Barclays Capital Financial Services Conference
Howard Atkins, CFO
May 6, 2009
Forward-looking statements and additional information
In accordance with the Private Securities Litigation Reform Act of 1995, we caution you that this presentation contains forward-looking statements about our future financial performance and business. We make forward-looking statements when we use words such as “believe,” “expect,” “anticipate,” “estimate,” “should,” “may,” “can,” “will” or similar expressions. Forward-looking statements in this presentation include statements about the amount and timing of expected cost savings and revenue synergies and other benefits of the Wachovia merger, the amount and timing of expected integration expenses relating to the Wachovia merger, the credit quality of our loan portfolios including the Wachovia loan portfolios, and the future earnings benefits of purchase accounting adjustments taken for the Wachovia merger. This presentation also includes statements about the adequacy of our allowance for credit losses at March 31, 2009, and the lower loss content and lower probability of future losses in the Wachovia loan portfolios. Do not unduly rely on forward-looking statements as actual results could differ significantly from expectations. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date. Several factors could cause actual results to differ significantly from expectations including: current economic and market conditions; our capital requirements and ability to raise capital on favorable terms; the terms of capital investments or other financial assistance provided by the U.S. government; legislative proposals to allow mortgage cram-downs in bankruptcy or force other loan modifications; participation in the U.S. Treasury Department’s first and second lien modification programs; our ability to successfully integrate the Wachovia merger and realize the expected cost savings and other benefits; our ability to realize the recently announced efficiency initiatives to lower expenses when and in the amount expected; the adequacy of our allowance for credit losses; recognition of other-than-temporary impairment on securities held in our available-for-sale portfolio; the effect of changes in interest rates on our net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale; hedging gains or losses; disruptions in the capital markets and reduced investor demand for mortgages loans; our ability to sell more products to our customers; the effect of the economic recession on the demand for our products and services; the effect of the fall in stock market prices on fee income from our brokerage, asset and wealth management businesses; our election to provide support to our mutual funds for structured credit products they may hold; changes in the value of our venture capital investments; changes in our accounting policies or in accounting standards or in how accounting standards are to be applied; mergers and acquisitions; federal and state regulations; reputational damage from negative publicity, fines, penalties and other negative consequences from regulatory violations, the loss of checking and saving account deposits to other investments such as the stock market, and fiscal and monetary policies of the Federal Reserve Board. There is no assurance that our allowance for credit losses will be adequate to cover future credit losses or that the Wachovia loan portfolios will not have higher losses than we projected at closing, especially if credit markets, housing prices and unemployment do not stabilize. Increases in loan charge-offs or in the allowance for credit losses and related provision expense could materially adversely affect our financial results and condition. For more information about factors that could cause actual results to differ from expectations, refer to our annual, quarterly and current reports filed with the Securities and Exchange Commission and available on the SEC’s website at www.sec.gov, including our Annual Report on Form 10-K for the year ended December 31, 2008, including the discussion under “Risk Factors.” Any factor described above or in our SEC reports could, by itself or together with one or more other factors, adversely affect our financial results and condition. This presentation includes certain financial measures that are based on tangible common equity and risk-weighted assets. For more information about these measures, including a reconciliation of tangible common equity to total equity and a description of how risk-weighted assets are calculated under regulatory guidelines for risk-based capital, refer to the table on page 24 of our first quarter 2009 earnings press release, which is accessible on our website, wellsfargo.com, by clicking on “About Us,” then “Quarterly Earnings” under “Investor Relations.”
