Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q2 2010 Earnings Presentation
53 slides from Wells Fargo &'s earnings presentation, Jul 21, 2010
Slide 1: 2Q10 Quarterly Supplement
2Q10 Quarterly Supplement July 21, 2010 (c) 2010 Wells Fargo & Company. All rights reserved.
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 2Q10 Results 2Q10 Overview Page 3 2Q10 Overview: Strong earnings 4 Strong operating margins 5 Return on assets - 2Q10 peer comparisons 6 Broad based earnings 7 Building the franchise - Wholesale Banking 8 Building the franchise - Community Banking 9 Regional bank sales and cross-se
Slide 4: 2Q10 Overview
2Q10 Overview Strong, broad-based earnings - $3.1 billion net income Building and streamlining the franchise - $21.4 billion of net revenue, double-digit growth in many businesses Merger producing earlier and better than expected revenue synergies Significant improvement in credit quality - 16% redu
Slide 5: 2Q10 Overview: Strong earnings
2Q10 Overview: Strong earnings 2Q10 earnings included: (pre-tax) $500 million release of loan loss reserves $506 million nonaccretable difference release due to loan resolutions (payoffs/sales) in the commercial PCI portfolio vs. $182 million in 1Q10 ($627) million operating losses vs. ($208) millio
Slide 6: Strong operating margins
Strong operating margins (1) Preliminary. See table on page 52 for more information on tangible common equity.
Slide 7: Return on assets - 2Q10 peer comparisons
Return on assets - 2Q10 peer comparisons Source: Earnings releases and SNL.
Slide 8: Broad based earnings
Broad based earnings (1): Each business segment contributed to earnings ($ in billions) 2Q10 1Q10 Community Banking +21% Wholesale Banking +18% Wealth, Brokerage & Retirement -4% Community Banking WBR Wholesale Banking Community Banking WBR Wholesale Banking + 18% (1) Segment net income excludes oth
Slide 9: Building the franchise - Wholesale Banking
Building the franchise - Wholesale Banking Revenue grew 8% YoY and 25% annualized linked quarter Linked-quarter revenue growth in commercial, corporate, commercial real estate brokerage, asset-based lending, international (FX) and PCI loan resolutions; declines in trading 18% average core deposit gr
Slide 10: Building the franchise - Community Banking
Building the franchise - Community Banking Legacy Wells Fargo core product solutions (sales) up 15% YoY; store-based small business solutions up 31% YoY Checking accounts - consumer up 7% YoY, small business up 5% YoY Period-end core auto loans up 4% linked quarter and private student lending up 1%
Slide 11: Regional bank sales and cross-sell metrics
Regional bank sales and cross-sell metrics Legacy Wells Fargo core product solutions Legacy Wells Fargo Retail Bank cross-sell per household (in millions) Strong 2Q10 YoY consumer checking account growth Combined WFC up 7.4% California up 9.0% New Jersey up 10.1% Wachovia Retail Bank cross-sell per
Slide 12: Building the franchise - Wealth, Brokerage & Retirement
Revenue up 14% since 1Q09 2Q10 revenue included decline of $100 million in deferred compensation hedge income (offset in expenses) vs. 1Q10 and $132 million lower investment securities gain vs. 2Q09 Strong customer deposit inflows; core deposits up 25% since 12/31/08 Client assets up 6% from 2Q09 Ma
Slide 13: Loans outstanding
Loans outstanding 2Q10 loan growth in: Wholesale commercial Wholesale asset-based lending Wholesale Global Financial Institutions Wealth, Brokerage & Retirement Auto dealer services Private student lending ($ in billions) ($ in billions) Period-end balances. (1) Please see page 28 for additional inf
Slide 14: Continuing to supply credit to U.S. economy
Continuing to supply credit to U.S. economy Domestic Lending Commitments & Origination Activity
Slide 15: Average core deposits
Average core deposits Period-end core checking/savings deposits up $107 billion, or 19% since merger Lower rate checking and savings deposits account for 88% of core deposits for 2Q10, up from 80% for 2Q09 $57 billion of Wachovia's higher rate CDs matured since 2Q09 with better- than-expected retent
Slide 16: Wells Fargo and Wachovia revenue synergies
Wells Fargo and Wachovia revenue synergies Community Banking Increased Wachovia cross-sell from 4.55 in 2Q09 to 4.88 in 2Q10 Wholesale Banking Government and Institutional Banking cross-sell revenue up 43% in first half of 2010 Investment Banking revenue coming from Commercial Banking has increased
Slide 17: Noninterest expense
Noninterest expense Increase from 1Q10 due to higher integration costs ($118 million), higher operating losses ($419 million) and Wells Fargo Financial severance charge ($137 million) We continued to invest in our businesses for long term growth Opened 13 banking stores Converted 87 Wachovia stores
Slide 18: Credit quality improved significantly in 2Q10
Credit quality improved significantly in 2Q10 Net charge-offs declined earlier and more significantly than projected Down 16% linked quarter Down $924 million from 4Q09 peak Early indicators continued to improve Nonaccrual inflows down 18% Commercial criticized commitments down 14% YTD Early stage d
Slide 19: Significant improvement in credit quality
Significant improvement in credit quality Commercial and commercial real estate losses declined $30 million CRE losses down 10% Consumer losses declined $817 million, down 21%, on improvements across all major loan categories 1-4 family first down 23% Junior lien down 18% Credit cards down 10% Other
Slide 20: Consumer delinquency trends
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 expected
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 continued to show stabilization Although 150 plus delinquencies continued to i
Slide 22: Nonaccrual loan inflows down
Nonaccrual loan inflows down Excludes foreign nonaccrual flows.
