Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q2 2011 Earnings Presentation
52 slides from Wells Fargo &'s earnings presentation, Jul 19, 2011
Slide 1: 2Q11 Quarterly Supplement
2Q11 Quarterly Supplement July 19, 2011 (c) 2011 Wells Fargo Bank, N.A. All rights reserved.
Slide 2: Table of contents
Appendix Pages 24-51 Non-strategic loan portfolio risk reduction 25 Capital strength 26 PCI loan portfolio performance 27 PCI loan portfolio nonaccretable difference 28 PCI loan portfolio available nonaccretable difference 29 PCI accretable yield 30 Commercial PCI portfolio accretable yield 31 Pick-
Slide 3: 2Q11 Overview
Strong core business performance Record earnings of $3.9 billion, up 5% linked quarter and 29% YoY Pre-tax pre-provision profit (1) of $7.9 billion, up 4% linked quarter ROA = 1.27%, up 4 bps from 1Q11; Highest ROA in 3 years Continued improvement in credit quality Noninterest expense declined $258
Slide 4: Record earnings
Record earnings $3.9 billion record quarterly Wells Fargo net income, up 5% linked quarter and 29% YoY $0.70 per share, up 4% linked quarter and 27% YoY Total revenue up $57 million from 1Q11 on growth in both net interest income and noninterest income Net interest income up $27 million as earning a
Slide 5: Period-end loans
Period-end loans Growth despite continued reduction in non-strategic/liquidating portfolio Loans up $766 million from 1Q11 Commercial loans up $7.5 billion, or 2%, on growth throughout our commercial portfolio driven primarily by new customer activity Consumer loans down 2% driven by non- strategic
Slide 6: Deposits
Deposits Strong growth and reduced average cost Average core deposits of $807.5 billion up $10.7 billion from 1Q11 and up $45.7 billion, or 6%, from 2Q10 107% of average loans Average retail core deposits up 6% annualized from 1Q11 Average checking and savings up 7% annualized from 1Q11 and up $63.4
Slide 7: Net interest income
Net interest income Net Interest Income (TE) ($ in millions) Net Interest Margin Tax-equivalent net interest income increased $39 million from 1Q11 largely driven by improved funding costs; net interest margin declined 4 bps from 1Q11 Available for sale (AFS) securities up $18 billion by quarter-end
Slide 8: Noninterest income
Noninterest income Noninterest income up $30 million linked quarter and down 2% YoY Service charges on deposit account fees up 6% from 1Q11 on customer account growth and seasonal increases in consumer spending, and down 24% from 2Q10 reflecting impact of Reg E Card fees up 5% linked quarter (LQ) an
Slide 9: Noninterest expense
Noninterest expense Noninterest expense was down $258 million from 1Q11 driven by lower commissions and incentive compensation, employee benefits and equipment expense; down $865 million from 4Q10 Salaries increased $130 million, or 4%, on March annual merit increases and increased day count in the
Slide 10: Expense discipline and initiatives
Expense discipline and initiatives Expense management is a longstanding part of the Wells Fargo culture and operating model Project Compass is a company-wide initiative aimed at removing unnecessary complexity and eliminating duplication as a way to improve the customer experience and team member wo
Slide 11: Areas of focus
Areas of focus Research phase of Project Compass has identified several areas of opportunity to become more efficient, broadly grouped as follows: 1) Staff/Technology functions - consists of two components: re-engineering staff functions and IT consistency Re-engineering staff functions - removing u
Slide 12: Areas of focus (continued)
Areas of focus (continued) 3) Business optimization - consists of two components: business efficiency and business portfolio reviews A, Business efficiency ~ ensuring employees are supporting revenue generating activities as cost-effectively as possible by removing unnecessary complexity and duplica
Slide 13: Noninterest expense target
Noninterest expense target (1) (1) Reflects management's current targeted noninterest expense in 4Q12, which is subject to change and may be affected by a variety of factors, including business and economic cyclicality, seasonality, changes in our business composition and operating environment, grow
Slide 14: Community Banking
Community Banking Lower segment earnings reflects lower mortgage banking revenues Average loans declined 2% despite growth in auto, credit card, private student lending and SBA lending Regional Banking Strong combined net checking gains Consumer checking up a net 7.0% from 2Q10 Business checking up
Slide 15: Wholesale Banking
Wholesale Banking Net interest income up 8% from 1Q11 on strong loan and investment securities growth Average loans up 4%, or 14% linked quarter annualized (LQA), driven primarily by new customer activity Noninterest income down 2% QoQ as lower sales and trading results were partially offset by soli
