**Form 10-Q**

 

 

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**Quarterly Report Pursuant toSection 13 or 15(d)**

**of the Securities Exchange Actof 1934**

 

 

 

**For Quarter Ended September30, 2001**

**Commission file number 2-80466**

 

 

 

**Wells Fargo Financial,Inc.**

(Exactname of registrant as specified in its charter)

 

 

 

 

|                                                            |   |                                  |
|-----------------------------------------------------------------|--------|---------------------------------------|
| **Iowa**                                                        |   | **42-1186565**                        |
| (State  or other jurisdiction of incorporation or organization) |   | (I.R.S.  Employer Identification No.) |
|                                                            |   |                                  |
|                                                            |   |                                  |
|                                                            |   |                                  |
|                                                            |   |                                  |
|                                                            |   |                                  |
| **206 Eighth Street, Des Moines, Iowa**                         |   | **50309**                             |
| (Address  of principal executive offices)                       |   | (Zip  Code)                           |
|                                                            |   |                                  |
|                                                            |   |                                  |

 

 

Registrant’stelephone number, including area code **(515)243-2131**

 

 

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes  ý        No o

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date. Common Stock (without par value): 1,000 shares outstanding as of November 8,  2001.

 

Theregistrant meets the conditions set forth in General Instruction H(1)(a) and(b) of Form 10-Q and is therefore filing this Form with the reduced disclosureformat.

 

 

PARTI.  FINANCIAL INFORMATION

 

WELLSFARGO FINANCIAL, INC.

 

ConsolidatedBalance Sheets (Unaudited)

 

(Thousandsof Dollars)

 

 

 
| **Assets**                                                                                                   |   | **September  30, 2001** |       | **December  31, 2000** |   |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                                                                                         |   |                    |       |                   |   |
| Cash and cash equivalents                                                                                    |   | $                       | 226,092    |                   | $      | 205,036 |   |
|                                                                                                         |   |                    |       |                   |   |
| Securities available-for-sale                                                                                |   | 1,381,411               |       | 1,215,135              |   |
|                                                                                                         |   |                    |       |                   |   |
| Finance receivables                                                                                          |   | 13,055,743              |       | 11,417,862             |   |
|                                                                                                         |   |                    |       |                   |   |
| Less  allowance for credit losses                                                                            |   | 519,760                 |       | 462,555                |   |
|                                                                                                         |   |                    |       |                   |   |
| Finance receivables -  net                                                                                   |   | 12,535,983              |       | 10,955,307             |   |
|                                                                                                         |   |                    |       |                   |   |
|                                                                                                         |   |                    |       |                   |   |
|                                                                                                         |   |                    |       |                   |   |
| Notes receivable - affiliates                                                                                |   | 565,949                 |       | 505,386                |   |
|                                                                                                         |   |                    |       |                   |   |
|                                                                                                         |   |                    |       |                   |   |
|                                                                                                         |   |                    |       |                   |   |
| Property  and equipment (at cost, less accumulated depreciation of $145,199 for 2001  and $148,042 for 2000) |   | 77,947                  |       | 63,651                 |   |
|                                                                                                         |   |                    |       |                   |   |
| Deferred income taxes                                                                                        |   | 114,566                 |       | 111,262                |   |
|                                                                                                         |   |                    |       |                   |   |
| Other  assets                                                                                                |   | 572,587                 |       | 520,971                |   |
|                                                                                                         |   |                    |       |                   |   |
|                                                                                                         |   |                    |       |                   |   |
| Total  assets                                                                                                |   | $                       | 15,474,535 |                   | $      | 13,576,748 |   |

 

 

 

See accompanying notesto consolidated financial statements.

 

 

WELLSFARGO FINANCIAL, INC.

 

ConsolidatedBalance Sheets (Unaudited)

 

(Thousandsof Dollars)

 

 

 
| **Liabilities and Stockholder’s Equity**                                                   |   | **September  30, 2001** |       | **December  31, 2000** |   |
|-------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                                                                            |   |                    |       |                   |   |
| Loans  payable - short-term:                                                                    |   |                    |       |                   |   |
| Commercial paper                                                                                |   | $                       | 3,575,367  |                   | $      | 2,973,508 |   |
| Affiliates                                                                                      |   | 295,688                 |       | 99,379                 |   |
| Other                                                                                           |   | 111,693                 |       | 709,988                |   |
| Unearned  insurance premiums and commissions                                                    |   | 135,767                 |       | 139,476                |   |
| Insurance  claims and policy reserves                                                           |   | 34,906                  |       | 34,978                 |   |
| Accrued  interest payable                                                                       |   | 131,196                 |       | 121,007                |   |
| Other  payables to affiliates                                                                   |   | 80,236                  |       | 48,761                 |   |
| Other  liabilities                                                                              |   | 460,107                 |       | 370,363                |   |
| Long-term  debt:                                                                                |   |                    |       |                   |   |
| Senior                                                                                          |   | 8,038,200               |       | 6,968,803              |   |
| Affiliate                                                                                       |   | 500,000                 |       | 255,870                |   |
|                                                                                            |   |                    |       |                   |   |
| Total  liabilities                                                                              |   | 13,363,160              |       | 11,722,133             |   |
|                                                                                            |   |                    |       |                   |   |
|                                                                                            |   |                    |       |                   |   |
| 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                                                                              |   | 1,648,292               |       | 1,540,902              |   |
| Accumulated  other comprehensive income (loss), net of income taxes                             |   | 16,926                  |       | (2,444                 | )      |
|                                                                                            |   |                    |       |                   |   |
| Total  stockholder’s equity                                                                |   | 2,111,375               |       | 1,854,615              |   |
|                                                                                            |   |                    |       |                   |   |
| Total  liabilities and stockholder’s equity                                                |   | $                       | 15,474,535 |              | $      | 13,576,748 |   |

 

 

 

 

 

Seeaccompanying notes to consolidated financial statements.