Slide 23: Allowance for credit losses
Allowance for credit losses Reserve release = $500 million; currently expect additional releases in coming quarters absent significant deterioration in the economy Allowance for credit losses of $25.1 billion, up $3.4 billion from close of Wachovia merger 1.4x annualized net charge-offs Remaining $1
Slide 24: PCI portfolios performing better than originally expected
Purchased credit-impaired (PCI) portfolios performing better than originally expected (1) Does not reflect charge-offs and certain other charges against the nonaccretable difference.
Slide 25: Capital strength
Capital strength ($ in billions) 44 bps increase in Tier 1 common equity ratio in 2Q10, all internally generated Purchase of $540 million in warrants reduced Tier 1 common equity ratio by 5 bps Expect to continue to purchase outstanding warrants in open market from time to time at opportunistic pric
Slide 26: Balance sheet stronger than ever
Balance sheet stronger than ever ($ in billions) Tier 1 common (1) $ 73 B 7.53% of RWA (2) Tier 1 capital 102 B 10.42% of RWA Allowance 25 B 3.27% of loans Remaining nonaccretable 16 B 26.2% of PCI loans UPB (3) Core deposits (period-end) 759 B Funded 99% of loans Core checking & savings (average) 6
Slide 27: Wachovia merger update
Wachovia merger update Delivering on the promise Initiative Original Expectation 2Q10 Update Credit costs $40 billion of estimated purchase accounting life-of-loan losses PCI portfolios continued to perform as or better than originally expected; released $1.8 billion from Pick-a-Pay nonaccretable di
Slide 28: Appendix
Wells Fargo 2Q10 Supplement Appendix
Slide 29: Non-strategic loan portfolio risk reduction
Non-strategic loan portfolio risk reduction (1) Net of purchase accounting adjustments related to the PCI loans. - -$19.2 - -$6.9
Slide 30: Purchased credit-impaired (PCI) loan portfolio update
Purchased credit-impaired (PCI) loan portfolio update Nonaccretable difference $98.2 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 31: 2Q10 PCI nonaccretable difference
2Q10 PCI 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
Slide 32: PCI accretable yield
PCI accretable yield Volume and early performance of Pick-a-Pay loan modifications are primary drivers of the $5.5B increase in expected PCI cash flows (accretable yield) since acquisition Changes in accretable yield represent increases in undiscounted interest cash flows driven by successful loan m
Slide 33: 2Q10 Credit quality highlights
2Q10 Credit quality highlights Allowance for credit losses $25.1 billion 1.4x annualized quarterly charge-offs 3.27% of total loans $16.2 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense declined $1.3 billion on $841 million reduction in net charge-off
Slide 34: Nonperforming assets
Nonperforming assets Allowance considers losses inherent in the loan portfolio including nonperforming loans as of 6/30/10 Commercial & CRE nonaccruals of $12.1 billion 83% have FAS 114 reserves of $1.4 billion 95% secured and approximately 62% guaranteed Over 54% are currently paying interest that
Slide 35: Nonaccrual loans
Nonaccrual loans Overall increase of 2% decelerated significantly from 1Q10 increase of 12% from 4Q09 Real estate (residential and commercial) nonaccruals are up but all other loan types down 10% including a 10% decline in C&I and a 5% decline in revolving credit nonaccruals Pace of inflows (1) decl
Slide 36: Commercial nonaccrual loans
Commercial nonaccrual loans CRE Construction: Inflows increased 33% while outflows increased 7% from 1Q10 35% current on interest 64% guaranteed 36% of NPLs have been written down CRE Mortgage: Inflows were flat while outflows increased 66% from 1Q10 76% guaranteed 51% current on interest 33% of NPL
Slide 37: Consumer real estate nonaccrual loans
Consumer real estate nonaccrual loans Home Equity: Inflows declined 20% while outflows declined 15% 18% are TDRs written down to current net realizable value 37% are > 180 DPD Other Businesses: 81% is WFF debt consolidation Inflows declined 9% while outflows remained flat 37% are TDRs written down t