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Our Vision Remains the Same
“Satisfy all our customers’ financial needs and help them succeed financially”
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Wells Fargo Value Proposition
Growth Operating Margins Prudent Risk Management
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Wells Fargo + Wachovia: Major Contributor to Health of U.S. Economy
Leading provider of financial services to U.S. population One of the America’s largest companies Keeping credit flowing Over 40 million households served, 1 in 3 U.S. households 24th Fortune 500 Rank(1)
More than $700 billion of credit extended since start of the credit crisis (2) 273,000+ team members
12th largest U.S. employer
One of nation’s largest employers
Supporting communities
“Top 10 giver in corporate philanthropy” Business Week
(1) Based on market cap. (2) Includes loan commitments, mortgage originations and mortgage securities purchases from 2Q07 to 1Q09
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Best Distribution in U.S. Banking
Wells Fargo retail banking stores — 3,292 Wachovia retail banking stores — 3,346 Total combined retail banking stores — 6,638
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Leading Market Presence in Diverse Businesses
#1 U.S. banking stores #1 Small business lending #1 Mortgage originator #1 Middle market commercial lending #1 Agriculture lending #1 Commercial real estate lending #1 Commercial real estate brokerage #1 Bank-owned insurance brokerage #2 Banking deposits in U.S. #2 Debit cards #2 Foreign exchange sales #3 Retail brokerage (21,889 financial advisors)
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Revenue Growth Engine
($ in billions)
$28.4
$30.1
$32.9
$35.7
$39.4
$41.9
5 year CAGR = 8% Record revenue in 1Q09, up 16% at legacy Wells Fargo
2003
2004
2005
2006
2007
2008
Net interest income plus noninterest income
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Pre-tax Pre-provision Profits – Consistent Growth
($ in billions)
$19.2 $13.9 $14.9 $16.6
5 year CAGR = 11% Record $9.2 billion in 1Q09
$11.2
$12.5
2003
2004
2005
2006
2007
2008
Revenue less noninterest expense
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Best in Sales, Best in Customer Service
Legacy Wells Fargo: Best in cross-sell
- Record retail banking core product sales 6.71 million, up 17% in 1Q09 - Record retail household cross-sell - % of households with 8+ products - Wholesale cross-sell 5.8 products 24% 6.4 products
Wachovia: Best in service quality
-#1 in customer service for the 8th consecutive year
(1)
Core product sales growth up 17 percent from prior year on a comparable basis. (1) according to the American Customer Satisfaction Index
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Credit Extended
($ in billions)
Q408 Mortgage originations Other consumer Commercial MBS Total $50 6 37 – $93
Q109 $101 14 58 29 $202
Fourth quarter includes legacy Wells Fargo only
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Deposit Growth
Total Core Deposits
($ in billions)
Up 6% (annualized) from prior quarter Consumer checking and savings deposits up 31% (annualized) Consumer checking accounts up a net 6.2% California checking accounts up a net 8.9% at legacy Wells Fargo
$756.2 $745.4
4Q08
1Q09
Core deposits are noninterest-bearing deposits, interest bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances)
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Mortgage Origination Growth
Average Quarterly Originations for the years 1990 – 2008 ($ in billions)
118 101 83 73
79
74
68 58
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28 21 2 1990 3 1991 5 1992 9 6 1994 9 13 14 19
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Mortgage originations exclude co-issue and HELOC commitments. 1Q09 actual quarterly originations, prior periods are quarterly average for the year.
1Q09
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Mortgage Origination Market Share
% Market Share
#1 in Mortgage Originations
23%
25%
20%
15%
10%
5%
0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09
Source: Inside Mortgage Finance; excludes co-issue and HELOC commitments.
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Mortgage Servicing
($ in billions)
2,128 2,120
1,528 1,366
989 805 710 581 295 391 453
4 1990
9 1991
22 1992
46 1993
72 1994
107
180
206
258
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Excludes sub-servicing
1Q09
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Wells Fargo Value Proposition
Growth Operating Margins Prudent Risk Management
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Industry Leading Net Interest Margin
Net Interest Margin
4.16%
Checking and Savings as a % of Total Deposits
74%
3.38%
65%
WFC
Peer Average
WFC
Peer Average
1Q09 reported NIM. Peers include BAC, BBT, C, COF, FITB, JPM, PNC, RF, STI, USB. Source: SNL
Peers include BAC, BBT, COF, FITB, PNC, RF, STI, USB. Source: SNL
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Low Cost Deposits Drive Industry Leading Margin
Cost of Interest-Bearing Deposits in 1Q09
1.82% 1.65% 1.40%
0.93% 0.64%
WFC
Peers include BAC, BBT, C, COF, FITB, JPM, PNC, RF, STI, USB Source: SNL
JPM
BAC
C
Peer Average
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Earning More, Spending Less
Expense Efficiency Ratio 60.6% 58.5% 57.7% 58.4% 57.9% 56.2% 54.1%
2003
2004
2005
2006
2007
2008
1Q09
Data prior to 1Q09 is for legacy Wells Fargo only. 1Q09 data includes Wachovia.
