WELLS FARGO REPORTS $2.5 BILLION IN NET INCOME
SAN FRANCISCO - Wells Fargo & Company (NYSE:WFC) reported diluted earnings per common share
of $0.45 and net income of $2.5 billion for first quarter 2010.
"Once again the resiliency and advantages of Wells Fargo's diversified business model proved themselves
in a difficult business environment, even as we continued to make smooth progress with our industry's
largest merger, our integration with Wachovia," said Chairman and CEO John Stumpf. "Though the
economy continues to present challenges, and we've yet to see consumers and businesses resume past
levels of spending and borrowing, our teams at Wells Fargo still found opportunities to serve the financial
needs of customers, setting the stage for a first quarter performance that featured contributions from each
of our core business groups.
"We're encouraged by signs of improvement in the credit cycle, and by the savings and cross sell
opportunities we're realizing as more Wachovia bank stores convert to Wells Fargo. To capitalize on these
emerging opportunities, our focus will be on just that, keeping our focus, so we can continue to deliver the
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performance investors expect, the services and products customers demand, and the leadership our
communities desire. Whether it is helping customers plan for retirement, or households avoid foreclosure,
or financing the goals of entrepreneurs, we're confident Wells Fargo will continue to be uniquely
positioned to contribute to America's economic recovery."
Financial Performance
"Our company earned $2.5 billion in the quarter, a great example of how Wells Fargo's business model
produces solid results in different stages of the economic cycle," said Chief Financial Officer Howard
Atkins. "While loan demand remained soft in the quarter and net mortgage hedging results declined to
levels of a year ago, businesses as diverse as asset-based lending, debit card, insurance, merchant services,
student lending and retirement services all showed solid gains. Credit metrics in many portfolios-
including loss rates and early indicators - performed better than our previous expectations for first
quarter. Based on results for the last few quarters and current loss projections, we believe that credit at
Wells Fargo has turned the corner with provision expenses already having peaked in third quarter 2009
and net charge-offs having peaked in fourth quarter 2009. We continued to build capital in the first
quarter, with Tier 1 common reaching 7.10 percent, up 64 basis points in the quarter entirely on internal
capital generation, Tier 1 leverage reaching 8.3 percent and Tier 1 capital reaching 10.0 percent."
Revenue
Revenue in the first quarter was $21.4 billion and pre-tax pre-provision profit was $9.3 billion. The
Company has earned at least $9.0 billion in pre-tax pre-provision profit each quarter since the Wachovia
acquisition. "Despite a $58 billion decline in average total loans, revenue grew 2 percent from the prior
year, reflecting the diversity of our revenue sources," said Atkins. Year-over-year revenue was driven by
20 percent growth in trust and investment fees, 7 percent growth in insurance fees, 14 percent growth in
processing and other fees, and an 11 basis point increase in the net interest margin. Mortgage banking
revenues were flat from the prior year. On a linked-quarter basis, total revenue declined $1.2 billion, due
primarily to the reduction in mortgage hedging results to levels more typical for this point in the cycle.
Net Interest Income
Net interest income of $11.1 billion declined only 2 percent from a year ago despite a 7 percent, or
$58 billion, decline in average loans. The net interest margin was 4.27 percent, up 11 basis points from a
year ago largely due to substantial growth in core consumer and business checking and savings accounts.
Noninterest Income
Noninterest income was $10.3 billion, up 7 percent from a year ago. On a linked-quarter basis,
noninterest income was down $895 million due primarily to lower net mortgage hedge results, seasonality
and two fewer days in the quarter. First quarter noninterest income included:
- Mortgage banking fees of $2.5 billion, down $34 million from a year ago:
- $1.1 billion in revenue from mortgage loan originations/sales activities on $76 billion of
residential mortgage originations and $125 billion of applications. Origination revenue declined
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year over year on a 25 percent decline in originations, largely due to a decline in refinance activity.