 

 

WELLSFARGO FINANCIAL, INC.

 

ConsolidatedStatements of Income (Unaudited)

 

(Thousandsof Dollars)

 

 

 
|                                |   | **Quarter  Ended September 30,** |    | **Nine  Months Ended September 30,** |   |
|-------------------------------------|--------|----------------------------------|---------|--------------------------------------|--------|
|                                |   | **2001**                         |    | **2000**                             |   | **2001** |   | **2000** |   |
| Income:                             |   |                             |    |                                 |   |   |   |   |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Finance  charges and interest       |   | $                                | 560,401 |                                 | $      | 493,046 |   | $ | 1,651,846 |   | $ | 1,394,702 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Insurance  premiums and commissions |   | 31,003                           |    | 31,596                               |   | 91,327 |   | 83,781 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Other  income                       |   | 74,831                           |    | 58,303                               |   | 205,985 |   | 156,626 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Total  income                       |   | 666,235                          |    | 582,945                              |   | 1,949,158 |   | 1,635,109 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Expenses:                           |   |                             |    |                                 |   |   |   |   |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Operating  expenses                 |   | 242,684                          |    | 200,719                              |   | 699,751 |   | 606,017 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Interest  and debt expense          |   | 171,072                          |    | 170,268                              |   | 539,761 |   | 466,067 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Provision  for credit losses        |   | 133,638                          |    | 102,154                              |   | 362,679 |   | 252,097 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Insurance  losses and loss expenses |   | 11,369                           |    | 11,572                               |   | 32,517 |   | 36,267 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Total  expenses                     |   | 558,763                          |    | 484,713                              |   | 1,634,708 |   | 1,360,448 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Income before income  taxes         |   | 107,472                          |    | 98,232                               |   | 314,450 |   | 274,661 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Income  taxes                       |   | 39,904                           |    | 35,997                               |   | 117,301 |   | 101,159 |   |
|                                |   |                             |    |                                 |   |   |   |   |   |
| Net  income                         |   | $                                | 67,568  |                                 | $      | 62,235 |   | $ | 197,149 |   | $ | 173,502 |   |

 

 

 

 

 

Seeaccompanying notes to consolidated financial statements.

 

 

 

WELLSFARGO FINANCIAL, INC.

 

ConsolidatedStatements of Comprehensive Income (Unaudited)

 

(Thousandsof Dollars)

 

 

 
|                                                                                                 |   | **Quarter  Ended September 30,** |   | **Nine  Months Ended September 30,** |   |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|
|                                                                                                 |   | **2001**                         |   | **2000**                             |   | **2001** |   | **2000** |   |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
| Net  income                                                                                          |   | $                                | 67,568 |                                 | $      | 62,235 |   | $ | 197,149 |   | $ | 173,502 |   |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
| Other  comprehensive income before income taxes: Unrealized gains on securities  available-for-sale: |   |                             |   |                                 |   |   |   |   |   |
| Unrealized  gains arising during the period                                                          |   | 23,832                           |   | 14,992                               |   | 36,890 |   | 5,618 |   |
| Reclassification  adjustment for net (gains) losses included in net income                           |   | (1,867                           | )      | 2,246                                |   | (3,137 | ) | 948 |   |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
|                                                                                                 |   | 21,965                           |   | 17,238                               |   | 33,753 |   | 6,566 |   |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
| Foreign currency  translation adjustment                                                             |   | (2,509                           | )      | (836                                 | )      | (2,840 | ) | (1,943 | ) |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
| Other comprehensive  income before income taxes                                                      |   | 19,456                           |   | 16,402                               |   | 30,913 |   | 4,623 |   |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
| Income  tax expense related to unrealized gains on securities available-for-sale                     |   | 7,538                            |   | 5,896                                |   | 11,543 |   | 2,227 |   |
| Other  comprehensive income, net of income taxes                                                     |   | 11,918                           |   | 10,506                               |   | 19,370 |   | 2,396 |   |
|                                                                                                 |   |                             |   |                                 |   |   |   |   |   |
| Comprehensive  income                                                                                |   | $                                | 79,486 |                                 | $      | 72,741 |   | $ | 216,519 |   | $ | 175,898 |   |

 

 

 

 

Seeaccompanying notes to consolidated financial statements.

 

 

WELLS FARGO FINANCIAL, INC.

 

Consolidated Statements of Cash Flows(Unaudited)

