Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q1 2011 Earnings Presentation
49 slides from Wells Fargo &'s earnings presentation, Apr 20, 2011
Slide 1: 1Q11 Quarterly Supplement
1Q11 Quarterly Supplement April 20, 2011 (c) 2011 Wells Fargo Bank, N.A. All rights reserved.
Slide 2: Table of contents
Appendix Pages 22-48 Non-strategic loan portfolio risk reduction 23 Capital strength 24 PCI loan portfolio performance 25 PCI loan portfolio nonaccretable difference 26 PCI loan portfolio available nonaccretable difference 27 PCI accretable yield 28 Commercial PCI portfolio accretable yield 29 Pick-
Slide 3: 1Q11 Overview
Record earnings of $3.8 billion, up 10% linked quarter and 48% YoY Strong returns ROA = 1.23%, up 14 bps from 4Q10; Highest ROA in 3 years ROE = 11.98%, up 103 bps from 4Q10 Cash and fed funds' balances remain elevated; provides ample flexibility to invest in more attractive rate environment Noninte
Slide 4: Record earnings
Record earnings $3.8 billion record quarterly net income, up 10% linked quarter and 48% YoY $0.67 per share, up 10% linked quarter and 49% YoY Total revenue declined 5% from 4Q10 Net interest income down 4% QoQ reflecting 11 bps decline in margin and 2 fewer days in the quarter Approximately half th
Slide 5: Selected 1Q11 items
Selected 1Q11 items (1) Reserve release represents the amount by which net charge-offs exceed the provision for credit losses.
Slide 6: Average loans
Average loans were up $402 million from 4Q10 Commercial loans increased 1% from 4Q10 reflecting strong growth in international and commercial & industrial on higher line utilization and new customer activity Consumer loans declined 1% from 4Q10 as lower junior lien mortgage more than offset strong g
Slide 7: Period-end loans
Period-end loans Declines reflect continued reduction in non-strategic/liquidating portfolio Loans declined $6.1 billion, or 1%, from 4Q10 All other loans relatively stable on increased loan utilization and new customer loan growth in the commercial portfolio and growth in the auto portfolio and pri
Slide 8: Deposits
Deposits Strong growth and reduced average cost Average core deposits up $2.0 billion from 4Q10 and up $37.7 billion, or 5%, from 1Q10 106% of loans Retail core deposits up 7% annualized from 4Q10 Average checking and savings up 4% annualized from 4Q10 and up $58.1 billion, or 9%, from 1Q10 91% of a
Slide 9: Noninterest income
Noninterest income Noninterest income down almost entirely due to lower mortgage banking fee income Service charges on deposit account fees down 2% from 4Q10 due to seasonality and down 24% from 1Q10 reflecting impact of Reg E Card fees up 2% QoQ and up 11% YoY on higher volumes and new account grow
Slide 10: Noninterest expense
Noninterest expense Noninterest expense down 5% from 4Q10 1Q11 expenses include: $472 million of operating losses, substantially all related to litigation accruals for foreclosure- related matters $440 million of merger integration costs, down $94 million from 4Q10 Seasonally higher incentive compen
Slide 11: Noninterest expense: Mortgage-related costs
Noninterest expense Mortgage-related costs Residential mortgage origination is one of the largest variable cost businesses at Wells Fargo To manage expenses, we utilize a temporary workforce including contractors and interim FTE, particularly in our retail channel Senior management decides how quick
Slide 12: Community Banking
Community Banking Strong segment earnings despite lower mortgage banking revenues reflected improved credit and lower expenses Wells Fargo Home Mortgage Mortgage originations down $44 billion from 4Q10 Managed residential mortgage servicing up 1% from 1Q10 = $1.8 trillion Regional Banking Strong com
Slide 13: Wholesale Banking
Wholesale Banking Net interest income down 7% from 4Q10 as strong loan growth was more than offset by lower recoveries from resolutions in our non- strategic loan portfolio and lower other gains Average loans up 2% reflecting growth in commercial banking and international on increased utilization as
Slide 14: Wealth, Brokerage and Retirement
Wealth, Brokerage and Retirement Net interest income up 3% from 4Q10 and up 5% from 1Q10 driven by higher deposit balances Average core deposits up 3% QoQ and 4% YoY Asset-based fees up 5% QoQ and up 15% YoY Brokerage managed accounts assets up 7% QoQ and 21% YoY; fees are priced at the beginning of
Slide 15: Credit quality
Credit quality Continued decline in provision expense $3.2 billion net charge-offs, down $629 million from 4Q10 and 41% from 4Q09 peak Provision expense of $2.2 billion, down $779 million from 4Q10 ($629 million fewer losses and $150 million higher reserve release) Allowance for credit losses = $22.