Mortgage origination revenue was also reduced by a $402 million addition to the repurchase
reserve in first quarter 2010
- $1.4 billion of servicing income, up $460 million year over year, largely attributable to other
changes in fair value due to a decline in pay-offs. Mortgage hedging results were roughly flat from
a year ago and declined $893 million linked quarter largely due to a change in the composition of
the hedge toward more interest rate swaps and lower coupon mortgage forwards designed to
maintain ongoing hedge effectiveness. The ratio of total MSRs as a percent of loans serviced for
others declined 2 basis points to 0.89 percent
- Trust and investment fees of $2.7 billion, up 20 percent year over year, reflecting continued growth in
new customers, higher transaction volumes and stronger equity markets
- Service charges on deposit accounts of $1.3 billion, down 4 percent year over year, as consumers have
decreased their spending and increased their savings, which offset the impact on service fees from
continued strong account growth
- Insurance revenue of $621 million, up 7 percent year over year, reflecting customer growth and higher
crop insurance revenues
- Trading revenues of $537 million, representing less than 3 percent of total consolidated revenue
The Company had net unrealized securities gains of $7.4 billion at March 31, 2010, compared with
$5.6 billion at December 31, 2009.
Noninterest Expense
Noninterest expense of $12.1 billion, which included $380 million of merger integration costs and
$11.7 billion of all other expense, was down from $12.8 billion in fourth quarter 2009. First quarter credit
resolution costs, including expenses associated with foreclosed assets, loan modifications and other home
preservation activities, were approximately $250 million higher than a year ago. "Of our approximately
$5 billion of estimated total integration costs, we expect approximately $2 billion to be expensed in 2010,
as we convert banking stores and lines of business, and continue to build infrastructure," said Atkins. "In
addition to merger integration, we continued to invest for long-term growth throughout the Company,
adding people in regional banking and commercial banking as we apply Wells Fargo's model to the
eastern markets, and investing in technology to improve service across our franchise." The efficiency ratio
was 56.5 percent in both first quarter 2010 and fourth quarter 2009 and 56.2 percent in first quarter
2009.
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Summary of Noninterest Expense Mar. 31,
(in millions) 2010 2009 2009
Merger integration costs:
Wachovia $ 380 450 7 7
All other - 1 128
All other noninterest expense 11,737 1 2,370 11,613
Total noninterest expense $ 12,117 12,821 11,818
Quarter ended
Income Taxes
The Company's income tax expense for the quarter included $53 million ($0.01 per common share) due to
the impact of health care legislation on the Company's postretirement medical benefits deferred tax asset.
Loans
Average total loans were $797.4 billion, up $4.9 billion from fourth quarter 2009. Total loans at
March 31, 2010, included $23.4 billion related to the adoption of FAS 167. "While we continued to supply
significant amounts of credit to consumers and businesses in the first quarter, as we have done
throughout the credit crunch, loan demand remained soft," said Atkins. "In addition, we continued to
reduce high-risk/non-strategic consumer assets, which were down $4.3 billion in first quarter and down
$23.2 billion cumulatively since the Wachovia acquisition."
Deposits
Average total core deposits were $759.2 billion, compared with $770.8 billion in fourth quarter 2009 and
$753.9 billion in first quarter 2009. Of the core deposits, $664.4 billion represent transaction accounts or
low-cost savings accounts from consumer and commercial customers, which increased 2 percent
(annualized) from $661.4 billion in fourth quarter 2009. Average mortgage escrow deposits were
$24.6 billion, compared with $27.5 billion in fourth quarter 2009. Consumer checking accounts grew a
net 7.0 percent from first quarter 2009. "Year over year, we saw strong growth in noninterest-bearing
deposits," said Atkins. "The linked-quarter decline in total deposits was driven partly by the maturity of
higher-cost certificates of deposits over the last two quarters."
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Capital
"We continued to build capital during the first quarter, with all ratios higher at March 31, 2010, than yearend,"
said Atkins. The adoption of FAS 167 resulted in the consolidation of $18.6 billion of net
incremental GAAP assets and $6 billion of risk-adjusted assets, with less than a 1 basis point impact on
the Company's Tier 1 common equity ratio.
Mar. 31, 2010 (1)
Tier 1 capital 10.0 % 9.3 8.3
Total capital 13.9 13.3 12.3
Tier 1 leverage 8.3 7.9 7.1
Tier 1 common equity (2) 7.1 6.5 3.1
(1) March 31, 2010, ratios are preliminary.
(2) See table on page 37 for more information on Tier 1 common equity.