(Thousands of Dollars)

 
|                                                                                                                          |   | **Nine  Months Ended September 30,** |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                                                                                          |   | **2001**                             |    | **2000** |   |
| Cash  flows from operating activities:                                                                                        |   |                                 |    |   |   |
| Net  income                                                                                                                   |   | $                                    | 197,149 |   | $ | 173,502 |   |
| Adjustments  to reconcile net income to net cash flows from operating activities, net of  effect of contributed subsidiaries: |   |                                 |    |   |   |
| Provision  for credit losses                                                                                                  |   | 362,679                              |    | 252,097 |   |
| Depreciation  and amortization                                                                                                |   | 40,175                               |    | 37,007 |   |
| Deferred  income taxes                                                                                                        |   | 13,523                               |    | (23,195 | ) |
| Other  assets                                                                                                                 |   | 41,371                               |    | (16,774 | ) |
| Unearned insurance  premiums and commissions                                                                                  |   | (3,709                               | )       | 1,531 |   |
| Insurance  claims and policy reserves                                                                                         |   | (72                                  | )       | 574 |   |
| Accrued  interest payable                                                                                                     |   | 10,189                               |    | 19,621 |   |
| Other  payables to affiliates                                                                                                 |   | 31,475                               |    | 121,139 |   |
| Other  liabilities                                                                                                            |   | 4,106                                |    | (38,852 | ) |
|                                                                                                                          |   |                                 |    |   |   |
| Net  cash provided by operating activities                                                                                    |   | 696,886                              |    | 526,650 |   |
|                                                                                                                          |   |                                 |    |   |   |
| Cash  flows from investing activities:                                                                                        |   |                                 |    |   |   |
| Finance receivables:                                                                                                          |   |                                 |    |   |   |
| Principal  collected                                                                                                          |   | 7,087,213                            |    | 5,600,887 |   |
| Receivables originated  or purchased                                                                                          |   | (8,245,133                           | )       | (6,861,423 | ) |
| Proceeds  from sales of securities                                                                                            |   | 267,253                              |    | 127,150 |   |
| Proceeds  from maturities of securities                                                                                       |   | 98,938                               |    | 90,227 |   |
| Purchases of  securities                                                                                                      |   | (499,033                             | )       | (238,211 | ) |
| Net  additions to property and equipment                                                                                      |   | (25,353                              | )       | (9,947 | ) |
| Net  (increase) decrease in notes receivable – affiliates, net of effect of  contributed subsidiaries                    |   | (60,563                              | )       | 64,579 |   |
| Cash  and cash equivalents of contributed subsidiaries received and subsidiary  transferred                                   |   | (1,567                               | )       | (5 | ) |
| Net cash used for  acquisitions                                                                                               |   | (324,573                             | )       | (26,987 | ) |
| Other                                                                                                                         |   | (73,449                              | )       | 48,824 |   |
|                                                                                                                          |   |                                 |    |   |   |
| Net  cash used by investing activities                                                                                        |   | (1,776,267                           | )       | (1,204,906 | ) |
|                                                                                                                          |   |                                 |    |   |   |
| Cash  flows from financing activities:                                                                                        |   |                                 |    |   |   |
| Net  increase (decrease) in loans payable – short term                                                                   |   | 199,873                              |    | (117,042 | ) |
| Proceeds  from issuance of long term debt:                                                                                    |   |                                 |    |   |   |
| Senior                                                                                                                        |   | 1,683,668                            |    | 1,435,886 |   |
| Affiliate                                                                                                                     |   | 244,130                              |    | 500,000 |   |
| Repayment of senior  long-term debt                                                                                           |   | (1,072,234                           | )       | (1,090,927 | ) |
| Capital contribution  by parent                                                                                               |   | 130,000                              |    |   |   |
| Dividends  paid                                                                                                               |   | (85,000                              | )       | (45,000 | ) |
|                                                                                                                          |   |                                 |    |   |   |
| Net  cash provided by financing activities                                                                                    |   | 1,100,437                            |    | 682,917 |   |
|                                                                                                                          |   |                                 |    |   |   |
| Net  increase in cash and cash equivalents                                                                                    |   | 21,056                               |    | 4,661 |   |
|                                                                                                                          |   |                                 |    |   |   |
| Cash  and cash equivalents beginning of period                                                                                |   | 205,036                              |    | 178,970 |   |
|                                                                                                                          |   |                                 |    |   |   |
| Cash  and cash equivalents end of period                                                                                      |   | $                                    | 226,092 |   | $ | 183,631 |   |

 

Seeaccompanying notes to consolidated financial statements.

WELLS FARGO FINANCIAL,INC.

 

ConsolidatedStatements of Stockholder’s Equity (Unaudited)

 

(Thousands of Dollars)

 

 

 
|                             |   |             |   |                           |   |                  |   | **Accumulated  Other Comprehensive Income (Loss)** |      |                                                            |   |
|----------------------------------|--------|------------------|--------|--------------------------------|--------|-----------------------|--------|----------------------------------------------------|-----------|-----------------------------------------------------------------|--------|
|                             |   | **Common Stock** |   | **Additional Paid In Capital** |   | **Retained Earnings** |   | **Foreign Currency Translation**                   |      | **Unrealized Gains (Losses) on Securities Available- for-Sale** |   | **Total** |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Balance, December 31, 1999       |   | $                | 3,855  |                           | $      | 196,697               |   | $                                                  | 1,407,743 |                                                            | $      | (9,575 | ) | $ | (11,156 | ) | $ | 1,587,564 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Comprehensive  income (loss):    |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Net income                       |   |             |   |                           |   | 173,502               |   |                                               |      |                                                            |   | 173,502 |   |
| Other                            |   |             |   |                           |   |                  |   | (1,943                                             | )         | 4,339                                                           |   | 2,396 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Contributed  subsidiaries        |   |             |   | 12,427                         |   | (10,182               | )      |                                               |      |                                                            |   | 2,245 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Transfer of subsidiary           |   |             |   |                           |   | (60,171               | )      |                                               |      | 3,095                                                           |   | (57,076 | ) |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Dividends                        |   |             |   |                           |   | (45,000               | )      |                                               |      |                                                            |   | (45,000 | ) |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Balance,  September 30, 2000     |   | $                | 3,855  |                           | $      | 209,124               |   | $                                                  | 1,465,892 |                                                            | $      | (11,518 | ) | $ | (3,722 | ) | $ | 1,663,631 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Balance, December 31, 2000       |   | $                | 3,855  |                           | $      | 312,302               |   | $                                                  | 1,540,902 |                                                            | $      | (11,220 | ) | $ | 8,776 |   | $ | 1,854,615 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Comprehensive  income (loss):    |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Net income                       |   |             |   |                           |   | 197,149               |   |                                               |      |                                                            |   | 197,149 |   |
| Other                            |   |             |   |                           |   |                  |   | (2,840                                             | )         | 22,210                                                          |   | 19,370 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Capital contribution from parent |   |             |   | 130,000                        |   |                  |   |                                               |      |                                                            |   | 130,000 |   |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Dividends                        |   |             |   |                           |   | (85,000               | )      |                                               |      |                                                            |   | (85,000 | ) |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Transfer  of subsidiary          |   |             |   |                           |   | (4,759                | )      |                                               |      |                                                            |   | (4,759 | ) |
|                             |   |             |   |                           |   |                  |   |                                               |      |                                                            |   |   |   |
| Balance,  September 30, 2001     |   | $                | 3,855  |                           | $      | 442,302               |   | $                                                  | 1,648,292 |                                                            | $      | (14,060 | ) | $ | 30,986 |   | $ | 2,111,375 |   |

