdebt securities, and borrowings from banks and affiliates.  Borrowings with original maturities of morethan one year comprise 68% of the Company’s total indebtedness at December 31,2001.  The remaining 32% includescommercial paper with maturities of nine months or less (31%) and short-termdebt to affiliates and other short-term debt (1%).

 

The effective interest rate on commercial paper debt is higher than thestated rates due to commitment fees paid in connection with Wells FargoFinancial’s bank credit agreements (lines of credit and revolving creditagreements).  These agreements providean alternative source of liquidity to support the Company’s commercial paperborrowings.

 

The weighted average annual interest cost of the total average dailyborrowings outstanding in each of the respective years 2001 through 1997without commitment fees relating to bank credit agreements were 5.74%, 6.61%,6.16%, 6.40%, and 6.37%, respectively. The corresponding figures including commitment fees were 5.76%, 6.62%,6.18%, 6.41%, and 6.39%, respectively. Wells Fargo Financial has obtained and continues to obtain, atprevailing rates, funds sufficient to conduct its business.

 

 
|                                                                                |   | **Years  Ended December 31,** |      |
|-------------------------------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                                                |   | **2001**                      |      | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                                                                                |   | **(Dollars in Thousands)**    |      |
| Bank credit  agreements                                                             |   | $                             | 2,351,272 |   | $ | 1,536,880 |   | $ | 1,873,900 |   | $ | 1,821,297 |   | $ | 1,322,413 |   |
| Federal funds  borrowings availability                                              |   | 939,117                       |      | 823,998 |   | 471,944 |   | 402,178 |   | 83,998 |   |
| Daily average  outstanding:                                                         |   |                          |      |   |   |   |   |   |   |   |   |
| Commercial paper                                                                    |   | $                             | 3,548,960 |   | $ | 2,443,972 |   | $ | 2,430,917 |   | $ | 2,099,977 |   | $ | 1,817,534 |   |
| Less excess  funds investments                                                      |   | 28,874                        |      | 13,280 |   | 54,292 |   | 34,561 |   | 33,833 |   |
| Net average  commercial paper outstanding                                           |   | $                             | 3,520,086 |   | $ | 2,430,692 |   | $ | 2,376,625 |   | $ | 2,065,416 |   | $ | 1,783,701 |   |
| Ratio of bank  credit agreements to above                                           |   | 67                            | %         | 63 | % | 79 | % | 88 | % | 74 | % |
| Ratio of bank  credit agreements and federal funds borrowings availability to above |   | 93                            | %         | 97 | % | 99 | % | 108 | % | 79 | % |

 

Federal funds borrowingsare made through an affiliated bank.

 

See note 6 to theconsolidated financial statements for a listing of the amounts and maturitiesof the Company’s outstanding long-term debt at December 31, 2001 and 2000.

 

 

18

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**RATIOS OF EARNINGS TO FIXED CHARGES**

 

The following table sets forth the ratios of earnings to fixed chargesof Wells Fargo Financial for the periods indicated:

 

| **Years Ended December 31,** |
|------------------------------|
| **2001**                     |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| 1.61                         |   | 1.58 |   | 1.78 |   | 1.72 |   | 2.00 |

 

Theratios of earnings to fixed charges have been computed by dividing net earningsplus fixed charges and income taxes by fixed charges.  Fixed charges consist of interest and debt expense plus one-thirdof rentals (which is deemed representative of the interest factor).

 

 

**COMPETITION**

 

The business inwhich Wells Fargo Financial is engaged is highly competitive.  In addition to competition from otherconsumer, automobile, and commercial finance companies, competition comes fromsales finance companies, commercial banks, savings banks, credit cardcompanies, credit unions and retail establishments offering revolving creditplans.  The principal method ofcompetition is service to customers, although interest rates and otherfinancing charges are adjusted from time to time to reflect marketconditions.  Generally, Wells FargoFinancial’s interest rates or other financing charges are comparable to thoseof other companies engaged in consumer finance, commercial finance and leasefinancing business, sales finance companies, credit card companies and retailestablishments offering revolving credit plans.  They are usually higher than those of commercial banks, savingsbanks and credit unions.  Wells FargoFinancial is among the largest finance companies in the United States, but issubstantially smaller than the largest concerns.  Trans Canada Credit Corporation, one of the Company’s Canadiansubsidiaries, has been ranked among the largest finance companies in Canada.

 

 

**EMPLOYEE RELATIONS**

 

As of December 31, 2001, the Company and its subsidiaries employedapproximately 10,200 persons. Management believes its employee relations are excellent.

 

 

*Item2.  Properties.*

 

The Company owns an eleven-story building in Des Moines, Iowa, whereits principal executive offices are maintained.  The Company is currently constructing a nine story building thatwill be used for additional executive offices and other business units.  One of the Company’s life insurancesubsidiaries owns a three-story building in Des Moines which is used by theCompany for administrative purposes. Wells Fargo Financial Bank owns a one-story building in Sioux Falls,South Dakota, where its office is maintained. All of Wells Fargo Financial’s other business offices (consisting ofconsumer finance and automobile finance branch offices, commercial financebusiness production offices, and other administrative offices) are located inrented office space.  Wells FargoFinancial believes its facilities are suitable and adequate for its businessneeds.  These facilities are generallyfully occupied and utilized, although in some instances, office space has beenreserved for anticipated business expansion; otherwise, additional office spaceor facilities are leased only when they are needed.

 

The equipment used in the information processing system (located atbranch offices, relay communication sites, and home office facilities) isleased or owned by Wells Fargo Financial. Telecommunication lines used in the information processing system areleased on a monthly basis.

 

19

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*Item3.  Legal Proceedings.*

 

Wells Fargo Financial is a defendant in various matters of litigationgenerally incidental to its business. Although it is difficult to predict the ultimate outcome of these cases,management believes, based on discussions with counsel, that any ultimateliability will not materially affect the financial position and results ofoperations of  the Company and itssubsidiaries.

 

*Item4.  Submission of Matters to a Vote ofSecurity Holders.*

 

Omitted in accordance with General Instructions I(2) (c).

 

PART II

 

*Item5.  Market for Registrant’s CommonEquity and Related Stockholder Matters.*

 

All of the outstanding common stock (1,000 shares) of the Company isand was, at all times during 2001 and 2000, owned beneficially and of record bya single stockholder, the Parent.

 

The aggregate amount of dividends paid by the Company on its commonstock each quarter during 2001 and 2000 was as follows:

 

|   |           |   | **2001**            |   | **2000** |   |
|--------|----------------|--------|---------------------|--------|----------|--------|
|   |           |   | **(In  Thousands)** |   |
|   | First quarter  |   | $                   |   |     | $      | 45,000 |   |
|   | Second quarter |   | 60,000              |   |     |   |
|   | Third quarter  |   | 25,000              |   |     |   |
|   | Fourth quarter |   | 40,000              |   |     |   |
|        |                |        |                     |        |          |        |  |  |

 

Certain long-term debtinstruments restrict payment of dividends on and acquisitions of the Company’scommon stock. Approximately $1.1 billion of consolidated stockholder’s equitywas unrestricted at December 31, 2001. In addition, such debt instruments andthe Company’s bank credit agreements contain certain requirements as tomaintenance of net worth (as defined). The Company was in compliance with the provisions of those debtinstruments at December 31, 2001.

 

*Item 6.  Selected Financial Data.*

 
|                         |   | **Years  Ended December 31,** |       |
|------------------------------|--------|-------------------------------|------------|
|                         |   | **2001**                      |       | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                         |   |                          |       |   |   | **(In  Thousands)** |   |   |   |   |   |
| Total income                 |   | $                             | 2,622,493  |   | $ | 2,233,484 |   | $ | 2,184,264 |   | $ | 2,005,765 |   | $ | 1,728,796 |   |
| Interest and  debt expense   |   | 685,014                       |       | 639,444 |   | 520,063 |   | 485,784 |   | 401,736 |   |
| Provision for  credit losses |   | 526,136                       |       | 358,308 |   | 272,136 |   | 304,274 |   | 235,877 |   |
| Net income                   |   | 264,817                       |       | 241,054 |   | 265,361 |   | 238,604 |   | 269,450 |   |
|                         |   |                          |       |   |   |   |   |   |   |   |   |
|                         |   | **December 31,**              |       |
|                         |   | **2001**                      |       | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                         |   |                          |       |   |   | **(In  Thousands)** |   |   |   |   |   |
| Total assets                 |   | $                             | 15,909,262 |   | $ | 13,576,748 |   | $ | 11,283,413 |   | $ | 10,516,207 |   | $ | 9,321,924 |   |
| Long-term debt               |   | 8,845,636                     |       | 7,224,673 |   | 5,913,837 |   | 5,272,818 |   | 5,221,413 |   |

 

 

 

20

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WELLS FARGOFINANCIAL, INC.

 

 

*Item 7.  Management’s Discussion and Analysis of Financial Condition andResults of Operations.*

 

*Statementsmade in Management’s Discussion and Analysis may be forward-looking and aremade pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. Forward-looking statements address management’s present expectationsabout future performance and involve inherent risks and uncertainties.  A number of important factors (some of whichare beyond the Company’s control) could cause actual results to differmaterially from those in the forward-looking statements.  Those factors include the economicenvironment, competition, products and pricing in the geographic and businessareas in which the Company conducts its operations, prevailing interest rates,changes in government regulations and policies affecting financial servicescompanies, credit quality and credit risk management, acquisitions, andintegration of acquired businesses.*

 

Wells FargoFinancial’s net income for 2001 was $264.8 million compared with $241.1 millionfor 2000 and $265.4 million in 1999. Net income included a $7.1 million loss in 2000 and a $35.6 million gainin 1999 from subsidiaries engaged in multiple peril crop insurance andinformation service businesses.  OnDecember 15, 1999, the information services subsidiary was transferred to theParent.  On June 1, 2000, the multipleperil crop insurance subsidiary was transferred to another affiliate of WellsFargo & Company.  Excluding theseoperations, net income was $264.8 million for 2001 compared with $248.2 millionin 2000 and $229.8 million in 1999.

 

Wells FargoFinancial’s total income (revenue) increased 17% in 2001 and 2% in 2000($2,622.5 million in 2001 compared with $2,233.5 million in 2000 and $2,184.3million in 1999).

 

Income fromfinance charges and interest increased 17% in 2001 and 16% in 2000 ($2,221.3million in 2001 compared with $1,896.1 million in 2000 and $1,637.4 million in1999).   Changes in income from financecharges and interest result predominantly from (1) changes in the amount offinance receivables outstanding and (2) changes in the rate of charge on thosereceivables.

 

 
| **Increase  in average financereceivables outstanding:** |   | **2001** |   | **2000** |   |     |   |
|----------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| U.S. consumer  finance                                   |   | 13       | %      | 20       | %      |     |   |
| Canadian  consumer finance                               |   | 4        |   | 6        |   |     |   |
| Automobile  finance                                      |   | 42       |   | 8        |   |     |   |
| Leasing                                                  |   | 203      |   | 5        |   |     |   |
| Other                                                    |   | 17       |   | 47       |   |     |   |
| Total                                                    |   | 27       |   | 16       |   |     |   |
|                                                     |   |     |   |     |   |     |   |
|                                                     |   |     |   |     |   |     |   |
| **Rate of charge on finance receivables:**               |   | **2001** |   | **2000** |   | **1999** |   |
| U.S. consumer  finance                                   |   | 18.76    | %      | 19.27    | %      | 18.98    | %      |
| Canadian  consumer finance                               |   | 23.57    |   | 24.34    |   | 24.89    |   |
| Automobile  finance                                      |   | 16.56    |   | 18.37    |   | 18.74    |   |
| Leasing                                                  |   | 11.96    |   | 13.33    |   | 13.02    |   |
| Other                                                    |   | 12.28    |   | 16.67    |   | 15.84    |   |
| Total                                                    |   | 17.67    |   | 19.25    |   | 19.23    |   |

 

 

 

21

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The increase in income from finance charges and interest in 2001 wasdue predominantly to growth in average receivables outstanding offset in partby the decline in the rate of charge. The increase in 2000 was due to growth in average receivablesoutstanding. Growth in average receivables for all segments in 2001 and 2000was due to various acquisitions combined with regular business activity.  The majority of the increase in U.S.consumer finance average receivables in 2001 and 2000 resulted from regularbusiness activity.  In addition, onJune 30, 2000 approximately $400 million in credit card receivables wereacquired.  Also, effective January 1,2000, the Parent made a capital contribution to the Company of the issued andoutstanding shares of capital stock of two of the Parent’s consumer financesubsidiaries.  These two subsidiarieshad $240 million of receivables outstanding at the time of thecontribution.  The increase in Canadianconsumer finance average receivables in 2001 and 2000 was due to regularbusiness activity.  Growth in averagereceivables for automobile finance in 2001 was due primarily to the purchase ofFlagship Credit Corporation on December 20, 2000.  The increase in automobile finance average receivables in 2000was due to regular business activity. The average receivable growth in leasing receivables in 2001 was due primarilyto the purchase of Conseco Finance Vendor Services Corporation on January 31,2001.  The majority of the increase inother average receivables in 2001 and 2000, was due to significant receivablegrowth of the rediscounting operations. Changes in the earned rates of charge were due to changes in prevailingmarket rates combined with a change in the portfolio mix.  The decline in the earned rate of charge forautomobile finance and leasing was predominantly due to the change in portfoliomix as a result of the Flagship and Conseco purchases.  The decline in the earned rate of charge forother finance receivables occurred due to the change in portfolio mix due tothe growth of rediscounting operations.

 

Insurance premiums and commissionsincreased 6% in 2001 after decreasing 62% in 2000 ($122.4 million in 2001compared with $115.0 million in 2000 and $305.3 million in 1999).  The decrease in 2000 was due almost entirelyto a decline in insurance premiums and commissions on multiple peril cropinsurance.  The Company transferred themultiple peril crop insurance operations to another affiliate of Wells Fargo onJune 1, 2000.  Insurance losses and lossexpenses decreased 6% in 2001 after decreasing 76% in 2000 ($44.3 million in2001 compared to $47.3 million in 2000 and $196.1 million in 1999).  The decrease in 2000 was due almost entirelyfrom changes in losses on multiple peril crop insurance and the aforementionedtransfer.

 

Other incomeincreased 25% in 2001 after decreasing 8% in 2000 ($278.8 million in 2001compared with $222.4 million in 2000 and $241.5 million in 1999).  The increase in other income in 2001 was duepredominantly to additional fee income originating from the companies acquiredin the past year and realized gains on the sale of securities. The decline in2000 was due to the elimination of income from the sale of information servicesin 2000 due to the transfer of this business to the Parent on December 15, 1999and a reduction in net gains from the sales of marketable securities.  The decline from these two items was partiallyoffset by increased fees from credit cards. The increase in credit card fees resulted from the acquisition ofapproximately $400 million of credit card receivables on June 30, 2000.  Income from affiliates was $31.6 million in2001 compared with $45.3 million in 2000 and $48.8 million in 1999.  Investment income was $79.3 million in 2001compared with $79.2 million in 2000 and $78.2 million in 1999.  In 2001 there was a net gain on the sale ofmarketable securities of $9.9 million. This compares with net losses of $.1 million in 2000 and net gains of$7.6 million in 1999.

 

Operating expensesincreased 17% in 2001 and 3% in 2000 ($943.3 million in 2001 compared with$808.6 million in 2000 and $781.4 million in 1999).  A breakdown of operating expenses between salaries and benefitsand all other operating expenses is shown below:

 
|                          |   | **2001** |    | **2000** |   | **1999** |   |
|-------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Salaries and  benefits        |   | $        | 523,998 |     | $      | 465,018  |   | $ | 446,628 |   |
| All other  operating expenses |   | 419,352  |    | 343,565  |   | 334,738  |   |
|                          |   |     |    |     |   |     |   |
| Total                         |   | $        | 943,350 |     | $      | 808,583  |   | $ | 781,366 |   |

 

 

 

22

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In December 2001the Company recorded a charge of $21 million before tax to write down itsinvestment in Argentina.  On December21, 2001, the Company transferred the common stock at net book value ofFinvercon U.SA. and its wholly owned subsidiary, Finvercon S.A., to the Parent.

 

The remainingincreases in operating expenses were due primarily to increases in employeecompensation and benefits and other costs resulting from business expansion andacquisitions.

 

Interestand debt expense increased 7% in 2001 and 23% in 2000 ($685.0 million in 2001compared with $639.4 million in 2000 and $520.1 million in 1999).  Changes in interest and debt expense resultprimarily from (1) changes in the amount of borrowings outstanding and (2)changes in the cost of those borrowings.

 
| **Increase  in average debt outstanding:** |   | **2001** |   | **2000** |   |
|--------------------------------------------|--------|----------|--------|----------|--------|
| Short-term                                 |   | 35       | %      | 12       | %      |
| Long-term                                  |   | 22       |   | 12       |   |
| Total                                      |   | 26       |   | 12       |   |

 
|               |   |     |   |     |   |     |   |
|--------------------|--------|----------|--------|----------|--------|----------|--------|
| **Cost of funds:** |   | **2001** |   | **2000** |   | **1999** |   |
| Short-term         |   | 4.38     | %      | 6.52     | %      | 5.30     | %      |
| Long-term          |   | 6.39     |   | 6.65     |   | 6.54     |   |
| Total              |   | 5.74     |   | 6.61     |   | 6.16     |   |

 

 

Changes in average debt outstanding result primarily from the change inaverage finance receivables outstanding combined with the change in notesreceivable - affiliates.  Averagefinance receivables and average notes receivable - affiliates combinedincreased 29% in 2001 and 15% in 2000. The changes in the average cost of funds rates were due to changes inprevailing market rates.