Credit Quality
"We believe quarterly provision expenses and quarterly total credit losses have peaked," said Chief Credit
and Risk Officer Mike Loughlin. "Losses in the first quarter of $5.3 billion were down from $5.4 billion in
fourth quarter 2009, even after $123 million of FAS 167 losses taken in the first quarter and $145 million
due to newly issued regulatory guidance requiring the Company to charge-off certain collateral-dependent
residential real estate loans that have been modified. The costs related to this charge had previously been
reserved. Our credit picture has improved earlier than we had anticipated. In the consumer portfolio,
lower early stage delinquencies, better delinquency roll rates, and improved values for residential real
estate and autos were evident in the first quarter. In the commercial portfolio (including commercial real
estate) losses declined $356 million from fourth quarter 2009 and may indicate stabilization and an
earlier-than-expected loss peak.
"This improvement in credit quality can be partly attributed to actions we took as early as 2007, including
significant investment in collections, loss mitigation and workout teams; a refined consumer credit policy
that reduced maximum loan-to-value requirements and virtually eliminated stated income as an
acceptable element of loan applications; and the establishment of a number of run-off/liquidating
portfolios. These actions have produced high quality subsequent vintages, and allowed us to focus our loss
remediation efforts in an efficient fashion.
"Nonperforming assets (NPAs) continued to increase, although at a slower rate than in the past three
quarters, with all of the first quarter increase coming from consumer real estate loans and commercial
real estate loans. We expect NPAs to continue to increase gradually and peak before year end. The peak in
NPAs should naturally lag the credit loss peak, reflecting an environment where retaining these assets is
the most viable economic option for the Company and the best way to help borrowers recover financially.
"Our provision in the first quarter equaled net charge-offs. The loan loss reserve increase from year end is
fully attributable to assets brought on balance sheet due to the adoption of FAS 167."
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Credit Losses
First quarter net charge-offs were $5.33 billion, or 2.71 percent of average loans (annualized), compared
with fourth quarter net charge-offs of $5.41 billion, or 2.71 percent. Total credit losses included
$1.3 billion of commercial and commercial real estate loans (1.79 percent) and $4.0 billion of consumer
loans (3.45 percent) as shown in the following table. First quarter charge-offs included $123 million in
losses associated with assets brought onto the balance sheet upon adoption of FAS 167 and $145 million in
losses associated with newly issued regulatory charge-off guidance applicable to collateral-dependent real
estate loan modifications.
Net Loan Charge-Offs ( ) Quarter ended
Commercial $ - - 6 50 650 1.68 % $ 927 2 .24 % $ 924 2.09 %
Real estate mortgage - - 327 327 1.27 349 1.32 209 0.80
Real estate construction - - 3 38 338 4 .74 375 4.82 249 3.01
Lease financing - - 29 29 0.85 4 9 1.37 8 2 2.26
Total commercial and commercial real estate 1,344 1,344 1 .79 1,700 2.15 1,464 1.78
Real estate 1-4 family
first mortgage 97 46 1,168 1,311 2.17 1 ,018 1.74 966 1.63
Real estate 1-4 family
junior lien mortgage 15 99 1,335 1,449 5.56 1,329 5.09 1,291 4.85
Credit card - - 6 43 643 11.17 634 10.61 648 10.96
Other revolving credit
and installment 11 - 536 547 2 .45 686 3.06 682 3.00
Total consumer 123 145 3,682 3,950 3.45 3,667 3.24 3,587 3 .13 Foreign - - 36 36 0.52 46 0.62 60 0.79 Total $ 123 145 5,062 5,330 2.71
(1)
(2)
(3)
Quarterly net charge-offs as a percentage of average loans are annualized. See explanation on page 30 of the accounting for purchased credit-impaired (PCI) loans from Wachovia
and the impact on selected financial ratios.
Comptroller of the Currency CNBE Policy Guidance 2010-11, Policy Interpretation - Supervisory Memorandum 2009-7, Guidance for the Treatment of Residential Real Estate
The majority of losses associated with consolidated VIE loans on nonaccrual status will ultimately be borne by third party security holders in future periods.
Nonperforming assets
Total nonperforming assets were $31.5 billion (4.0 percent of total loans) at March 31, 2010, up
14 percent from $27.6 billion at December 31, 2009. At the end of the first quarter, nonperforming assets
included $27.3 billion of nonperforming loans and $4.2 billion of foreclosed assets and repossessed real
estate and vehicles. "The rate of growth in nonperforming assets continued to decline, and the estimated
remaining loss content in these assets is significantly mitigated," said Loughlin.