Slide 16: Credit quality
Credit quality Credit metrics showed continued improvement Nonperforming Assets ($ in billions) 2.6 3.2 3.9 4.9 Early Stage Delinquencies - Retail Businesses (30+ days past due - balances and rates) Nonperforming Loan Flows 32.4 34.6 32.9 31.5 30.6 2.4 Loans 90+ DPD and Still Accruing (1) ($ in bill
Slide 17: Non-strategic/liquidating loans
Non-strategic/liquidating loans Continued reduction in balances Loss rates continued to decline in higher risk portfolios PCI portfolio continued to perform better than expected Non-strategic loans (1) since acquisition $28.0 Utilized 29.6% of UPB (4) (1) Effective first quarter 2011, we included ou
Slide 18: Mortgage servicing
Mortgage servicing Continued reduction in outstanding demands Residential Mortgage Servicing Portfolio $1.8 Trillion (as of March 31, 2011) 4Q10 Servicing Portfolio Delinquency Performance (1) (Data as of December 31, 2010) Total Outstanding Agency Repurchase Demands and New Demands for 2006-2008 Vi
Slide 19: Consent orders
Consent orders Wells Fargo is committed to complete compliance with our regulators' consent orders We support the development of national servicing standards that will provide greater clarity for servicers, investors and customers We continue to be committed to modifying mortgages for at-risk custom
Slide 20: Capital
Capital Capital remained strong and continued to grow internally Tier 1 common +62 bps in 1Q11 Other capital ratios growing Tier 1 Capital = 11.5% Tier 1 Leverage = 9.3% Tier 1 common equity ratio under Basel III is estimated to be 7.2% at 3/31/11 (1) Impact of calling $3.2 billion of high cost trus
Slide 21: Capital actions taken
Capital Capital actions taken Quarterly cash dividend rate increased to $0.12 per share and paid fully in 1Q11 Common stock repurchase authority increased by an additional 200 million shares $3.2 billion of trust preferred securities called Weighted average coupon of 7.49% Redemption to be funded th
Slide 22: Summary
Summary Record earnings Strong returns with highest ROA in 3 years Noninterest expense down with additional opportunities for further reduction Significant improvement in credit quality Liquidity remained strong Highest ever capital position Increased quarterly dividend rate to $0.12, fully paid in
Slide 23: Appendix
Appendix ‘Wells Farge 1911 Supplement
Slide 24: Non-strategic loan portfolio risk reduction
(1) Effective first quarter 2011, we included our education finance government guaranteed loan portfolio as there is no longer a U. S. Government guaranteed student loan program available to private financial institutions, pursuant to legislation in 2010. Prior periods have been adjusted to reflect
Slide 25: Capital strength
62 bps increase in Tier 1 common equity ratio in 1Q11 High quality capital stack 78% of Tier 1 Capital is Tier 1 Common, up from 71% in 1Q10 (1) March 31, 2010, capital ratios are preliminary. (2) See table on page 47 for more information on Tier 1 Common Equity. Capital strength
Slide 26: PCI loan portfolio performance
Purchased credit-impaired portfolios Continued to perform better than originally expected (1) Includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amount
Slide 27: PCI loan portfolio nonaccretable difference
(1) Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool accounting for those loans, which
Slide 28: PCI portfolio available nonaccretable difference
Purchased credit-impaired (PCI) portfolio Available nonaccretable difference Includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final reso
Slide 29: PCI accretable yield
PCI accretable yield 1Q11 results included accretion of $701 million compared with $578 million in 4Q10 $123 million increase reflects a $151 million gain from the sale of a significant portion of a pool of non Pick-a- Pay consumer real estate 1-4 family first mortgage loans Balance of $15.9 billion
Slide 30: Commercial PCI portfolio accretable yield
$1.2 billion remains to be accreted into income over the remaining life of the portfolio Most of portfolio tied to LIBOR Weighted average life of the portfolio of 2.0 years has held relatively consistent over the past couple of quarters as shorter duration portfolios have rolled off and period of fu
Slide 31: Pick-a-Pay PCI portfolio accretable yield
$14.0 billion remains to be accreted into income over the remaining life of the portfolio Based on updated cash flow valuations, there was no reclassification of nonaccretable to accretable in 1Q11 Quarterly fluctuations in accretable yield can be driven by changes in: Interest rate indices for vari
Slide 32: 1Q11 Credit quality highlights
1Q11 Credit quality highlights Allowance for credit losses $22.4 billion 1.72x annualized quarterly charge-offs 2.98% of total loans $12.9 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense declined $779 million and was $1.0 billion less than net charge-
