Wells Fargo & Company is the fourth largest bank in the United States (based on total assets as of December 31, 2004).Wells Fargo is the successor to the banking and stagecoach company founded by Henry Wells and William G. Fargo in 1852.The company€™s consolidated statement of income follows.

1. How is this income statement different from all the other income statements illustrated in this chapter?
2. For a merchandising firm, gross profit represents sales less cost of goods sold. For Wells Fargo, what component of the income statement would be similar to gross profit?
3. Compute the following ratios for each of the years 2002€“2004:
(a) Total interest expense/Total interest income
(b) Incentive compensation/Salaries
(c) Employee benefits/Salaries
4. Comment on the ratios you computed in part (3).Make particular mention of any trends.
5. The average loans receivable balance for Wells Fargo during 2004 was $266,503 million. The average amount of deposits during 2004 was $261,193 million. Using the income statement data, comment on the average interest rate Wells Fargo pays to its depositors, the average interest rate Wells Fargo earns on its loans receivable, and the spread between these two rates.
6. The market value of Wells Fargo€™s stock at the end of each year was $62.15, $58.89, and $46.87 for the years 2004, 2003, and 2002, respectively. Compute the firm€™s price-earnings ratio for each year. Use diluted earnings per share. Is it increasing or decreasing overtime?

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Wells Fargo & Company and Subsidiaries Consolidated Statement of Income For the Years Ended December 31 2003 In millions, except per share amounts) 2004 2002 INTEREST INCOME Trading assets Securities available for sale Mortgages held for sale Loans held for sale 145 1,883 1,737 292 ,8i6 2.424 252 6,78 13,937 13.045 18.459 1.919 1.404 Other interest income Total interest income INTEREST EXPENSE 20,967 1827 1,637 9.418 ,613 322 1,355 Guaranteed preferred beneficial interests in Company's 3.411 Total interest expense NET INTEREST INCOME Provision for credit losses Net interest income after NONINTEREST INCOME Service charges on deposit accounts Trust and investment fees Card fees Other fees Mortgage banking 3.817 3.977 $16,007 1,722 14.482 1.684 2.798 provision for credit losses 5433 4,285 2.134 1875 977 .372 1.713 2417 2,297 1,230 1.779 1860 836 ,079 1,560 2,512 937 1,071 Net gains (losses) on debt securities available for salo Net gains (losses) from equity investments (327) 1,099 2.909 930 12,382 Total noninterest income 0,767 NONINTEREST EXPENSE 5,393 1807 1724 1.236 1,208 4,832 2,054 1,560 1,246 4,383 1·706 1283 1.014 Employee benefits Net occupancy 702 5,572 7,573 802 4.421 14,711 Total noninterest expense INCOME BEFORE INCOME TAX EXPENSE AND EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Income tax expense NET INCOME BEFORE EFFECT OF CHANGE IN 10,769 3,755 9,477 3,275 8854 3.144 6,202 5,710 Cumulative effect of change in accounting principle NET INCOME .$ 7014276) EARNINGS PER COMMON SHARE BEFORE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Earnings per Diluted earnings per common s $ 3.35 3.32 common share $ 369 4.09 EARNINGS PER COMMON SHARE Earnings per Dilute earnings per common S 4.15 4.09 1,86 common share $369 3.16 DIVIDENDS DECLARED PER COMMON SHARE