Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q3 2010 Earnings Presentation
57 slides from Wells Fargo &'s earnings presentation, Oct 20, 2010
Slide 1: 3Q10 Quarterly Supplement
3Q10 Quarterly Supplement October 20, 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 3Q10 Results 3Q10 Overview Page 3 Record earnings 4 Strong operating margins 5 Broad based earnings 6 Building the franchise - Wholesale Banking 7 Building the franchise - Community Banking 8 Regional bank sales and cross-sell metrics 9 Mortgage banking 10 Building the franchise -
Slide 4: 3Q10 Overview
3Q10 Overview Record earnings - $3.34 billion net income, up 9% Building and streamlining the franchise - revenue growth in most businesses, expenses down Wachovia merger already proving to be financial success - better credit experience, abundant revenue synergies, expense savings on track Continue
Slide 5: Record earnings
Record earnings (1) Included $1.9 billion upon redemption of TARP preferred stock in 4Q09. (2) Approximate quarterly impact of changes to Regulation E and related overdraft policy changes. (3) Represents nonaccretable release. (4) Reserve release represents the amount by which net charge-offs exceed
Slide 6: Strong operating margins
Strong operating margins (1) See table on page 56 for more information on tangible common equity.
Slide 7: Broad-based earnings
Broad-based earnings (1): Each business segment contributed to earnings ($ in millions) 3Q10 2Q10 NIAT ROA Community Banking +13% 1.02% Wholesale Banking +2% 1.58% Wealth, Brokerage & Retirement -5% 0.73% Community Banking WBR Wholesale Banking Community Banking WBR Wholesale Banking + 7% (1) Segmen
Slide 8: Building the franchise - Wholesale Banking
Building the franchise - Wholesale Banking Double digit linked quarter annualized (LQA) revenue growth in customer flow trading, commercial real estate, commercial mortgage servicing and asset-backed finance PCI loan resolution income down $307 million from 2Q10; seasonal decline in insurance revenu
Slide 9: Building the franchise - Community Banking
Building the franchise - Community Banking Core product solutions (1) up 14% YoY Store-based small business solutions (1) up 25% YoY Continued strong growth in checking accounts, consumer up a net 7.3% YoY, small business up a net 5.0% YoY Continued loan growth in core auto loans (up 9% LQA); privat
Slide 10: Regional bank sales and cross-sell metrics
Regional bank sales and cross-sell metrics Legacy Wells Fargo core product solutions (2) Legacy Wells Fargo Retail Bank cross-sell per household (in millions) Strong 3Q10 YoY consumer checking account growth Combined WFC up 7.3% California up 8.3% New Jersey up 11.2% Florida up 9.0% Wachovia Retail
Slide 11: Mortgage banking
Mortgage banking 3Q10 originations of $101 billion, up 25% from 2Q10 and 5% YoY 2nd highest application quarter ever, $194 billion new applications (80% refi) Application pipeline up 49% to $101 billion at quarter-end suggesting higher 4Q10 originations Servicing valuation = 72 bps, one of the lowes
Slide 12: Building the franchise - Wealth, Brokerage & Retirement
Revenue up 2% from 2Q10 driven by improved equity market performance Client assets up 5% from 2Q10 Managed account assets up 10% from 2Q10 Loan balances flat from 2Q10 for first time since merger and up slightly in September Cross-sell of 9.76 in 3Q10 up from 9.72 in 2Q10 and 9.45 in 3Q09 Building t
Slide 13: Continuing to supply credit to U.S. economy
Continuing to supply credit to U.S. economy Domestic Lending Commitments & Origination Activity
Slide 14: Loans outstanding
Loans outstanding Continued to successfully work down non- strategic portfolios (liquidating home equity, indirect auto, debt consolidation, Pick-a-Pay and Commercial /CRE PCI loans) 3Q10 loan growth in: Auto Dealer Services WBR consumer loans Wholesale Commercial Real Estate Capital Finance (Asset-
Slide 15: Average core deposits
