Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q4 2009 Earnings Presentation
41 slides from Wells Fargo &'s earnings presentation, Jan 20, 2010
Slide 1: 4Q09 Quarterly Supplement
4Q09 Quarterly Supplement January 20, 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," "estimate
Slide 3: Table of Contents
Table of Contents 4Q09 Results 4Q09 Highlights Page 3 4Q09 Earnings overview Page 4 Revenue trend Page 5 Key 4Q09 revenue growth drivers Page 6 Solid deposit growth Page 7 4Q09 Loan portfolio highlights Page 8 Consumer loan portfolio risk reduction Page 9 Expense trend Page 10 Pre-tax pre-provision
Slide 4: 4Q09 Highlights
4Q09 Highlights Strong $2.8 billion Q4 earnings contribute to record $12.3 billion annual profit Record quarterly revenue of $22.7 billion up 4% linked quarter (annualized) drives $9.9 billion quarterly pre-tax pre-provision profit (1) Credit reserves strengthened further to $25 billion, nearly 5x q
Slide 5: 4Q09 Earnings overview
4Q09 Earnings overview Net income of $2.8 billion in the quarter and $12.3 billion for the full year Net income of $2.8 billion in the quarter and $12.3 billion for the full year (1) Includes $1.9 billion upon redemption of TARP preferred stock in 4Q09.
Slide 6: Revenue trend
Revenue trend 1Q08 2Q08 1Q09 2Q09 3Q09 4Q09 Column 1 0.0156 0.0188 21017 22507 22466 22696 Full year record revenue of $88.7 billion Record quarterly revenue of $22.7 billion up 4% linked quarter annualized Strong revenue performance from most business lines including double digit (annualized) linke
Slide 7: Key 4Q09 revenue growth drivers
Key 4Q09 revenue growth drivers Average checking and saving deposits up 20% annualized; period-end checking and savings up 21% from 12/31/08 Trust and investment fees up 16% annualized Insurance revenues up 12% annualized Mortgage originations remained strong at $94 billion and applications rose 17%
Slide 8: Solid deposit growth
Solid deposit growth 4Q08 3Q09 4Q09 CD balances 182.043 119 100.8 Core Checking/Savings 563.389 628.9 679.9 Period-end core deposits up 17% (annualized) from 3Q09 Period-end checking and savings deposits up 21% from 4Q08 Lower rate checking and savings deposits now account for 87% of core deposits,
Slide 9: 4Q09 Loan portfolio highlights
comm cre - mortgage cre - construction lease Foreign RE 1-4 Family 1st RE 1-4 Fam Junior Lien Credit Card Other Revolving Credit 169610 103442 31719 14115 30282 232622 104538 23597 90027 Period-end balance sheet as of 12/31/2009. Total period-end loans excluding non-strategic consumer loan portfolio
Slide 10: Consumer loan portfolio risk reduction
Consumer loan portfolio risk reduction Reduction in non-strategic loan portfolio continues as expected from paydowns, net charge-offs and sales Consumer non-strategic loans outstanding down $4.7 billion from 3Q09 and $18.9 billion since year-end Additional opportunities to reduce risk pursued Sales
Slide 11: Expense trend
Expense trend 1Q08 2Q08 1Q09 2Q09 3Q09 4Q09 Column 1 0.0156 0.0188 11818 12697 11684 12821 Key expense drivers: $450 million merger costs $261 million previously disclosed expense provision for auction rate securities (ARS) settlement $150 million employee benefit- related expense for 401(k) profit
Slide 12: Pre-tax pre-provision profit
Pre-tax pre-provision profit (1) 1Q08 2Q08 1Q09 2Q09 3Q09 4Q09 Column 1 0.0156 0.0188 9199 9810 10782 9875 Pre-tax pre-provision profit (PTPP) of $9.9 billion in 4Q09 Decline from 3Q largely reflects merger costs, employee benefit- related and higher year-end expenses described on page 10 2009 PTPP
Slide 13: 4Q09 Credit quality highlights
4Q09 Credit quality highlights Allowance for credit losses $25.0 billion 6x allowance at start of credit crisis Nearly 5x quarterly charge-offs 3.2% of total loans $22.9 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense declined on a linked- quarter bas
Slide 14: Provision for charge-offs and reserve build
