Wells Fargo Financial 10-Q 2002 Q3 Quarterly report

Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended September 30, 2002 Commission file number 2-80466

Wells Fargo Financial, Inc.
(Exact name 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’s telephone number, including area code (515) 243-2131

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Common Stock (without par value):  1,000 shares outstanding as of November 12, 2002.

The registrant 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 disclosure format.

PART I.  FINANCIAL INFORMATION

WELLS FARGO FINANCIAL, INC.

Consolidated Balance Sheets (Unaudited)

(Thousands of Dollars)

	September 30, 2002		December 31, 2001
Assets
Cash and cash equivalents	$	221,271	$	260,038
Securities available-for-sale	1,517,153		1,377,148
Finance receivables	15,541,008		13,433,569
Less allowance for credit losses	593,245		521,948
Finance receivables - net	14,947,763		12,911,621
Notes receivable - affiliates	600,600		636,588
Property and equipment (at cost, less accumulated depreciation of $98,132 for 2002 and $87,299 for 2001)	134,581		94,017
Deferred income taxes	57,718		62,290
Goodwill	342,422		335,990
Other assets	213,668		231,570
Total assets	$	18,035,176	$	15,909,262

See accompanying notes to consolidated financial statements.

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WELLS FARGO FINANCIAL, INC.

Consolidated Balance Sheets (Unaudited)

(Thousands of Dollars)

	September 30, 2002		December 31, 2001
Liabilities and Stockholder’s Equity
Loans payable - short-term:
Commercial paper	$	4,337,990	$	4,067,707
Affiliates	113,600		64,600
Other	114,298		93,742
Unearned insurance premiums and commissions	135,260		133,465
Insurance claims and policy reserves	34,460		34,635
Accrued interest payable	137,575		131,752
Other liabilities	475,206		426,876
Long-term debt:
Senior	9,150,480		8,145,636
Affiliate	1,200,000		700,000
Total liabilities	15,698,869		13,798,413
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		442,302
Retained earnings	1,860,541		1,657,815
Accumulated other comprehensive income, net of income taxes	29,609		6,877
Total stockholder’s equity	2,336,307		2,110,849
Total liabilities and stockholder’s equity	$	18,035,176	$	15,909,262

See accompanying notes to consolidated financial statements.

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WELLS FARGO FINANCIAL, INC.

Consolidated Statements of Income (Unaudited)

(Thousands of Dollars)

	Quarter Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
Income:
Finance charges and interest	$	615,442	$	560,401	$	1,755,398	$	1,651,846
Insurance premiums and commissions	29,765		31,003		88,129		91,327
Other income	79,052		74,831		224,701		205,985
Total income	724,259		666,235		2,068,228		1,949,158
Expenses:
Operating expenses	235,492		233,268		708,946		671,996
Goodwill amortization			9,416				27,755
Interest and debt expense	167,335		171,072		478,930		539,761
Provision for credit losses	152,517		133,638		451,352		362,679
Insurance losses and loss expenses	12,449		11,369		36,807		32,517
Total expenses	567,793		558,763		1,676,035		1,634,708
Income before income taxes	156,466		107,472		392,193		314,450
Income taxes	57,783		39,904		144,467		117,301
Net income	$	98,683	$	67,568	$	247,726	$	197,149

See accompanying notes to consolidated financial statements.

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WELLS FARGO FINANCIAL, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(Thousands of Dollars)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Net income	$	98,683		$	67,568		$	247,726		$	197,149
Other comprehensive income, before income taxes:
Unrealized gains on securities available-for-sale:
Unrealized gains arising during the period	25,899			23,832			30,354			36,890
Reclassification adjustment for net losses (gains) included in net income	3,583			(1,867		)	5,940			(3,137		)
	29,482			21,965			36,294			33,753
Unrealized (losses) on derivatives and hedging activities:
Unrealized (losses) arising during the period	(1,318		)				(1,318		)
Foreign currency translation adjustment	(3,936		)	(2,509		)	(288		)	(2,840		)
Other comprehensive income before income taxes	24,228			19,456			34,688			30,913
Income tax expense related to:
Unrealized gains on securities available-for-sale and derivatives and hedging activities	9,539			7,538			11,956			11,543
Other comprehensive income, net of income taxes	14,689			11,918			22,732			19,370
Comprehensive income	$	113,372		$	79,486		$	270,458		$	216,519

See accompanying notes to consolidated financial statements.