Average core deposits (1) Strong broad-based deposit performance from 3Q09 Regional banking consumer checking accounts up 7.3% Regional banking business checking accounts up 5.0% Wholesale core deposit balances up 17.3% WBR core deposit balances up 3.8% Core checking/savings deposit growth remained
Slide 16: Noninterest expense
Noninterest expense 2Q10 included higher operating losses of $397 million and restructuring costs for Wells Fargo Financial of $137 million We continued to invest in our businesses for long-term growth in 3Q10 Opened 13 banking stores Regional Banking platform banker FTEs in the East up more than 1,
Slide 17: Wells Fargo and Wachovia merger already a big success
Wells Fargo and Wachovia merger already a big success Abundant revenue synergies Abundant revenue synergies Abundant revenue synergies Community Bank Wholesale Bank WBR Wachovia retail cross-sell 4.65 in 3Q09 to 4.91 in 3Q10 Used car loan market share 4.75% in 1Q09 to 6.84% in 3Q10 Private student l
Slide 18: Credit quality continued to improve in 3Q10
UPB used for nonaccretable coverage determination excludes $21 billion for PCI loans that have had their nonaccretable difference charge for expected loss. Credit quality continued to improve in 3Q10 Net charge-offs continued to decline Down 9% linked quarter Down $1.3 billion, or 24%, from 4Q09 pea
Slide 19: Continued improvement in credit quality
Continued improvement in credit quality Commercial and commercial real estate losses declined $288 million from 2Q10, down 22% Commercial losses down $180 million, or 26%, reflected lower problem loan inflows and lower portfolio loss content CRE losses down $104 million, or 17%, on lower severities
Slide 20: Consumer delinquency trends
Delinquency trends stabilizing in major consumer loan categories PCI adjustment on the Wachovia portfolio
Slide 21: Nonaccrual loans stabilizing
Nonaccrual loans stabilizing Numbers may not add due to rounding. Please see pages 41-42 for additional information on nonaccrual inflows.
Slide 22: Foreclosed assets/REO outstandings
Foreclosed assets/REO outstandings Total foreclosed assets increased $1.1 billion in the quarter reflecting: $509 million shift from PCI loans to REO ($103 million commercial and commercial real estate and $406 million consumer, largely Pick-a-Pay) $239 million increase in non-impaired commercial on
Slide 23: Allowance for credit losses
Allowance for credit losses Reserve release (2) = $650 million in 3Q10 Currently expect additional releases in coming quarters absent significant deterioration in the economy Allowance for credit losses of $24.4 billion 1.50x annualized 3Q10 net charge-offs 3.23% of total loans Remaining $14.5 billi
Slide 24: Pick-a-Pay continued to perform better than originally expected
Pick-a-Pay unpaid principal balance has declined $24.3 billion since acquisition to $93.0 billion Carrying value has declined to $77.3 billion, down $18.0 billion since 12/31/08 Non-PCI credit trends have stabilized PCI portfolio % current improved over 200 bps in the quarter to 60% current Pick-a-P
Slide 25: Capital is strong and continued to grow internally
Capital is strong and continued to grow internally 40 bps increase in 3Q10 34 bps due to retained earnings 4 bps due to other internal sources of capital 2 bps due to change in risk-weighted assets Purchased $544 million in warrants YTD 5 bps impact YTD on Tier 1 Common Warrant repurchase improves E
Slide 26: Basel I to Basel III: Estimated effect of proposed guidelines
Basel I Basel III: Estimated effect of proposed guidelines September 30, 2010 capital ratios are preliminary. Pro forma calculations based on reported Tier 1 common equity, as adjusted to reflect management's interpretation of current Basel III capital proposals. These pro forma calculations and man
Slide 27: Overview of foreclosure and mortgage securitization
Overview of foreclosure and mortgage securitization I. Foreclosure is a last resort We attempt to contact customers on average over 75 times by phone and nearly 50 times by letter during the period of first delinquency to foreclosure sale Approximately 80% of customers who are 60 days or more delinq
Slide 28: Wells Fargo has a high quality servicing portfolio