 

 

Provision for credit losses increased 47%in 2001 and 32% in 2000 ($526.1 million in 2001 compared with $358.3 million in2000 and $272.1 million in 1999).

 

 
| **Net  write-offs, as a percentage of**   |   |     |   |     |   |     |   |
|-------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **average  net receivables outstanding:** |   | **2001** |   | **2000** |   | **1999** |   |
| U.S. consumer  finance                    |   | 4.43     | %      | 3.13     | %      | 2.40     | %      |
| Canadian  consumer finance                |   | 4.38     |   | 5.38     |   | 4.49     |   |
| Automobile  finance                       |   | 3.20     |   | 2.88     |   | 3.77     |   |
| Leasing                                   |   | 2.52     |   | 0.88     |   | 0.63     |   |
| Other                                     |   | 2.72     |   | 2.38     |   | 6.13     |   |
| Total                                     |   | 3.86     |   | 3.19     |   | 3.00     |   |

 

 

 

23

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Net write-offs increased 54% in 2001 and23% in 2000.  The increase in 2001 wasdue primarily to higher write-offs in the Company’s U.S. consumer finance andleasing portfolios.  This increase waspartially offset by improvements in the Company’s private label credit cardbusiness in Canada.  The increase in2000 was due to higher net write-offs in the consumer loan and credit cardportions of the U.S. consumer finance portfolio.  The increase in net write-offs in the credit card portfolios wasdue primarily to net write-offs on the $400 million of credit card receivablesacquired on June 30, 2000.  At December31, 2001, the Company had an allowance for credit losses of $521.9 million(3.89% of receivables) compared with $462.6 million (4.05% of receivables) atDecember 31, 2000 and $367.7 million (4.05% of receivables) at December31, 1999.  During 2001 the provision forcredit losses exceeded net write-offs by $41.4 million.  The remainder of the increase in the allowancefor credit losses in 2001 related to $43.0 million in allowance for credit lossesdue to acquired or contributed businesses and was reduced by $25 million fortransferred businesses.  On December 21,2001, the Company transferred the common stock of Finvercon, U.S.A. to theParent.  Finvercon had net receivablesof $70.7 million and an allowance for losses of $25 million at the time of thetransfer.  During 2000 the provision forcredit losses exceeded net write-offs by $44.4 million.  In addition, $50.5 million in allowance forcredit losses related to acquired or contributed businesses accounted for theremainder of the increase in the allowance for credit losses in 2000.  There were no material changes in estimationmethods and assumptions during 2001 and 2000. Non-accrual finance receivables were $76.0 million at December 31, 2001compared with $58.0 million at December 31, 2000.  In addition, finance receivables outstanding which were more thanthree payments contractually delinquent and still accruing interest were $172.4million at December 31, 2001 compared with $159.9 million at December 31,2000.  The process of determining theallowance for credit losses is a critical accounting policy of theCompany.  The process requiressubjective and complex judgements by management.  Assumptions about economic conditions, unemployment rates, andprojected write-offs are factors considered when evaluating the allowance forlosses.  The Company considers theallowance for credit losses at December 31, 2001 adequate to absorb probableinherent losses in the finance receivables portfolio.  However, no assurance can be given that the Company will not, inany particular period, sustain credit losses that are sizeable in relation tothe amount reserved, or that subsequent evaluations of the portfolio, in lightof the factors then prevailing, including economic conditions and the ongoingexamination process by the Company will not require significant increases inthe allowance for losses.

 

Income taxes increased 14% in 2001 anddecreased 7% in 2000.  Income beforeincome taxes increased 12% in 2001 and decreased 8% in 2000.  The effective tax rates were 37.5% in 2001,36.5% in 2000, and 36.0% in 1999.

 

Borrowings constitute the largest part ofWells Fargo Financial’s capitalization. At December 31, 2001, 86% of the Company’s capital had been obtainedfrom borrowings and 14% from stockholder’s equity.  Sixty-eight percent of Wells Fargo Financial’s borrowings haveoriginal maturities of more than one year. The remaining 32% includes commercial paper with maturities of ninemonths or less (31%) and short-term debt to affiliates and other short-termdebt (1%).  At December 31, 2000,short-term borrowings comprised 34% of total borrowings.  This consisted of commercial paper withmaturities of nine months or less (27%) and short-term debt to affiliates andother short-term debt (7%).  Short-termborrowings as a percent of total borrowings averaged 32% and 30% in 2001 and2000, respectively.

 

The Company maintains bank lines of credit and revolving creditagreements to provide an alternative source of liquidity to support theCompany’s commercial paper borrowings. At December 31, 2001, lines of credit and revolving credit agreementstotaling $2,351 million were being maintained at 19 domestic and internationalbanks; the entire amount was available on that date.  Additionally, the Company’s bank subsidiaries, Wells FargoFinancial Bank and Wells Fargo Financial National Bank, have access to federalfunds borrowings through an affiliated bank. At December 31, 2001, federal funds availability at the two bankswas $939 million.

 

The Company and a Canadian subsidiary obtain long-term debt capitalprimarily from the issuance of debt securities to the public throughunderwriters on a firm-commitment basis and the issuance of debt securities toinstitutional investors.  The Companyand a Canadian subsidiary also obtain long-term debt from the issuance ofmedium-term notes (which have maturities ranging from nine months to 30 years)through underwriters (acting as agent or principal).

 

 

24

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The Company anticipates the continuedavailability of borrowed funds, at prevailing interest rates, to provide forWells Fargo Financial’s growth in the foreseeable future.  Funds are also generated internally from paymentsof principal and interest on Wells Fargo Financial’s finance receivables.

 

The Company, primarily throughacquisitions, has obtained retained interests and other securitized financialassets, including leases and auto loans, relating to securitizations.  These securitizations are usually structuredwithout recourse to the Company and without restrictions on the retainedinterests.  The Company sponsors specialpurpose entities that hold, for the benefit of the investors, loans or leasesthat are the source of payment to the investor. These special purpose entitiesare consolidated unless they meet the criteria for a qualifying special purposeentity in accordance with FASB Statement 140, Accounting for the Transfers andServicing of Financial Assets and Extinguishments of Liabilities.

 

The Company’s use of off-balance sheetspecial purpose entities is limited to facilitating the securitizationactivities in the normal course of business. The Company does not dispose of troubled loans or problem assets bymeans of unconsolidated special purpose entities.  The Company has three qualifying special purpose entities whichprovided funding for securitization activities.  Such special purpose entities had approximately $368 million inoutstanding receivables at the end of 2001, including $247 million comprised ofleases and $121 million comprised of auto loans.  At December 31, 2001, the Company had committed to provide atotal of $19.8 million in credit enhancements related to four of thesesecuritizations.  The Company hadapproximately $20 million in retained interests recorded as of December 31,2001.

 

Through the normal course of operations,the Company has entered into certain contractual obligations and othercommitments.  Such obligations generallyrelate to funding of operations through debt issuances as well as leases forpremises and equipment.  As a financialservices provider, the Company routinely enters into commitments to extendcredit.  While contractual obligationsrepresent future cash requirements of the Company, a significant portion ofcommitments to extend credit may expire without being drawn upon.  Such commitments are subject to the samecredit policies and approval process accorded to loans made by the Company.

 

The following table summarizes significantcontractual obligations and other commitments:

 

 
|                                        |   | **Long-term** |   | **Operating**      |   |      |   |
|---------------------------------------------|--------|---------------|--------|--------------------|--------|-----------|--------|
|                                        |   | **debt**      |   | **leases**         |   | **Total** |   |
|                                        |   |          |   | **(in  millions)** |   |      |   |
| 2002                                        |   | $             | 1,952  |               | $      | 26        |   | $ | 1,978 |   |
| 2003                                        |   | 1,641         |   | 11                 |   | 1,652     |   |
| 2004                                        |   | 1,618         |   | 7                  |   | 1,625     |   |
| 2005                                        |   | 1,114         |   | 3                  |   | 1,117     |   |
| 2006                                        |   | 767           |   | 1                  |   | 768       |   |
| Thereafter                                  |   | 1,754         |   | 3                  |   | 1,757     |   |
| Total                                       |   | $             | 8,846  |               | $      | 51        |   | $ | 8,897 |   |
|                                        |   |          |   |               |   |      |   |
| Commitments  to extend credit               |   |          |   |               |   | $         | 3,040  |   |
|                                        |   |          |   |               |   |      |   |
| Securitizations  — credit enhancements |   |          |   |               |   | $         | 20     |   |

 

RelatedParty Transactions Include:

 

Notesreceivable — affiliates were $636,588,000 and $505,386,000 at December 31, 2001and 2000, respectively.  Notesreceivable — affiliates include a combination of short-term and long-term notesreceivable.  At December 31, 2001, WellsFargo Financial, Inc. had loans of $378 million to an affiliate, Island FinancePuerto Rico, Inc.  The loans have aweighted average interest rate of 9.00% and mature in 2002 and 2007.  The remainder of notes outstanding atDecember 31, 2001 and 2000, earn interest at rates that approximate the cost ofborrowings of the Company.

 

Incomefrom affiliates was $31,608,000; $45,328,000; and $48,783,000 for the yearsended December 31, 2001, 2000, and 1999, respectively.

 

25

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WellsFargo Financial Information Services, Inc. (“WFFISI”) provides informationservices to the Company.  On December15, 1999 the business of WFFISI was transferred from the Company to the Parentat net book value for cash.  Fees paidto WFFISI were $34,854,000 and $37,381,000 for the years ended December 31,2001 and 2000, respectively.

 

Managementfees paid to Wells Fargo were $10,392,000; $10,154,000; and $6,027,000 for theyears ended December 31, 2001, 2000, and 1999, respectively.

 

The Company cannot predict at this timethe severity or duration of the impact on the general economy or the Company ofthe September 11, 2001 terrorist attacks or any subsequent terrorist activitiesor any actions taken in response to or as a result of those attacks oractivities.  The most immediate impacthas been decreased demand for air travel, which has adversely affected not onlythe airline industry but also other travel-related and leisure industries, suchas lodging, gaming and tourism.  To theextent the impact has spread or might spread to the overall U.S. and globaleconomies, it could further decrease capital and consumer spending and deepenthe U.S. and /or global recession. Decreased capital and consumer spending and other recessionary trendscould adversely affect the Company in a number of ways including decreaseddemand for our products and services and increased credit losses.

 

In June 2001, FASBissued Statement No. 141 (FAS 141), Business Combinations, and Statement No.142 (FAS 142), Goodwill and Other Intangible Assets.

 

FAS 141, effectiveJune 30, 2001, requires that all business combinations initiated after June 30,2001 be accounted for under the purchase method of accounting; the use of thepooling-of-interests method of accounting is eliminated.  FAS 141 also establisheshow the purchase method is to be applied for business combinations completedafter June 30, 2001.  This guidance issimilar to previous generally accepted accounting principles (GAAP), however,FAS 141 establishes additional disclosure requirements for transactionsoccurring after the effective date.

 

FAS 142,eliminates amortization of goodwill associated with business combinationscompleted after June 30, 2001.  Duringthe transition period from July 1, 2001 through December 31, 2001, goodwill associatedwith business combinations completed prior to July 1, 2001, continued to beamortized through the income statement. Effective January 1, 2002, goodwill amortization ceased.  Goodwill will be assessed for impairment atthe reporting unit level by applying a fair-value-based test.  FAS 142 also provides additional guidance onacquired intangibles that should be separately recognized and amortized, whichcould result in the recognition of additional intangible assets, as comparedwith previous GAAP.

 

AfterJanuary 1, 2002, the elimination of goodwill amortization under FAS 142 isexpected to reduce noninterest expense by approximately $34 million (pretax)and increase net income by approximately $24 million (after tax), for the yearended December 31, 2002, compared with 2001.

 

Theinitial goodwill impairment assessment is expected to be completed in early2002; the Company has not yet determined if a transition impairment charge willbe recognized in 2002.

 

26

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*Item7A.  Quantitative and QualitativeDisclosure About Market Risk*

 

**InterestSensitivity Risk**

 

Interest sensitivity risk is the risk that future changes in interestrates will reduce net interest income or the market value of the balancesheet.  Wells Fargo Financial is subjectto the risk of fluctuating interest rates in the normal course of businessprimarily in finance receivables, securities available-for-sale, and bothshort-term and long-term debt.  Each ofthese balance sheet categories will be discussed individually.

 

 

Finance Receivables:

 

The interest rates on receivables outstanding at December 31, 2001 and2000, are consistent with the current rates at which similar loans would bemade to borrowers with similar credit ratings and for the same remainingmaturities.  As a result, the carryingvalue is a reasonable estimate of fair value. Expected maturities presented below differ from contractual maturitiessince it is the Company’s experience that a substantial portion of the consumerreceivable portfolio is renewed or repaid before contractual maturity dates.

 
|                    |   |     |       |     |       |     |       |                       |       |     |       |           |       |      |   |           |   |
|-------------------------|--------|----------|------------|----------|------------|----------|------------|----------------------------|------------|----------|------------|----------------|------------|-----------|--------|----------------|--------|
|                    |   | **2002** |       | **2003** |       | **2004** |       | **2005**                   |       | **2006** |       | **Thereafter** |       | **Total** |   | **Fair Value** |   |
| **December  31, 2001:** |   |     |       |     |       |     |       | **(Dollars  In Millions)** |       |     |       |           |       |      |   |
| Finance  receivables    |   | $        | 7,504      |     | $          | 2,976    |       | $                          | 1,496      |     | $          | 747            |       | $         | 350    |           | $      | 361 |   | $ | 13,434 |   | $ | 13,434 |   |
|                    |   |     |       |     |       |     |       |                       |       |     |       |           |       |      |   |           |   |
| Average earned  rate    |   | 18.48    | %          | 16.90    | %          | 15.63    | %          | 14.26                      | %          | 12.61    | %          | 15.94          | %          | 17.36     | %      |           |   |
|                    |   |     |       |     |       |     |       |                       |       |     |       |           |       |      |   |           |   |
|                    |   |     | ** ** |     | ** ** |     | ** ** |                       | ** ** |     | ** ** |           | ** ** |      |   |           |   |
|                    |   | **2001** |       | **2002** |       | **2003** |       | **2004**                   |       | **2005** |       | **Thereafter** |       | **Total** |   | **Fair Value** |   |
| **December 31, 2000:**  |   |     |       |     |       |     |       | **(Dollars In Millions)**  |       |     |       |           |       |      |   |
| Finance  receivables    |   | $        | 6,759      |     | $          | 2,422    |       | $                          | 1,196      |     | $          | 528            |       | $         | 239    |           | $      | 274 |   | $ | 11,418 |   | $ | 11,418 |   |
|                    |   |     |       |     |       |     |       |                       |       |     |       |           |       |      |   |           |   |
| Average earned  rate    |   | 19.90    | %          | 19.10    | %          | 17.74    | %          | 16.25                      | %          | 13.94    | %          | 15.73          | %          | 19.11     | %      |           |   |

 

 

 

27

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SecuritiesAvailable-for-Sale:

 

WellsFargo Financial does not use derivative financial instruments in its investmentportfolio.  Wells Fargo Financial’sinvestment policy only allows for purchases in investment gradesecurities.  In addition, the investmentpolicy also limits the amount of credit exposure to any one issue, issuer andtype of investment.  Wells FargoFinancial does not expect any material loss with respect to its investmentportfolio.  Maturities for securitiesavailable-for-sale shown below are at amortized cost and are based oncontractual maturities for all debt securities except for mortgage backedfederal agencies and collateralized mortgage obligations, which are based onexpected maturities.