Slide 33: Nonperforming assets
Nonperforming assets Commercial nonaccruals of $10.3 billion 96% secured and approximately 64% guaranteed Over 54% are currently paying interest that is applied to principal $2.8 billion in losses taken to date Consumer nonaccruals of $14.7 billion > 99% secured 32% CLTV (1) below 80% $4.1 billion i
Slide 34: Commercial nonaccrual loans
Commercial nonaccrual loans 1Q11 Total Commercial nonaccrual loans = $10,312 million ($ change in millions) Commercial and Industrial & Lease Financing: CRE Construction: CRE Mortgage: Foreign: Inflows decreased 21%; second consecutive quarterly decrease 92% secured 38% guaranteed 75% current on int
Slide 35: Consumer real estate nonaccrual loans
Consumer real estate nonaccrual loans Inflows decreased 13%; the second consecutive quarterly decline 46% are 1-4 family first mortgage 19% are TDRs for which impairment has been recognized 76% is legacy WFF debt consolidation Inflows decreased 15% 42% written down; losses taken stable from prior qu
Slide 36: 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 WA CO Other Reduction in outstandings re
Slide 37: CRE loan portfolio by business segment
CRE loan portfolio by business segment Wholesale Banking 14% owner-occupied Community Banking 62% owner-occupied Wealth, Brokerage and Retirement (WBR) 33% owner-occupied
Slide 38: Wholesale Banking CRE loan portfolio
Wholesale Banking CRE loan portfolio (1) Wholesale CRE outstandings of $83.6 billion (1) up $1.2 billion from 4Q10 CRE Division portfolio = $63.1 billion, up $1.7 billion from 4Q10 NPAs decreased $399 million from 4Q10 while losses declined $44 million, or 29 bps, from 4Q10 Wachovia PCI CRE portfoli
Slide 39: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Carrying value of $71.5 billion in first lien loans outstanding, down $3.3 billion from 4Q10 and down $23.8 billion from 4Q08 on paid-in-full loans and loss mitigation efforts Unpaid principal balance of $80.6 billion, down $3.6 billion from 4Q10 and down $35.1 billion
Slide 40: Pick-a-Pay credit highlights
Pick-a-Pay credit highlights Non-PCI portfolio Loans down 6% driven by loans paid-in-full and transfer of multifamily loans to commercial real estate 86% of portfolio current Nonaccrual loans up slightly in 1Q11 83% of loans written down to current net realizable value (See page 41) New inflows decl
Slide 41: PCI Pick-a-Pay portfolio available nonaccretable difference
PCI Pick-a-Pay portfolio Available nonaccretable difference Includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loa
Slide 42: Pick-a-Pay nonaccrual loan composition
Pick-a-Pay nonaccrual loan composition (1) 83% of Pick-a-Pay nonaccruals held at estimated recoverable value vs. 81% at 4Q10, reflecting write-downs and/or LTV ^100% Allowance available for the remaining 17% that have not yet been written down 9% of the nonaccruals are performing modifications Perfo
Slide 43: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans down reflecting declines in run-off portfolios Pick-a-Pay non-PCI portfolio down 6% PCI portfolio down 3% Debt consolidation down 4% Non run-off first lien mortgage stable Non run-off first lien mortgage nonaccruals down $17 m
Slide 44: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings down 3% High quality new originations with weighted average CLTV of 62%, 777 FICO, and 32% total debt service ratio 1Q11 losses relatively stable, up $11 million 2+ delinquencies declined $286 million, or 18 bps Continued decline in delinquen
Slide 45: Credit card portfolio
Credit card portfolio $21.0 billion credit card outstandings represent less than 3% of total loans Outstandings down 6% Net charge-offs down $70 million, or 98 bps, reflecting previous risk mitigation efforts that included tightened underwriting and line management changes (i.e. fewer balance transf
Slide 46: Auto portfolio
Auto portfolio Core Portfolio Total outstandings up 3% QoQ and up 11% YoY reflecting record loan originations Originations were up 15% from 4Q10 and up 25% from 1Q10, with LTV and loan structures consistent over the last eight quarters Net charge-offs declined $33 million, or 34 bps, on low delinque
Slide 47: Forward-looking statements and additional information
Forward-looking statements and additional information Forward-looking statements: This Quarterly Supplement and management's related presentation contain forward-looking statements about our future financial performance. These forward-looking statements include statements using words such as "believ
Slide 48: Tier 1 common equity reconciliation
Tier 1 common equity reconciliation
Slide 49: Risk-adjusted net interest margin reconciliation
Risk-adjusted net interest margin reconciliation