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WELLS FARGO FINANCIAL, INC.

Consolidated Statements of Cash Flows (Unaudited)
(Thousands of Dollars)

	Nine Months Ended September 30,
	2002			2001
Cash flows from operating activities:
Net income	$	247,726		$	197,149
Adjustments to reconcile net income to net cash flows from operating activities, net of effect of contributed subsidiaries:
Provision for credit losses	451,352			362,679
Depreciation and amortization	14,090			40,175
Deferred income taxes	(6,841		)	13,523
Other assets	15,640			41,371
Unearned insurance premiums and commissions	1,795			(3,709		)
Insurance claims and policy reserves	(175		)	(72		)
Accrued interest payable	5,823			10,189
Other payables to affiliates	92,299			31,475
Other liabilities	(45,313		)	4,106
Net cash provided by operating activities	776,396			696,886
Cash flows from investing activities:
Finance receivables:
Principal collected	8,029,894			7,087,213
Receivables originated or purchased	(10,235,582		)	(8,245,133		)
Proceeds from sales of securities	636,351			267,253
Proceeds from maturities of securities	98,397			98,938
Purchases of securities	(845,556		)	(499,033		)
Net additions to property and equipment	(53,766		)	(25,353		)
Net decrease (increase) in notes receivable – affiliates, net of effect of contributed subsidiaries	35,988			(60,563		)
Cash and cash equivalents of subsidiary transferred				(1,567		)
Net cash used for acquisitions	(280,756		)	(324,573		)
Other	3,990			(73,449		)
Net cash used by investing activities	(2,611,040		)	(1,776,267		)
Cash flows from financing activities:
Net increase in loans payable – short term	339,839			199,873
Proceeds from issuance of long term debt:
Senior	2,326,503			1,683,668
Affiliate	500,000			244,130
Repayment of senior long-term debt	(1,325,465		)	(1,072,234		)
Capital contribution by parent				130,000
Dividends paid	(45,000		)	(85,000		)
Net cash provided by financing activities	1,795,877			1,100,437
Net (decrease) increase in cash and cash equivalents	(38,767		)	21,056
Cash and cash equivalents beginning of period	260,038			205,036
Cash and cash equivalents end of period	$	221,271		$	226,092

See accompanying notes to consolidated financial statements.

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WELLS FARGO FINANCIAL, INC.

Consolidated Statements 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		Unrealized Gains (Losses on) Derivatives and Hedging Activities			Total
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
Balance, December 31, 2001	$	3,855	$	442,302	$	1,657,815		$	(14,335	)	$	21,212	$			$	2,110,849
Comprehensive income (loss):
Net income					247,726											247,726
Other								(288		)	23,877		(857		)	22,732
Dividends					(45,000		)									(45,000		)
Balance, September 30, 2002	$	3,855	$	442,302	$	1,860,541		$	(14,623	)	$	45,089	$	(857	)	$	2,336,307

See accompanying notes to consolidated financial statements.

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WELLS FARGO FINANCIAL, INC.

Notes to Consolidated Financial Statements (Unaudited)

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the accounting policies set forth in Wells Fargo Financial, Inc.’s 2001 Annual Report on Form 10-K, except as described in note 8, and should be read in conjunction with the Notes to Consolidated Financial Statements therein.  In the opinion of management, all adjustments (none of which were other than normal recurring accruals) necessary to present fairly the financial statements for the periods presented have been included.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

1.             Principles of Consolidation.

The consolidated financial statements include the accounts of Wells Fargo Financial, Inc. (the “Company”) and subsidiaries (collectively, “Wells Fargo Financial”).  Intercompany accounts and transactions are eliminated.  The Company is a wholly-owned subsidiary of Wells Fargo Financial Services, Inc. (the “Parent”) which is a wholly-owned subsidiary of Wells Fargo & Company (“Wells Fargo”).