 
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
|--------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------------------------|--------|----------|--------|----------------|--------|-----------|--------|----------------|--------|
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
|                                 |   | **2002** |   | **2003** |   | **2004** |   | **2005**                   |   | **2006** |   | **Thereafter** |   | **Total** |   | **Fair Value** |   |
| **December  31, 2001:**              |   |     |   |     |   |     |   | **(Dollars  In Millions)** |   |     |   |           |   |      |   |
| U.S. Treasury  and Federal Agencies  |   | $        | 21     |     | $      | 27       |   | $                          | 16     |     | $      | 44             |   | $         | 14     |           | $      | 65 |   | $ | 187 |   | $ | 192 |   |
| Average Yield                        |   | 5.53     | %      | 5.19     | %      | 5.19     | %      | 5.05                       | %      | 5.10     | %      | 5.97           | %      | 5.51      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| States and  Political Subdivisions   |   | $        | 19     |     | $      | 10       |   | $                          | 15     |     | $      | 19             |   | $         | 21     |           | $      | 169 |   | $ | 253 |   | $ | 263 |   |
| Average Yield                        |   | 4.92     | %      | 5.51     | %      | 4.55     | %      | 4.59                       | %      | 4.72     | %      | 4.12           | %      | 4.43      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| Mortgage Backed  Federal Agencies    |   | $        | 23     |     | $      | 22       |   | $                          | 17     |     | $      | 24             |   | $         | 24     |           | $      | 35 |   | $ | 145 |   | $ | 148 |   |
| Average Yield                        |   | 6.38     | %      | 6.35     | %      | 6.35     | %      | 6.64                       | %      | 6.64     | %      | 6.23           | %      | 6.43      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| Collateralized  Mortgage Obligations |   | $        | 1      |     | $      | 0        |   | $                          | 0      |     | $      | 0              |   | $         | 0      |           | $      | 0 |   | $ | 1 |   | $ | 1 |   |
| Average Yield                        |   | 7.38     | %      | 0.00     | %      | 0.00     | %      | 0.00                       | %      | 0.00     | %      | 0.00           | %      | 7.37      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| Equity  Securities                   |   |     |   |     |   |     |   |                       |   |     |   | $              | 100    |      | $      | 100            |   | $ | 100 |   |
| Average Yield                        |   |     |   |     |   |     |   |                       |   |     |   | 2.01           | %      | 2.01      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| All Other  Securities                |   | $        | 56     |     | $      | 92       |   | $                          | 105    |     | $      | 90             |   | $         | 173    |           | $      | 143 |   | $ | 659 |   | $ | 674 |   |
| Average  Yield                       |   | 6.66     | %      | 6.29     | %      | 6.13     | %      | 6.93                       | %      | 5.93     | %      | 6.62           | %      | 6.34      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| **December 31, 2000:**               |   | **2001** |   | **2002** |   | **2003** |   | **2004**                   |   | **2005** |   | **Thereafter** |   | **Total** |   | **Fair Value** |   |
| U.S. Treasury  and Federal Agencies  |   | $        | 23     |     | $      | 19       |   | $                          | 43     |     | $      | 21             |   | $         | 18     |           | $      | 46 |   | $ | 170 |   | $ | 173 |   |
| Average Yield                        |   | 6.98     | %      | 6.11     | %      | 6.53     | %      | 6.98                       | %      | 7.07     | %      | 7.13           | %      | 6.84      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| States and  Political Subdivisions   |   | $        | 29     |     | $      | 23       |   | $                          | 19     |     | $      | 17             |   | $         | 21     |           | $      | 168 |   | $ | 277 |   | $ | 286 |   |
| Average Yield                        |   | 4.62     | %      | 4.73     | %      | 4.61     | %      | 4.53                       | %      | 4.56     | %      | 4.75           | %      | 4.64      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| Mortgage Backed  Federal Agencies    |   | $        | 30     |     | $      | 17       |   | $                          | 16     |     | $      | 18             |   | $         | 16     |           | $      | 31 |   | $ | 128 |   | $ | 128 |   |
| Average Yield                        |   | 6.94     | %      | 6.74     | %      | 6.74     | %      | 6.73                       | %      | 6.73     | %      | 6.65           | %      | 6.75      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| Collateralized  Mortgage Obligations |   | $        | 2      |     | $      | 1        |   | $                          | 0      |     | $      | 0              |   | $         | 0      |           | $      | 0 |   | $ | 3 |   | $ | 3 |   |
| Average Yield                        |   | 7.37     | %      | 7.07     | %      | 0.00     | %      | 0.00                       | %      | 0.00     | %      | 0.00           | %      | 7.26      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| Equity  Securities                   |   |     |   |     |   |     |   |                       |   |     |   | $              | 105    |      | $      | 105            |   | $ | 110 |   |
| Average Yield                        |   |     |   |     |   |     |   |                       |   |     |   | 4.79           | %      | 4.79      | %      |           |   |
|                                 |   |     |   |     |   |     |   |                       |   |     |   |           |   |      |   |           |   |
| All Other  Securities                |   | $        | 63     |     | $      | 58       |   | $                          | 113    |     | $      | 94             |   | $         | 96     |           | $      | 95 |   | $ | 519 |   | $ | 515 |   |
| Average Yield                        |   | 6.66     | %      | 6.80     | %      | 6.39     | %      | 6.77                       | %      | 7.34     | %      | 6.65           | %      | 6.77      | %      |           |   |

 

28

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Short-Term and Long-TermDebt:

 

The table below provides information about Wells FargoFinancial’s debt instruments.  The tableshows principal cash flows and related weighted average interest rates byexpected maturity dates.  Theinformation is presented in U.S. dollars which is the Company’s reportingcurrency.  The instruments’ actual cashflows are denominated in U.S. dollars, Canadian dollars, and Argentine pesos.

 

 

 
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
|------------------------------------|--------|----------|--------|----------|--------|----------|-----------------------------------|----------|--------|----------|--------|----------------|--------|-----------|--------|----------------|--------|
| **December 31, 2001:**             |   | **2002** |   | **2003** |   | **2004** |                              | **2005** |   | **2006** |   | **Thereafter** |   | **Total** |   | **Fair Value** |   |
|                               |   |     |   |     |   |     | **(In Millions of U.S. Dollars)** |     |   |     |   |           |   |
| Short-Term Debt - U.S:             |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 3,739  |     |   |     |                              |     |   |     |   |           |   |      | $      | 3,739          |   | $ | 3,739 |   |
| Average Interest  Rate             |   | 2.29     | %      |     |   |     |                              |     |   |     |   |           |   | 2.29      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Short-Term Debt  - Canada:         |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 487    |     |   |     |                              |     |   |     |   |           |   |      | $      | 487            |   | $ | 487 |   |
| Average Interest  Rate             |   | 2.51     | %      |     |   |     |                              |     |   |     |   |           |   | 2.51      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Long-Term Debt -  U.S.:            |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 1,876  |     | $      | 1,550    |                              | $        | 1,461  |     | $      | 1,039          |   | $         | 500    |           | $      | 1,669 |   | $ | 8,095 |   | $ | 8,337 |   |
| Average Interest  Rate             |   | 4.39     | %      | 5.09     | %      | 6.28     | %                                 | 7.28     | %      | 6.13     | %      | 6.19           | %      | 5.71      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Long-Term Debt-  Canada:           |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 76     |     | $      | 91       |                              | $        | 157    |     | $      | 75             |   | $         | 267    |           | $      | 85 |   | $ | 751 |   | $ | 767 |   |
| Average Interest  Rate             |   | 5.85     | %      | 5.53     | %      | 5.87     | %                                 | 6.48     | %      | 5.61     | %      | 6.20           | %      | 5.83      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| **December 31, 2000:**             |   | **2001** |   | **2002** |   | **2003** |                              | **2004** |   | **2005** |   | **Thereafter** |   | **Total** |   | **Fair Value** |   |
| Short-Term Debt  - U.S:            |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 3,307  |     |   |     |                              |     |   |     |   |           |   |      | $      | 3,307          |   | $ | 3,307 |   |
| Average Interest  Rate             |   | 6.60     | %      |     |   |     |                              |     |   |     |   |           |   | 6.60      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Short-Term Debt  - Canada:         |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 407    |     |   |     |                              |     |   |     |   |           |   |      | $      | 407            |   | $ | 407 |   |
| Average Interest  Rate             |   | 5.82     | %      |     |   |     |                              |     |   |     |   |           |   | 5.82      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Short-Term Debt  — Argentina: |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 69     |     |   |     |                              |     |   |     |   |           |   |      | $      | 69             |   | $ | 69 |   |
| Average Interest  Rate             |   | 10.61    | %      |     |   |     |                              |     |   |     |   |           |   | 10.61     | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Long-Term Debt -  U.S.:            |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 1,341  |     | $      | 1,546    |                              | $        | 1,031  |     | $      | 845            |   | $         | 911    |           | $      | 850 |   | $ | 6,524 |   | $ | 6,561 |   |
| Average Interest  Rate             |   | 6.48     | %      | 6.66     | %      | 6.50     | %                                 | 6.61     | %      | 7.24     | %      | 6.53           | %      | 6.65      | %      |           |   |
|                               |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Long-Term Debt-  Canada:           |   |     |   |     |   |     |                              |     |   |     |   |           |   |      |   |           |   |
| Debt Outstanding                   |   | $        | 120    |     | $      | 80       |                              | $        | 97     |     | $      | 167            |   | $         | 80     |           | $      | 157 |   | $ | 701 |   | $ | 702 |   |
| Average Interest  Rate             |   | 5.85     | %      | 5.85     | %      | 5.53     | %                                 | 5.87     | %      | 6.48     | %      | 6.28           | %      | 5.98      | %      |           |   |

 

29

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# **Foreign Currency ExchangeRate Risk**

 

The amount invested in subsidiaries and translated into U.S. dollarsusing the year-end exchange rate was $91 million and $128 million at December31, 2001 and 2000, respectively.  Theinvestments in subsidiaries were denominated in Canadian dollars at December31, 2001 and Canadian dollars or Argentine pesos at December 31, 2000.  The potential loss in fair value resultingfrom a hypothetical 10% adverse change in quoted foreign currency exchangerates amounts to $9 million and $13 million at December 31, 2001 and 2000,respectively.  Actual results maydiffer.  Canadian operations are fundedwith borrowings in Canadian dollars. Effective December 21, 2001, after recording a charge of $21 millionbefore tax to write down its investment in Argentina, the Company transferredthe common stock at net book value of Finvercon U.S.A. and its wholly ownedsubsidiary, Finvercon S.A., to the Parent. As a result, at December 31, 2001, the Company had no exposure toArgentina.  At the time of transfer, thesubsidiaries had assets of $85.3 million.

 

 

30

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*Item8.  Financial Statements andSupplementary Data.*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WELLS FARGO FINANCIAL,INC.

 

Consolidated FinancialStatements

 

 

 

 

 

 

31

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KPMG LLP

 

(logo)                                                                                                                                                     4200Wells Fargo Center

                                                                                                                                                                90S. Seventh Street

                                                                                                                                                                Minneapolis,MN  55402

 

 

 

 

 

 

**INDEPENDENTAUDITORS’ REPORT**

The Board of Directors

Wells Fargo Financial, Inc.:

 

 

We have audited the accompanying consolidated balance sheets of WellsFargo Financial, Inc. (a wholly owned subsidiary of Wells Fargo FinancialServices, Inc., which is a wholly owned subsidiary of Wells Fargo &Company) and subsidiaries as of December 31, 2001 and 2000, and the relatedconsolidated statements of income, comprehensive income, cash flows, andstockholder’s equity for each of the years in the three-year period endedDecember 31, 2001.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of Wells FargoFinancial, Inc. and subsidiaries as of December 31, 2001 and 2000 and theresults of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2001, in conformity with accountingprinciples generally accepted in the United States of America.

 

 

 

/s/ KPMG LLP

 

Minneapolis, Minnesota

January 9, 2002

 

 

 

 

32

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WELLS FARGO FINANCIAL,INC.

 

Consolidated BalanceSheets

 

(Thousands of Dollars)

 

 
|                                                                                                       |   | **December  31,** |       |
|------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                                       |   | **2001**          | ** ** | **2000** |   |
| **Assets**                                                                                                 |   |              |       |   |   |
| Cash and cash  equivalents                                                                                 |   | $                 | 260,038    |   | $ | 205,036 |   |
|                                                                                                       |   |              |       |   |   |
| Securities  available-for-sale                                                                             |   | 1,377,148         |       | 1,215,135 |   |
|                                                                                                       |   |              |       |   |   |
| Finance  receivables                                                                                       |   | 13,433,569        |       | 11,417,862 |   |
|                                                                                                       |   |              |       |   |   |
| Less allowance  for credit losses                                                                          |   | 521,948           |       | 462,555 |   |
|                                                                                                       |   |              |       |   |   |
| Finance  receivables - net                                                                                 |   | 12,911,621        |       | 10,955,307 |   |
|                                                                                                       |   |              |       |   |   |
| Notes receivable  - affiliates                                                                             |   | 636,588           |       | 505,386 |   |
|                                                                                                       |   |              |       |   |   |
| Property and  equipment (at cost, less accumulated depreciation of $87,299 for 2001 and  $90,372 for 2000) |   | 94,017            |       | 63,651 |   |
|                                                                                                       |   |              |       |   |   |
| Deferred income  taxes                                                                                     |   | 62,290            |       | 111,262 |   |
|                                                                                                       |   |              |       |   |   |
| Other assets                                                                                               |   | 567,560           |       | 520,971 |   |
|                                                                                                       |   |              |       |   |   |
| Total assets                                                                                               |   | $                 | 15,909,262 |   | $ | 13,576,748 |   |

 

 

 

 

 

 

 

 

See accompanyingnotes to consolidated financial statements.

 

33

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WELLS FARGOFINANCIAL, INC.

 

ConsolidatedBalance Sheets

 

(Thousands ofDollars)

 

 
|                                                                                            |   | **December  31,** |       |
|-------------------------------------------------------------------------------------------------|--------|-------------------|------------|
| **Liabilities and Stockholder’s Equity**                                                   |   | **2001**          |       | **2000** |   |
| Loans payable -  short-term:                                                                    |   |              |       |   |   |
| Commercial  paper                                                                               |   | $                 | 4,067,707  |   | $ | 2,973,508 |   |
| Affiliates                                                                                      |   | 64,600            |       | 99,379 |   |
| Other                                                                                           |   | 93,742            |       | 709,988 |   |
| Unearned  insurance premiums and commissions                                                    |   | 133,465           |       | 139,476 |   |
| Insurance claims  and policy reserves                                                           |   | 34,635            |       | 34,978 |   |
| Accrued interest  payable                                                                       |   | 131,752           |       | 121,007 |   |
| Other  liabilities                                                                              |   | 426,876           |       | 419,124 |   |
| Senior long-term  debt                                                                          |   | 8,845,636         |       | 7,224,673 |   |
|                                                                                            |   |              |       |   |   |
| Total  liabilities                                                                              |   | 13,798,413        |       | 11,722,133 |   |
|                                                                                            |   |              |       |   |   |
| Commitments and  contingencies (notes 6, 9, 10, and 17)                                         |   |              |       |   |   |
|                                                                                            |   |              |       |   |   |
| Stockholder’s  equity:                                                                     |   |              |       |   |   |
|                                                                                            |   |              |       |   |   |
| Common  stock without par value (authorized 1,000 shares, issued and outstanding  1,000 shares) |   | 3,855             |       | 3,855 |   |
|                                                                                            |   |              |       |   |   |
| Additional paid  in capital                                                                     |   | 442,302           |       | 312,302 |   |
|                                                                                            |   |              |       |   |   |
| Retained  earnings                                                                              |   | 1,657,815         |       | 1,540,902 |   |
|                                                                                            |   |              |       |   |   |
| Accumulated  other comprehensive income (loss), net of income taxes                             |   | 6,877             |       | (2,444 | ) |
|                                                                                            |   |              |       |   |   |
| Total  stockholder’s equity                                                                |   | 2,110,849         |       | 1,854,615 |   |
|                                                                                            |   |              |       |   |   |
| Total liabilities  and stockholder’s equity                                                |   | $                 | 15,909,262 |   | $ | 13,576,748 |   |

 

 

 

 

 

 

 

 

 

See accompanyingnotes to consolidated financial statements.

 

34

----

 

WELLS FARGOFINANCIAL, INC.

 

ConsolidatedStatements of Income

 

(Thousands ofDollars)

 

 
|                                |   | **Years  Ended December 31,** |      |
|-------------------------------------|--------|-------------------------------|-----------|
|                                |   | **2001**                      |      | **2000** |   | **1999** |   |
| Income:                             |   |                          |      |   |   |   |   |
| Finance  charges and interest       |   | $                             | 2,221,346 |   | $ | 1,896,075 |   | $ | 1,637,441 |   |
| Insurance  premiums and commissions |   | 122,351                       |      | 114,996 |   | 305,320 |   |
| Other income                        |   | 278,796                       |      | 222,413 |   | 241,503 |   |
|                                |   |                          |      |   |   |   |   |
| Total income                        |   | 2,622,493                     |      | 2,233,484 |   | 2,184,264 |   |
|                                |   |                          |      |   |   |   |   |
| Expenses:                           |   |                          |      |   |   |   |   |
| Operating  expenses                 |   | 943,350                       |      | 808,583 |   | 781,366 |   |
| Interest and  debt expense          |   | 685,014                       |      | 639,444 |   | 520,063 |   |
| Provision for  credit losses        |   | 526,136                       |      | 358,308 |   | 272,136 |   |
| Insurance losses  and loss expenses |   | 44,303                        |      | 47,261 |   | 196,148 |   |
|                                |   |                          |      |   |   |   |   |
| Total expenses                      |   | 2,198,803                     |      | 1,853,596 |   | 1,769,713 |   |
|                                |   |                          |      |   |   |   |   |
| Income  before income taxes         |   | 423,690                       |      | 379,888 |   | 414,551 |   |
|                                |   |                          |      |   |   |   |   |
| Income taxes                        |   | 158,873                       |      | 138,834 |   | 149,190 |   |
|                                |   |                          |      |   |   |   |   |
| Net income                          |   | $                             | 264,817   |   | $ | 241,054 |   | $ | 265,361 |   |

 

 

 

 

 

 

 

See accompanyingnotes to consolidated financial statements.