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Efficiency Ratio vs. Peers
Wells Fargo was the only major bank to decrease noninterest expense and increase revenue in 2008
60.5% 56.2%
WFC
Peer Average
1Q09 Efficiency Ratio
Peers include BAC, BBT, C, COF, FITB, JPM, PNC, RF, STI, USB. Source: SNL
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Pre-tax Pre-provision Earnings vs. Peers
1Q09 Pre-tax Pre-provision Earnings/Net Charge-offs
282%
202%
WFC
Peers include BAC, BBT, C, COF, FITB, JPM, PNC, RF, STI, USB. Source: SNL
Peer Average
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Wells Fargo Value Proposition
Growth Operating Margins Prudent Risk Management
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Diversified Financial Services Company
Balanced Loan Portfolio Balanced Spread and Fee Income Diversified Fee Generation
12% 6%
43% 57%
54% 46%
15%
23% 26% 9%
9%
Consumer Loans Commercial Loans
57% 43%
Net Interest Income Noninterest Income
54% 46%
Service Charges
15%
Trust & Investment Fees 23% Card Fees Other Banking Fees Mortgage Banking Insurance Other Noninterest Income (1) 9% 9% 26% 6% 12%
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(1) Other noninterest income includes other noninterest income, net gains (losses) on debt securities available for sale and net gains (losses) from equity investments.
MSR Asset Valuation
Ratio of MSR to loans serviced for others – lowest since 2Q03
0.73%
0.74%
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
FAS 156 adopted for residential MSRs in 2006
1Q09
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Legacy Wells Fargo – largely not impacted by industry issues
Legacy Wells Fargo: Largely not impacted by
- Offering negative amortizing mortgages - Subprime securities - Direct exposure to hedge funds - Large convenant-lite LBOs - CDOs - CLOs - SIVs
Wachovia: Exposures included in diligence and factored into deal pricing
- Loans reviewed for impairment at merger date - Unrealized losses on securities portfolio eliminated through purchase accounting
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Wachovia Balance Sheet “de-risked”
Wachovia’s loan portfolio
- $40 billion of credit write-downs taken through purchase accounting directly to equity - $58 billion “impaired” portfolio
> Higher risk portfolio > Virtually no remaining loss content at year-end
- $375 billion “non-impaired” portfolio
> Lower risk portfolio > Provision for charge-offs expensed through income statement
Wachovia’s securities portfolio and pension assets
- Reduced cost basis of securities portfolio by $9.6 billion at close - Net $2.9 billion of negative OCI also written off
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CDO-related On Balance Sheet Exposure
Approximately $14 billion of 12/31/08 debt/equity carrying value
- Includes $12 billion of senior loans secured largely by diversified highly-rated securities
>Third parties in first loss position >Over $10 billion of loans originated by Wachovia
Reviewed for impairment at merger date Over 90% of underlying collateral rated ‘A’ or better Well-diversified by both issuer and collateral type
- $2 billion of securities carry lower near-term risk of OTTI writedowns
>Largely Wachovia positions with new cost-basis established at close
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Loan Portfolio Risk Reduction
Loans Outstanding
($ in billions)
1Q09
4Q08
(1)
2Q08
(1)
% Change Since 2Q08
(2)
Pick-a-Pay mortgage $ Liquidating home equity Legacy Wells Fargo Financial indirect auto Total consumer Wachovia Commercial Real Estate Division Total loans $
93.2 9.9 16.3 119.4 45.3 164.6
(1)
95.3 10.3 18.2 123.8 45.4 169.3
(1)
122.0 11.1 21.6 154.7 54.6 209.4
(2)
(24) % (11) (25) (23) (17) (21) %
(1) Net of SOP 03-3 credit write-downs or nonaccretable difference. (2) Wachovia 2Q08 loans are pre-acquisition and, accordingly, are not included in Wells Fargo reported results for that period and are before the effect of purchase accounting adjustments associated with the Wachovia merger.
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Loan Loss Reserves
Allowance for credit losses of $22.8 billion Allowance covers at least:
- 12 months of estimated losses for all consumer portfolios - 24 months of estimated losses for all commercial and commercial real estate portfolios
Allowance for credit losses as a percentage of total loans
2.91% 2.69%
Adequacy of reserves:
- Allowance already considers expectations for growth of NPAs and charge-offs - Legacy WB’s loan portfolio de-risked at 12/31/08 - Legacy WB’s non-impaired portfolio has an inherently lower loss content with a lower probability of default - Core loan portfolio performing well
1.88% 1.56% 1.95% 2.51% 2.71%
1Q08
2Q08
3Q08
4Q08
1Q09
Excluding loans acquired from Wachovia accounted for under SOP 03-3, the 4Q08 and 1Q09 allowance/non-impaired loans was 2.69% and 2.91% respectively.