Growth in nonaccrual loans slowed in first quarter, increasing from fourth quarter 2009 by $2.9 billion,
including $909 million related to assets brought on the balance sheet upon adoption of FAS 167. In the
first quarter, substantially all of the change in nonaccrual loans related to consumer and commercial real
estate loans, and inflows of new nonaccruals declined on a linked quarter basis, including declines in non-
FAS 167 consumer real estate inflows and total commercial and commercial real estate inflows, with a
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27 percent decline in commercial real estate inflows. Loss expectations for nonaccrual loans are driven by
delinquency rates, default probabilities and severities. While nonaccrual loans are not free of loss content,
the loss exposure remaining in these balances is significantly mitigated by four factors. First, 91 percent of
nonaccrual loans are secured. Second, losses have already been recognized on 37 percent of the consumer
nonaccruals and 29 percent of commercial nonaccruals and, when a residential nonaccrual loan reaches
180 days past due, it is our policy to write these loans down to net realizable value. Third, as of
March 31, 2010, 45 percent of commercial nonaccrual loans were current on interest. Fourth, there are
certain nonaccruals for which there are loan level reserves in the allowance, while others are covered by
general reserves.
Nonaccrual Loans and Other Nonperforming Assets As a As a As a % of % of % of Consolidated All Total total Total total Total total ($ in millions) VIEs (2) other balances loans balances loans balances loans Commercial and commercial real estate:
Commercial $ - 4,273 4 ,273 2 .84 % $ 4,397 2.78 % 4,540 2.68 %
Real estate mortgage 7 4,750 4,757 4.55 3,984 3.80 2,856 2.76
Real estate construction - 2,915 2,915 10.47 3,025 1 0.18 2 ,711 8.55
Lease financing - 185 185 1 .33 171 1 .20 157 1 .11
Total commercial and commercial real estate 7 12,123 12,130 4.09 11,577 3.77 10,264 3.22 Consumer:
Real estate 1-4 family
first mortgage 821 1 1,526 12,347 5.13 10,100 4.40 8,132 3.50
Real estate 1-4 family
junior lien mortgage 79 2,276 2,355 2.27 2,263 2 .18 1,985 1.90
Other revolving credit
and installment 2 332 334 0.37 332 0.37 344 0.38
Total consumer 902 1 4,134 15,036 3.30 12,695 2.84 10,461 2.32 Foreign 135 0.48 146 0.50 1 44 0.48
GNMA loans - 1,111 1,111 960 840
All other 95 2,875 2,970 2,199 1,687
Total foreclosed assets 95 3,986 4,081 3,159 2,527 Real estate and other nonaccrual investments - 118 118 62 55 Total nonaccrual loans and other nonperforming assets $ 1,004 30,496 31,500 4.03 % $ 27,639 3.53 % 23,451 2.93 %
Change from prior quarter:
Total nonaccrual loans $ 909 1,974 2,883 $ 3,549 5,071
Total nonperforming assets 1,004 2,857 3,861 4,188 5,109
(1)
(2)
March 31, 2010 December 31, 2009 (1) September 30, 2009
The Company consolidated certain VIEs prior to the adoption of FAS 167 on January 1, 2010. At December 31, 2009, consolidated VIE loans totaled $561 million, of which there were
no loans on nonaccrual status.
The majority of losses associated with consolidated VIE loans on nonaccrual status will ultimately be borne by third party security holders in future periods.
Residential mortgage nonaccrual loans increased largely due to slower disposition, not increased
quarterly inflow. Federal government programs, such as HAMP, and Wells Fargo proprietary programs,
such as the Company's Pick-a-Pay Mortgage Assistance program, require customers to provide updated
documentation and complete trial repayment periods before the loan can be removed from nonaccrual
status. In addition, for loans in foreclosure, many states, including California and Florida where Wells
Fargo has significant exposures, have enacted legislation that significantly increases the time frames to
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complete the foreclosure process, meaning that loans will remain in nonaccrual status for longer periods.
"At the conclusion of the foreclosure process, we continue to sell real estate owned in a very timely
fashion," said Loughlin.
"When a consumer real estate loan is 120 days past due, we move it to nonaccrual status and when the
loan reaches 180 days past due it is our policy to write these loans down to net realizable value.
Thereafter, we revalue each loan in nonaccrual status regularly and recognize additional charges if
needed. Our quarterly market classification process, employed since late 2007, indicates that most MSAs
have stabilized and we anticipate manageable additional write-downs while properties work through the
foreclosure process.
