Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q1 2010 Earnings Presentation
49 slides from Wells Fargo &'s earnings presentation, Apr 21, 2010
Slide 1: 1Q10 Quarterly Supplement
1Q10 Quarterly Supplement April 21, 2010
Slide 2: Forward-looking statements and additional information
Forward-looking statements and additional information Forward-looking statements: This Quarterly Supplement contains forward-looking statements about our future financial performance. These forward- looking statements include statements using words such as "believe," "expect," "anticipate," "estimat
Slide 3: Table of Contents
Table of Contents 1Q10 Results 1Q10 Overview Page 3 1Q10 Overview: Strong earnings 4 Strong operating margins 5 Capital strength 6 Building the franchise 7 Retail bank sales and cross-sell metrics 8 Loans outstanding 9 Consumer loan portfolio risk reduction 10 Total core deposits 11 Noninterest expe
Slide 4: 1Q10 Overview
1Q10 Overview Strong, broad-based earnings Net income of $2.5 billion, EPS of $0.45/share, after merger-related expense of $247 million after-tax ($0.05/share); all business segments contributed to earnings Continuing to build the franchise for long-term profitability Revenue of $21.4 billion, up 2%
Slide 5: 1Q10 Overview: Strong earnings
1Q10 Overview: Strong earnings All business segments (2) contributed to 1Q10 earnings Community Banking = $1,455 million Wholesale Banking = $1,197 million Wealth, Brokerage and Retirement = $282 million (1) Included $1.9 billion upon redemption of TARP preferred stock in 4Q09. (2) Segment net incom
Slide 6: Strong operating margins
Strong operating margins (1) See table on page 48 for more information on tangible common equity.
Slide 7: Capital strength
Capital strength ($ in billions) 60 bps increase in Tier 1 common ratio in 1Q10, all internally generated Capital ratios now exceed strong pre-Wachovia, pre-TARP levels Adoption of FAS 167 increased common equity by $356 million: $183 million due to an increase to retained earnings and $173 million
Slide 8: Building the franchise
Building the franchise ($ in millions) Revenue up 2% from 1Q09, despite a 7% decline in average loans, on growth in trust and investment fees, insurance, debit cards, asset based lending, and processing and other fees NIM up 11 bps on 14% growth in checking and savings Noninterest income up 7% from
Slide 9: Retail bank sales and cross-sell metrics
Retail bank sales and cross-sell metrics Legacy Wells Fargo Core Product Solutions Legacy Wells Fargo Retail Bank Cross-sell per household Wachovia Retail Bank Cross-sell per household Record legacy Wells Fargo core product solutions and retail bank cross-sell Strong double-digit growth in Wachovia
Slide 10: Loans outstanding
Loans outstanding 1Q10 ending loan balances included $23.4 billion in FAS 167 consolidated loans Continued to reduce higher risk/non- strategic consumer portfolios in the quarter (accounts for one-third of the decline in loan balances from 1Q09) Loan growth in auto dealer services (up 41% annualized
Slide 11: Consumer loan portfolio risk reduction
Consumer loan portfolio risk reduction Non-strategic loan portfolio continued to decline as expected from paydowns, net charge-offs and sales Consumer non-strategic loans outstanding down $4.3 billion from 4Q09 and $23.2 billion since 4Q08 Additional opportunities to reduce risk pursued Sales of non
Slide 12: Total core deposits
Total core deposits Period-end checking and savings deposits up $68.5 billion, or 12%, from 1Q09 Lower rate checking and savings deposits account for 88% of core deposits at 1Q10, up from 79% at 1Q09 $3 billion of Wachovia's higher rate CDs matured in 1Q10 with better- than-expected retention Combin
Slide 13: Noninterest expense
Noninterest expense Credit resolution costs (foreclosed asset expense, collections and workout personnel expense, and loan resolution costs) in 1Q10 were approximately $250 million higher than 1Q09 We continued to invest in our businesses for long term growth Regional Banking platform banker FTEs in
Slide 14: Community Banking
Community Banking Strong combined net checking gains Consumer checking up a net 7.0% from 1Q09 Business checking up a net 4.5% from 1Q09 Record legacy Wells Fargo core product solutions and retail bank cross-sell Legacy Wells Fargo store-based business solutions up 6% from 1Q09 Wachovia Platform ban
Slide 15: Wholesale Banking
Wholesale Banking Diversified business model generated fee and deposit growth, offsetting decline in loans outstanding; revenue up 9% from 1Q09 Non-interest bearing deposits up 13% from 1Q09 on growth in Commercial Banking, Government and Institutional Banking and Global Financial Institutions & Tra
Slide 16: Wealth, Brokerage and Retirement
Wealth, Brokerage and Retirement $1.1 trillion retail brokerage client assets, up 22% from 1Q09 Revenue up 10% from 4Q09 and up 16% from 1Q09 on asset based fees and increased brokerage transaction activity Wealth, Brokerage and Retirement client assets up 21% from 1Q09 Managed account assets up 47%
Slide 17: FAS 167 period-end effect on loans and credit performance
FAS 167 period-end effect on loans and credit performance (1) Period-end loans do not include related allowance for credit losses and VIE loans that were consolidated prior to FAS 167 adoption.