2.             Dividend Restrictions.

Certain long-term debt instruments restrict payment of dividends on and acquisitions of the Company’s common stock.  In addition, such debt instruments and the Company’s bank credit agreements contain certain requirements as to maintenance of net worth (as defined).  Approximately $1.1 billion of consolidated stockholder’s equity was unrestricted at September 30, 2002.

3.             Other Income.

Income from affiliates was $13.0 million and $10.5 million for the quarters ended September 30, 2002 and 2001, respectively, and $39.6 million and $30.4 million for the nine months ended September 30, 2002 and 2001, respectively.

Interest and dividends from securities available-for-sale and cash equivalents were $19.4 million and $20.4 million for the quarters ended September 30, 2002 and 2001, respectively, and $58.7 million and $59.6 million for the nine months ended September 30, 2002 and 2001, respectively.

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4.             Finance Receivables.

Finance receivables are as follows:

(In Thousands)	September 30, 2002		December 31, 2001
United States consumer finance:
Real estate – secured loans	$	3,732,963	$	2,984,226
Consumer loans	1,504,527		1,483,055
Total loans	5,237,490		4,467,281
Sales finance contracts	1,149,502		1,228,396
Credit cards	1,592,112		1,341,039
Total United States consumer finance	7,979,104		7,036,716
Canadian consumer finance:
Real estate – secured loans	111,670		90,919
Consumer loans	470,781		461,668
Total loans	582,451		552,587
Sales finance contracts	638,113		585,725
Credit cards	27,729		24,494
Total Canadian consumer finance	1,248,293		1,162,806
Automobile finance	4,012,938		3,375,101
Leasing	1,251,259		1,290,658
Other	1,049,414		568,288
Total finance receivables(1)	$	15,541,008	$	13,433,569

(1)Outstanding receivable balances at September 30, 2002 and December 31, 2001 are net of unearned income, including net deferred fees, of $2.51 billion and $2.25 billion, respectively.  Non-accrual finance receivables were $68.6 million at September 30, 2002 compared with $76.0 million at December 31, 2001.  In addition, finance receivables outstanding which were more than three payments contractually delinquent and which were still accruing interest were $145.5 million at September 30, 2002 compared with $172.4 million at December 31, 2001.

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5.             Allowance for Credit Losses.

The analysis of the allowance for credit losses is as follows:

	Quarter Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2002			2001			2002			2001
Allowance for credit losses beginning of period	$	584,315		$	509,850		$	521,948		$	462,555
Provision for credit losses charged to expense	152,517			133,638			451,352			362,679
Write-offs	(163,835		)	(142,803		)	(448,167		)	(403,231		)
Recoveries	23,253			19,075			70,873			58,182
Allowance related to business combinations and other	(3,005		)				(2,761		)	39,575
Allowance for credit losses end of period	$	593,245		$	519,760		$	593,245		$	519,760

6.             Statements of Consolidated Cash Flows.

The Company and its subsidiaries consider highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.  Supplemental disclosure of certain cash flow information is presented below:

	Quarter Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2002		2001		2002		2001
Cash paid for:
Interest	$	158,748	$	188,717	$	475,851	$	536,139
Income taxes	33,230		11,664		103,320		78,291

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7.             Segment Information.

The Company has four reportable segments: U.S. consumer finance, Canadian consumer finance, automobile finance, and leasing.  The Company’s operating segments are determined by product type and geography.  U.S. consumer finance operations make loans to individuals and purchase sales finance contracts through 770 consumer finance branches in 47 states, Guam, Saipan, and Puerto Rico.  The U.S. consumer finance segment also issues credit cards through two banking subsidiaries.  Canadian consumer finance operations make loans to individuals and purchase sales finance contracts through 163 consumer finance branches in the 10 provinces.  Automobile finance operations specialize in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles through 190 branches in 34 states and Puerto Rico.  Leasing operations specialize in financing commercial equipment such as office copiers, telephone systems, health care equipment, small computers, and light industrial equipment.  Lease finance receivables are generated primarily from equipment distributors ranging from small independently-owned vendors to large equipment manufacturers.  Results from insurance operations are included in the appropriate segment.