"While foreclosed assets increased 30 percent in the quarter, the majority of the projected loss content in
these assets has already been accounted for, and increases to this population of assets should have
minimal additional impact to expected loss levels.
"Given our real estate-secured loan concentrations and the economic conditions affecting these industries,
we anticipate continuing to hold a high level of NPAs on our balance sheet," said Loughlin. "We expect the
rate of growth in nonperforming asset balances to continue to decline, but expect balances to continue
increasing modestly near term. We remain focused on proactively identifying problem credits, moving
them to nonperforming status and recording the loss content in a timely manner. We've increased and
will continue to increase staffing in our workout and collection organizations to ensure these troubled
borrowers receive the attention and help they need."
Loans 90 days or more past due and still accruing totaled $21.8 billion at March 31, 2010, and
$22.2 billion at December 31, 2009. For the same periods, the totals included $15.9 billion and
$15.3 billion, respectively, in advances pursuant to the Company's servicing agreement to GNMA
mortgage pools and similar loans whose repayments are insured by the Federal Housing Administration
or guaranteed by the Department of Veteran Affairs. At March 31, 2010, loans 90 days or more past due
and still accruing included $107 million associated with consolidated VIE loans. See the "Allowance for
Credit Losses" section in this news release for additional information on the impact of losses associated
with consolidated VIE loans.
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Loans 90 Days or More Past Due and Still Accruing ( ) (Excluding Insured/Guaranteed GNMA and Similar Loans) Mar. 31, (in millions) 2 010 Consolidated All Total Total Commercial and commercial real estate: VIEs (2) other balances balances
Commercial $ - 561 561 590
Real estate mortgage - 1,129 1,129 1,183
Real estate construction - 6 05 6 05 740
Total commercial and commercial real estate - 2,295 2,295 Consumer:
Real estate 1-4 family first mortgage 94 1,187 1,281 1 ,623
Real estate 1-4 family junior lien mortgage 1 0 404 414 515
Credit card - 7 19 7 19 795
Other revolving credit and installment 3 1,216 1,219 1 ,333
Total consumer 107 3,526 3,633 Foreign - 29 29 Total loans $ 107 5,850 5 ,957
(1)
(2)
(3)
The majority of losses associated with consolidated VIE loans that are 90 days or more past due and still accruing will ultimately be
borne by third party security holders in future periods.
The table above does not include PCI loans that were contractually 90 days past due and still accruing. These loans have a related
nonaccretable difference that will absorb future losses; therefore charge-offs on these loans are not expected to reduce income in future
periods to the extent that actual future loan performance is consistent with original estimates.
The Company consolidated certain VIEs prior to the adoption of FAS 167 on January 1, 2010. At December 31, 2009, consolidated VIE
loans totaled $561 million, of which there were no loans 90 days or more past due and still accruing.
Allowance for Credit Losses
The provision for credit losses in the quarter equaled charge-offs. The allowance for credit losses,
including the reserve for unfunded commitments, totaled $25.7 billion at March 31, 2010, up from
$25.0 billion at December 31, 2009, with the increase due to the adoption of FAS 167. The allowance also
reflects the Company's estimated impact of government programs related to residential modifications,
based on information available about these programs. The allowance coverage to total loans increased to
3.28 percent, compared with 3.20 percent at December 31, 2009. The allowance coverage to NPLs was
94 percent at March 31, 2010, compared with 103 percent at December 31, 2009. "We believe the
allowance was adequate for losses inherent in the loan portfolio at March 31, 2010, including both
performing and nonperforming loans," said Loughlin.
Additional detail on credit quality and trends is included in the quarterly supplement, available on the
Investor Relations page at wellsfargo.com.
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Business Segment Performance
Wells Fargo defines its operating segments by product type and customer segment. Segment net income
for each of the three business segments was:
(in millions) 2 010 2009 % Change
Community Banking $ 1,455 $ 1 ,946 (25) %
Wholesale Banking 1,197 1,171 2
Wealth, Brokerage and Retirement 282 176 60
Quarter ended Mar. 31,
More financial information about the business segments is on page 38.
Community Banking offers a complete line of diversified financial products and services for
Selected Financial Information consumers and small businesses including investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C.
