Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Q4 2010 Earnings Presentation
45 slides from Wells Fargo &'s earnings presentation, Jan 19, 2011
Slide 1: 4Q10 Quarterly Supplement
4Q10 Quarterly Supplement January 19, 2011 (c) 2011 Wells Fargo & Company. All rights reserved.
Slide 2: Table of contents
Appendix Pages 17-44 Loans outstanding 18 Non-strategic loan portfolio risk reduction 19 Capital strength 20 PCI portfolios continued to perform better than originally expected 21 PCI loan portfolio update nonaccretable difference 22 PCI portfolio available nonaccretable difference 23 PCI accretable
Slide 3: 4Q10 Overview
4Q10 Overview Earnings and Franchise Growth Continuation of record earnings on broad based 12% annualized revenue growth; loans up and checking/savings deposit growth accelerated Credit Quality Significant improvement in credit quality with lower net charge-offs and lower NPAs PCI portfolios continu
Slide 4: Record earnings
Record earnings... 3 $3.4 billion record quarterly NIAT (1) up 21% YoY, 9% linked quarter annualized (LQA) $24.6 billion earned since Wachovia merger $0.61 per share Net Income ($ in billions) (1) Net income after tax.
Slide 5: Selected items
Selected items (1) Approximate quarterly impact of changes to Regulation E and related overdraft policy changes. (2) Represents release of nonaccretable difference. (3) Includes merger integration expense of $40 million for 3Q10 and $70 million for 4Q10. (4) Reserve release represents the amount by
Slide 6: Earnings growth driven by strong, broad revenue
Earnings growth driven by strong, broad revenue 5 $21.5 billion quarterly revenue, up 12% linked quarter annualized (LQA) 60% of revenue came from businesses with > 10% LQA growth Growth across the franchise: Period end loans up 2% LQA, up 6% LQA excluding $6.0 billion reduction in non- strategic lo
Slide 7: Franchise growth across the segments
Franchise growth across the segments 6 Community Banking NIAT = $2.0B; ROA= 1.01% Revenue = $13.5B, +1.3% LQA Core product solutions (1) +17% YoY Store-based small business solutions(1) +28% YoY Avg core deposits +5% LQA Consumer checking accts +7.5% YoY Small business checking accts +4.8% YoY Mortg
Slide 8: Growing wallet and market share
Growing wallet and market share Retail Bank Cross-sell (1) 7 Market share growth across the franchise Strong and geographically broad based 4Q10 YoY consumer checking account growth Total WFC up 7.5% California up 8.2% Florida up 10.0% (1) Cross-sell for the East includes Wachovia stand alone states
Slide 9: Mortgage Banking noninterest income
Mortgage Banking noninterest income 8 (1) Net gain on mortgage loan origination/sales activities before additions to repurchase reserve. (2) Servicing fees net of changes in fair value due to collection/realization of expected cash flows over time, amortization and provision for MSRs in excess of fa
Slide 10: Earnings growth also driven by continued decline in charge-offs / provision expense
....earnings growth also driven by continued decline in charge-offs / provision expense 9 $3.8 billion net charge-offs, down 29% from 4Q09 peak Provision expense of $3.0 billion, down $456 million from 3Q10 ($256 million fewer losses and $200 million higher reserve release) $2.1 billion decline in N
Slide 11: Leading credit metrics point to continued improvement
....and leading credit metrics point to continued improvement Loans 90+ DPD and Still Accruing (1) ($ in billions) Excludes insured/guaranteed GNMA and similar loans. The carrying value of PCI loans contractually 90 days or more past due was $11.6 billion in 4Q10, $13.0 billion in 3Q10, $15.1 billio
Slide 12: Reduction in high-risk assets
Reduction in high-risk assets 11 Loss rates decline in higher risk portfolios PCI portfolio performing better than expected High risk, non-strategic loans (1) since acquisition $27.5 Utilized 29.5% of UPB (4) (1) The non-strategic/liquidating loan portfolio has been refined in the fourth quarter to
Slide 13: Mortgage securitization
Mortgage securitization Residential Mortgage Servicing Portfolio $1.8 Trillion (as of December 31, 2010) 12 3Q10 Delinquency Performance (1) (Data as of September 30, 2010) Non-agency securitizations of WFC originated loans ~70% jumbo loans 81% prime at origination 58% from pre-2006 vintages Insigni
Slide 14: Regulatory reform
Regulatory reform (1) 13 (1) Reflects management's current estimates. Estimates are subject to change - see "Forward-looking statements" on page 43. (2) After-tax, with estimated offsets. Regulation E $270 million after-tax in 4Q10, expect lower quarterly effect in 2011 of $215-$240 million after-ta
Slide 15: Expense discipline
Expense discipline 14 (1) Includes merger integration expense of $70 million for 4Q10.