Wells Fargo has a high quality servicing portfolio Residential Mortgage Servicing Portfolio $1.8 Trillion (as of September 30, 2010) 92% of portfolio is current Less than 2% was sub-prime at origination 66% sold to agencies (FNMA, FHLMC, and GNMA) 20% are loans that we retained or acquired and servi
Slide 29: Lower delinquency and foreclosure rates than peers
Lower delinquency and foreclosure rates than peers Source: Inside Mortgage Finance. (1) Industry is all large servicers ($6.9 trillion) including WFC, C, JPM and BAC. (Data as of June 30, 2010) Wells Fargo total delinquency and foreclosure ratio for 3Q10 is 8.14% (1) 2Q10 Delinquency Performance
Slide 30: Repurchase exposure is manageable
Repurchase exposure is manageable Demands are primarily concentrated in specific vintages with the GSEs Demands and losses have been concentrated in 2006- early 2008 vintages Demands in these vintages are down two consecutive quarters We don't expect large losses on pre-2006 and post-2008 vintages T
Slide 31: Repurchase exposure is manageable and reserve is adequate
3Q10 outstanding repurchase demands down in both number and balance from 2Q10 Repurchase demand pipeline represents initial requests for information and loans being assessed for repurchase Approximate percent of requests that end up being repurchased: 50% Percent of borrowers where we repurchase the
Slide 32: Appendix
Wells Fargo 3Q10 Supplement Appendix 31
Slide 33: Non-strategic loan portfolio risk reduction
Non-strategic loan portfolio risk reduction (1) Net of purchase accounting adjustments. - -$13.3 - -$6.9 - -$6.2
Slide 34: Capital strength
Capital strength 40 bps increase in Tier 1 common equity ratio in 3Q10, all internally generated Purchase of $4 million in warrants, no impact to Tier 1 common equity ratio Expect to continue to purchase outstanding warrants in open market from time to time at opportunistic prices (1) September 30,
Slide 35: PCI portfolios continued to perform better than originally expected
Purchased credit-impaired (PCI) portfolios continued to perform better than originally expected (1) Does not reflect charge-offs and certain other charges against the nonaccretable difference. Reclassified $639 million nonaccretable difference in 3Q10 from the commercial, CRE and foreign and other c
Slide 36: PCI loan portfolio update: 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 37: PCI accretable yield
PCI accretable yield 3Q10 results include interest income of $528 million compared to $643 million in 2Q10 Balance of $16.7 billion expected to accrete to income over the remaining life of the underlying loans Volume and early performance of Pick-a-Pay loan modifications combined with slower default
Slide 38: Commercial, CRE and Foreign PCI portfolio accretable yield
Commercial, Commercial Real Estate and Foreign PCI portfolio accretable yield $1.0 billion remains to be accreted into income over 1.6 years (the estimated remaining weighted average life of the portfolio) Increase from 2Q10 reflects the reclassification to accretable yield from nonaccretable of $39
Slide 39: Pick-a-Pay PCI portfolio accretable yield
Pick-a-Pay PCI portfolio accretable yield $14.6 billion remains to be accreted over 9 years (the estimated remaining weighted average life of the portfolio) There was no reclassification of nonaccretable to accretable in 3Q10 Increase in weighted average life of the portfolio in 3Q10 reflects slower
Slide 40: 3Q10 Credit quality highlights
3Q10 Credit quality highlights Allowance for credit losses $24.4 billion 1.50x annualized quarterly charge-offs 3.23% of total loans $14.5 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense declined $544 million and was $650 million less than net charge-
Slide 41: Nonperforming assets
Nonperforming assets Commercial & CRE nonaccruals of $12.5 billion 96% secured and approximately 63% guaranteed Over 58% are currently paying interest that is applied to principal $2.9 billion in losses taken to date Consumer nonaccruals of $15.7 billion > 99% secured Approximately 40% of nonaccrual