 

35

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WELLS FARGOFINANCIAL, INC.

 

Consolidated Statementsof Comprehensive Income

 

(Thousands ofDollars)

 

 
|                                                                                                 |   | **Years  Ended December 31,** |    |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                                 |   | **2001**                      |    | **2000** |   | **1999** |   |
| Net  income                                                                                          |   | $                             | 264,817 |   | $ | 241,054 |   | $ | 265,361 |   |
|                                                                                                 |   |                          |    |   |   |   |   |
| Other  comprehensive income (loss), before income taxes:                                             |   |                          |    |   |   |   |   |
| Unrealized  gains (losses) on securities available-for-sale:                                         |   |                          |    |   |   |   |   |
| Unrealized  gains (losses) arising during the year                                                   |   | 28,597                        |    | 25,514 |   | (44,175 | ) |
| Reclassification  adjustment for net (gains) losses included in income                               |   | (9,904                        | )       | 105 |   | (7,586 | ) |
|                                                                                                 |   |                          |    |   |   |   |   |
|                                                                                                 |   | 18,693                        |    | 25,619 |   | (51,761 | ) |
|                                                                                                 |   |                          |    |   |   |   |   |
| Foreign  currency translation adjustment                                                             |   | (3,115                        | )       | (1,645 | ) | 3,955 |   |
|                                                                                                 |   |                          |    |   |   |   |   |
| Other  comprehensive income (loss) before income taxes                                               |   | 15,578                        |    | 23,974 |   | (47,806 | ) |
|                                                                                                 |   |                          |    |   |   |   |   |
| Income tax  expense (benefit) related to unrealized gains (losses) on securities  available-for-sale |   | 6,257                         |    | 8,782 |   | (17,525 | ) |
|                                                                                                 |   |                          |    |   |   |   |   |
| Other  comprehensive income (loss), net of income taxes                                              |   | 9,321                         |    | 15,192 |   | (30,281 | ) |
|                                                                                                 |   |                          |    |   |   |   |   |
| Comprehensive  income                                                                                |   | $                             | 274,138 |   | $ | 256,246 |   | $ | 235,080 |   |

 

 

 

 

 

 

See accompanyingnotes to consolidated financial statements.

 

36

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WELLS FARGOFINANCIAL, INC.

 

ConsolidatedStatements of Cash Flows

 

(Thousands ofDollars)

 

 
|                                                                                                                          |   | **Years  Ended December 31,** |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                                                          |   | **2001**                      |    | **2000** |   | **1999** |   |
| Cash flows from  operating activities:                                                                                        |   |                          |    |   |   |   |   |
| Net income                                                                                                                    |   | $                             | 264,817 |   | $ | 241,054 |   | $ | 265,361 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities, net of  effect of transferred subsidiaries: |   |                          |    |   |   |   |   |
| Provision for  credit losses                                                                                                  |   | 526,136                       |    | 358,308 |   | 272,136 |   |
| Depreciation and  amortization                                                                                                |   | 53,724                        |    | 50,223 |   | 56,810 |   |
| Deferred income  taxes                                                                                                        |   | 26,560                        |    | 7,887 |   | 16,320 |   |
| Other assets                                                                                                                  |   | 28,604                        |    | (50,807 | ) | (32,731 | ) |
| Unearned  insurance premiums and commissions                                                                                  |   | (6,011                        | )       | (1,143 | ) | 7,754 |   |
| Insurance claims  and policy reserves                                                                                         |   | (343                          | )       | 773 |   | 4,374 |   |
| Accrued interest  payable                                                                                                     |   | 10,888                        |    | 22,302 |   | 6,213 |   |
| Other payables  to affiliates                                                                                                 |   | 1,804                         |    | 70,018 |   | (40,702 | ) |
| Other  liabilities                                                                                                            |   | (3,580                        | )       | (26,797 | ) | 94,968 |   |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Net cash  provided by operating activities                                                                                    |   | 902,599                       |    | 671,818 |   | 650,503 |   |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Cash flows used  for investing activities:                                                                                    |   |                          |    |   |   |   |   |
| Finance  receivables:                                                                                                         |   |                          |    |   |   |   |   |
| Principal  collected                                                                                                          |   | 9,652,388                     |    | 7,601,153 |   | 7,500,472 |   |
| Receivables  originated or purchased                                                                                          |   | (11,395,128                   | )       | (9,299,797 | ) | (8,547,613 | ) |
| Proceeds  from sales of securities                                                                                            |   | 444,762                       |    | 170,554 |   | 131,624 |   |
| Proceeds from  maturities of securities                                                                                       |   | 150,350                       |    | 151,670 |   | 164,649 |   |
| Purchase of  securities                                                                                                       |   | (732,416                      | )       | (330,822 | ) | (369,199 | ) |
| Net additions to  property and equipment                                                                                      |   | (47,049                       | )       | (16,108 | ) | (97,688 | ) |
| Net decrease  (increase) in notes receivable - affiliates, net of effect of contributed  subsidiaries                         |   | (149,202                      | )       | (39,132 | ) | 70,924 |   |
| Cash and cash  equivalents of contributed subsidiaries received and subsidiaries transferred                                  |   | (9,460                        | )       | 5,477 |   | 55,150 |   |
| Net cash used  for acquisitions                                                                                               |   | (324,573                      | )       | (492,744 | ) |   |   |
| Other                                                                                                                         |   | (61,450                       | )       | 55,872 |   | 73,258 |   |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Net cash used by  investing activities                                                                                        |   | (2,471,778                    | )       | (2,193,877 | ) | (1,018,423 | ) |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Cash flows from  financing activities:                                                                                        |   |                          |    |   |   |   |   |
| Net increase in  loans payable - short-term                                                                                   |   | 451,456                       |    | 474,768 |   | 32,550 |   |
| Proceeds from  issuance of senior long-term debt                                                                              |   | 2,903,680                     |    | 2,305,100 |   | 1,714,301 |   |
| Repayments of  senior long-term debt                                                                                          |   | (1,735,955                    | )       | (1,281,743 | ) | (1,119,145 | ) |
| Capital  contribution from Parent                                                                                             |   | 130,000                       |    | 95,000 |   |   |   |
| Dividends paid                                                                                                                |   | (125,000                      | )       | (45,000 | ) | (220,000 | ) |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Net cash  provided by financing activities                                                                                    |   | 1,624,181                     |    | 1,548,125 |   | 407,706 |   |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Net  increase in cash and cash equivalents                                                                                    |   | 55,002                        |    | 26,066 |   | 39,786 |   |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Cash and cash  equivalents beginning of year                                                                                  |   | 205,036                       |    | 178,970 |   | 139,184 |   |
|                                                                                                                          |   |                          |    |   |   |   |   |
| Cash and cash  equivalents end of year                                                                                        |   | $                             | 260,038 |   | $ | 205,036 |   | $ | 178,970 |   |

 

 

 

See accompanyingnotes to consolidated financial statements.

 

37

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WELLS FARGO FINANCIAL,INC.

 

Consolidated Statementsof Stockholder’s Equity

 

(Thousands of Dollars)

 

 
|                              |   |       |   |           |   |         |   | **Accumulated  Other**           |      |               |   |
|-----------------------------------|--------|------------|--------|----------------|--------|--------------|--------|----------------------------------|-----------|--------------------|--------|
|                              |   |       |   |           |   |         |   | **Comprehensive  Income (Loss)** |      |               |   |
|                              |   |       |   |           |   |         |   |                             |      | **Unrealized**     |   |   |   |
|                              |   |       |   |           |   |         |   |                             |      | **Gains (Losses)** |   |   |   |
|                              |   |       |   | **Additional** |   |         |   | **Foreign**                      |      | **on  Securities** |   |   |   |
|                              |   | **Common** |   | **Paid In**    |   | **Retained** |   | **Currency**                     |      | **Available-**     |   |   |   |
|                              |   | **Stock**  |   | **Capital**    |   | **Earnings** |   | **Translation**                  |      | **for-Sale**       |   | **Total** |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Balance,  December 31, 1998       |   | $          | 3,855  |           | $      | 189,438      |   | $                                | 1,362,370 |               | $      | (13,530 | ) | $ | 23,080 |   | $ | 1,565,213 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Comprehensive  income:            |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Net  income                       |   |       |   |           |   | 265,361      |   |                             |      |               |   | 265,361 |   |
| Other                             |   |       |   |           |   |         |   | 3,955                            |      | (34,236            | )      | (30,281 | ) |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Contributed  subsidiary           |   |       |   | 7,259          |   | 12           |   |                             |      |               |   | 7,271 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Dividends                         |   |       |   |           |   | (220,000     | )      |                             |      |               |   | (220,000 | ) |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Balance,  December 31, 1999       |   | 3,855      |   | 196,697        |   | 1,407,743    |   | (9,575                           | )         | (11,156            | )      | 1,587,564 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Comprehensive  income:            |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Net  income                       |   |       |   |           |   | 241,054      |   |                             |      |               |   | 241,054 |   |
| Other                             |   |       |   |           |   |         |   | (1,645                           | )         | 16,837             |   | 15,192 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Capital  contribution from Parent |   |       |   | 95,000         |   |         |   |                             |      |               |   | 95,000 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Contributed  subsidiary           |   |       |   | 20,605         |   | (2,724       | )      |                             |      |               |   | 17,881 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Transfer  of subsidiary           |   |       |   |           |   | (60,171      | )      |                             |      | 3,095              |   | (57,076 | ) |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Dividends                         |   |       |   |           |   | (45,000      | )      |                             |      |               |   | (45,000 | ) |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Balance,  December 31, 2000       |   | 3,855      |   | 312,302        |   | 1,540,902    |   | (11,220                          | )         | 8,776              |   | 1,854,615 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Comprehensive  income:            |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Net  income                       |   |       |   |           |   | 264,817      |   |                             |      |               |   | 264,817 |   |
| Other                             |   |       |   |           |   |         |   | (3,115                           | )         | 12,436             |   | 9,321 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Capital  contribution from Parent |   |       |   | 130,000        |   |         |   |                             |      |               |   | 130,000 |   |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Transfer of  subsidiaries         |   |       |   |           |   | (22,904      | )      |                             |      |               |   | (22,904 | ) |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Dividends                         |   |       |   |           |   | (125,000     | )      |                             |      |               |   | (125,000 | ) |
|                              |   |       |   |           |   |         |   |                             |      |               |   |   |   |
| Balance,  December 31, 2001       |   | $          | 3,855  |           | $      | 442,302      |   | $                                | 1,657,815 |               | $      | (14,335 | ) | $ | 21,212 |   | $ | 2,110,849 |   |

 

 

 

See accompanyingnotes to consolidated financial statements.

 

38

----

 

WELLS FARGOFINANCIAL, INC.

 

Notes toConsolidated Financial Statements

 

 

1.         Significant Accounting Policies.

 

Principles ofConsolidation.  The consolidated financial statementsinclude the accounts of Wells Fargo Financial, Inc. (the “Company”) andsubsidiaries (collectively, “Wells Fargo Financial”).  Intercompany accounts and transactions are eliminated.  The Company is a wholly-owned subsidiary ofWells Fargo Financial Services, Inc. (the “Parent”).  The Parent is a wholly-owned subsidiary of Wells Fargo &Company (“Wells Fargo”).

 

Effective December21, 2001, after recording a charge of $21 million before tax to write down itsinvestment in Argentina, the Company transferred the common stock at net bookvalue of Finvercon U.S.A. and its wholly owned subsidiary, Finvercon S.A., tothe Parent. The Company continues to provide financing to Finvercon S.A. AtDecember 31, 2001 loans to Finvercon S.A. totaled $23.4 million.  All loans from Finvercon are fullyguaranteed by the Parent.  In December2001 the Company forgave $22.5 million of loans to enable Finvercon to meetminimum regulatory capital requirements in Argentina.  In accordance with the terms of the guarantee the obligation torepay the loans was assumed by the Parent. As a result, at December 31, 2001 the Company had no exposure toArgentina.  At the time of the transfer,the subsidiaries had assets of $85.3 million.

 

Effective June 1, 2000, the Company transferred the common stock at netbook value of its multiple peril crop insurance subsidiary and its wholly ownedsubsidiary to the Parent, which subsequently transferred it to anotheraffiliate of Wells Fargo.  At the timeof the transfer, the multiple peril crop insurance subsidiaries had assets of$86.3 million and had an incurred $7.2 million loss for the year.

 

Effective January 1, 2000, the Parent made a capital contribution,without consideration, to the Company of the issued and outstanding shares ofcapital stock of two of the Parent’s consumer finance subsidiaries (the“Contributed Subsidiaries”).  Thiscapital contribution was accounted for as a merger of interests under commoncontrol.  Accordingly, the assetsacquired and liabilities assumed were recorded at historical cost.  The Contributed Subsidiaries had assetstotaling $237.8 million and 49 branch offices at the time of the contribution.

 

On December 15,1999, the business of Wells Fargo Financial Information Services, Inc. and itswholly-owned subsidiary (“WFFISI”) was transferred to the Parent at net bookvalue for cash.

 

Effective January 21, 1999, the Parent made a capitalcontribution, without consideration, to the Company of the assets (along withand subject to the liabilities) and other related leasehold or propertyinterests or rights formerly held by Mid-Penn Consumer Discount Company(“Mid-Penn”).  Immediately preceding thecapital contribution, Mid-Penn had merged with and into the Parent, and the Parentwas the surviving corporation.  Thiscapital contribution was accounted for as a merger of interests under commoncontrol.  Mid-Penn’s headquarters werein Philadelphia, Pennsylvania and its principal business was consumer finance.  Mid-Penn had finance receivables outstandingof $10 million at the time of the merger into the Parent.

 

Effective January 1, 1999, the Parent made a capitalcontribution, without consideration, to the Company of the issued andoutstanding shares of capital stock of Aman Collection Service, Inc. and AmanCollection Service 1, Inc. (collectively referred to as “Aman”).  This capital contribution was accounted foras a merger of interests under common control. Aman’s headquarters are in Aberdeen, South Dakota and its principalbusiness is collection services.

 

39

----

 

 

1.             SignificantAccounting Policies, Continued.

 

Business Combinations.

 

Effective January 31, 2001, the Company acquiredsubstantially all of the assets and assumed certain liabilities of ConsecoFinance Vendor Services Corporation, a leasing company.  Total purchase price was approximately $423million.  Conseco Finance VendorServices Corporation had lease receivables outstanding of $825 million and hadanother $135 million of lease receivables under management at the time of theacquisition.

 

Effective December 20, 2000, the Company acquiredsubstantially all of the assets and liabilities of Flagship Credit Corporationand its wholly owned subsidiaries (“Flagship”), an automobile financecompany.  Total purchase price wasapproximately $345 million.  At the timeof the acquisition, Flagship had receivables outstanding included in itsbalance sheet of $713 million and another $206 million of receivables undermanagement.

 

Effective September 1, 2000, one of theCompany’s subsidiaries acquired Charter Financial Company, a specialty financeand leasing company.  Total purchaseprice was approximately $16 million. Charter operates in Canada where its offers medium-term, fixed rate,full-payout leases and equipment financing to clients in targetedindustries.  Charter had receivablesunder management of $190 million at the time of the acquisition.

 

All of the business combinations described above were accounted for aspurchases.  The assets and liabilitiesacquired in these business combinations were recorded at fair value, and theCompany’s financial statements contain only the results of operations of thevarious acquired entities since their respective acquisition dates.  If these business combinations had occurredat the beginning of the respective years, net income would not have beenmaterially different from the amounts reported.

 

 

40

----

 

 

1.         SignificantAccounting Policies, Continued.

 

SecuritiesAvailable-for-Sale.  Debt and equity securities are classified asavailable-for-sale. Debt and equity securities classified as available-for-saleare reported at fair value with net unrealized gains and losses, net ofdeferred income taxes, excluded from earnings and recorded as a component ofaccumulated other comprehensive income until realized.  If a decline in the security’s fair value isdeemed to be other than temporary, the amount of the write-down is recognizedas a reduction in earnings.  Wells FargoFinancial computes realized gains and losses using the specific identificationmethod.

 

Finance Charges and Interest. Finance charges and interest are earned primarily using the interestmethod on an accrual basis.  Automobilefinance and commercial receivables that are past due for 90 days or more areplaced on non-accrual status.  When thereceivable is placed on non-accrual status, accrued and unpaid interest ischarged against finance charges and interest. All other finance receivables continue to accrue interest until thereceivable is collected or written off. When a receivable is written off, accrued and unpaid interest is chargedagainst finance charges and interest.