(in millions) 2 010 2009 % Change
Total revenue $ 14,062 $ 14,394 (2) %
Provision for credit losses 4,530 4 ,020 13
Noninterest expense 7,230 7 ,410 (2)
Segment net income 1,455 1 ,946 (25)
(in billions)
Average loans 555.2 567.8 (2)
Average assets 784.9 810.8 (3)
Average core deposits 532.2 555.0 (4)
Quarter ended Mar. 31,
Community Banking reported net income of $1.5 billion, down $491 million, or 25 percent from prior
year. Revenue decreased $332 million, or 2 percent, from prior year driven by the planned reduction in
loan portfolios and lower security yields and balances. Average loans of $555.2 billion decreased 2 percent
and average core deposits of $532.2 billion decreased 4 percent from prior year. Noninterest income
increased $28 million from first quarter 2009. Noninterest expense decreased $180 million, or 2 percent,
due to lower FDIC assessments and Wachovia merger-related cost savings. The provision for credit losses
increased $510 million from first quarter 2009. There was no credit reserve build in first quarter 2010
compared with a $1 billion credit reserve build a year ago.
Regional Banking Highlights
- Strong checking net gain (combined Regional Banking)
- Consumer checking accounts up a net 7.0 percent from prior year
- Business checking accounts up a net 4.5 percent from prior year
- Consumer checking accounts up a net 9.6 percent in California, 7.6 percent in Texas, 8.1 percent
in New Jersey and 6.2 percent in Florida
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- Record solutions growth
- Legacy Wells Fargo:
o Record core product solutions (sales) of 7.81 million, up 16 percent from prior year
o Record core sales per platform banker FTE (active, full-time equivalent) of 6.81 per day,
up from 6.20 in prior year
o Sales of Wells Fargo Packages® (a checking account and at least three other products) up
24 percent from prior year; purchased by 79 percent of new checking account customers
- Legacy Wachovia:
o Good progress since aligning the East to the Wells Fargo sales and service model.
Platform banker FTEs have grown by more than 300, or 4 percent, since last quarter and
platform banker productivity grew by double-digits. More platform bankers will be added
throughout 2010.
- Record retail bank cross-sell
- Legacy Wells Fargo: Record retail bank household cross-sell of Wells Fargo products of
6.0 products per household
- Legacy Wachovia: Retail bank household cross-sell of Wachovia products continued to grow, now
at 4.85 products per household
- Customer experience (combined Regional Banking)
- Integrated customer experience measurement process was rolled out across Wells Fargo footprint
in first quarter 2010. More than 205,000 customers were contacted about their experience in
Wells Fargo stores and 50,000 customers spoke about their experience in the contact centers.
Nearly 8 out of 10 customers were "extremely satisfied," the highest rating, with their recent call
or visit with Wells Fargo.
- Banking store conversions
- Converted 20 Wachovia banking stores in Arizona, Nevada and Illinois to Wells Fargo in first
quarter
- Small Business/Business Banking (legacy Wells Fargo)
- Store-based business solutions up 6 percent from prior year
- Sales of Wells Fargo Business Services Packages (business checking account and at least three
other business products) up 14 percent from prior year, purchased by 56 percent of new business
checking account customers
- Business banking household cross-sell of 3.79 products per household
- Online banking
- 17.2 million combined active online customers
- 4.2 million combined active Bill Pay customers
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Wells Fargo Home Mortgage (Home Mortgage)
- Home Mortgage applications of $125 billion, compared with $144 billion in prior quarter
- Home Mortgage application pipeline of $59 billion at quarter end, compared with $57 billion at
December 31, 2009
- Home Mortgage originations of $76 billion, compared with $94 billion in prior quarter
- Owned residential mortgage servicing portfolio of $1.8 trillion
- Less than 2 percent of loans secured by owner-occupied homes and serviced by Wells Fargo
proceeded to foreclosure sale in past 12 months; Wells Fargo's delinquency and foreclosure rates less
than three-fourths of the industry average, according to Inside Mortgage Finance
Wholesale Banking provides financial solutions to businesses across the United States with annual
Selected Financial Information sales generally in excess of $10 million and financial institutions globally. Products include middle market banking, corporate banking, commercial real estate, treasury management, asset-based lending, insurance brokerage, foreign exchange, correspondent banking, trade services, specialized lending, equipment finance, corporate trust, investment banking, capital markets, and asset management.