Slide 38: Net loan charge-offs
Net loan charge-offs Losses declined 16%, or $841 million, and included $81 million in FAS 167 consolidated loan losses in the quarter compared with $123 million in 1Q10 Commercial and commercial real estate losses declined $30 million as lower CRE construction losses were partially offset by higher
Slide 39: 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 CO Other CRE construction balances an
Slide 40: CRE loan portfolio by business group
CRE loan portfolio by business group Wholesale Banking 15% owner-occupied Community Banking 62% owner-occupied Wealth, Brokerage & Retirement (WBR) 39% owner-occupied
Slide 41: 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 42: Wholesale Banking CRE loan portfolio
Wholesale Banking CRE loan portfolio (1) Wholesale CRE outstandings of $83.9 billion (1) down $1.2 billion, or 1%, from 1Q10 Legacy Wells Fargo CRE portfolio = $35.2 billion up $1.2 billion, or 4%, from 1Q10 driven by new loan commitments Losses declined $53 million, or 72 bps, from 1Q10 Wachovia PC
Slide 43: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Book balance of $80.2 billion in first lien loans outstanding, down $2.7 billion from 1Q10 on paid-in-full loans and loss mitigation efforts Unpaid principal balance of $97.1 billion, down $3.7 billion from 1Q10 and down $20.2 billion since acquisition Pick-a-Pay loans
Slide 44: Pick-a-Pay portfolio available nonaccretable difference
Pick-a-Pay portfolio Available nonaccretable difference Represents contractual unpaid principal balance (UPB) of loans 180+ DPD, for which a write-down of $5.6 billion to current net realizable value has been reflected as a loss against the nonaccretable difference. ($ in billions)
Slide 45: 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 $309 million QoQ 79% of loans have been written down to current net realizable value (See page 46) Although net TDRs increased $249 million in 2Q10 as we
Slide 46: Pick-a-Pay: Current to 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 to 30+ days past due roll rates Roll rates from current to 30+ days past due (DPD) stabilized in 2Q10 In the non-impaired portfolio, the 30+ roll rates stabilized in 2Q10 In the impa
Slide 47: Pick-a-Pay nonaccrual loan composition
Pick-a-Pay nonaccrual loan composition 79% of Pick-a-Pay NPLs held at current estimated recoverable value vs. 73% in 1Q10, reflecting write-downs and/or LTV ^100% Allowance for loan losses covers the remaining 21% that have not yet been written down 14% of the NPLs are performing modifications Perfo
Slide 48: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans down 3% Run-off portfolio (1) down 3% PCI portfolio down 4% Debt consolidation down 5% Other mortgage down 2% Other first lien mortgage nonaccruals up $152 million, or 20 bps Net charge-offs down $92 million, or 26 bps (1) Rep
Slide 49: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings down modestly High quality new originations with weighted average CLTV of 61%, 774 FICO, and 33% total debt service ratio 2Q10 losses down $245 million resulting from reduced delinquency observed over the past 2 quarters Delinquency rate decr
Slide 50: Credit card portfolio
Credit card portfolio $22.1 billion credit card outstandings represent less than 3% of total loans Significantly smaller portfolio than large bank peers Outstandings down 2% as consumers reduced their debt Net charge-offs down $64 million, or 73 bps, reflecting previous risk mitigation efforts that
Slide 51: Auto portfolio
Auto portfolio Core Portfolio Total outstandings up 4% QoQ reflecting strong market share Strongest quarterly originations since the merger New originations LTV and loan structures consistent with 2H09 Net charge-offs down $57 million QoQ reflecting improved 30+ delinquencies over the past couple of
Slide 52: Tier 1 common equity reconciliation
Tier 1 common equity reconciliation
Slide 53: Return on average tangible common equity
Return on average tangible common equity