 

 

 

 

Seeaccompanying notes to consolidated financial statements.

 

 

WELLSFARGO FINANCIAL, INC.

 

Notesto Consolidated Financial Statements (Unaudited)

 

 

 

The accompanying unaudited consolidatedfinancial statements and notes have been prepared in accordance with theaccounting policies set forth in Wells Fargo Financial, Inc.’s 2000 AnnualReport on Form 10-K, except as described in note 8, and should be read inconjunction with the Notes to Consolidated Financial Statements therein.  In the opinion of management, alladjustments (none of which were other than normal recurring accruals) necessaryto present fairly the financial statements for the periods presented have beenincluded. The results of operations for interim periods are not necessarilyindicative of the results to be expected for the entire year.

 

1.             Principlesof Consolidation.

 

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”) which is a wholly-ownedsubsidiary of Wells Fargo & Company (“Wells Fargo”).

 

2.             DividendRestrictions.

 

Certain long-term debt instrumentsrestrict payment of dividends on and acquisitions of the Company’s commonstock.  In addition, such debtinstruments and the Company’s bank credit agreements contain certainrequirements as to maintenance of net worth (as defined).  Approximately $1.1 billion of consolidatedstockholder’s equity was unrestricted at September 30, 2001.

 

3.             OtherIncome.

 

Income from affiliates was $10.5 millionand $9.5 million for the quarters ended September 30, 2001 and 2000,respectively, and $30.4 million and $28.1 million for the nine months endedSeptember 30, 2001 and 2000, respectively.

 

Interest and dividends from securitiesavailable-for-sale and cash equivalents were $20.4 million and $18.9 millionfor the quarters ended September 30, 2001 and 2000, and $59.6 million and $57.5million for the nine months ended September 30, 2001 and 2000 respectively.

 

WELLSFARGO FINANCIAL, INC.

 

Notesto Consolidated Financial Statements (Unaudited)

 

 

 

4.             FinanceReceivables.

 

Finance receivables are as follows:

 
| (In  Thousands)                      |   | **September  30, 2001** |       | **December  31, 2000** |   |
|--------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                 |   |                    |       |                   |   |
| United States consumer finance:      |   |                    |       |                   |   |
| Loans secured by real estate         |   | $                       | 2,905,295  |                   | $      | 2,507,419 |   |
| Consumer loans                       |   | 1,450,724               |       | 1,460,746              |   |
|                                 |   |                    |       |                   |   |
| Total loans                          |   | 4,356,019               |       | 3,968,165              |   |
|                                 |   |                    |       |                   |   |
| Sales finance contracts              |   | 1,218,002               |       | 1,295,147              |   |
| Credit cards                         |   | 1,199,751               |       | 1,148,486              |   |
|                                 |   |                    |       |                   |   |
| Total United States consumer finance |   | 6,773,772               |       | 6,411,798              |   |
|                                 |   |                    |       |                   |   |
| Canadian consumer finance:           |   |                    |       |                   |   |
| Loans secured by real estate         |   | 88,199                  |       | 85,000                 |   |
| Consumer loans                       |   | 450,687                 |       | 452,581                |   |
|                                 |   |                    |       |                   |   |
| Total loans                          |   | 538,886                 |       | 537,581                |   |
|                                 |   |                    |       |                   |   |
| Sales finance contracts              |   | 510,885                 |       | 497,379                |   |
| Credit cards                         |   | 23,745                  |       | 21,298                 |   |
|                                 |   |                    |       |                   |   |
| Total Canadian consumer finance      |   | 1,073,516               |       | 1,056,258              |   |
|                                 |   |                    |       |                   |   |
| Automobile finance                   |   | 3,302,316               |       | 3,078,026              |   |
|                                 |   |                    |       |                   |   |
| Leasing                              |   | 1,292,345               |       | 442,665                |   |
|                                 |   |                    |       |                   |   |
| Other                                |   | 613,794                 |       | 429,115                |   |
|                                 |   |                    |       |                   |   |
| Total finance receivables            |   | $                       | 13,055,743 |                   | $      | 11,417,862 |   |

 

 

 

WELLSFARGO FINANCIAL, INC.