 

Loan Origination Fees and Costs. Fees received and certain direct costs incurred for the origination ofreceivables are deferred and amortized to interest income over the contractuallives of the receivables using the interest method.  Unamortized amounts are recognized at the time receivables arepaid in full.  Discounts and premiums onpurchased receivables are recognized over the contractual lives of thepurchased receivables using a method that approximates the interest method.

 

Allowance for Credit Losses. The allowance for credit losses isbased on loss experience in relation to finance receivables outstanding and isestablished through a provision for credit losses charged to expense.  The allowance is an amount that managementbelieves will be adequate to absorb probable losses on existing receivables thatmay become uncollectible based on evaluations of collectibility of receivablesand prior credit loss experience.

 

Finance receivables are written off when evaluated asuncollectible.  In addition, consumerfinance receivables in the United States are generally written off if nopayment is applied during the three-month period immediately preceding thebalance sheet date and the receivable is 90 days or more contractuallydelinquent.  Automobile financereceivables are written off when the receivable is 150 days or morecontractually delinquent.  All otherreceivables are generally written off when the receivable is 180 days or morecontractually delinquent.

 

Property and Equipment.  Depreciationis provided for property and equipment on a straight-line basis over theirestimated useful lives, which are:  19to 39 years for buildings, 5 to 39 years for building equipment andimprovements, and 3 to 8 years for furniture, fixtures and equipment.  Generally, leasehold improvements areamortized over five years or the life of the lease whichever is shorter.  Maintenance and repairs of building andoffice equipment (not significant in the aggregate) are charged toexpense.  At the time assets aredisposed of or are retired, the related asset and accumulated depreciation oramortization are removed from the respective accounts.  Gains and losses on dispositions areincluded in earnings.

 

Deferred Income Taxes.  Deferredincome taxes reflect the impact of temporary differences between the amounts ofassets and liabilities recorded for financial reporting from the basis used forincome tax purposes (note 10).

 

Retirement Plans.  Retirementplans cover substantially all employees who meet certain age and servicerequirements.  Wells Fargo Financial’sfunding policy is to contribute no more than the maximum amount that can bededucted for federal income tax purposes (note 11).

 

41

----

 

 

1.         Significant Accounting Policies,Continued.

 

Insurance Income and Expense. Insurance premiums are recognized as income over the terms of thepolicies.  Premiums for credit lifeinsurance are recognized as revenue using a method that approximates theinterest method.  Premiums for creditdisability insurance, involuntary unemployment insurance, and multiple perilcrop insurance are recognized as revenue in relationship to anticipatedclaims.  Premiums and commissions fromproperty insurance and non-filing insurance are recognized as revenue on apro-rata basis.  The Companydiscontinued the utilization of non-filing insurance in December 1999.  Policy acquisition expenses (principallyceding commissions) are deferred and charged to expense over the terms of therelated policies in proportion to premium income recognition.

 

Foreign Currency Translation. Assets and liabilities of the foreign operations are translated at theexchange rate as of the balance sheet date. Foreign operating results are translated at the average exchange ratesfor the period covered by the income statement.  The resulting translation adjustments are recorded as a separatecomponent of accumulated other comprehensive income.

 

Goodwill and Other Intangibles. Goodwill represents the unamortized cost of acquiring subsidiaries andother net assets in excess of the fair value of such net assets at the date ofacquisition.  Goodwill is amortized overa maximum 15-year period using the straight-line method.  Other identifiable intangibles are amortizedeither on an accelerated basis or straight-line, over various periods which donot exceed 15 years.  Goodwill and otherintangible assets are written down to fair value when the expected cash flowsfrom the investment no longer support the carrying value.

 

Use of Estimates.  Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

Reclassification.  Certainamounts in the 1999 and 2000 financial statements have been reclassified toconform to the presentation used in the 2001 financial statements.

 

New Standards. In June 1998, the Financial Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standards No. 133 (FAS133), Accounting for Derivative Instruments and Hedging Activities.  In July 1999, the FASB issued FAS 137,Deferral of the Effective Date of FASB Statement No. 133, which defers theeffective date for implementation of FAS 133 to no later than January 1, 2001for the Company’s financial statements. In June 2000, the FASB issued FAS 138, Accounting for Certain DerivativeInstruments and Certain Hedging Activities, an amendment to FAS 133.  The Company implemented the statements onJanuary 1, 2001 and there was no material impact on the Company’s financialstatements as a result of the implementation.

 

In September 2000,the FASB issued Statement No. 140 (FAS 140), Accounting for the Transfers andServicing of Financial Assets and Extinguishments of Liabilities, whichreplaces FAS 125 (of the same title). FAS 140 revises certain standards in the accounting for securitizationsand other transfers of financial assets and collateral, and requires somedisclosures relating to securitization transactions and collateral, but itcarries over most of FAS 125’s provisions. The collateral and disclosure provisions of FAS 140 were effective foryear-end 2000 financial statements.  Theother provisions of this Statement were effective for transfers and servicingof financial assets and extinguishments of liabilities occurring after March31, 2001.  There was no material impacton the Company’s financial statements as a result of the implementation.

 

 

42

----

 

 

2.         Securities Available-for-Sale.

 

The amortized costand fair value of securities available-for-sale were:

 
|                                                                          |   | **December  31, 2001** |      | **December  31, 2000** |   |
|-------------------------------------------------------------------------------|--------|------------------------|-----------|------------------------|--------|
|                                                                          |   | **Amortized**          |      | **Fair**               |   | **Amortized** |   | **Fair** |   |
|                                                                          |   | **Cost**               |      | **Value**              |   | **Cost** |   | **Value** |   |
|                                                                          |   |                   |      | **(In  Thousands)**    |   |   |   |
| U.S. Treasury  and federal agencies                                           |   | $                      | 186,691   |                   | $      | 191,552 |   | $ | 169,993 |   | $ | 172,720 |   |
| States and  political subdivisions                                            |   | 252,955                |      | 262,532                |   | 276,533 |   | 285,663 |   |
| Mortgage-backed  securities:                                                  |   |                   |      |                   |   |   |   |   |   |
| Federal agencies                                                              |   | 145,098                |      | 147,528                |   | 127,579 |   | 127,775 |   |
| Collateralized  mortgage obligations                                          |   | 1,291                  |      | 1,321                  |   | 3,146 |   | 3,163 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Total  mortgage-backed securities                                             |   | 146,389                |      | 148,849                |   | 130,725 |   | 130,938 |   |
| Other (primarily  corporate bonds)                                            |   | 659,247                |      | 674,278                |   | 519,112 |   | 515,542 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Total debt  securities                                                        |   | 1,245,282              |      | 1,277,211              |   | 1,096,363 |   | 1,104,863 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Marketable  equity securities                                                 |   | 99,573                 |      | 99,937                 |   | 105,172 |   | 110,272 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Total                                                                         |   | $                      | 1,344,855 |                   | $      | 1,377,148 |   | $ | 1,201,535 |   | $ | 1,215,135 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| The gross  unrealized gains and losses of securities available-for-sale were: |   |                   |      |                   |   |   |   |   |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
|                                                                          |   | **December  31, 2001** |      | **December 31, 2000**  |   |
|                                                                          |   | **Gross  Unrealized**  |      | **Gross Unrealized**   |   |
|                                                                          |   | **Gains**              |      | **Losses**             |   | **Gains** |   | **Losses** |   |
|                                                                          |   |                   |      | **(In Thousands)**     |   |   |   |
| U.S. Treasury  and federal agencies                                           |   | $                      | 5,456     |                   | $      | 595 |   | $ | 3,452 |   | $ | 725 |   |
| States and  political subdivisions                                            |   | 9,814                  |      | 237                    |   | 9,490 |   | 360 |   |
| Mortgage-backed  securities:                                                  |   |                   |      |                   |   |   |   |   |   |
| Federal agencies                                                              |   | 2,605                  |      | 175                    |   | 435 |   | 239 |   |
| Collateralized  mortgage obligations                                          |   | 32                     |      | 2                      |   | 24 |   | 7 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Total  mortgage-backed securities                                             |   | 2,637                  |      | 177                    |   | 459 |   | 246 |   |
| Other (primarily  corporate bonds)                                            |   | 16,354                 |      | 1,323                  |   | 5,620 |   | 9,190 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Total  debt securities                                                        |   | 34,261                 |      | 2,332                  |   | 19,021 |   | 10,521 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Marketable  equity securities                                                 |   | 8,332                  |      | 7,968                  |   | 13,179 |   | 8,079 |   |
|                                                                          |   |                   |      |                   |   |   |   |   |   |
| Total                                                                         |   | $                      | 42,593    |                   | $      | 10,300 |   | $ | 32,200 |   | $ | 18,600 |   |

 

 

43

----

 

 

 

2.         Securities Available-for-Sale,Continued.

 

Maturitiesof mortgage-backed securities were estimated based upon anticipatedpayments.  The amortized cost and fairvalues of debt securities available-for-sale by maturity were:

 
|                                |   | **December  31, 2001** |      |
|-------------------------------------|--------|------------------------|-----------|
|                                |   | **Amortized**          |      | **Fair** |   |
|                                |   | **Cost**               |      | **Value** |   |
|                                |   | **(In  Thousands)**    |      |
| In one year or  less                |   | $                      | 120,173   |   | $ | 122,478 |   |
| After one year  through five years  |   | 712,938                |      | 732,214 |   |
| After five years  through ten years |   | 274,348                |      | 275,756 |   |
| After ten years                     |   | 137,823                |      | 146,763 |   |
|                                |   |                   |      |   |   |
| Total                               |   | $                      | 1,245,282 |   | $ | 1,277,211 |   |

 

 

Total grossrealized gains and losses from the sale of securities were $18,443,000 and$8,539,000, respectively, in 2001; $7,633,000 and $7,738,000, respectively, in2000; and $11,080,000 and $3,494,000, respectively, in 1999.  The carrying amounts of securities ondeposit under statutory or other requirements at December 31, 2001 and 2000,were $7,725,000 and $8,127,000 respectively.

 

 

Income fromsecurities available-for-sale and cash equivalents was as follows:

 
|                 |   | **Years  Ended December 31,** |   |
|----------------------|--------|-------------------------------|--------|
|                 |   | **2001**                      |   | **2000** |   | **1999** |   |
|                 |   |                          |   | **(In  Thousands)** |   |   |   |
| Taxable  interest    |   | $                             | 64,438 |   | $ | 59,668 |   | $ | 59,076 |   |
| Tax-exempt  interest |   | 13,254                        |   | 13,751 |   | 14,056 |   |
| Dividends            |   | 1,645                         |   | 5,736 |   | 5,095 |   |
|                 |   |                          |   |   |   |   |   |
| Total income         |   | $                             | 79,337 |   | $ | 79,155 |   | $ | 78,227 |   |

 

 

44

----

 

 

 

3.          Finance Receivables.

 

Finance receivables are as follows:

 
|                                  |   | **December  31,**   |       |
|---------------------------------------|--------|---------------------|------------|
|                                  |   | **2001**            |       | **2000** |   |
|                                  |   | **(In  Thousands)** |       |
| United  States consumer finance:      |   |                |       |   |   |
| Real  estate-secured loans            |   | $                   | 2,984,226  |   | $ | 2,507,419 |   |
| Consumer  loans                       |   | 1,483,055           |       | 1,460,746 |   |
|                                  |   |                |       |   |   |
| Total  loans                          |   | 4,467,281           |       | 3,968,165 |   |
|                                  |   |                |       |   |   |
| Sales  finance contracts              |   | 1,228,396           |       | 1,295,147 |   |
| Credit  cards                         |   | 1,341,039           |       | 1,148,486 |   |
|                                  |   |                |       |   |   |
| Total  United States consumer finance |   | 7,036,716           |       | 6,411,798 |   |
|                                  |   |                |       |   |   |
| Canadian  consumer finance:           |   |                |       |   |   |
| Real  estate-secured loans            |   | 90,919              |       | 85,000 |   |
| Consumer  loans                       |   | 461,668             |       | 452,581 |   |
|                                  |   |                |       |   |   |
| Total  loans                          |   | 552,587             |       | 537,581 |   |
|                                  |   |                |       |   |   |
| Sales  finance contracts              |   | 585,725             |       | 497,379 |   |
| Credit  cards                         |   | 24,494              |       | 21,298 |   |
|                                  |   |                |       |   |   |
| Total  Canadian consumer finance      |   | 1,162,806           |       | 1,056,258 |   |
|                                  |   |                |       |   |   |
| Automobile  finance                   |   | 3,375,101           |       | 3,078,026 |   |
|                                  |   |                |       |   |   |
| Leasing                               |   | 1,290,658           |       | 442,665 |   |
|                                  |   |                |       |   |   |
| Other                                 |   | 568,288             |       | 429,115 |   |
|                                  |   |                |       |   |   |
| Total  finance receivables            |   | $                   | 13,433,569 |   | $ | 11,417,862 |   |

 

 

Loans aregenerally repayable in monthly installments over a period of 180 months orless.  Sales finance contracts can beeither open-end (revolving) or closed-end. Open-end sales finance contracts do not have an original maturitybecause the accounts created by these contracts can be used for repeatedtransactions.  The minimum monthlypayment of open-end sales finance contracts generally ranges from 1/12 to 1/30of the highest unpaid balance of the account. Closed-end sales finance contracts purchased are repayable in equalmonthly installments and generally have original maturities of 60 months orless.

 

45

----

 

 

 

3.          Finance Receivables, Continued.

 

The amounts ofcash payments applied to consumer receivables during the years ended December31, 2001, 2000 and 1999 approximated $8,595,709,000; $7,096,119,000; and$6,982,735,000, respectively.  Theseamounts exceeded the amount contractually due because a substantial portion ofsuch receivables are renewed, converted, or paid in full prior tomaturity.  Unearned insurance premiumsand insurance claims and policy reserves which pertain to Wells FargoFinancial’s consumer receivables were approximately $150,827,000 and$157,614,000 at December 31, 2001 and 2000, respectively.

 

AtDecember 31, 2001, contractual maturities of commercial receivables were asfollows:  $432,263,000 were due in oneyear or less; $1,389,531,000 were due after one year through five years; and$37,152,000 were due after five years. Substantially all commercial receivables have fixed interest rates.  Contractual maturities are not presented forthe consumer receivables as it is the Company’s experience that a substantialportion of the consumer receivable portfolio is renewed or repaid beforecontractual maturity dates.

 

Receivablesinclude Canadian receivables of $1,162,806,000 and $1,056,258,000 at December31, 2001 and 2000, respectively, and Argentine receivables of $116,423,000 atDecember 31, 2000.

 

Non-accrualcommercial receivables totaled $30,406,000 and $7,473,000 at December 31, 2001and 2000, respectively.  The allowancefor losses related to these commercial receivables was $1,520,000 and $374,000at December 31, 2001 and 2000, respectively.  The average amount of non-accrual commercial receivables for theyears ended December 31, 2001, 2000 and 1999 were $25,408,000, $6,326,000, and$5,221,000, respectively.

 

Theeffect of non-accrual commercial receivables on finance charges and interestare:

 
|                                |   | **Years  Ended December 31,** |   |
|-------------------------------------|--------|-------------------------------|--------|
|                                |   | **2001**                      |   | **2000** |   | **1999** |   |
|                                |   |                          |   | **(In  Thousands)** |   |   |   |
| Finance  charges and interest:      |   |                          |   |   |   |   |   |
| As  originally contracted           |   | $                             | 2,814  |   | $ | 365 |   | $ | 320 |   |
| As  recognized using the cash basis |   | 1,237                         |   | 315 |   | 267 |   |
|                                     |        |                               |        |  |  |  |  |  |  |  |

 

 

46

----

 

 

 

4.          Allowance for Credit Losses.

 

The analysis ofthe allowance for credit losses is as follows:

 
|                                                          |   | **Years  Ended December 31,** |    |
|---------------------------------------------------------------|--------|-------------------------------|---------|
|                                                          |   | **2001**                      |    | **2000** |   | **1999** |   |
|                                                          |   |                          |    | **(In  Thousands)** |   |   |   |
| Allowance  for credit losses beginning of year                |   | $                             | 462,555 |   | $ | 367,712 |   | $ | 350,984 |   |
| Provision  for credit losses charged to expense               |   | 526,136                       |    | 358,308 |   | 272,136 |   |
| Write-offs                                                    |   | (563,830                      | )       | (371,914 | ) | (307,214 | ) |
| Recoveries                                                    |   | 79,122                        |    | 57,993 |   | 51,806 |   |
| Allowance related  to businesses acquired or transferred, net |   | 42,965                        |    | 50,456 |   |   |   |
| Allowance  related to transfer of Finvercon U.S.A.            |   | (25,000                       | )       |   |   |   |   |
|                                                          |   |                          |    |   |   |   |   |
| Allowance for  credit losses end of year                      |   | $                             | 521,948 |   | $ | 462,555 |   | $ | 367,712 |   |

 

47

----

 

 

 

5.          Loans Payable - Short-term.

 

Commitment feesare paid to support bank credit agreements (lines of credit and revolvingcredit agreements).  The bank creditagreements amounted to $2,351,272,000 at December 31, 2001; the entire amountwas available at that date.  Unused bankcredit agreements are available to support outstanding commercial paper.  If all credit agreements in effect atDecember 31, 2001 were to remain in effect and unused throughout 2002, theCompany would pay approximately $1,619,000 in commitment fees.