Slide 16: Capital is strong and continued to grow internally
Capital is strong and continued to grow internally Internal capital generation in 4Q10 = 12% annualized ($3.5 billion) Tier 1 common +36 bps in 4Q10 31 bps due to retained earnings 8 bps due to other internal sources of capital (3) bps due to change in risk-weighted assets Other capital ratios growi
Slide 17: Summary
Strong, consistent earnings High earnings quality Broad based revenue growth Dramatic improvement in credit quality Strong and flexible capital position Summary 16
Slide 18: Appendix
Appendix Wells Fargo 4Q10 Supplement
Slide 19: Loans outstanding
Loans outstanding Loans increased $3.6 billion, or 0.5%, from 3Q10 All other loans up $9.6 billion, or 6% LQA, excluding $6.0 billion decline in the non- strategic portfolio (Pick-a-Pay, liquidating, home equity, indirect auto, debt consolidation, all other PCI loans) Period-end balances. (1) Please
Slide 20: Non-strategic loan portfolio risk reduction
(1) The non-strategic/liquidating loan portfolio has been refined this quarter to include $1.4 billion Foreign and $1.1 billion Real Estate 1-4 family first and junior lien mortgage not previously included. All prior quarters have been adjusted to account for this change. (2) Net of purchase account
Slide 21: Capital strength
36 bps increase in Tier 1 common equity ratio in 4Q10, all internally generated (1) December 31, 2010, capital ratios are preliminary. (2) See table on page 44 for more information on Tier 1 Common Equity. Capital strength 20
Slide 22: 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. (2) Reflects $3.8 billion from the reclassification of nonaccretable difference to the accretable yield whi
Slide 23: 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 24: PCI portfolio available nonaccretable difference
Purchase credit-impaired (PCI) portfolio Available nonaccretable difference Represents contractual unpaid principal balance (UPB) of $18.9 billion for which write-downs of $9.6 billion have been absorbed by the nonaccretable difference to reflect their severe delinquency (normally 180 days) or other
Slide 25: PCI accretable yield
PCI accretable yield 4Q10 results include interest income of $578 million compared with $528 million in 3Q10 Balance of $16.7 billion expected to accrete to income over the remaining life of the underlying loans Expected cash flows on all PCI portfolios are recalculated quarterly including the adequ
Slide 26: Commercial PCI portfolio accretable yield
$1.2 billion remains to be accreted into income over 1.8 years (the estimated remaining weighted average life of the portfolio) Increase from 3Q10 reflects the reclassification to accretable yield from nonaccretable of $165 million during the quarter Most of portfolio tied to LIBOR Weighted average
Slide 27: Pick-a-Pay PCI portfolio accretable yield
$14.6 billion remains to be accreted over 9.4 years (the estimated remaining weighted average life of the portfolio) Based on updated cash flow valuations, there was no reclassification of nonaccretable to accretable in 4Q10 Quarterly fluctuations in accretable yield can be driven by changes in: Int
Slide 28: 4Q10 Credit quality highlights
4Q10 Credit quality highlights Allowance for credit losses $23.5 billion 1.54x annualized quarterly charge-offs 3.10% of total loans $13.4 billion in nonaccretable difference for PCI portfolio in addition to allowance Provision expense declined $456 million and was $850 million less than net charge-
Slide 29: Nonperforming assets
Nonperforming assets Commercial nonaccruals of $11.4 billion 95% secured and approximately 65% guaranteed Over 57% are currently paying interest that is applied to principal $2.6 billion in losses taken to date Consumer nonaccruals of $14.9 billion > 99% secured Approximately 41% of nonaccrual loans
Slide 30: Commercial nonaccrual loans
Commercial nonaccrual loans 4Q10 Total Commercial nonaccrual loans = $11,351 million ($ change in millions) 29 Foreign Commercial and Industrial & Lease Financing: Inflows decreased 12% and outflows increased 116% from 3Q10 89% secured 45% guaranteed 78% current on interest 47% have already been wri