Slide 42: Commercial nonaccrual loans
Commercial nonaccrual loans CRE Construction: Inflows decreased 30% while outflows increased 14% from 2Q10 36% current on interest 70% guaranteed 37% of NPLs have been written down CRE Mortgage: Inflows increased 3% while outflows decreased 2% from 2Q10 76% guaranteed 52% current on interest 35% of
Slide 43: Consumer real estate nonaccrual loans
Consumer real estate nonaccrual loans National Home Equity (1): Inflows increased 11% while outflows increased 4% 42% are 1-4 family first mortgage 23% are TDRs for which impairment has been recognized Other Businesses: 81% is WFF debt consolidation Inflows declined 2% while outflows increased 3% 40
Slide 44: 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 33% of the portfolio is owne
Slide 45: CRE loan portfolio by business group
CRE loan portfolio by business group Wholesale Banking 15% owner-occupied Community Banking 61% owner-occupied Wealth, Brokerage & Retirement (WBR) 38% owner-occupied
Slide 46: Wholesale Banking CRE loan portfolio
Wholesale Banking CRE loan portfolio (1) Wholesale CRE outstandings of $82.7 billion (1) down $1.2 billion, or 1%, from 2Q10 CRE Division portfolio = $61.6 billion, stable with 2Q10 outstandings NPAs increased $143 million from 2Q10 while losses declined $86 million, or 55 bps, from 2Q10 Wachovia PC
Slide 47: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Carrying value of $77.3 billion in first lien loans outstanding, down $2.9 billion from 2Q10 and down $18.0 billion from 4Q08 on paid-in-full loans and loss mitigation efforts Unpaid principal balance of $93.0 billion, down $4.1 billion from 2Q10 and down $24.3 billion
Slide 48: 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 $4.8 billion to current net realizable value has been reflected as a loss against the nonaccretable difference.
Slide 49: 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 down $98 million QoQ, first quarterly decline since acquisition 81% of loans have been written down to current net realizable value (See page 50) New inflows
Slide 50: Pick-a-Pay: Current to 30+ DPD 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) up modestly from 2Q10 due to seasonality First time delinquencies, defined as the percentage of 30+
Slide 51: Pick-a-Pay nonaccrual loan composition
Pick-a-Pay nonaccrual loan composition (1) 81% of Pick-a-Pay NPLs held at current estimated recoverable value vs. 79% in 2Q10, reflecting write-downs and/or LTV ^100% Allowance for loan losses covered the remaining 19% that have not yet been written down 14% of the NPLs are performing modifications
Slide 52: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans down 2% Pick-a-Pay non-PCI portfolio down 3% PCI portfolio down 4% Debt consolidation down 4% Non run-off first lien mortgage down 1% Non run-off first lien mortgage nonaccruals up $248 million, or 25 bps, and includes a $106
Slide 53: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings down 2% High quality new originations with weighted average CLTV of 61%, 774 FICO, and 31% total debt service ratio 3Q10 losses down $82 million resulting from prior quarters delinquency improvements Delinquency rate increased 11 bps, reflect
Slide 54: Credit card portfolio
Credit card portfolio $21.9 billion credit card outstandings represent less than 3% of total loans Outstandings down 1% as consumers reduced their debt Net charge-offs down $75 million, or 139 bps, reflecting previous risk mitigation efforts that included tightened underwriting and line management c
Slide 55: Auto portfolio
Auto portfolio Core Portfolio Total outstandings up 2% QoQ and up 22% YoY reflecting record market share positioning Strong originations in the quarter with LTV and loan structures consistent over the last six quarters Net charge-offs up $16 million QoQ reflecting seasonality and modestly lower used
Slide 56: Tier 1 common equity reconciliation
Tier 1 common equity reconciliation
Slide 57: Return on average tangible common equity
Return on average tangible common equity