Selected financial information for each segment is shown below:

(In Thousands)

	U.S. Consumer Finance				Canadian Consumer Finance				Automobile Finance					Leasing						Other*					Total
	2002		2001		2002		2001		2002			2001		2002			2001			2002		2001			2002		2001
Quarter Ended September 30,:
Finance charges and interest	$	336,703	$	309,938	$	69,573	$	62,633	$		157,415	$	133,235	$	34,767		$		37,977	$	16,984	$	16,618		$	615,442	$	560,401
Total income	394,498		382,965		89,127		69,464		164,889			141,203		48,100			45,685			27,645		26,918			724,259		666,235
Net income	44,253		41,257		21,512		8,721		17,734			10,422		11,820			4,681			3,364		2,487			98,683		67,568
Nine Months Ended September 30,:
Finance charges and interest	$	964,358	$	918,568	$	200,999	$	184,374	$	440,373		$	393,220	$		107,520	$	107,409		$	42,148	$		48,275	$	1,755,398	$	1,651,846
Total income	1,151,484		1,123,291		234,241		204,831		464,576			416,670		144,639			127,932			73,288		76,434			2,068,228		1,949,158
Net income	99,679		105,416		47,222		28,437		59,103			37,177		32,465			19,304			9,257		6,815			247,726		197,149
Total assets	9,887,780		8,620,014		1,549,777		1,259,277		4,220,059			3,548,719		1,356,514			1,402,845			1,021,046		643,680			18,035,176		15,474,535

*Information from other segments below the quantitative threshold are attributable to miscellaneous insurance companies, collection services, operations in Argentina (2001 only) and commercial finance operations including rediscounting.

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8.             Recent Accounting Standards.

In June 2001, the Financial Accounting Board (FASB) issued Statement No. 142 (FAS 142), Goodwill and Other Intangible Assets.

FAS 142 eliminates amortization of goodwill associated with business combinations completed after June 30, 2001.  During the transition period from July 1, 2001 through December 31, 2001, goodwill associated with business combinations completed prior to July 1, 2001, continued to be amortized through the income statement.  Effective January 1, 2002, goodwill amortization ceased.

As required by FAS 142, goodwill was assessed for impairment at the reporting unit level by applying a fair-value-based test during the first quarter of 2002.  The Company determined no goodwill impairment had occurred in its reporting units.

“Adjusted Earnings” - FAS 142 Transitional Disclosure

Under FAS 142, effective January 1, 2002 amortization of goodwill was discontinued.  For comparability, the table

below reconciles the Company’s reported earnings to “adjusted” earnings, which exclude goodwill amortization.

	September 30, 2001
(In Thousands)	Quarter ended		Nine months ended
Net income
Reported net income	$	67,568	$	197,149
Goodwill amortization, net of tax	6,516		19,238
Adjusted net income	$	74,084	$	216,387

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9.             Goodwill.

The changes in the carrying amount of goodwill for the quarter and nine months ended September 30, 2002, respectively, are as follows:

(In Thousands)	U.S. Consumer Finance		Canadian Consumer Finance			Automobile Finance		Leasing		Other			Total
Quarter ended September 30, 2002
Balance as of June 30, 2002	$	12,894	$	35,540		$	178,815	$	110,417	$	6,329		$	343,995
Foreign currency translation adjustment			(1,573		)								(1,573		)
Balance as of September 30, 2002	$	12,894	$	33,967		$	178,815	$	110,417	$	6,329		$	342,422
Nine months ended September 30, 2002
Balance as of December 31, 2001	$	12,894	$	33,864		$	178,815	$	110,417	$			$	335,990
Goodwill acquired (1)										6,333			6,333
Purchase accounting adjustment										(4		)	(4		)
Foreign currency translation adjustment			103										103
Balance as of September 30, 2002	$	12,894	$	33,967		$	178,815	$	110,417	$	6,329		$	342,422

(1) The additional goodwill resulted from the purchase of the rediscount operations of Washington Mutual Bank, FA on March 28, 2002.