 

Notesto Consolidated Financial Statements (Unaudited)

 

 

 

5.             Allowance for Credit Losses.

 

The analysis of the allowance for creditlosses is as follows:

 
|                                                     |   | **Quarter  Ended September 30,** |    | **Nine  Months Ended September 30,** |   |
|----------------------------------------------------------|--------|----------------------------------|---------|--------------------------------------|--------|
| (In Thousands)                                           |   | **2001**                         |    | **2000**                             |   | **2001** |   | **2000** |   |
|                                                     |   |                             |    |                                 |   |   |   |   |   |
| Allowance  for credit losses beginning of period         |   | $                                | 509,850 |                                 | $      | 390,542 |   | $ | 462,555 |   | $ | 367,712 |   |
|                                                     |   |                             |    |                                 |   |   |   |   |   |
| Provision for credit  losses charged to expense          |   | 133,638                          |    | 102,154                              |   | 362,679 |   | 252,097 |   |
|                                                     |   |                             |    |                                 |   |   |   |   |   |
| Write-offs                                               |   | (142,803                         | )       | (94,883                              | )      | (403,231 | ) | (262,511 | ) |
|                                                     |   |                             |    |                                 |   |   |   |   |   |
| Recoveries                                               |   | 19,075                           |    | 13,402                               |   | 58,182 |   | 44,074 |   |
|                                                     |   |                             |    |                                 |   |   |   |   |   |
| Allowance related to  businesses contributed or acquired |   |                             |    | 3,044                                |   | 39,575 |   | 12,887 |   |
|                                                     |   |                             |    |                                 |   |   |   |   |   |
| Allowance for credit  losses end of period               |   | $                                | 519,760 |                                 | $      | 414,259 |   | $ | 519,760 |   | $ | 414,259 |   |

 

 

 

6.             Statements of Consolidated CashFlows.

 

TheCompany and its subsidiaries consider highly liquid debt instruments purchasedwith an original maturity of three months or less to be cash equivalents.  Supplemental disclosure of certain cash flowinformation is presented below:

 
|            |   | **Quarter  Ended September 30,** |    | **Nine  Months Ended September 30,** |   |
|-----------------|--------|----------------------------------|---------|--------------------------------------|--------|
| (In Thousands)  |   | **2001**                         |    | **2000**                             |   | **2001** |   | **2000** |   |
|            |   |                             |    |                                 |   |   |   |   |   |
| Cash  paid for: |   |                             |    |                                 |   |   |   |   |   |
| Interest        |   | $                                | 188,717 |                                 | $      | 147,883 |   | $ | 536,139 |   | $ | 454,487 |   |
| Income taxes    |   | 11,664                           |    | 18,172                               |   | 78,291 |   | 40,939 |   |
|                 |        |                                  |         |                                      |        |  |  |  |  |  |  |  |  |

 

 

 

 

 

 

 

WELLSFARGO FINANCIAL, INC.

 

Notesto Consolidated Financial Statements (Unaudited)

 

 

7.             SegmentInformation.

 

The Company has fourreportable segments: U.S. consumer finance, Canadian consumer finance,automobile finance, and leasing.  TheCompany’s operating segments are determined by product type and geography.  U.S. consumer finance operations make loansto individuals and purchase sales finance contracts through 780 consumerfinance branches in 47 states, Guam, Saipan, and Puerto Rico.  The U.S. consumer finance segment alsoissues credit cards through two banking subsidiaries.  Canadian consumer finance operations make loans to individualsand purchase sales finance contracts through 161 consumer finance branches inthe 10 provinces.  Automobile financeoperations specialize in purchasing sales finance contracts directly fromautomobile dealers and making loans secured by automobiles through 189 branchesin 34 states and Puerto Rico.  Leasingoperations specialize in financing commercial equipment such as office copiers,telephone systems, health care equipment, small computers, and light industrialequipment.  Lease finance receivablesare generated primarily from equipment distributors ranging from smallindependently-owned vendors to large equipment manufacturers.  Results from insurance operations areincluded in the appropriate segment.

 

Selected financial information for eachsegment is shown below:

 

 

(In Thousands)