Slide 18: Provision expense believed to have peaked
Provision expense believed to have peaked ($ in millions) Total Provision Expense 5,913 6,111 5,086 4,558 Provision expense declined $781 million from 3Q09, and declined $583 million from 4Q09 and is currently expected to decline over the balance of 2010 Net charge-offs believed to have peaked in 4Q
Slide 19: Quarterly total credit losses believed to have peaked in 4Q09
Quarterly total credit losses believed to have peaked in 4Q09 Commercial and commercial real estate losses declined $356 million with decreases in all loan categories All other consumer losses were relatively flat
Slide 20: Consumer delinquency trends improving in major consumer loan categories
19 Consumer delinquency trends improving in major consumer loan categories PCI adjustment on the Wachovia portfolio
Slide 21: Pick-a-Pay non-impaired and PCI portfolios performing better than expectations
Pick-a-Pay non-impaired and PCI portfolios continued to perform better than original expectations Pick-a-Pay Non-impaired (Non-PCI) Current To 30 Days Pick-a-Pay Impaired (PCI) Current To 30 Days Early stage delinquencies continue to show stabilization Although 150 plus delinquents continue to incre
Slide 22: Nonaccrual loan growth decelerating
Nonaccrual loan growth decelerating Increase in nonaccruals driven by consumer real estate and commercial real estate mortgage; all other consumer and commercial portfolios showed relatively flat to declining NPLs New inflows declined in 1Q10 Non-FAS 167 consumer real estate inflows declined Total c
Slide 23: PCI loans continued to perform better than original expectations
PCI loans in the aggregate continued to perform better than original expectations (1) Release of the nonaccretable difference for payments in full increases interest income in the period of payment. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool
Slide 24: Allowance for credit losses
Allowance for credit losses Allowance for credit losses of $25.7 billion up $3.9 billion from close of Wachovia merger; includes $594 million in reserves from FAS 167 consolidated loans 94% of nonaccrual loans 4.8x quarterly net charge-offs Remaining $19.9 billion nonaccretable difference for PCI lo
Slide 25: Wachovia merger update
Wachovia merger update Delivering on the promise Initiative Original Expectation 1Q10 Update Credit Costs $40 billion of estimated purchase accounting life-of-loan losses In line with expectations Annual Expense Savings $5 billion Re-confirmed, full run rate expected in 2011 Merger Costs $7.9 billio
Slide 26: Appendix
Wells Fargo 1910 Supplement Appendix 25
Slide 27: FAS 167 adoption
Adoption of FAS 167 on 1/1/2010 had negligible impact on our capital ratios and financial position Recorded a $183 million increase to beginning retained earnings as a cumulative effect adjustment No impact on earnings upon adoption on 1/1/2010 $18.6 billion of net incremental GAAP assets and $6.4 b
Slide 28: PCI loan portfolio update: Nonaccretable difference
Purchase credit-impaired (PCI) loan portfolio update Nonaccretable difference $96.2 billion of Wachovia purchased credit-impaired loans at 12/31/08 with $40.9 billion life-of-loan purchase accounting marks $20.1 billion of Wachovia nonaccrual loans eliminated at 12/31/08 through purchase accounting
Slide 29: 1Q10 PCI nonaccretable difference
1Q10 PCI nonaccretable difference (1) Release of the nonaccretable difference for payments in full increases interest income in the period of payment. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool accounting for those loans. (2) Release of the n
Slide 30: 1Q10 PCI accretable yield
1Q10 PCI accretable yield Volume and early performance of Pick-a-Pay loan modifications are primary drivers of increase in expected cash flows (accretable yield) at March 31, 2010 Changes in expected cash flows are undiscounted, interest cash flows based on successful loan modifications. Loan modifi
Slide 31: 1Q10 Credit quality highlights
1Q10 Credit quality highlights Allowance for credit losses $25.7 billion 6x allowance at start of credit crisis 4.8x quarterly charge-offs 3.28% of total loans $19.9 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense continued to decline reflecting stabl
Slide 32: Nonperforming assets
Nonperforming assets Allowance considers losses inherent in the loan portfolio including nonperforming loans as of 3/31/10 Commercial & CRE nonaccruals of $12.1 billion 69% have FAS 114 reserves of $1.1 billion 91% secured while approximately 53% have some level of recourse Over 45% are currently pa
Slide 33: Nonaccrual loans
Nonaccrual loans $2.9 billion increase includes $909 million in FAS 167 consolidated loan nonaccruals Growth rates continued to slow as anticipated in 1Q10 Up 11% from 4Q09 vs. increases of 17% in 4Q09 from 3Q09, 32% in 3Q09 from 2Q09 and 50% in 2Q09 from 1Q09 New inflows declined in 1Q10 Non-FAS 16