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WELLS FARGO FINANCIAL, INC.

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

Statements made in Management’s Discussion and Analysis may be forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements address management’s present expectations about future performance and involve inherent risks and uncertainties.  A number of important factors (some of which are beyond the Company’s control) could cause actual results to differ materially from those in the forward-looking statements.  Those factors include the economic environment, competition, products and pricing in the geographic and business areas in which the Company conducts its operations, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, acquisitions, and integration of acquired businesses.

The discussion and analysis that follows is limited to a discussion of the first nine months as a whole and does not include a separate discussion of the third quarter unless otherwise noted.  In this quarterly report on Form 10-Q, the discussion and analysis includes the accounts of Wells Fargo Financial, Inc. (the Company) and subsidiaries (collectively, “Wells Fargo Financial”).

Wells Fargo Financial’s net income for the first nine months of 2002 was $247.7 million compared with $197.1 million for the first nine months of 2001.  Wells Fargo Financial adopted FAS 142, Goodwill and Other Intangible Assets, effective January 1, 2002.  Accordingly, goodwill amortization ceased.  Net income in the first nine months of 2001 included $19.3 million of goodwill amortization (net of tax).  Excluding amortization of goodwill, net income for the first nine months of 2002 was $247.7 million compared with $216.4 million for the first nine months of 2001.

Well’s Fargo Financial’s total income (revenue) increased 6% for the first nine months ($2,068.2 million in the first nine months of 2002 compared with $1,949.2 million in the first nine months of 2001).

Income from finance charges and interest increased 6% for the first nine months ($1,755.4 million in the first nine months of 2002 compared with $1,651.8 million in the first nine months of 2001).  Changes in income from finance charges and interest result predominantly from (1) changes in the amount of finance receivables outstanding and (2) changes in the rate of charge on those receivables. In total, average finance receivables outstanding in the first nine months of 2002 increased 15% from the first nine months of 2001; average U.S. consumer finance receivables outstanding increased 13%, average Canadian consumer finance receivables outstanding increased 16%, average automobile finance receivables outstanding increased 14%, average leasing finance receivables outstanding increased 7%, and average other finance receivables outstanding increased 76%.

Rate of charge on finance receivables:	2002		2001
U.S. consumer finance	17.52	%	18.89	%
Canadian consumer finance	22.40		23.72
Automobile finance	16.30		16.57
Leasing	11.32		12.07
Other	6.59		13.30
Total	16.42		17.83

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The increase in income from finance charges and interest was due to growth in average receivables outstanding.  Growth in average receivables for U.S. consumer finance, Canadian consumer finance and automobile finance was due to regular business activity.  The increase in average leasing finance receivables was due primarily to the purchase of Conseco Finance Vendor Services Corporation on January 31, 2001.  The majority of the increase in other average receivables was due to significant receivable growth of the rediscounting operations.  Changes in the earned rates of charge were due to changes in prevailing market rates combined with a change in portfolio mix.  The decline in the earned rate of charge for other finance receivables resulted from the change in portfolio mix due to the growth of rediscounting operations and the transfer of the Company’s operations in Argentina to its parent during December 2001.

Other income increased 9% ($224.7 million in the first nine months of 2002 compared with $206.0 million in the first nine months of 2001).  The increase in other income was due to an increase in income from affiliates and due to additional fee income originating from growth in the leasing and credit card businesses.

Operating expenses increased 5% ($708.9 million in the first nine months of 2002 compared with $672.0 million in the first nine months of 2001).  The increase was due primarily to increases in employee compensation and benefits and other costs relating to business expansion and acquisitions.