 

Weighted averageannual interest rates and average debt outstanding for commercial paper andother short-term debt excluding short-term debt from affiliates are shownbelow:

 
| **Weighted average annual interest**                                                                        |   |     |            |                        |   |            |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|-----------------|-----------------------------|--------|-----------------|--------|
| **rate on commercial paper and**                                                                            |   |     |            |                        |   |            |   |
| **other short-term debt:**                                                                                  |   | **2001** |            | **2000**                    |   | **1999**        |   |
|                                                                                                        |   |     |            | **(Dollars  in Thousands)** |   |            |   |
| At December 31,                                                                                             |   | 2.44     | %               | 6.77                        | %      | 5.98            | %      |
|                                                                                                        |   |     |            |                        |   |            |   |
| For the year                                                                                                |   | 4.38     |            | 6.53                        |   | 5.30            |   |
|                                                                                                        |   |     |            |                        |   |            |   |
| For the year  after considering the effect of commitment fees                                               |   | 4.45     |            | 6.57                        |   | 5.35            |   |
|                                                                                                        |   |     |            |                        |   |            |   |
| Average daily  amount of commercial paper and other short-term debt outstanding during the  year            |   | $        | 3,743,738       |                        | $      | 2,781,357       |   | $ | 2,490,549 |   |
|                                                                                                        |   |     |            |                        |   |            |   |
| Maximum amount  of commercial paper and other short-term debt outstanding at any month-end  during the year |   | $        |  4,725,254 |                        | $      |  3,782,875 |   | $ |  3,126,791 |   |

 

 

The weightedaverage annual interest rate for the year was computed by dividing totalinterest expense on commercial paper and other short-term debt by the averagedaily amount of such debt outstanding. The weighted average annual interest rate on short-term debt fromaffiliates for the years 2001, 2000, and 1999 was 4.04%, 6.47%, and 5.22%respectively.

 

48

----

 

 

 

6.          Senior Long-term Debt.

 
|                                                        |   | **December  31,**           |   |
|-------------------------------------------------------------|--------|-----------------------------|--------|
| **Senior  long-term debt outstanding:**                     |   | **2001**                    |   | **2000** |   |
|                                                        |   | **(Dollars  In Thousands)** |   |
| Senior - United  States:                                    |   |                        |   |   |   |
| 5-1/2% due 2001                                             |   | $                           |   |   | $ | 150,000 |   |
| 6-3/8% due 2001                                             |   |                        |   | 150,000 |   |
| 6.42% due 2001                                              |   |                        |   | 38,605 |   |
| 7-3/4% due 2001                                             |   |                        |   | 100,000 |   |
| 5.93% due  2001-2002                                        |   | 6,839                       |   | 79,599 |   |
| 6-1/4% due 2002                                             |   | 200,000                     |   | 200,000 |   |
| 6-3/8% due 2002                                             |   | 200,000                     |   | 200,000 |   |
| 6-3/8% due 2002                                             |   | 250,000                     |   | 250,000 |   |
| 7-7/8% due 2002                                             |   | 150,000                     |   | 150,000 |   |
| 7.95% due 2002                                              |   | 100,000                     |   | 100,000 |   |
| 8.56% due  2001-2002                                        |   | 1,667                       |   | 3,333 |   |
| 5-3/8% due 2003                                             |   | 200,000                     |   | 200,000 |   |
| 6-1/8% due 2003                                             |   | 150,000                     |   | 150,000 |   |
| 6-3/8% due 2003                                             |   | 150,000                     |   | 150,000 |   |
| 6.705% due  2002-2003                                       |   | 14,288                      |   | 60,000 |   |
| 6.93% due  2001-2003                                        |   | 5,000                       |   | 7,500 |   |
| 7.00% due 2003                                              |   | 150,000                     |   | 150,000 |   |
| 7-1/4% due 2003                                             |   | 300,000                     |   | 300,000 |   |
| 7-1/4% due  2002-2003                                       |   | 25,085                      |   |   |   |
| 5.45% due 2004                                              |   | 500,000                     |   |   |   |
| 6.00% due 2004                                              |   | 150,000                     |   | 150,000 |   |
| 6-5/8% due 2004                                             |   | 250,000                     |   | 250,000 |   |
| 6.70% due 2004                                              |   | 300,000                     |   | 300,000 |   |
| 6.835% due  2003-2004                                       |   | 43,000                      |   | 43,000 |   |
| 7.20% due 2004                                              |   | 100,000                     |   | 100,000 |   |
| 7.36% due  2002-2004                                        |   | 116,364                     |   |   |   |
| 6.10% due  2002-2005                                        |   | 56,206                      |   | 56,206 |   |
| 6-3/4% due 2005                                             |   | 150,000                     |   | 150,000 |   |
| 6.90% due  2004-2005                                        |   | 30,000                      |   | 30,000 |   |
| 7.00% due 2005                                              |   | 300,000                     |   | 300,000 |   |
| 7.48% due 2002-2005                                         |   | 97,991                      |   |   |   |
| 7-1/2% due 2005                                             |   | 150,000                     |   | 150,000 |   |
| 7.60% due 2005                                              |   | 300,000                     |   | 300,000 |   |
| 7.69% due  2002-2005                                        |   | 14,852                      |   |   |   |
| 7.88% due  2002-2005                                        |   | 14,852                      |   |   |   |
| 6-1/8% due 2006                                             |   | 500,000                     |   |   |   |
| 6-1/4% due 2007                                             |   | 100,000                     |   | 100,000 |   |
| 6-3/8% due 2007                                             |   | 100,000                     |   | 100,000 |   |
| 7.20% due 2007                                              |   | 150,000                     |   | 150,000 |   |
| 5.875% due 2008                                             |   | 600,000                     |   |   |   |
| 8.56% due  2002-2008                                        |   | 18,817                      |   |   |   |
| 5-5/8% due 2009                                             |   | 200,000                     |   | 200,000 |   |
| 6.85% due 2009                                              |   | 250,000                     |   | 250,000 |   |
| Floating rate  debt, 2.10% to 2.331%, due 2002              |   | 450,000                     |   | 300,000 |   |
| Floating rate  debt, 2.10% due 2003                         |   | 500,000                     |   |   |   |
| Floating rate  medium-term notes, 6.595% to 6.62%, due 2001 |   |                        |   | 700,000 |   |
| Medium-term  notes, 6.20% to 7.47% due 2001-2007            |   | 50,000                      |   | 200,000 |   |
| Total senior -  United States                               |   | 7,394,961                   |   | 6,268,243 |   |
|                                                             |        |                             |        |  |  |  |  |

 

49

----

 

 

 

6.          Senior Long-term Debt, Continued.

 

Senior long-termdebt outstanding, continued

 
|                                     |   | **December  31,**           |      |
|------------------------------------------|--------|-----------------------------|-----------|
|                                     |   | **2001**                    |      | **2000** |   |
| Senior - Canada:                         |   | **(Dollars  In Thousands)** |      |
|                                     |   |                        |      |   |   |
| Floating rate  medium-term notes,        |   |                        |      |   |   |
| 5.97% to 6.01%,  due 2001                |   | $                           |      | $ | 20,016 |   |
| Medium-term  notes, 5.10% to 6.70%,      |   |                        |      |   |   |
| due 2001 to 2008                         |   | 750,675                     |      | 680,544 |   |
|                                     |   |                        |      |   |   |
| Total senior -  Canada                   |   | 750,675                     |      | 700,560 |   |
|                                     |   |                        |      |   |   |
| Senior —  Affiliate, due 2002       |   |                        |      | 255,870 |   |
| Senior —  Affiliate, due 2002       |   | 500,000                     |      |   |   |
| Senior —  Affiliate, due 2011       |   | 200,000                     |      |   |   |
|                                     |   |                        |      |   |   |
| Total senior  long-term debt outstanding |   | $                           | 8,845,636 |   | $ | 7,224,673 |   |
|                                          |        |                             |           |  |  |  |  |

 

 

Contractualmaturities of long-term debt for the years 2002 through 2006 and thereafter are$1,951,987,000; $1,640,532,000; $1,618,184,000; $1,114,336,000; $766,976,000;and $1,753,621,000, respectively. Certain long-term debt instruments, aggregating $438 million, arenonrecourse and are collateralized by an identified pool of finance receivablesof approximately $504 million at December 31, 2001.

 

Certain long-termdebt instruments restrict payment of dividends on and acquisitions of theCompany’s common stock.  Approximately$1.1 billion of consolidated stockholder’s equity was unrestricted at December31, 2001.  In addition, such debtinstruments and the Company’s bank credit agreements contain certainrequirements as to maintenance of net worth (as defined).  The Company was in compliance with theprovisions of those debt instruments at December 31, 2001.

 

 

7.   Interest and Debt Expense.

 

Interest and debtexpense is summarized as follows:

 
|                                     |   | **Years  Ended December 31,** |    |
|------------------------------------------|--------|-------------------------------|---------|
|                                     |   | **2001**                      |    | **2000** |   | **1999** |   |
|                                     |   |                          |    | **(In  Thousands)** |   |   |   |
| Short-term  - affiliates                 |   | $                             | 23,726  |   | $ | 67,269 |   | $ | 17,245 |   |
| Short-term  - commercial paper and other |   | 163,226                       |    | 171,193 |   | 132,958 |   |
| Long-term                                |   | 493,746                       |    | 394,505 |   | 363,142 |   |
| Amortization of  debt expense            |   | 4,316                         |    | 6,477 |   | 6,718 |   |
|                                     |   |                          |    |   |   |   |   |
| Total interest  and debt expense         |   | $                             | 685,014 |   | $ | 639,444 |   | $ | 520,063 |   |

 

50

----

 

 

 

8.           Insurance Premiums and Claims.

 

Insurancepremiums earned by the Company’s insurance subsidiaries are as follows:

 
|                     |   | **Years Ended December 31,** |    |
|--------------------------|--------|------------------------------|---------|
|                     |   | **2001**                     |    | **2000** |   | **1999** |   |
|                     |   |                         |    | **(In Thousands)** |   |   |   |
| Direct  premiums earned  |   | $                            | 56,828  |   | $ | 60,270 |   | $ | 460,779 |   |
| Assumed  premiums earned |   | 60,219                       |    | 59,328 |   | 150,754 |   |
| Ceded premiums  earned   |   | (2,421                       | )       | (8,607 | ) | (314,001 | ) |
|                     |   |                         |    |   |   |   |   |
| Net  premiums earned     |   | $                            | 114,626 |   | $ | 110,991 |   | $ | 297,532 |   |

 

 

The followingtable presents an analysis of the Company’s insurance claims and policyreserves, reconciling beginning and ending balances.

 
|                                                       |   | **Years Ended December 31,** |   |
|------------------------------------------------------------|--------|------------------------------|--------|
|                                                       |   | **2001**                     |   | **2000** |   | **1999** |   |
|                                                       |   |                         |   | **(In Thousands)** |   |   |   |
| Insurance  claims and policy reserves at beginning of year |   | $                            | 34,978 |   | $ | 34,124 |   | $ | 29,750 |   |
| Provision  for insurance losses and loss expenses          |   | 40,674                       |   | 42,135 |   | 196,532 |   |
| Insurance losses  and loss expense paid                    |   | (41,017                      | )      | (41,281 | ) | (192,158 | ) |
|                                                       |   |                         |   |   |   |   |   |
| Insurance claims  and policy reserves at end of year       |   | $                            | 34,635 |   | $ | 34,978 |   | $ | 34,124 |   |

 

Insurance loss andloss expenses have been reduced by recoveries recognized under reinsurancecontracts of $201.6 million and $321.5 million for the years ended December 31,2000 and 1999, respectively.

 

 

9.           Leased Assets and LeaseCommitments.

 

The Company hascommitments under noncancellable operating leases with terms ranging from threeto seven years.  Minimum leasecommitments under all lease agreements in force at December 31, 2001 are afollows:

 
|       |   | **(In  Thousands)** |   |
|------------|--------|---------------------|--------|
| 2002       |   | $                   | 26,001 |   |
| 2003       |   | 10,938              |   |
| 2004       |   | 6,850               |   |
| 2005       |   | 3,420               |   |
| 2006       |   | 1,141               |   |
| Thereafter |   | 2,635               |   |
|       |   |                |   |
| Total      |   | $                   | 50,985 |   |

 

Rental expense forall operating leases was $40.2 million, $38.5 million, and $41.9 million in2001, 2000, and 1999, respectively.

 

51

----

 

 

 

10.         Income Taxes.

 

The Company andits subsidiaries are included in the consolidated federal income tax return ofWells Fargo.  Federal income taxes areallocated to the Company and its subsidiaries at the approximate amount whichwould have been computed on a separate return basis.  The Company’s foreign subsidiaries file separate federal andprovincial returns in the local country.

 

At December 31,2001, no federal income taxes had been provided on approximately $44 million ofone of the United States life insurance subsidiary’s retained earnings sincesuch taxes become payable only to the extent such retained earnings aredistributed as dividends or to the extent prescribed by tax laws.  The life insurance subsidiary does notcontemplate distributing dividends from these retained earnings.  The amount of unrecognized deferred taxliability at December 31, 2001, was $15.4 million.

 

Incometaxes for the years 2001, 2000, and 1999 are composed of the followingelements:

 
|                |   | **Years  Ended December 31,** |    |
|---------------------|--------|-------------------------------|---------|
|                |   | **2001**                      |    | **2000** |   | **1999** |   |
|                |   |                          |    | **(In  Thousands)** |   |   |   |
| Current:            |   |                          |    |   |   |   |   |
| Federal             |   | $                             | 104,243 |   | $ | 84,686 |   | $ | 79,505 |   |
| State               |   | 6,523                         |    | 9,023 |   | 5,253 |   |
| Foreign             |   | 21,547                        |    | 37,238 |   | 48,112 |   |
| Deferred:           |   |                          |    |   |   |   |   |
| Federal  and state  |   | 26,560                        |    | 7,887 |   | 16,320 |   |
|                |   |                          |    |   |   |   |   |
| Total income  taxes |   | $                             | 158,873 |   | $ | 138,834 |   | $ | 149,190 |   |

 

 

Income beforetaxes from operations outside the United States was $18.8 million, $46.5million, and $31.3 million for the years ended December 31, 2001, 2000, and1999, respectively.

 

52

----

 

 

 

10.         Income Taxes, Continued.

 

The Company had anet deferred tax asset of $62,290,000 and $111,262,000 at December 31, 2001 and2000, respectively.  The tax effect oftemporary differences that gave rise to significant portions of deferred taxassets and liabilities at December 31, 2001 and 2000 are presented below:

 

 
|                            |   | **December  31,**   |    |
|---------------------------------|--------|---------------------|---------|
|                            |   | **2001**            |    | **2000** |   |
|                            |   | **(In  Thousands)** |    |
| Deferred Tax  Assets            |   |                |    |
| Allowance for  loan losses      |   | $                   | 155,788 |   | $ | 140,518 |   |
| Net tax-deferred  expenses      |   | 20,232              |    | 16,789 |   |
| Other                           |   | 650                 |    | 2,072 |   |
| Total deferred  tax assets      |   | 176,670             |    | 159,379 |   |
|                            |   |                |    |   |   |
| Deferred Tax  Liabilities       |   |                |    |   |   |
| Leasing                         |   | 20,219              |    | 19,509 |   |
| Purchased  intangibles          |   | 49,853              |    | 6,557 |   |
| FAS 115  adjustment             |   | 11,081              |    | 4,825 |   |
| Other                           |   | 33,227              |    | 17,226 |   |
| Total deferred  tax liabilities |   | 114,380             |    | 48,117 |   |
|                            |   |                |    |   |   |
| Net Deferred Tax  Asset         |   | $                   | 62,290  |   | $ | 111,262 |   |

 

 

The Company hasdetermined that it is not required to establish a valuation reserve for any ofthe deferred tax assets since it is more likely than not that these assets willbe principally realized through carryback to taxable income in prior years andfuture reversals of existing taxable temporary differences, and, to a lesserextent, future taxable income and tax planning strategies.

 

The deferred taxasset\liability related to unrealized gains and losses on securities availablefor sale had no impact on 2001, 2000 or 1999 income tax expense as these gainsand losses, net of taxes, were recorded in accumulated other comprehensiveincome.