(in millions) 2 010 2009 % Change
Total revenue $ 5,325 $ 4,893 9 %
Provision for credit losses 799 5 43 47
Noninterest expense 2,660 2,533 5
Segment net income 1,197 1,171 2
(in billions)
Average loans 232.2 278.2 (17)
Average assets 361.4 408.5 (12)
Average core deposits 160.9 1 39.6 15
Quarter ended Mar. 31,
Wholesale Banking reported net income of $1.2 billion, up 19 percent from fourth quarter 2009 and up
2 percent from first quarter 2009. Revenue increased $70 million from fourth quarter. Noninterest
expense decreased $43 million from prior quarter due to lower personnel expenses, offset by higher
insurance expense associated with higher insurance revenue, and increased costs associated with
foreclosed assets. In the first quarter, total provision for credit losses was $799 million and net charge-offs
were largely flat from fourth quarter at $821 million. Fourth quarter 2009 provision included a credit
reserve build of $115 million.
- Revenue up 9 percent from prior year as power of diversified business model generated fee and deposit
growth that offset decline in loan outstandings
- Noninterest-bearing core deposits up $7 billion, or 13 percent, from prior year driven by growth in
Commercial Banking, Government and Institutional Banking, and Global Financial Institutions &
Trade Services
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- Wells Fargo Capital Finance produced year-over-year revenue growth of 35 percent and was ranked #1
on the Reuters Asset-Based Lead Arranger league table with 31.3 percent market share. The Wachovia
platform has been fully integrated, providing customers with coast-to-coast coverage
- Asset Management Group overall assets under management were $465 billion, which included
$239 billion in mutual fund assets and representing the 11th largest family of funds. As of
March 31, 2010, the combined Wells Fargo Advantage and Evergreen fund families had 177 openended
mutual funds
- Wachovia international offices successfully converted to the Wells Fargo brand
Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients
Selected Financial Information using a comprehensive planning approach to meet each client's needs. The Wealth Management Group provides affluent and high net worth clients with a complete range of wealth management solutions including financial planning, private banking, credit, investment management and trust. Family Office Services meets the unique needs of the ultra high net worth customers. Retail brokerage's financial advisors serve customers' advisory, brokerage and financial needs as part of one of the largest fullservice brokerage firms in the U.S. The Retirement Group provides retirement services for individual investors and is a national leader in 401(k) and pension record keeping.
(in millions) 2 010 2009 % Change
Total revenue $ 2 ,910 $ 2,519 16 %
Provision for credit losses 63 23 174
Noninterest expense 2,390 2,235 7
Segment net income 282 176 60
(in billions)
Average loans 43.8 46.6 (6)
Average assets 137.8 117.1 18
Average core deposits 121.1 102.8 18
Quarter ended Mar. 31,
Wealth, Brokerage and Retirement reported net income of $282 million, up $298 million from prior
quarter, and up $106 million, or 60 percent, from prior year. Prior quarter results were affected by the
previously disclosed auction rate securities settlement. Revenue was $2.9 billion, up 10 percent from prior
quarter, and up 16 percent from prior year driven by growth in asset-based fees and brokerage
transactional activity. Noninterest expense increased 7 percent over prior year due to growth in broker
commissions driven by higher production levels. Noninterest expense declined from prior quarter due to
the auction rate securities settlement in the fourth quarter. Average core deposits increased $18 billion, or
18 percent, from prior year.
Retail Brokerage
- Client assets increased to $1.1 trillion, up 22 percent from prior year
- Managed account assets increased $67 billion, or 47 percent, from prior year driven by the strong
market recovery and solid net flows
- Solid financial advisor recruiting during the quarter, as brokers who joined the firm were two times
more productive than those who left the firm
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Wealth Management Group
- Strong deposit growth, with average balances up 38 percent from prior year
- Private Banking revenue up 14 percent from prior year due to increased deposit balances
Retirement Services
- Institutional Retirement plan assets of $232 billion increased $60 billion, or 35 percent, from prior
year
- IRA assets of $248 billion increased $54 billion, or 28 percent, from prior year
Conference Call
The Company will host a live conference call on Wednesday, April 21, at 6:30 a.m. PDT (9:30 a.m. EDT).
To access the call, please dial 866-872-5161 (U.S. and Canada) or 706-643-1962 (international). No
password is required. The call is also available online at wellsfargo.com/invest_relations/earnings and
http://event.meetingstream.com/r.htm?e=200433&s=1&k=A900B44B8FCEF77C46B0C61F0F389932
A replay of the conference call will be available beginning at approximately noon PDT
(3 p.m. EDT) on April 21 through Wednesday, April 28. Please dial 800-642-1687 (U.S. and Canada) or
706-645-9291 (international) and enter Conference ID #62361106. The replay will also be available
online.