Interest and debt expense decreased 11% ($478.9 million in the first nine months of 2002 compared with $539.8 million in the first nine months of 2001).  Changes in interest and debt expense result predominantly 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 2002 increased 15% from the first nine months of 2001.

	Nine Months Ended September 30,
Costs of funds:	2002		2001
Short-term	2.08	%	5.05	%
Long-term	5.91		6.45
Total	4.70		6.01

Changes in average debt outstanding generally correspond to changes in average finance receivables outstanding combined with the change in notes receivable - affiliates.  Average finance receivables and notes receivable - affiliates increased 16% for the first nine months of 2002.

Provision for credit losses increased 24% ($451.4 million in the first nine months of 2002 compared with $362.7 million in the first nine months of 2001).  Third quarter 2002 write-offs included $21 million of charges already provided for in the second quarter of 2002, due to the adoption of a new delinquency and loss recognition policy in the U.S. consumer finance businesses.

Net write-offs increased 9% ($377.3 million in the first nine months of 2002 compared with $345.0 million in the first nine months of 2001).  The increase was due primarily to higher write-offs in the Company’s U.S. consumer finance, Canadian consumer finance and automobile portfolios and the change in delinquency and loss recognition policy noted above.  These increases were partially offset by improvements in leasing business and other finance businesses.  Write-offs after recoveries as a percentage of average net receivables decreased to 2.65 percent for the first nine months of 2002 compared with 2.79 percent in the first nine months of 2001(see following table).

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Nine Months Ended September 30,
2002		2001
Net write-offs, not annualized, as a percentage of average net receivables outstanding:
U.S. consumer finance	3.10	%	3.29	%
Canadian consumer finance	3.18		3.19
Automobile finance	2.43		2.15
Leasing	1.68		1.89
Other	.39		1.69
Total	2.65		2.79

Through September 30, 2002, the provision for credit losses exceeded net write-offs by $74.1 million.  At September 30, 2002, the Company had an allowance for credit losses of $593.2 million (3.82% of receivables) compared with $521.9 million (3.89% of receivables) at December 31, 2001.  Non-accrual finance receivables were $68.6 million at September 30, 2002 compared with $76.0 million at December 31, 2001.  In addition, finance receivables outstanding which were more than three payments contractually delinquent and which were still accruing interest were $145.5 million at September 30, 2002 compared with $172.4 million at December 31, 2001.  The process of determining the allowance for credit losses is a critical accounting policy of the Company.  The process requires subjective and complex judgements by management. Assumptions about economic conditions, unemployment rates, and projected write-offs are factors considered when evaluating the allowance for losses.  Management believes that the allowance for credit losses at September 30, 2002, is adequate to absorb probable losses on existing receivables in the finance receivables portfolio.  However, no assurance can be given that the Company will not, in any particular period, sustain credit losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the portfolio, in light of the factors then prevailing, including economic conditions and the ongoing examination process by the Company, will not require significant increases in the allowance for credit losses.

Income taxes increased 23% ($144.5 million in the first nine months of 2002 compared with $117.3 million in the first nine months of 2001).  Income before income taxes increased 25% ($392.2 million in the first nine months of 2002 compared with $314.5 million in the first nine months of 2001.)  The effective tax rate was 36.8% for the first nine months of 2002 and 37.3% for the first nine months of 2001.

On October 22, 2002, Wells Fargo Financial, Inc. announced that it will no longer issue term debt securities in the United States.  For the quarter and nine months ended September 30, 2002, Wells Fargo Financial, Inc. issued $700 million and $2.1 billion, respectively, of senior notes, leaving at September 30, 2002 a total of $1.6 billion available for issuance.  For those same periods, Wells Fargo Financial, Inc.’s wholly-owned Canadian subsidiary Wells Fargo Financial Canada Corporation (WFFC) issued $200 million (Canadian) and $350 million (Canadian), respectively, in senior notes, leaving at September 30, 2002 a total of $950 million (Canadian) available for issuance.