Slide 16: Wealth, Brokerage and Retirement
Wealth, Brokerage and Retirement Net interest income down 1% from 1Q11 due to lower yields Average loans up 2% QoQ and YoY on growth in Wealth consumer loans and brokerage lines of credit and margin loans Average core deposits stable QoQ and up 4% YoY Noninterest income down 2% from 1Q11 driven by a
Slide 17: Wachovia merger update
Wachovia merger update Merger integration nearing successful completion 83% of all banking customers on a single platform after the Pennsylvania and Florida conversions 2,215 store conversions completed through July 9, 2011 23.7 million accounts converted including mortgage, deposits, trust, brokera
Slide 18: Credit quality
Credit quality Continued decline in provision expense $2.8 billion net charge-offs, down $372 million from 1Q11 and 48% from 4Q09 peak Provision expense of $1.8 billion, down $372 million from 1Q11, includes a $1.0 billion reserve release in line with 1Q11 Allowance for credit losses = $21.3 billion
Slide 19: Credit quality
Credit quality Credit metrics showed continued improvement Nonperforming Assets ($ in billions) 2.6 3.2 3.9 Early Stage Delinquencies - Retail Businesses (30+ days past due - balances and rates) Nonaccrual Loan Flows 32.3 34.4 32.8 30.5 2.4 Loans 90+ DPD and Still Accruing (1) ($ in billions) Exclud
Slide 20: Mortgage servicing
Mortgage servicing Wells Fargo has a high quality servicing portfolio Residential Mortgage Servicing Portfolio $1.8 Trillion (as of June 30, 2011) Agency Retained and acquired portfolio Non-agency securitizations of WFC originated loans Non-agency acquired servicing and private whole loan sales 69%
Slide 21: Mortgage servicing
Mortgage servicing Delinquency ratios favorable to peers and total repurchase demands down As of 1Q11, the delinquency and foreclosure ratio of Wells Fargo's servicing portfolio continued to be lower than peers, per industry data Wells Fargo's total delinquency and foreclosure ratio for 2Q11 was 7.4
Slide 22: Other mortgage related matters
Other mortgage related matters Securities litigation Reached a preliminary settlement on private label mortgage backed securities litigation; requires judicial approval Proposed $125 million settlement would be covered under established litigation reserves Should resolve pending securities law claim
Slide 23: Capital
Capital Capital remained strong and continued to grow internally Tier 1 common +23 bps in 2Q11 Other capital ratios growing Tier 1 Capital = 11.7% Tier 1 Leverage = 9.4% Tier 1 common equity ratio under Basel III is estimated to be 7.4% at 6/30/11 (1) $3.4 billion of high-cost trust preferred securi
Slide 24: Summary
Summary Record earnings Strong returns with highest ROA in 3 years Linked quarter revenue growth Period-end loan growth driven by commercial loans Deposit growth reflects strong account growth Noninterest expense down with additional opportunities for further reduction - targeting 4Q12 noninterest e
Slide 25: Appendix
Appendix ‘Wells Farge 2911 Supplement
Slide 26: Non-strategic loan portfolio risk reduction
(1) Effective 1Q11, 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 this change. (2
Slide 27: Capital strength
23 bps increase in Tier 1 common equity ratio in 2Q11 High quality capital stack 78% of Tier 1 Capital is Tier 1 Common, up from 72% in 2Q10 77% of total assets are risk-weighted assets, down from 79% in 2Q10 (1) June 30, 2011, capital ratios are preliminary. (2) See table on page 50 for more inform
Slide 28: 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 29: 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 30: 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 31: PCI accretable yield
PCI accretable yield 2Q11 results included accretion of $587 million compared with $701 million in 1Q11 1Q11 results included a large 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 $14.9 billion expected to accr
Slide 32: Commercial PCI portfolio accretable yield
$1.4 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 2.4 years has extended over the past couple of quarters as shorter duration portfolios have rolled off and period of future cash flow ass
Slide 33: Pick-a-Pay PCI portfolio accretable yield
$12.9 billion remains to be accreted into income over 10.0 years (the estimated remaining life of the portfolio) Based on updated cash flow valuations, there was no reclassification of nonaccretable to accretable in 2Q11 Weighted average life of loans has increased due to loan modifications activity
Slide 34: 2Q11 Credit quality highlights
2Q11 Credit quality highlights Allowance for credit losses $21.3 billion 1.87x annualized quarterly charge-offs 2.83% of total loans $12.1 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense declined $372 million and was $1.0 billion less than net charge-
