Wells Fargo & Company is the sixth largest bank in the U.S. (based on consolidated assets as of September 30, 2007). Its 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 2004€“2006: (a) Total interest expense/Total interest income, (b) Incentive compensation/Salaries, and
(c) Employee benefits/Salaries.
4. Comment on the ratios you computed in part (3), particularly any trends.
5. The average loans receivable balance for Wells Fargo during 2006 was $311,159 million. The average amount of deposits during 2006 was $312,347 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 $35.56, $31.42, and $31.08 for the years 2006, 2005, and 2004, 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 (in millions, except per share amounts) 2006 2005 2004 INTEREST INCOME Trading assets Securites avallable for sale ..._... Mortgages held for sale Loans held for sale Loans Other Interest Income-. 1.921 1,883 1,737 3.278 25,611 21,260 16,781 129 20,967 Total interest Income . INTEREST EXPENSE 32,239 25.962 1,827 ,637 3,817 $17,150 7.174 992 Short-term borrowings Long-term debt Total Interest expense NET INTEREST INCOME Provision for credit losses 2,866 7.458 $18,504 2,383 6,121 12,288 $19.951 2,204 Net interest Income after provislon for credit losses 17.747 NONINTEREST INCOME Service charges on deposit accounts Trust and investment fees Card fees Other fees Mortgage banking Operating leases 15,433 2.417 2.436 1,929 2.422 1,779 1,860 836 2.057 783 1,215 Net losses on debt securitles avallable for sale Net gains from equity investments Other 738 356 15.740 1,270 14.445 394 ,099 2,909 Total noninterest Income. NONINTEREST EXPENSE Salarles Incentive 7,007 2.885 2,035 1,252 6,215 2.366 1,874 1,267 1,807 1,724 1,236 benefits Equipment Net occupancy leases 5,249 9,018 1,548 3.877 7.671 $ 2.27 $2.25 633 5,572 7,573 10,769 3,755 7,014 $ 2.07 Other Total noninterest expense INCOME BEFORE INCOME TAX EXPENSE Income tax expense NET INCOME EARNINGS PER COMMON SHARE DILUTED EARNINGS PER COMMON SHARE DIVIDENDS DECLARED PER COMMON SHARE 5,528 20,742 12.745 4,263 $8,482 $ 2.52