On October 22, 2002, Wells Fargo & Company issued a full and unconditional guarantee of all outstanding term debt securities and commercial paper of Wells Fargo Financial, Inc.  Subject to receiving required consents and approvals, Wells Fargo Financial, Inc. will cease filing periodic reports under the Securities Exchange Act of 1934 and will no longer be a separately rated company.  Wells Fargo & Company also guaranteed all outstanding commercial paper of WFFC and subject to receiving required consents and approvals, intends to effectively substitute its guarantee for the guarantee of Wells Fargo Financial, Inc. with respect to the outstanding term debt of WFFC.  WFFC expects to continue to issue term debt and commercial paper in Canada, fully guaranteed by Wells Fargo & Company.

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The Company maintains bank lines of credit and revolving credit agreements to provide an alternative source of liquidity to support the Company’s commercial paper borrowings.  At September 30, 2002, lines of credit and revolving credit agreements totaling $2,752 million were being maintained at 19 domestic and international banks; the entire amount was available on that date.  On October 31, 2002, the Company terminated 16 of these agreements totaling $2,500 million.  Additionally, the Company’s bank subsidiaries, Wells Fargo Financial Bank and Wells Fargo Financial National Bank, have access to federal funds borrowings.  At September 30, 2002, federal funds availability at the two banks was $583 million.

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

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

CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under Securities and Exchange Commission (SEC) rules, Wells Fargo Financial, Inc. is required to maintain disclosure controls and procedures designed to ensure that information required to be disclosed by Wells Fargo Financial, Inc. in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Within the 90-day period prior to the filing date of this report, Wells Fargo Financial, Inc. carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures.  The management of Wells Fargo Financial, Inc., including the chief executive officer and chief financial officer, supervised and participated in the evaluation.  Based on this evaluation, the chief executive officer and the chief financial officer concluded that Wells Fargo Financial, Inc.’s disclosure controls and procedures were effective as of the evaluation date.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in Wells Fargo Financial, Inc.’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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PART II.  OTHER INFORMATION

WELLS FARGO FINANCIAL, INC.

Item 5.  Other Information.

RATIOS OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratios of earnings to fixed charges of Wells Fargo Financial, Inc. and its subsidiaries for the periods indicated:

Nine Months Ended September 30, 2002	Years Ended December 31,
	2001	2000	1999	1998	1997
1.80	1.61	1.58	1.78	1.72	2.00

The ratios of earnings to fixed charges have been computed by dividing net earnings plus fixed charges and 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 and Reports on Form 8-K.

(a)  Exhibits:

Exhibit (12)	Computation of ratios of earnings to fixed charges for the years ended December  31, 2001, 2000, 1999, 1998 and 1997 and the nine months ended September 30, 2002.
Exhibit (99.1)	Certification of Periodic Financial Report by Chief Executive Officer Pursuant to 18 U.S.C. § 1350.
Exhibit (99.2)	Certification of Periodic Financial Report by Chief Financial Executive Officer Pursuant to 18 U.S.C. § 1350.

(b)  Reports on 8-K

On July 19, 2002, the Company filed a current report on Form 8-K related to the Company’s financial results for the six months ended June 30, 2002.

On October 22, 2002, the Company filed a current report on Form 8-K related to the guarantee of the outstanding debt of the Company by Wells Fargo & Company.

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S I G N A T U R E S

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

	WELLS FARGO FINANCIAL, INC.
Date: November 12, 2002
	/s/ Eric Torkelson
	Eric Torkelson
	Senior Vice President and Controller
	(Principal Accounting Officer)

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CERTIFICATIONS

I, Daniel W. Porter, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Wells Fargo Financial, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.   The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002
	/s/ Daniel W. Porter
	Daniel W. Porter
	Chairman, and Chief Executive Officer

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I, Dennis E. Young, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Wells Fargo Financial, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial date and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.   The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002
	/s/ Dennis E. Young
	Dennis E. Young
	Executive Vice President and Chief Financial Officer

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