 
|                              |   | **U.S Consumer Finance** |           | **Canadian Consumer Finance** |           | **Automobile Finance** |           | **Leasing** |           | **Other*** |           | **Total** |           |
|-----------------------------------|--------|--------------------------|----------------|-------------------------------|----------------|------------------------|----------------|-------------|----------------|------------|----------------|-----------|----------------|
| Quarter  Ended September 30,:     |   | **2001**                 |           | **2000**                      |           | **2001**               |           | **2000**    |           | **2001**   |           | **2000**  |           | **2001** |   | **2000** |   | **2001** |   | **2000** |   | **2001** |    ** ** | **2000** |      |
|                              |   |                     |           |                          |           |                   |           |        |           |       |           |      |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance charges and  interest     |   | $                        | 309,938        |                          | $              | 298,615                |           | $           | 62,633         |       | $              | 62,737    |           | $ | 133,235 |   | $ | 103,695 |   | $ | 37,977 |   | $ | 13,318 |   | $ | 16,618 |   | $ | 14,681 |   | $ | 560,401 |   | $ | 493,046 |   |
| Total income                      |   | 382,965                  |           | 363,156                       |           | 69,464                 |           | 73,388      |           | 141,203    |           | 108,240   |           | 45,685 |   | 14,487 |   | 26,918 |   | 23,674 |   | 666,235 |   | 582,945 |   |
| Net income                        |   | 41,257                   |           | 33,883                        |           | 8,721                  |           | 9,775       |           | 10,422     |           | 13,734    |           | 4,681 |   | 2,472 |   | 2,487 |   | 2,371 |   | 67,568 |   | 62,235 |   |
|                              |   |                     |           |                          |           |                   |           |        |           |       |           |      |           |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |                     |           |                          |           |                   |           |        |           |       |           |      |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Nine  Months Ended September 30,: |   |                     |      |                          |      |                   |      |        |      |       |      |      |      |   |      |   |      |   |      |   |      |   |      |   |      |
| Finance charges and  interest     |   | $                        | 918,568        |                          | $              | 816,549                |           | $           | 184,374        |       | $              | 185,836   |           | $ | 393,220 |   | $ | 307,896 |   | $ | 107,409 |   | $ | 38,907 |   | $ | 48,275 |   | $ | 45,514 |   | $ | 1,651,846 |   | $ | 1,394,702 |   |
| Total income                      |   | 1,123,291                |           | 993,815                       |           | 204,831                |           | 209,981     |           | 416,670    |           | 321,041   |           | 127,932 |   | 42,460 |   | 76,434 |   | 67,812 |   | 1,949,158 |   | 1,635,109 |   |
| Net income (loss)                 |   | 105,416                  |           | 107,831                       |           | 28,437                 |           | 21,433      |           | 37,177     |           | 37,383    |           | 19,304 |   | 7,644 |   | 6,815 |   | (789 | ) | 197,149 |   | 173,502 |   |
| Total assets                      |   | 8,620,014                |           | 7,796,956                     |           | 1,259,277              |           | 1,204,833   |           | 3,548,719  |           | 2,437,623 |           | 1,402,845 |   | 393,101 |   | 643,680 |   | 493,628 |   | 15,474,535 |   | 12,326,141 |   |
|                                   |        |                          |                |                               |                |                        |                |             |                |            |                |           |                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

*      Information from other segments below thequantitative threshold are attributable to miscellaneous insurance companies,collection services, operations in Argentina and commercial finance operationsincluding rediscounting.  Subsidiariesengaged in multiple peril crop insurance were transferred to another subsidiaryof Wells Fargo effective June 1, 2000.

 

WELLSFARGO FINANCIAL, INC.

 

Notesto Consolidated Financial Statements (Unaudited)

 

 

 

8.             Recent Accounting Standards.

 

In June 1998, theFinancial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 133 (FAS 133), Accounting for Derivative Instrumentsand Hedging Activities.  In July 1999,the FASB issued FAS 137, Deferral of the Effective Date of FASB Statement No.133, which deferred the effective date for implementation of FAS 133 to nolater than January 1, 2001 for the Company’s financial statements.  In June 2000, the FASB issued FAS 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities,an amendment to FAS 133.  The Companyimplemented the statements on January 1, 2001 and there was no material impacton the Company’s financial statements as a result of the implementation.

 

In September 2000, theFASB 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 certaindisclosures 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 March 31,2001; the Company implemented the revised provisions when effective and therewas no material impact on the financial statements.

 

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

 

FAS 141, effective June30, 2001, requires that all business combinations initiated after June 30, 2001be accounted for under the purchase method of accounting; the use of thepooling-of-interests method of accounting is eliminated.  FAS 141 also establishes how the purchasemethod is to be applied for business combinations completed after June 30,2001.  This guidance is similar toprevious GAAP, however, FAS 141 establishes additional disclosure requirementsfor transactions occurring after the effective date.

 

FAS 142, effective onJuly 1, 2001, eliminates amortization of goodwill associated with businesscombinations completed after June 30, 2001. During a transition period goodwill associated with businesscombinations completed prior to July 1, 2001, will continue to be amortizedthrough the income statement.  Allgoodwill amortization expense will cease effective January 1, 2002.  However, goodwill will be assessed (at leastannually) for impairment at the reporting unit level by applying afair-value-based test.  FAS 142 alsoprovides additional guidance on acquired intangibles that should be separatelyrecognized and amortized, which could result in the recognition of additionalintangible assets, as compared with previous GAAP.

 

Under FAS 142, theCompany’s goodwill amortization expense (included in noninterest expense) willbe approximately $9 million quarterly for the remainder of 2001.  The elimination of goodwill amortizationeffective January 1, 2002 is expected to reduce noninterest expense byapproximately $34 million (pretax) and increase net income by approximately $24million (after tax), for the year ended December 31, 2002, compared with 2001.

 

The initial goodwillimpairment assessment is expected to be completed in early 2002; the Companycannot yet determine if a transition impairment charge will be recognized in2002.

 

WELLSFARGO FINANCIAL, INC.

 

Notesto Consolidated Financial Statements (Unaudited)

 

 

 

9.             Business Combinations.

 

Effective January 31,2001, the Company acquired substantially all of the assets and assumed certainliabilities of Conseco Finance Vendor Services Corporation, a leasing companybased in Paramus, New Jersey.  Theacquisition was accounted for as a purchase. The assets and liabilities acquired were recorded at fair value, and theCompany’s financial statements contain only the results of operations since theacquisition date.  Conseco FinanceVendor Services Corporation had lease receivables outstanding of $825 millionand had another $135 million of lease receivables under management at the timeof acquisition.

 

 

WELLSFARGO FINANCIAL, INC.

 

Management’sDiscussion and Analysis

ofFinancial Condition and Results of Operations

 

 

 

*Statements made in Management’s Discussion and Analysis maybe forward-looking and are made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995.  Forward-looking statements address management’s presentexpectations about future performance and involve inherent risks anduncertainties.  A number of importantfactors (some of which are beyond the Company’s control) could cause actualresults to differ materially 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.*

 

WellsFargo Financial’s performance for the third quarter of 2001 closely paralleledperformance for the first nine months of 2001. The discussion and analysis that follows, therefore, is limited to adiscussion of the first nine months as a whole and does not include a separatediscussion of the third quarter unless otherwise noted.