 

53

----

 

 

 

10.         Income Taxes, Continued.

 

The effectiveincome tax rates for the years ended December 31, 2001, 2000, and 1999 differedfrom the statutory federal income tax rate in the United States for the followingreasons:

 
|                               |   | **Percent of  Pretax Income for the** |   |
|------------------------------------|--------|---------------------------------------|--------|
|                               |   | **Years  Ended December 31,**         |   |
|                               |   | **2001**                              |   | **2000** |   | **1999** |   |
| Statutory  federal income tax rate |   | 35.0                                  | %      | 35.0 | % | 35.0 | % |
| Change  due to:                    |   |                                  |   |   |   |   |   |
| State  taxes                       |   | 1.3                                   |   | 1.7 |   | 1.4 |   |
| Goodwill                           |   | 0.5                                   |   | 0.6 |   | 0.6 |   |
| Tax-exempt  income                 |   | (1.0                                  | )      | (1.2 | ) | (1.5 | ) |
| Other, net                         |   | 1.7                                   |   | 0.4 |   | 0.5 |   |
|                               |   |                                  |   |   |   |   |   |
| Effective tax  rate                |   | 37.5                                  | %      | 36.5 | % | 36.0 | % |

 

 

 

11.         Employee Benefits.

 

TheCompany has a defined benefit pension plan which covers United States employeeswho meet certain age and service requirements. Pension benefits provided are based on the employee’s highestcompensation in three consecutive years during the last ten calendar years ofemployment.  Benefits accrue under thisplan at a rate of 1 - 1/4% for each year of service. The plan holdssingle premium annuity contracts issued by one of the Company’s life insurancesubsidiaries.  Annual benefits paid toretirees covered by the contracts were approximately $1,600,000, $1,700,000 and$1,700,000 in 2001, 2000 and 1999, respectively.

 

The Company’sCanadian subsidiary, Trans Canada Credit Corporation (“TCC”), has anon-contributory defined benefit pension plan which covers employees who meetcertain service requirements.  Pensionbenefits under the plan are based on the employee’s highest compensation infive consecutive calendar years during the last  ten calendar years of employment.  Benefits generally accrue under the plan at a rate of 1% of suchhighest average compensation up to the average Canada/Quebec Pension PlanEarnings Ceiling (an amount based on the maximum amount of the annualcompensation used to calculate the employee’s Canada/Quebec Pension Planbenefits) plus 1.5% of such highest average compensation in excess of theaverage Canada/Quebec Pension Plan Earnings Ceiling for each year of service(not to exceed 35 years of service).

 

The Company alsoprovides certain health care and life benefits for substantially all of itsretired United States employees.  Inaccordance with SFAS 106, the Company has elected to recognize the transitionobligation of approximately $22.2 million over a period of twenty years.  TCC also provides certain health and lifeinsurance benefits to its retirees.

 

54

----

WELLS FARGOFINANCIAL, INC.

 

Notes toConsolidated Financial Statements, Continued

 

 

11.   Employee Benefits, Continued.

 

The followingtable shows the changes in the benefit obligation and the fair value of planassets during 2001 and 2000 and the amounts included in the Company’s balancesheet as of December 31, 2001 and 2000 for the Company’s defined benefitpension and other postretirement benefit plans:

 

 
|                                             |   | **December  31, 2001** |       | **December  31, 2000** |       |
|--------------------------------------------------|--------|------------------------|------------|------------------------|------------|
|                                             |   | **Pension**            |       | **Other**              |       | **Pension** |   | **Other** |   |
|                                             |   | **benefits**           |       | **benefits**           |       | **benefits** |   | **benefits** |   |
|                                             |   |                   | ** ** | **(In  Thousands)**    | ** ** |   | ** ** |
| **Change  in benefit obligation:**               |   |                   | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| Benefit  obligation at beginning of year         |   | $                      | 133,365    |                   | $          | 73,632 |   | $ | 118,261 |   | $ | 61,141 |   |
| Service cost                                     |   | 7,196                  |       | 5,894                  |       | 6,350 |   | 5,629 |   |
| Interest cost                                    |   | 10,540                 |       | 5,460                  |       | 9,432 |   | 5,153 |   |
| Plan  participants’ contributions           |   |                   |       | 184                    |       |   |   | 142 |   |
| Amendments                                       |   | 6,060                  |       |                   |       |   |   |   |   |
| Actuarial loss  (gain)                           |   | 5,252                  |       | (27,398                | )          | 6,630 |   | 3,210 |   |
| Benefits  paid                                   |   | (6,964                 | )          | (1,630                 | )          | (6,490 | ) | (1,551 | ) |
| Translation  adjustment                          |   | (1,478                 | )          | (186                   | )          | (818 | ) | (92 | ) |
|                                             |   |                   |       |                   |       |   |   |   |   |
| Benefit obligation  at end of year               |   | $                      | 153,971    |                   | $          | 55,956 |   | $ | 133,365 |   | $ | 73,632 |   |
|                                             |   |                   |       |                   |       |   |   |   |   |
| Change  in plan assets:                          |   |                   |       |                   |       |   |   |   |   |
| Fair value of  plan assets at beginning of year* |   | $                      | 165,341    |                   | $          | 28,849 |   | $ | 151,544 |   | $ | 22,953 |   |
| Actual return on  plan assets                    |   | 8,749                  |       | 1,462                  |       | 16,528 |   | 1,583 |   |
| Employer  contributions                          |   | 7,935                  |       | 5,851                  |       | 4,506 |   | 5,722 |   |
| Plan  participants’ contributions           |   |                   |       | 184                    |       |   |   | 142 |   |
| Benefits  paid                                   |   | (6,964                 | )          | (1,630                 | )          | (6,490 | ) | (1,551 | ) |
| Translation  adjustment                          |   | (1,203                 | )          |                   |       | (747 | ) |   |   |
|                                             |   |                   |       |                   |       |   |   |   |   |
| Fair value of  plan assets at end of year*       |   | $                      | 173,858    |                   | $          | 34,716 |   | $ | 165,341 |   | $ | 28,849 |   |
|                                             |   |                   |       |                   |       |   |   |   |   |
| Funded status                                    |   | $                      | 19,887     |                   | $          | (21,239 | ) | 31,977 |   | (44,784 | ) |
| Unrecognized  net actuarial (gain) loss          |   | 2,304                  |       | (29,242                | )          | (9,166 | ) | (3,635 | ) |
| Unrecognized net  transition obligation (asset)  |   | (481                   | )          | 12,929                 |       | (628 | ) | 14,145 |   |
| Unrecognized  prior service cost                 |   | 7,762                  |       | 2,764                  |       | 1,969 |   | 2,947 |   |
|                                             |   |                   |       |                   |       |   |   |   |   |
| Prepaid  (accrued) benefit cost                  |   | $                      | 29,472     |                   | $          | (34,788 | ) | $ | 24,152 |   | $ | (31,327 | ) |

 

----

*     Consistsprimarily of marketable bonds and debentures and obligations of the UnitedStates government and its agencies.

 

 

55

----

 

 

 

11.   Employee Benefits, Continued.

 

The followingtable sets forth the components of net periodic benefit cost:

 
|                                      |   | **Years  Ended December 31,** |   |
|-------------------------------------------|--------|-------------------------------|--------|
|                                      |   | **2001**                      |   | **2000** |   | **1999** |   |
|                                      |   | **Pension**                   |   | **Other** |   | **Pension** |   | **Other** |   | **Pension** |   | **Other** | ** ** |
|                                      |   | **benefits**                  |   | **benefits** |   | **benefits** |   | **benefits** |   | **benefits** |   | **benefits** |   |
|                                      |   |                          |   |   |   | **(In Thousands)** |   |   |   |   |   |
| Service cost                              |   | $                             | 7,196  |   | $ | 5,894 |   | $ | 6,350 |   | $ | 5,629 |   | $ | 7,404 |   | $ | 6,002 |   |
| Interest cost                             |   | 10,540                        |   | 5,460 |   | 9,432 |   | 5,153 |   | 8,834 |   | 4,617 |   |
| Expected  return on plan assets           |   | (14,593                       | )      | (1,403 | ) | (13,393 | ) | (1,110 | ) | (11,819 | ) | (1,008 | ) |
| Recognized net  actuarial (gain) loss (1) |   | (468                          | )      | (1,871 | ) | (1,649 | ) | (846 | ) | 3,080 |   | 1,384 |   |
| Amortization of  prior service            |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| cost                                      |   | 191                           |   | 182 |   | 189 |   | 182 |   | 122 |   | 182 |   |
| Amortization of  unrecognized             |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| transition  obligation (asset)            |   | (114                          | )      | 1,171 |   | (193 | ) | 1,174 |   | (193 | ) | 1,174 |   |
|                                      |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Net period  benefit cost                  |   | $                             | 2,752  |   | $ | 9,433 |   | $ | 736 |   | $ | 10,182 |   | $ | 7,428 |   | $ | 12,351 |   |

 

----

(1)   Net gains and losses are amortized over fiveyears.

 

Theweighted-average assumptions used in calculating the amounts above for theUnited States plans were, as of December 31, 2001 and 2000:

 
|                            |   | **December  31, 2001** |   | **December  31, 2000** |   |
|---------------------------------|--------|------------------------|--------|------------------------|--------|
|                            |   | **Pension**            |   | **Other**              |   | **Pension** |   | **Other** |   |
|                            |   | **benefits**           |   | **benefits**           |   | **benefits** |   | **benefits** |   |
|                            |   |                   |   |                   |   |   |   |   |   |
| Discount rate                   |   | 7.5                    | %      | 7.5                    | %      | 7.5 | % | 7.5 | % |
| Expected return  on plan assets |   | 9.0                    |   | 5.0                    |   | 9.0 |   | 5.0 |   |
| Rate of  compensation increase  |   | 5.0                    |   |                   |   | 5.0 |   |   |   |

 

The weighted-average assumptions used in calculating the amounts abovefor the Canadian plans were, as of December 31, 2001 and 2000:

 
|                            |   | **December  31, 2001** |   | **December  31, 2000** |   |
|---------------------------------|--------|------------------------|--------|------------------------|--------|
|                            |   | **Pension**            |   | **Other**              |   | **Pension** |   | **Other** |   |
|                            |   | **benefits**           |   | **benefits**           |   | **benefits** |   | **benefits** |   |
|                            |   |                   |   |                   |   |   |   |   |   |
| Discount rate                   |   | 6.6                    | %      | 6.6                    | %      | 7.0 | % | 7.0 | % |
| Expected return  on plan assets |   | 8.0                    |   |                   |   | 8.0 |   |   |   |
| Rate of  compensation increase  |   | 4.6                    |   |                   |   | 5.6 |   |   |   |

 

56

----

 

 

 

11.       Employee Benefits, Continued.

 

The assumed health care cost trend rate used in measuring the UnitedStates plan’s accumulated postretirement benefit obligation as of December 31,2001 was 8% for 2002, after which it decreases each successive year until itreaches 5.5% in 2006.  The Canadian planassumed a 2002 health care trend of 9% decreasing each successive year until itreaches 5% in 2010.  Increasing theassumed health care trend by one percentage point in each year would increasethe combined accumulated postretirement benefit obligation as of December 31,2001 by $9.5 million and the aggregate of the combined interest cost andservice cost components of the net periodic benefit cost for 2001 by $2.8million.  Decreasing the assumed healthcare trend by one percentage point in each year would decrease the combinedaccumulated postretirement benefit obligation as of December 31, 2001 by $7.5million and the aggregate of the combined interest cost and service costcomponents of the net benefit periodic cost for 2001 by $2.1 million.

 

The Company also has a defined contribution thrift and profit sharingplan whereby each eligible United States employee may make basic contributionsup to 6% of his or her compensation and supplemental contributions up to anadditional 4%.  The Company makes amatching contribution of $1.00 for every dollar of the basic employeecontribution made during the year and not withdrawn.  The Company may also make a discretionary profit sharingcontribution on the basic employee contribution.  Contribution expense for the Company was $25,238,000,$21,881,000, and $18,418,000 for the years ended December 31, 2001, 2000, and1999, respectively.

 

12.         Statements of Consolidated CashFlows.

 

The Company andits subsidiaries consider highly liquid debt instruments purchased with anoriginal maturity of three months or less to be cash equivalents.  Supplemental disclosure of certain cash flowinformation is presented below:

 
|           |   | **Years  Ended December 31,** |    |
|----------------|--------|-------------------------------|---------|
|           |   | **2001**                      |    | **2000** |   | **1999** |   |
|           |   | **(In  Thousands)**           |    |
| Cash paid for: |   |                          |    |   |   |   |   |
| Interest       |   | $                             | 672,411 |   | $ | 619,568 |   | $ | 498,006 |   |
| Income taxes   |   | 169,694                       |    | 87,017 |   | 191,045 |   |
|                |        |                               |         |  |  |  |  |  |  |  |

 

13.         Concentrations of Credit Risk.

 

The Company andits subsidiaries are primarily engaged in the consumer and automobile financebusiness.  The average balanceoutstanding with any individual customer is not significant.  At December 31, 2001, the Company had 1,118consumer and automobile finance offices in 47 states, Guam, Saipan, PuertoRico, and all ten Canadian provinces compared with 1,138 consumer andautomobile finance offices in 47 states, Guam, Saipan, Puerto Rico, and all tenCanadian provinces at December 31, 2000. Credit cards are issued by Wells Fargo Financial Bank to customers locatednationwide.  Wells Fargo Financial NationalBank issues private label and dual-line Co-Branded credit cards nationwide.

 

57

----

 

 

 

13.           Concentrations of Credit Risk,Continued.

 

Asubsidiary of the Company provides financing via secured lines of credit toconsumer finance companies who in turn provide financing to theircustomers.  In addition, anothersubsidiary of the Company provides lease financing and other leasing servicesnationwide for a variety of commercial equipment with an emphasis on officeequipment.

 

14.           Segment Information.

 

TheCompany has four reportable segments: U.S. consumer finance, Canadian consumerfinance, automobile finance and leasing. The Company’s operating segments are determined by product type andgeography.  U.S. consumer financeoperations make loans to individuals and purchase sales finance contractsthrough 769 consumer finance branches in 47 states, Guam, Saipan, and PuertoRico.  The U.S. consumer finance segmentalso issues credit cards through two banking subsidiaries. Canadian consumerfinance operations make loans to individuals and purchase sales financecontracts through 160 consumer finance branches in the 10 provinces.  Automobile finance operations specialize inpurchasing sales finance contracts directly from automobile dealers and makingloans secured by automobiles through 189 branches in 33 states and PuertoRico.  Leasing operations specialize infinancing commercial equipment such as office copiers, telephone systems,health care equipment, small computers, and light industrial equipment.  Lease finance receivables are generatedprimarily from equipment distributors ranging from small independently-ownedvendors to large equipment manufacturers. Results from insurance operations are included in the appropriatesegment.  In 2001, the financialinformation of the automobile finance operations in Puerto Rico was reclassedfrom the Automobile Finance segment to the other segments.  The financial information for the prioryears was also restated to conform to this presentation.

 

Theaccounting policies of the segments are the same as those described in thesummary of significant accounting policies (see note 1).  The Company accounts for intersegment salesand transfers as if the sales or transfer were to third parties, that is, atcurrent market prices.