Slide 35: Nonperforming assets
Nonperforming assets Commercial nonaccruals of $9.2 billion 95% secured and approximately 64% guaranteed Over 56% are currently paying interest that is applied to principal $2.4 billion in losses taken to date Consumer nonaccruals of $13.8 billion > 99% secured 36% CLTV (1) below 80% $4.0 billion in
Slide 36: Commercial nonaccrual loans
Commercial nonaccrual loans 2Q11 Total Commercial nonaccrual loans = $9,265 million ($ change in millions) Commercial and Industrial & Lease Financing: CRE Construction: CRE Mortgage: Foreign Inflows decreased 11%; third consecutive quarterly decrease 88% secured 47% guaranteed 76% current on intere
Slide 37: Consumer real estate nonaccrual loans
Consumer real estate nonaccrual loans Inflows increased 1% Outflows increased 2% 48% are 1-4 family first mortgage 24% are TDRs for which impairment has been recognized 75% is legacy WFF debt consolidation Inflows decreased 27% Outflows decreased 16% 45% written down; losses taken stable from prior
Slide 38: 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 Hotel/Motel 1-4 Family Land Institutional Other CA FL TX NC GA NY VA AZ WA CO Other Reduction in outstandings reflects paydowns in the construction p
Slide 39: CRE loan portfolio by business segment
CRE loan portfolio by business segment Wholesale Banking 14% owner-occupied Community Banking 61% owner-occupied Wealth, Brokerage and Retirement (WBR) 29% owner-occupied
Slide 40: Wholesale Banking CRE loan portfolio
Wholesale Banking CRE loan portfolio (1) Wholesale CRE outstandings of $84.4 billion (1) up $802 million from 1Q11 CRE Division portfolio = $64.3 billion, up $1.2 billion from 1Q11 NPAs decreased $470 million from 1Q11 while losses declined $47 million, or 31 bps, from 1Q11 Wachovia PCI CRE portfoli
Slide 41: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Carrying value of $69.6 billion in first lien loans outstanding, down $1.9 billion from 1Q11 and down $25.7 billion from 4Q08 on paid-in-full loans and loss mitigation efforts Adjusted unpaid principal balance of $78.2 billion, down $2.4 billion from 1Q11 and down $37.5
Slide 42: Pick-a-Pay credit highlights
Pick-a-Pay credit highlights Non-PCI portfolio Loans down 3% driven by loans paid-in-full 85% of portfolio current Nonaccrual loans down $66 million in 2Q11 85% of loans written down to current net realizable value (See page 43) New inflows of $0.7 billion, down 14% from 1Q11 on improving delinquenc
Slide 43: 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 44: Pick-a-Pay nonaccrual loan composition
Pick-a-Pay nonaccrual loan composition (1) 85% of Pick-a-Pay nonaccruals held at estimated recoverable value vs. 83% at 1Q11, reflecting write-downs and/or LTV ^100% Allowance available for the remaining 15% that have not yet been written down 8% of the nonaccruals are performing modifications Perfo
Slide 45: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans down reflecting declines in runoff portfolios Pick-a-Pay non-PCI portfolio down 3% PCI portfolio down 2% Debt consolidation down 3% Non runoff first lien down 1% Core first lien mortgage nonaccruals down $441 million, or 30 bp
Slide 46: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings down 3% High quality new originations with weighted average CLTV of 61%, 777 FICO, and 32% total debt service ratio 2Q11 losses down $116 million, or 36 bps 2+ delinquencies declined $174 million, or 7 bps Continued decline in delinquency rat
Slide 47: Home equity portfolio
$110.7 billion home equity portfolio (1) 19% in 1st lien position 41% in junior lien position behind WFC owned or serviced 1st lien 40% in junior lien position behind third party 1st lien (1) Excludes purchased credit-impaired loans. (2) Delinquency represents two or more payments past due as of May
Slide 48: Credit card portfolio
Credit card portfolio $21.2 billion credit card outstandings up 1% from 1Q11 on new customer activity Less than 3% of total Wells Fargo loans Net charge-offs down $88 million, or 158 bps, reflecting previous risk mitigation efforts that included tightened underwriting and line management changes (i.
Slide 49: Auto portfolio
Auto portfolio Core Portfolio Total outstandings up 3% QoQ and up 10% YoY reflecting continued strong loan originations Originations were down 3% from 1Q11 and up 12% from 2Q10 Net charge-offs declined $44 million, or 47 bps, on low delinquencies and continued strength in used car values June Manhei
Slide 50: 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 51: Tier 1 common equity under Basel I
Tier 1 common equity under Basel I (1)
Slide 52: Tier 1 common equity under Basel III (Estimated)
Tier 1 common equity under Basel III (Estimated) (1)