 

Wells Fargo Financial’s net income forthe first nine months of 2001 was $197.1 million compared with $173.5 millionfor the first nine months of 2000.  Netincome in 2000 included a $7.1 million loss incurred by subsidiaries engaged inmultiple peril crop insurance business. On June 1, 2000 these subsidiaries were transferred to another affiliateof Wells Fargo & Company.  Excludingthese operations, net income increased to $197.1 million for the first ninemonths of 2001 compared with $180.6 million in the first nine months of 2000.

 

Well’s Fargo Financial’s total income(revenue) increased 19% for the first nine months ($1,949.2 million in thefirst nine months of 2001 compared with $1,635.1 million in the first ninemonths of 2000).

 

Income from finance charges and interestincreased 18% for the first nine months ($1,651.8 million in the first ninemonths of 2001 compared with $1,394.7 million in the first nine months of2000).  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. In total, average finance receivables outstanding in the firstnine months of 2001 increased 28% from the first nine months of 2000; averageU.S. consumer finance receivables outstanding increased 15%, average Canadianconsumer finance receivables outstanding increased 2%, average automobilefinance receivables outstanding increased 42%, average leasing financereceivables outstanding increased 202%, and average other finance receivablesoutstanding increased 32%.

 

 
| Rate of charge on finance receivables: |   | **2001** |   | **2000** |   |
|----------------------------------------|--------|----------|--------|----------|--------|
|                                   |   |     |   |     |   |
| U.S.  consumer finance                 |   | 18.89    | %      | 19.23    | %      |
| Canadian  consumer finance             |   | 23.72    |   | 24.44    |   |
| Automobile  finance                    |   | 16.57    |   | 18.45    |   |
| Leasing                                |   | 12.07    |   | 13.23    |   |
| Other                                  |   | 13.30    |   | 16.90    |   |
| Total                                  |   | 17.83    |   | 19.26    |   |

 

 

WELLSFARGO FINANCIAL, INC.

 

Management’sDiscussion and Analysis

ofFinancial Condition and Results of Operations, Continued

 

 

 

Theincrease in income from finance charges and interest was due to growth inaverage receivables outstanding.  Growthin average receivables for U.S. consumer finance was due to the purchase of $400million in credit card receivables on June 30, 2000 and due to regular businessactivity.  Growth in average receivablesfor automobile finance was due primarily to the purchase of Flagship CreditCorporation on December 20, 2000.  Theaverage receivable growth in leasing receivables was due primarily to thepurchase of Conseco Finance Vendor Service Corporation on January 31,2001.  The majority of the increase inother average receivables was due to significant receivable growth of therediscounting operations.  Changes inthe earned rates of charge were due to changes in prevailing market ratescombined with a change in the portfolio mix. The decline in the earned rate of charge for automobile finance waspredominantly due to the change in portfolio mix as a result of the Flagshippurchase. The decline in the earned rate of charge for other financereceivables occurred due to the change in portfolio mix occurring due to thegrowth of rediscounting operations.

 

Otherincome increased 32% ($206.0 million in the first nine months of 2001 comparedwith $156.6 million in the first nine months of 2000).  The increase in other income was duepredominantly to additional fee income originating from the companies acquiredin the past year.

 

Operatingexpenses increased 15% ($699.8 million in the first nine months of 2001compared with $606.0 million in the first nine months of 2000).  The increase was due primarily to increasesin employee compensation and benefits and other costs relating to businessexpansion and acquisitions.

 

Interestand debt expense increased 16% ($539.8 million in the first nine months of 2001compared with $466.1 million in the first nine months of 2000).  Changes in interest and debt expense resultpredominantly from (1) changes in the amount of borrowings outstanding and (2)changes in the cost of those borrowings. Average total outstanding borrowings in the first nine months of 2001increased 26% from the first nine months of 2000.

 
|            |   | **Quarter  Ended September 30,** |   | **Nine  Months Ended September 30,** |   |
|-----------------|--------|----------------------------------|--------|--------------------------------------|--------|
| Costs of funds: |   | **2001**                         |   | **2000**                             |   | **2001** |   | **2000** |   |
|            |   |                             |   |                                 |   |   |   |   |   |
| Short-term      |   | 3.96                             | %      | 6.71                                 | %      | 5.05 | % | 6.44 | % |
| Long-term       |   | 6.27                             |   | 6.68                                 |   | 6.45 |   | 6.60 |   |
| Total           |   | 5.52                             |   | 6.69                                 |   | 6.01 |   | 6.55 |   |

 

 

Changesin average debt outstanding generally correspond to changes in average financereceivables outstanding combined with the change in notes receivable -affiliates.  Average finance receivablesand notes receivable - affiliates increased 28% from the first nine months of2000.

 

Provisionfor credit losses increased 44% ($362.7 million in the first nine months of2001 compared with $252.1 million in the first nine months of 2000).  Net write-offs increased 58% in the firstnine months of 2001.  The increase wasdue primarily to higher write-offs in the Company’s U.S. consumer finance andleasing portfolios (see following table). This increase was partially offset by improvements in the automobilefinance business and the Company’s private label credit card business inCanada.

 

WELLSFARGO FINANCIAL, INC.