Provision for charge-offs and reserve build 1Q08 2Q08 1Q09 2Q09 3Q09 4Q09 Provision for charge-offs 0.0156 0.0188 3258 4386 5111 5413 Credit reserve build 1300 700 1000 500 $5.9 billion provision expense in 4Q09 includes: $5.4 billion in quarterly net charge-offs $500 million reserve build $97 milli
Slide 15: Allowance
Allowance 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Column 1 0.0156 0.0188 0.0195 0.0251 0.0271 0.0286 0.0307 0.032 0.0018 0.002 0.00306 0.0019 Allowance for credit losses as a percentage of total loans (2) (1) 2009 provision expense in excess of net charge-offs. (2) Includes purchased credit-impaired
Slide 16: Nonperforming assets
Nonperforming assets Nonperforming assets Rate of increase slowed in 4Q09 as expected Nonaccruals declined in commercial and other revolving credit & installment Almost all of the total increase from two portfolios: commercial real estate and consumer real estate 53% of consumer 1-4 family 1st lien
Slide 17: Capital improved significantly
Capital improved significantly Wells Fargo stockholders' equity of $112 billion after repayment of TARP and buying Prudential's minority interest; up $12.7 billion since year-end 2008 and up $65 billion since pre-Wachovia position at 9/30/08 All ratios including Tier 1 common now consistent with str
Slide 18: FAS 166 and FAS 167 update
FAS 166 and FAS 167 update Application of FAS 166 and FAS 167 resulted in the 1/1/2010 consolidation of certain formerly qualifying SPEs and VIEs not included in our financial statements in 2009 Required to have both power/control and some benefit/risk to be considered for consolidation $10 billion
Slide 19: Wachovia merger update
Wachovia merger update Delivering on the promise Initiative Original Expectation 4Q09 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 20: Wells Fargo: Well positioned for sustainable growth
Wells Fargo: Well positioned for sustainable growth Substantially stronger balance sheet and capital position than at year-end 2008 Diversified business model Powerful distribution channels Superior sales execution and customer service Disciplined cost control Continued signs of credit quality impro
Slide 21: Credit Appendix
Wells Fargo 4Q09 Supplement Credit Appendix
Slide 22: Nonperforming assets
Nonperforming assets The current loan-to-value (LTV) ratio is calculated as the outstanding loan balance divided by the collateral value. The table above does not include PCI loans that were contractually 90 days past due and still accruing. Also excludes GNMA and similar loans whose repayments are
Slide 23: Nonaccrual loans
Nonaccrual loans CRE up $1.4 billion from 3Q09, of which $871 million was from smaller loans in Community Banking Growth in consumer real estate largely due to Pick-a-Pay (up $1.0 billion in line with expectations), and conventional loan modification and foreclosure moratoriums (programs result in s
Slide 24: Net loan charge-offs
Net loan charge-offs All portfolios showed relatively flat to declining losses in 4Q09 other than CRE Commercial real estate losses up $266 million from 3Q09, loss rates remain relatively low in part due to 35% of the portfolio being owner-occupied part due to 35% of the portfolio being owner-occupi
Slide 25: PCI loan portfolio update: Nonaccretable difference
Purchased 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 accountin
Slide 26: 4Q09 PCI nonaccretable difference
4Q09 PCI nonaccretable difference 4Q09 PCI nonaccretable difference 4Q09 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 r
Slide 27: PCI loan portfolio update: Accretable yield
Purchased credit-impaired (PCI) loan portfolio update Accretable yield Extent and early performance of Pick-a-Pay loan modifications is primary driver of $6.3 billion increase in expected cash flows (accretable yield) at December 31, 2009 Changes in expected cash flows are undiscounted, interest cas
Slide 28: 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 Agriculture CA FL TX NC GA NY VA AZ NJ PA Other 35% of the portfolio is owner-occupied