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Allowance to Nonperforming loans
1Q09 Allowance for Loan Losses to Nonperforming Loans
212%
161%
114%
WFC
Top 3 Peer Average
Peer Average
Top 3 peers include BAC,C, JPM. Peer average includes BAC, BBT, C, FITB, JPM, PNC, RF, STI, USB Source: SNL and company reports.
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Nonperforming Loans
1Q09 vs. 4Q08 Growth of Nonperforming Loans to Total Loans
+63 bps +64 bps
+46 bps
WFC
Top 3 Peer Average
Peer Average
Top 3 peers include BAC,C, JPM. Peer average includes BAC, BBT, C, FITB, JPM, PNC, RF, STI, USB Source: SNL and company reports.
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Pick-a-Pay Mortgage Portfolio
$54 billion non-impaired portfolio performed as expected
- 0.33% annualized net charge-offs in 1Q09
$40 billion impaired portfolio reduced by $22 billion through purchase accounting adjustments Actively providing solutions for at-risk customers on entire portfolio
- Completed 12,300 loan solutions in 1Q09 - Positive early performance from loan modification process with low customer redefaults
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Home Equity Portfolio
Core Portfolio
$119 billion outstanding Performance improved from addition of Wachovia, due to lower CLTVs, % in first lien position, and de-risking
Liquidating Portfolio
$9.9 billion outstanding, down 4% from year-end 2008 reflecting portfolio run-off; portfolio down 17% since year-end 2007 Loss rates up 100 bps and 2+ payments past due up 117 bps QoQ on declining home values in geographies with higher loan concentrations and high unemployment
Excludes SOP 03-3 impaired loans.
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Auto Portfolio
$28.9 billion outstanding in core portfolio
- Decline in net charge-offs reflected lower severity, relatively stable default frequency trends and seasonality benefits
$16.3 billion outstanding in liquidating Wells Fargo Financial indirect auto
- Outstandings down $2.0 billion QoQ driven by paydowns - Have been shrinking portfolios for ~ 2 years
Excludes SOP 03-3 impaired loans.
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Credit Card Portfolio
$22.8 billion outstanding, less than 3% of total loans
- Down 3% QoQ due to seasonality and lower consumer spending - Majority is core $15.7 billion Community Banking portfolio — retailoriginated and relationship-based - $7.1 billion is non-prime Wells Fargo Financial-originated
10.13% combined net charge-offs
- Community Bank portfolio performs in line with prime peers - WFF Portfolio — higher loss rate yet higher total yield
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Commercial Loan Portfolio
C&I
$193.9 billion outstanding Net charge-off ratio of 0.51% remained low and reflected high quality of portfolio that is largely middle-market and relationshipfocused
Commercial Real Estate
$126.2 billion outstanding Net charge-offs of 0.39% reflected historically strong underwriting discipline
Business Direct
$11.1 billion outstanding Charge-offs up $101 million QoQ but nonaccrual loans relatively flat QoQ reflecting customer management efforts
Excludes SOP 03-3 impaired loans.
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Capital Growth
$40 billion of SOP 03-3 credit write-downs from Wachovia acquisition is the equivalent of approximately 190 bps of additional TCE Dividend reduction is the equivalent of adding $5 billion in capital each year through earnings
Tier 1 Capital
Tangible Capital
+42bps
3.28% 2.86%
+44bps
7.84% 8.28%
4Q08
1Q09
4Q08
1Q09
First quarter 2009 Tier 1 Capital ratio preliminary Tangible common equity includes total equity, less preferred equity, goodwill and intangible assets (excluding MSRs), net of related deferred taxes, and the portion of noncontrolling interest accounted for under FAS 160 that does not have risk sharing attributes similar to common equity.
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Internal Capital Generation
Internal Capital Generation driven by:
- Diversified business model - Wachovia acquisition synergies - Risk-reduction actions previously taken
Highest ROE among large bank peers ROE Averages
1Q09 Wells Fargo JPMorgan Chase Bank of America Citigroup
Source: SNL
1 Year 5% 3% 2% (29%)
3 Year 13% 10% 9% (1%)
5 Year 16% 9% 12% 7%
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14% 5% 7% (6%)
Wachovia Update
Merger on track 41% combined revenue in Q1 from Wachovia Reconfirmed $5 billion cost savings Original $7.9 billion merger cost estimate will be lower
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Summary
Record quarter for our company Diversified business model drove record $3B profit We’re “open for business” among the leaders in banking industry in providing credit to consumers and businesses We continue to profitably grow the franchise Best way to grow capital is to earn it which we are doing Wachovia merger producing meaningful synergies that are further enhancing internal capital generation
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