Slide 34: Net loan charge-offs
Net loan charge-offs Losses declined $83 million and included $145 million in collateral-dependent losses related to newly issued regulatory charge-off guidance applicable to residential real estate loan modifications and $123 million in FAS 167 consolidated loan losses Commercial and commercial rea
Slide 35: Commercial real estate (CRE) loan portfolio
Commercial real estate (CRE) loan portfolio Office Industrial, Warehouse Other RE Apartment Retail (Ex Shopping Ctr) Land (Ex 1-4 Family) Shopping Ctr 1-4 Family Structure Hotel/Motel 1-4 Family Land Institutional 2% Agriculture Retail CA FL TX NC GA NY VA AZ NJ PA Other 34% of the portfolio is owne
Slide 36: CRE loan portfolio by business group
CRE loan portfolio by business group Wholesale Banking 16% owner-occupied Community Banking 62% owner-occupied Wealth, Brokerage and Retirement (WBR) 46% owner-occupied
Slide 37: CRE portfolio: Property type by business group
CRE portfolio: Property type by business group CRE portfolio secured by well-diversified mix of property types across three business groups Balances secured by 1-4 family residential real estate structure & land make up 6% of the portfolio, with higher concentrations in Wealth, Brokerage & Retiremen
Slide 38: Wholesale Banking CRE loan portfolio
Wholesale Banking CRE loan portfolio (1) Wholesale CRE outstandings of $85.0 billion (1) down $3.8 billion, or 4%, from 4Q09 Legacy Wells Fargo CRE portfolio = $34.0 billion Seasoned senior management team with strong tenured underwriting experience Distinctive portfolio monitoring process followed;
Slide 39: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Book balance of $82.9 billion in first lien loans outstanding, down $2.3 billion from 4Q09 on paid-in-full loans and loss mitigation efforts Unpaid principal balance of $100.8 billion, down $2.9 billion from 4Q09 Pick-a-Pay loans with negative amortization potential dec
Slide 40: Pick-a-Pay credit highlights
Pick-a-Pay credit highlights Pick-a-Pay non-PCI portfolio Loans down 3% driven by loans paid-in-full 85% of portfolio current Nonaccrual loans up $809 million 73% of loans have been written down to net realizable value (See page 41) Although net TDRs increased $65 million as we continue to work with
Slide 41: Pick-a-Pay: Current-30 days past due roll rates
Pick-a-Pay Non-impaired (Non-PCI) Current To 30 Days Pick-a-Pay Impaired (PCI) Current To 30 Days Pick-a-Pay: Current - 30 days past due roll rates Roll rates from current to 30+ days past due (DPD) continued to improve in 1Q10 In the non-impaired portfolio, the quarter- end 30+ roll rates have impr
Slide 42: Pick-a-Pay nonaccrual loan composition
Pick-a-Pay nonaccrual loan composition 73% of Pick-a-Pay NPLs held at estimated recoverable value vs. 66% in 4Q09, reflecting write-downs and/or CLTV=<100% Allowance covers the remaining 27% that have not yet been written down 10% of the NPLs are performing modifications Performing modifications mov
Slide 43: Pick-a-Pay loan modifications
Pick-a-Pay loan modifications Over 4,800 full-term MAP and HAMP modifications in 1Q10; over 52,600 in full year 2009 88% of modifications have been in the PCI portfolio 34% of PCI portfolio modified through March 31, 2010 We have attempted to contact the majority of customers 90+ days delinquent or
Slide 44: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans up 5% on the addition of $14.5 billion in FAS 167 consolidated loans Run-off portfolio (1) down 3% PCI portfolio down 3% Debt consolidation down 4% Other mortgage up 12% Other first lien mortgage nonaccruals up 61 bps Net char
Slide 45: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings (3) up 2% reflecting FAS 167 consolidation of $5 billion in loans High quality new originations with weighted average CLTV of 60%, 774 FICO, and 32% total debt service ratio 1Q10 losses up $147 million vs. a $42 million increase in 4Q09 $86 m
Slide 46: Credit card portfolio
Credit card portfolio $22.5 billion credit card outstandings represent 3% of total loans $17.6 billion Community Banking $4.9 billion Wells Fargo Financial Significantly smaller portfolio than large bank peers Outstandings down 6% as consumers reduced their debt Net charge-offs and 30+ days past due
Slide 47: Auto portfolio
Auto portfolio Core Portfolio Total outstandings up 13% QoQ reflecting continued market share gains and $1.9 billion from FAS 167 consolidated loans Strongest quarterly originations since the merger New originations LTV and loan structures consistent with 2H09 Net charge-offs down 82 bps QoQ, on bet
Slide 48: Tier 1 common equity reconciliation
Tier 1 common equity reconciliation
Slide 49: Return on average tangible common equity
Return on average tangible common equity