Slide 31: Consumer real estate nonaccrual loans
Consumer real estate nonaccrual loans National Home Equity (1): Inflows decreased 9% while outflows increased 3% 44% are 1-4 family first mortgage 19% are TDRs for which impairment has been recognized Other Businesses: 78% is WFF debt consolidation Inflows increased 3% while outflows increased 18% 4
Slide 32: 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 33: CRE loan portfolio by business segment
CRE loan portfolio by business segment Wholesale Banking 15% owner-occupied Community Banking 61% owner-occupied Wealth, Brokerage & Retirement (WBR) 37% owner-occupied 32
Slide 34: Wholesale Banking CRE loan portfolio
Wholesale Banking CRE loan portfolio (1) Wholesale CRE outstandings of $82.3 billion (1) down $344 million from 3Q10 CRE Division portfolio = $61.4 billion, down $227 million NPAs decreased $305 million from 3Q10 while losses declined $42 million, or 27 bps, from 3Q10 Wachovia PCI CRE portfolio = $6
Slide 35: Pick-a-Pay mortgage portfolio
Pick-a-Pay mortgage portfolio Carrying value of $74.8 billion in first lien loans outstanding, down $2.5 billion from 3Q10 and down $20.5 billion from 4Q08 on paid-in-full loans and loss mitigation efforts Unpaid principal balance of $89.6 billion, down $3.4 billion from 3Q10 and down $27.7 billion
Slide 36: Pick-a-Pay portfolio available nonaccretable difference
Pick-a-Pay portfolio Available nonaccretable difference Represents contractual unpaid principal balance (UPB) of $10.7 billion for which write-downs of $4.4 billion have been absorbed by the nonaccretable difference to reflect their severe delinquency (normally 180 days) or other indications of seve
Slide 37: 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 $278 million QoQ for the second consecutive quarter 81% of loans have been written down to current net realizable value (See page 38) New inflows of $0.
Slide 38: 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 Roll rates from current to 30+ days past due (DPD) ended the year on a downward trend, lower than 3Q10 First time delinquencies, defined as the percentage of 30+ days delinquent loans that are delinquen
Slide 39: Pick-a-Pay nonaccrual loan composition
Pick-a-Pay nonaccrual loan composition (1) 81% of Pick-a-Pay nonaccruals held at estimated recoverable value, consistent with 3Q10, reflecting write-downs and/or LTV ^100% Allowance available for the remaining 19% that have not yet been written down 9% of the nonaccruals are performing modifications
Slide 40: Real estate 1-4 family first mortgage portfolio
Real estate 1-4 family first mortgage portfolio First lien mortgage loans up 1% despite declines in run-off portfolios Pick-a-Pay non-PCI portfolio down 3% PCI portfolio down 3% Debt consolidation down 3% Non run-off first lien mortgage up 4% Non run-off first lien mortgage nonaccruals down $318 mil
Slide 41: Home equity portfolio
Home equity portfolio (1) Core Portfolio (2) Outstandings down 2% High quality new originations with weighted average CLTV of 62%, 775 FICO, and 32% total debt service ratio 4Q10 losses down $30 million resulting from prior quarters' early cycle delinquency improvement Delinquencies declined $63 mil
Slide 42: Credit card portfolio
Credit card portfolio $22.3 billion credit card outstandings represent less than 3% of total loans Outstandings up 2% Net charge-offs down $52 million, or 87 bps, reflecting previous risk mitigation efforts that included tightened underwriting and line management changes (i.e. fewer balance transfer
Slide 43: Auto portfolio
Auto portfolio Core Portfolio Total outstandings up 2% QoQ and up 22% YoY reflecting record market share positioning Near record originations in the indirect portfolio in the quarter with LTV and loan structures consistent over the last seven quarters Net charge-offs stable as losses resulting from
Slide 44: 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," "should," "may," "can," "will," "outlook," "appears
Slide 45: Tier 1 common equity reconciliation
Tier 1 common equity reconciliation 44