 

Management’sDiscussion and Analysis

ofFinancial Condition and Results of Operations, Continued

 

 

 
|                                                                                      |   | **Nine  Months Ended September 30,** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
| Net  write-offs, not annualized, as a percentage of average net receivables  outstanding: |   | **2001**                             |   | **2000** |   |
|                                                                                      |   |                                 |   |   |   |
| U.S.  consumer finance                                                                    |   | 3.29                                 | %      | 2.10 | % |
| Canadian  consumer finance                                                                |   | 3.19                                 |   | 4.01 |   |
| Automobile finance                                                                        |   | 2.15                                 |   | 2.22 |   |
| Leasing                                                                                   |   | 1.89                                 |   | .66 |   |
| Other                                                                                     |   | 1.69                                 |   | 1.99 |   |
| Total                                                                                     |   | 2.79                                 |   | 2.26 |   |

 

 

ThroughSeptember 30, 2001, the provision for credit losses exceeded net write-offs by$17.6 million.  At September 30, 2001,the Company had an allowance for credit losses of $519.8 million (3.98% ofreceivables) compared with $462.6 million (4.05% of receivables) at December31, 2000.  There were no materialchanges in estimation methods and assumptions during 2001 and 2000.  Non-accrual finance receivables were $83.5million at September 30, 2001 compared with $58.0 million at December 31,2000.  In addition, finance receivablesoutstanding which were more than three payments contractually delinquent andwhich were still accruing interest were $178.0 million at September 30, 2001compared with $159.9 million at December 31, 2000.  Management believes the allowance for credit losses at September30, 2001, is adequate to absorb probable losses on existing receivables in thefinance receivables portfolio.

 

Incometaxes increased 16% ($117.3 million in the first nine months of 2001 comparedwith $101.2 million in the first nine months of 2000).  Income before income taxes increased 14%($314.5 million in the first nine months of 2001 compared with $274.7 millionin the first nine months of 2000.)  Theeffective tax rate was 37.3% for the first nine months of 2001 and 36.8% forthe first nine months of 2000.

 

TheCompany maintains bank lines of credit and revolving credit agreements toprovide an alternative source of liquidity to support the Company’s commercialpaper borrowings.  At September 30,2001, lines of credit and revolving credit agreements totaling $2,353 millionwere being maintained at 19 domestic and international banks; the entire amountwas available on that date. Additionally, the Company’s bank subsidiaries, Wells Fargo FinancialBank and Wells Fargo Financial National Bank, have access to federal fundsborrowings.  At September 30, 2001,federal funds availability at the two banks was $676 million.

 

The Company and a Canadian subsidiaryobtain long-term debt capital primarily from the issuance of debt securities tothe public through underwriters on a firm-commitment basis and the issuance ofdebt securities to institutional investors. The Company and a Canadian subsidiary also obtain long-term debt fromthe issuance of medium-term notes (which have maturities ranging from ninemonths to 30 years) through underwriters (acting as agent or principal).

 

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.

WELLSFARGO FINANCIAL, INC.

 

Management’sDiscussion and Analysis

ofFinancial Condition and Results of Operations, Continued

 

 

 

September 11, 2001Terrorist Attacks

 

We cannot predict at this time theseverity or duration of the impact on the general economy or the Company of theSeptember 11, 2001 terrorist attacks or any subsequent terrorist activities orany actions taken in response to or as a result of those attacks or activities.  The most likely immediate impact will bedecreased demand for air travel, which could adversely affect not only theairline industry but also other travel-related and leisure industries, such aslodging, gaming and tourism.  The impactcould spread beyond certain industries to the overall U.S. and globaleconomies, further decreasing capital and consumer spending and increasing therisk of a 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.

PARTII.  OTHER INFORMATION

 

WELLSFARGO FINANCIAL, INC.

 

 

## *Item5.  Other Information.*

 

RATIOSOF EARNINGS TO FIXED CHARGES

 

Thefollowing table sets forth the ratios of earnings to fixed charges of WellsFargo Financial, Inc. and its subsidiaries for the periods indicated:

 
| **Nine  Months Ended September 30, 2001** |     | **Years  Ended December 31,** |     |
|-------------------------------------------|----------|-------------------------------|----------|
|                                      | **2000** |                          | **1999** |   | **1998** |   | **1997** |   | **1996** |   |
|                                      |     |                          |     |   |   |   |   |   |   |   |   |   |   |
| 1.57                                      |     |                          |     | 1.58 |   | 1.78 |   | 1.72 |   | 2.00 |   | 2.11 |   |

 

 

 

The ratios of earningsto fixed charges have been computed by dividing net earnings plus fixed chargesand income taxes by fixed charges. Fixed charges consist of interest and debt expense plus one-third of rentals(which is deemed representative of the interest factor).

 

 

*Item 6.  Exhibits andReports on Form 8-K.*

 

(a)  Exhibits:

 
| Exhibit  (12) |   | Computation  of ratios of earnings to fixed charges for the years ended December 31, 2000,  1999, 1998, 1997 and 1996 and the nine months ended September 30, 2001. |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

(b) Reports on 8-K

 

No reports on Form 8-K were filed duringthe quarter for which this report is filed.

 

 

 

SI G N A T U R E S

 

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|                          |   | WELLS  FARGO FINANCIAL, INC.          |
|-------------------------------|--------|---------------------------------------|
|                          |   |                                  |
| Date:  November 08, 2001 |   |                                  |
|                          |   |                                  |
|                          | By     |    /s/ Eric Torkelson       |
|                          |   | Eric Torkelson                        |
|                          |   | Senior Vice President  and Controller |
|                          |   | (Principal Accounting  Officer)       |