 

Selected financialinformation for each segment is shown below:

 
|                          |   | **U.S.**     |      | **Canadian** |   |                |   |        |    |       |    |       |   |
|-------------------------------|--------|--------------|-----------|--------------|--------|---------------------|--------|-------------|---------|------------|---------|------------|--------|
|                          |   | **Consumer** |      | **Consumer** |   | **Automobile**      |   |        |    |       |    |       |   |
|                          |   | **Finance**  |      | **Finance**  |   | **Finance**         |   | **Leasing** |    | **Other*** |    | **Total**  |   |
|                          |   |         |      |         |   | **(In  Thousands)** |   |        |    |       |    |
| 2001:                         |   |         |      |         |   |                |   |        |    |       |    |       |   |
| Finance charges  and interest |   | $            | 1,232,718 |         | $      | 247,651             |   | $           | 530,547 |       | $       | 145,129    |   | $ | 65,301 |   | $ | 2,221,346 |   |
| Interest expense              |   | 390,735      |      | 47,611       |   | 165,803             |   | 54,822      |    | 26,043     |    | 685,014    |   |
| Total  income                 |   | 1,506,669    |      | 271,625      |   | 562,743             |   | 173,215     |    | 108,241    |    | 2,622,493  |   |
| Income tax  expense (benefit) |   | 103,433      |      | 18,424       |   | 27,719              |   | 14,099      |    | (4,802     | )  | 158,873    |   |
| Net income  (loss)            |   | 162,342      |      | 35,999       |   | 48,814              |   | 25,308      |    | (7,646     | )  | 264,817    |   |
| Total assets                  |   | 8,898,501    |      | 1,393,727    |   | 3,593,164           |   | 1,423,421   |    | 600,449    |    | 15,909,262 |   |
|                          |   |         |      |         |   |                |   |        |    |       |    |       |   |
| 2000:                         |   |         |      |         |   |                |   |        |    |       |    |       |   |
| Finance charges  and interest |   | $            | 1,120,852 |         | $      | 246,499             |   | $           | 413,929 |       | $       | 53,194     |   | $ | 61,601 |   | $ | 1,896,075 |   |
| Interest expense              |   | 410,580      |      | 52,742       |   | 126,958             |   | 21,693      |    | 27,471     |    | 639,444    |   |
| Total income                  |   | 1,369,397    |      | 279,575      |   | 430,280             |   | 58,241      |    | 95,991     |    | 2,233,484  |   |
| Income tax  expense           |   | 85,977       |      | 16,168       |   | 28,572              |   | 5,106       |    | 3,011      |    | 138,834    |   |
| Net income                    |   | 148,553      |      | 29,260       |   | 48,253              |   | 9,217       |    | 5,771      |    | 241,054    |   |
| Total assets                  |   | 8,075,630    |      | 1,201,952    |   | 3,368,084           |   | 420,664     |    | 510,418    |    | 13,576,748 |   |

 

58

----

 

 

14.                                 Segment Information, Continued.

 
|                          |   | **U.S.**     |    | **Canadian** |   |           |                |        |    |       |   |             |   |       |   |
|-------------------------------|--------|--------------|---------|--------------|--------|----------------|---------------------|-------------|---------|------------|--------|------------------|--------|------------|--------|
|                          |   | **Consumer** |    | **Consumer** |   | **Automobile** |                |        |    |       |   |             |   |       |   |
|                          |   | **Finance**  |    | **Finance**  |   | **Finance**    |                | **Leasing** |    | **Other*** |   | **Eliminations** |   | **Total**  |   |
|                          |   |         |    |         |   |           | **(In  Thousands)** |        |    |       |   |             |   |
| **1999:**                     |   |         |    |         |   |           |                |        |    |       |   |             |   |       |   |
| Finance charges  and interest |   | $            | 920,551 |         | $      | 237,883        |                | $           | 390,410 |       | $      | 49,307           |   | $          | 39,290 |   |   |   |   | $ | 1,637,441 |   |
| Interest expense              |   | 316,100      |    | 47,375       |   | 110,750        |                | 30,173      |    | 15,665     |   |             |   | 520,063    |   |
| Intersegment  income          |   |         |    |         |   |           |                |        |    | 43,281     |   | (43,281          | )      |       |   |
| Total income                  |   | 1,164,706    |    | 263,541      |   | 408,828        |                | 54,562      |    | 335,908    |   | (43,281          | )      | 2,184,264  |   |
| Income tax  expense           |   | 81,581       |    | 17,718       |   | 26,378         |                | 2,176       |    | 21,337     |   |             |   | 149,190    |   |
| Net income                    |   | 146,700      |    | 32,186       |   | 45,431         |                | 5,176       |    | 35,868     |   |             |   | 265,361    |   |
| Total assets                  |   | 6,776,226    |    | 1,162,366    |   | 2,438,864      |                | 369,911     |    | 536,046    |   |             |   | 11,283,413 |   |
|                               |        |              |         |              |        |                |                     |             |         |            |        |                  |        |            |        |  |  |  |  |  |  |  |

 

----

*Information from other segments below the quantitative threshold areattributable to information services operations, miscellaneous insurancecompanies, collection services, operations in Argentina, and commercial financeoperations, including rediscounting.

 

 

Thefollowing information is shown by geographic area:

 
|               |   |               |      |                |   |          |   |       |   |
|--------------------|--------|--------------------|-----------|---------------------|--------|---------------|--------|------------|--------|
|               |   |               |      |                |   | **All Other** |   |       |   |
|               |   | **United  States** |      | **Canada**          |   | **Countries** |   | **Total**  |   |
|               |   |               |      | **(In  Thousands)** |   |          |   |
| 2001               |   |               |      |                |   |          |   |       |   |
| Total income       |   | $                  | 2,296,401 |                | $      | 284,266       |   | $          | 41,826 |   | $ | 2,622,493 |   |
| Net income  (loss) |   | 241,640            |      | 36,424              |   | (13,247       | )      | 264,817    |   |
| Long-lived  assets |   | 87,883             |      | 6,134               |   |          |   | 94,017     |   |
| Total assets       |   | 14,372,575         |      | 1,430,035           |   | 106,652       |   | 15,909,262 |   |
|               |   |               |      |                |   |          |   |       |   |
| 2000:              |   |               |      |                |   |          |   |       |   |
| Total  income      |   | $                  | 1,903,168 |                | $      | 281,198       |   | $          | 49,118 |   | $ | 2,233,484 |   |
| Net income         |   | 197,837            |      | 29,325              |   | 13,892        |   | 241,054    |   |
| Long-lived  assets |   | 55,009             |      | 6,773               |   | 1,869         |   | 63,651     |   |
| Total assets       |   | 12,141,699         |      | 1,213,267           |   | 221,782       |   | 13,576,748 |   |
|               |   |               |      |                |   |          |   |       |   |
| 1999:              |   |               |      |                |   |          |   |       |   |
| Total  income      |   | $                  | 1,878,306 |                | $      | 263,541       |   | $          | 42,417 |   | $ | 2,184,264 |   |
| Net income  (loss) |   | 234,660            |      | 32,186              |   | (1,485        | )      | 265,361    |   |
| Long-lived  assets |   | 59,633             |      | 8,148               |   | 1,593         |   | 69,374     |   |
| Total assets       |   | 9,935,576          |      | 1,162,366           |   | 185,471       |   | 11,283,413 |   |

 

 

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15.         Fair Value of Financial Instruments.

 

The followingmethods and assumptions were used to estimate the fair value of each class of financialinstruments for which it is practicable to estimate that value:

 

Cash and CashEquivalents.  Due to the relatively short period of timebetween the origination of these instruments and their expected realization,the carrying value of cash equivalents is a reasonable estimate of fair value.

 

SecuritiesAvailable-for-Sale.  Fair values of these financial instrumentswere estimated using quoted market prices, when available.  If quoted market prices were not available,fair value was estimated using quoted market prices for similar securities(note 2).

 

FinanceReceivables and Notes Receivable - Affiliates.  The interestrates on the receivables outstanding at December 31, 2001 and 2000, areconsistent with the current rates at which similar loans would be made toborrowers with similar credit ratings and for the same remainingmaturities.  As a result, the carryingvalue is a reasonable estimate of fair value.

 

Accrued InterestReceivable.  The carrying amounts of accrued interestreceivable approximate their fair values.

 

Loans Payable -Short-term and Accrued Interest Payable.  Carryingvalue is a reasonable estimate of fair value. The carrying amount approximates fair value due to the short maturity ofthese instruments.

 

Other Payables toAffiliates.  Due to the relatively short period of timebetween the origination of these instruments and the expected realization, thecarrying value of other payables to affiliates is a reasonable estimate of fairvalue.

 

Long-term Debt. Based on quoted market rates for the same or similar issues of debt oron current rates offered to the Company for similar debt of the same remainingmaturities, the fair value of long-term debt is $9,104,365,000 as of December31, 2001 and $7,262,791,000 as of December 31, 2000.

 

16.         Related Parties.

 

Notes receivable -affiliates were $636,588,000 and $505,386,000 at December 31, 2001 and 2000,respectively.  Notes receivable -affiliates include a combination of short-term and long-term notes receivable.  At December 31, 2001, Wells FargoFinancial, Inc. had loans of $378 million to an affiliate, Island FinancePuerto Rico, Inc. The loans have a weighted average interest rate of 9.00% andmature in 2002 and 2007.  The remainderof notes outstanding at December 31, 2001 and 2000, earn interest at rates thatapproximate the cost of borrowings of the Company.

 

Income fromaffiliates was $31,608,000; $45,328,000; and $48,783,000 for the years endedDecember 31, 2001, 2000, and 1999, respectively.

 

Wells FargoFinancial Information Services, Inc. (“WFFISI”) provides information servicesto the Company.  On December 15, 1999the business of WFFISI was transferred from the Company to the Parent at netbook value for cash.  Fees paid toWFFISI were $34,854,000 and $37,381,000 for the years ended December 31, 2001and 2000, respectively.

 

Management feespaid to Wells Fargo were $10,392,000; $10,154,000; and $6,027,000 for the yearsended December 31, 2001, 2000, and 1999, respectively.

 

60

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17.         Legal Actions.

 

WellsFargo Financial is a defendant in various matters of litigation generallyincidental to its business.  Although itis difficult to predict the ultimate outcome of these cases, managementbelieves, based on discussions with counsel, that any ultimate liability willnot materially affect the financial position and results of operations of theCompany and its subsidiaries.

 

18.         Selected Quarterly Financial Data(Unaudited).

 

Selected quarterlyfinancial data for 2001 and 2000 were as follows:
|                |   |       |    |               |   |           |   |       |    |
|---------------------|--------|------------|---------|--------------------|--------|----------------|--------|------------|---------|
|                |   |       |    | **Interest**       |   | **Provision**  |   |       |    |
|                |   | **Total**  |    | **and Debt**       |   | **for Credit** |   | **Net**    |    |
|                |   | **Income** |    | **Expense**        |   | **Losses**     |   | **Income** |    |
|                |   |       |    | **(In Thousands)** |   |           |   |
| March 31, 2001      |   | $          | 637,426 |               | $      | 189,764        |   | $          | 108,435 |   | $ | 64,802 |   |
| June 30, 2001       |   | 645,497    |    | 178,925            |   | 120,606        |   | 64,779     |    |
| September 30,  2001 |   | 666,235    |    | 171,072            |   | 133,638        |   | 67,568     |    |
| December 31,  2001  |   | 673,335    |    | 145,253            |   | 163,457        |   | 67,668     |    |
|                |   |       |    |               |   |           |   |       |    |
| March 31, 2000      |   | 525,113    |    | 143,545            |   | 77,359         |   | 54,137     |    |
| June 30, 2000       |   | 527,051    |    | 152,254            |   | 72,584         |   | 57,130     |    |
| September 30,  2000 |   | 582,945    |    | 170,268            |   | 102,154        |   | 62,235     |    |
| December 31,  2000  |   | 598,375    |    | 173,377            |   | 106,211        |   | 67,552     |    |
|                     |        |            |         |                    |        |                |        |            |         |  |  |  |  |

 

 

61

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*Item 9.**                    **Changes in and Disagreements with Accountants on Accountingand Financial Disclosure.*

 

Not applicable.

 

PART III

 

*Item 10.**                **Directors and Executive Officers of the Registrant*.

 

Omitted inaccordance with General Instruction I (2) (c).

 

*Item 11.**                **Executive Compensation*.

 

Omitted inaccordance with General Instruction I (2) (c).

 

*Item 12.**                **Security Ownership of Certain Beneficial Owners andManagement*.

 

Omitted inaccordance with General Instruction I (2) (c).

 

*Item 13.**                **Certain Relationships and Related Transactions*.

 

Omitted inaccordance with General Instruction I (2) (c).

 

PART IV

 

*Item 14.**                **Exhibits, Financial Statement Schedules, and Reports on Form8-K*.

 

(a)                The following documents are filed as part of thisreport:

 

(1)                Financial Statements:

 

                              a.   Consolidatedbalance sheets as of December 31, 2001 and 2000.

 

                              b.   Consolidatedstatements of income for the years ended December 31, 2001, 2000, and 1999.

 

                              c.   Consolidatedstatements of comprehensive income for the years ended December 31, 2001, 2000,and 1999.

 

                              d.   Consolidatedstatements of cash flows for the years ended December 31, 2001, 2000, and 1999.

 

                          e.   Consolidatedstatements of stockholder’s equity for the years ended December 31, 2001, 2000and 1999.

 

(2)                Financial Statement Schedules:

 

                              All schedules are omitted because theyare not applicable or the information is given in consolidated financialstatements or notes thereto.

 

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(3)                Exhibits:

 

                              3(a)           Articlesof Incorporation of the Company (Exhibit 3(a) of the Company’s Form 10-K AnnualReport for 1983, which is hereby incorporated by reference).

 

                              3(b)           By-lawsof the Company (Exhibit 3(b) of the Company’s Form 10-K Annual Report for 1983,which is hereby incorporated by reference).

 

                              4(a)           Conformedcopy of Indenture dated as of May 1, 1986, between the Company and The ChaseManhattan Bank (National Association), Trustee (Exhibit 4(o) of the Company’sForm 10-K Annual Report for 1986, which is hereby incorporated by reference).

 

                              4(b)           Conformedcopy of Indenture dated as of May 1, 1986, between the Company and Harris Trustand Savings Bank, Trustee (Exhibit 4(p) of the Company’s Form 10-K AnnualReport for 1986, which is hereby incorporated by reference).

 

                              4(c)           Copyof Norwest Financial, Inc. Standard Multiple-Series Indenture Provisions datedMay 1, 1986, (Exhibit 4(q) of the Company’s Form 10-K Annual Report for 1986,which is hereby incorporated by reference).

 

                              4(d)           Conformedcopy of First Supplemental Indenture dated as of February 15, 1991, between theCompany and The Chase Manhattan Bank (National Association), Trustee (Exhibit4.3 of the Company’s Form 8-K Current Report dated February 25, 1991, which ishereby incorporated by reference).

 

                              4(e)           Conformedcopy of First Supplemental Indenture dated as of February 15, 1991, between theCompany and Harris Trust and Savings Bank, Trustee (Exhibit 4.4 of theCompany’s Form 8-K Current Report dated February 25, 1991, which is herebyincorporated by reference).

 

                              4(f)            Conformedcopy of Indenture dated as of November 1, 1991, between the Company and TheFirst National Bank of Chicago, Trustee (Exhibit 2(a) of the Company’s Form 8-ARegistration Statement dated May 24, 1993, which is hereby incorporated byreference).

 

                              *(12)         Computationof ratios of earnings to fixed charges for the years ended December 31, 2001,2000, 1999, 1998, and 1997.

 

                              *(23.1)      Consentof KPMG LLP.

 

Certaininstruments with respect to long-term debt publicly issued, privately placed orborrowed from banks are not filed herewith as exhibits as the total amount ofsecurities or indebtedness authorized under any of such instruments does notexceed 10% of the total assets of the Company and its subsidiaries on aconsolidated basis.  In accordance withsubsection (4)(iii) of paragraph (b) of Item 601 of Regulation S-K, the Companyhereby agrees to furnish a copy of any such instrument to the Securities andExchange Commission upon request.  Thelist of subsidiaries exhibit required by Item 601 of Regulation S-K has beenomitted in accordance with General Instruction I(2)(b).

 

*    Filed herewithin

 

(b)     Reports on Form 8-K.

 

                              No reports on Form 8-K were filed by theCompany during the last quarter of the period covered by this report.

 

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SIGNATURES

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, on the 26th day of March, 2002.

 

 
|   | WELLS FARGO FINANCIAL, INC. |                         |
|--------|-----------------------------|------------------------------|
|   |                        |                         |
|   | By                     | \s\  Dennis  E. Young   |
|   |                        | Executive Vice President and |
|   |                        | Chief Financial Officer      |
|        |                             |                              |  |  |  |

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons, on behalf of the registrant and in thecapacities indicated, on the 26th day of March, 2002.

 

 

 
| \s\                                           | Daniel W. Porter      |   |
|----------------------------------------------------|-----------------------|--------|
| Daniel W. Porter                                   |                  |
| Chairman of the Board  and Chief Executive Officer |                  |
| (Principal Executive  Officer)                     |                  |
|                                               |                  |   |
| \s\                                           | Thomas P. Shippee     |   |
| Thomas P. Shippee                                  |                  |
| President and Chief  Operating                     |                  |
| Officer, and Director                              |                  |
|                                               |                  |   |
| \s\                                           | Patricia J. McFarland |   |
| Patricia J. McFarland                              |                  |
| Senior Vice President,  General Counsel and        |                  |
| Secretary, and Director                            |                  |
|                                               |                  |   |
|                                               |                  |   |
| Stanley S. Stroup                                  |                  |
| Director                                           |                  |
|                                               |                  |   |
| \s\                                           | Dennis E. Young       |   |
|                                               | Dennis E. Young       |   |
| Executive Vice  President and Chief Financial      |                  |
| Officer, and Director                              |                  |
| (Principal Financial  Officer)                     |                  |
|                                               |                  |   |
| \s\                                           | Eric Torkelson        |   |
|                                               | Eric Torkelson        |   |
| Senior Vice President  and Controller              |                  |
| (Principal Accounting  Officer)                    |                  |
|                                                    |                       |        |  |  |

 

64

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**INDEXTO EXHIBITS**

 

 

 

 
| EXHIBIT NO. |   | DESCRIPTION OF EXHIBIT               |   | PAGE NO.     |
|-------------|--------|--------------------------------------|--------|--------------|
|        |   |                                 |   |         |
| 12          |   | Computation of ratios of earnings    |   | Electronic   |
|        |   | to fixed charges for the years ended |   | Transmission |
|        |   | December 31, 2001, 2000, 1999,       |   |         |
|        |   | 1998 and 1997.                       |   |         |
|        |   |                                 |   |         |
| 23.1        |   | Consent of KPMG LLP.                 |   | Electronic   |
|        |   |                                 |   | Transmission |
|        |   |                                 |   |         |
|        |   |                                 |   |         |
|        |   |                                 |   |         |
|        |   |                                 |   |         |

 

 

 

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