Slide 29: CRE loan portfolio by business group
CRE loan portfolio by business group CRE loan portfolio by business group Wholesale Banking 15% owner-occupied Community Banking 64% owner-occupied Wealth, Brokerage and Retirement (WBR) 48% owner-occupied 28
Slide 30: CRE portfolio: Property type by business group
Wholesale Banking Community Banking WBR CRE portfolio: Property type by business group 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 Agriculture Office Industrial, Warehouse Ot
Slide 31: Wholesale Banking commercial real estate loan portfolio
Wholesale Banking commercial real estate loan portfolio (1) Wholesale Commercial Real Estate = $88.8 billion (1) Legacy Wells Fargo CRE portfolio = $34.3 billion Seasoned senior management team with strong tenured underwriting experience Distinctive portfolio monitoring process followed; risk of eac
Slide 32: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Book balance of $85.2 billion in first lien loans outstanding, down $2.6 billion from 9/30/09 on paid-in-full loans, net charge-offs and loss mitigation efforts Pick-a-Pay loans that have negative amortization potential were 70% of loans as of 12/31/09, down from 86% at
Slide 33: Pick-a-Pay credit highlights
Pick-a-Pay credit highlights Pick-a-Pay non-impaired portfolio Loans down 3% driven by paid-in-full loan paydowns Nonaccrual loans up $1.0 billion Largely due to inflows occurring after post- purchase accounting write-downs New TDRs are largely being offset by curing TDRs Net TDRs accounted for $117
Slide 34: Pick-a-Pay: Current-30 days past due roll rates
Pick-a-Pay Non-impaired (Non-PCI) Current To 30 Days 4/7/2007 5/7/2007 6/7/2007 7/7/2007 8/7/2007 9/7/2007 10/7/2007 11/7/2007 12/7/2007 1/8/2008 2/8/2008 3/8/2008 4/8/2008 5/8/2008 6/8/2008 7/8/2008 8/8/2008 9/8/2008 1/1/2009 2/1/2009 3/1/2009 4/1/2009 5/1/2009 6/1/2009 7/1/2009 8/1/2009 9/1/2009 1
Slide 35: Pick-a-Pay nonaccrual loan composition
66% of Pick-a-Pay NPLs have been written down to the estimated recoverable value Allowance covers the remaining 34% that have not yet been written down 13% of the NPLs are performing modifications They will move to current status after six consecutive payments are made 34 Pick-a-Pay nonaccrual loan
Slide 36: Pick-a-Pay loan modifications
Pick-a-Pay loan modifications 4Q09 full-term MAP modifications of over 9,000; over 52,600 in 2009 89% of modifications have been in the PCI portfolio 31% of PCI portfolio has been modified in 2009, up from 22% as of September 30, 2009 Nearly 70,000 modification offers proactively sent to customers b
Slide 37: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans down 1% Core mortgage relatively stable Run-off portfolio (1) down 3% PCI portfolio down 3% Debt consolidation down 4% Other mortgage up 1% Nonaccruals and losses moderating in both debt consolidation and other first lien port
Slide 38: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings flat QoQ (3) High quality new originations with weighted average CLTV of 60%, 774 FICO, and 32% total debt service ratio (5) 4Q09 losses beginning to stabilize, up a modest $42 million Liquidating Portfolio Outstandings down 5% QoQ reflecting
Slide 39: Credit card portfolio
Credit card portfolio $24.0 billion credit card outstandings represent 3% of total loans $16.7 billion Community Banking $7.3 billion Wells Fargo Financial Significantly smaller portfolio than large bank peers Outstandings up 2% due to increased volume from new clients in WFF's Retail Sales Finance
Slide 40: Auto portfolio
Auto portfolio Core Portfolio (1) Total outstandings up 1% QoQ reflecting continued market share gains Originations remain strong but declined following 3Q09 "Cash-for-Clunkers" New originations LTV and loan structures consistent with 3Q09 Net charge-offs down 6 bps QoQ, against seasonal trends, due
Slide 41: Tier 1 common equity reconciliation
Tier 1 common equity reconciliation Tier 1 common equity reconciliation