Cautionary Statement about Forward-Looking Information
In accordance with the Private Securities Litigation Reform Act of 1995, we caution you that this news
release 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," "outlook," "project," "appears" or similar expressions. Forward-looking
statements in this news release include, among others, statements about: (i) future credit quality and
expected or estimated future loan losses in our loan portfolios, including our belief that quarterly
provision expense and quarterly total credit losses have peaked and are expected to decline; the level and
loss content of nonperforming assets and nonaccrual loans, including our expectation that nonperforming
assets will continue to increase gradually and peak before year end; and the adequacy of the allowance for
loan losses; (ii) reduction or mitigation of risk in our loan portfolios and the effects of loan modification
programs; and (iii) the amount and timing of expected integration activities, expenses and cost savings
relating to the Wachovia merger, as well as the expected synergies and benefits of the merger, including
that we currently estimate merger expenses of approximately $5 billion, including approximately
$2 billion estimated for 2010.
Do not unduly rely on forward-looking statements as actual results could differ materially 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 materially from expectations including: current and future economic and market
conditions, including the effects of further declines in housing prices and high unemployment rates; our
capital requirements and our ability to generate capital internally or raise capital on favorable terms; the
terms of capital investments or other financial assistance provided by the U.S. government; financial
services reform; the extent of success in our loan modification efforts, including the effects of regulatory
requirements, or changes in regulatory requirements, relating to loan modifications; our ability to
successfully and timely integrate the Wachovia merger and realize the expected cost savings and other
benefits, including delays or disruptions in system conversions and higher severance costs; our ability to
- 17 -
realize efficiency initiatives to lower expenses when and in the amount expected; recognition of otherthan-
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 mortgage 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 fluctuations 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, especially if credit markets, housing prices, and
unemployment do not improve. 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 materially from our expectations, refer
to our reports filed with the Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended December 31, 2009, including the discussions under "Risk Factors" in that
report, as filed with the SEC and available on the SEC's website at www.sec.gov. 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.
About Wells Fargo
Wells Fargo & Company is a diversified financial services company with $1.2 trillion in assets, providing
banking, insurance, investments, mortgage, and consumer and commercial finance through more than
10,000 stores and 12,000 ATMs and the Internet (wellsfargo.com) across North America and
internationally.
# # #
- 18 -
Wells Fargo & Company and Subsidiaries
SUMMARY FINANCIAL DATA
% Change
Mar. 31, 2010 from
Mar. 31,
($ in millions, except per share amounts) 2010 2009 2009 2009 2009
For the Quarter
Wells Fargo net income $ 2,547 2,823 3,045 (10) % (16)
Wells Fargo net income applicable to common stock 2,372 394 2,384 502 (1)
Diluted earnings per common share 0.45 0.08 0.56 463 (20)
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 0.84 % 0.90 0.96 (7) (13)
Wells Fargo net income applicable to common stock to
average Wells Fargo common stockholders' equity (ROE) 8.96 1.66 14.49 440 (38)
Efficiency ratio (1) 56.5 56.5 56.2 - 1
Total revenue $ 21,448 22,696 21,017 ( 5) 2
Pre-tax pre-provision profit (PTPP) (2) 9,331 9,875 9,199 (6) 1
Dividends declared per common share 0.05 0.05 0.34 - (85)
Average common shares outstanding 5,190.4 4,764.8 4,247.4 9 22
Diluted average common shares outstanding 5,225.2 4,796.1 4,249.3 9 23
Average loans $ 797,389 792,440 855,591 1 ( 7)
Average assets 1,226,120 1,239,456 1,289,716 (1) (5)
Average core deposits (3) 759,169 770,750 753,928 (2) 1
Average retail core deposits (4) 573,653 580,873 590,502 (1) (3)
Net interest margin 4.27 % 4.31 4.16 ( 1) 3
At Quarter End
Securities available for sale $ 162,487 172,710 178,468 (6) (9)
Loans 781,430 782,770 843,579 - (7)
Allowance for loan losses 25,123 24,516 22,281 2 13
Goodwill 24,819 24,812 23,825 - 4
Assets 1,223,630 1,243,646 1,285,891 (2) (5)
Core deposits (3) 756,050 780,737 756,183 (3) -
Wells Fargo stockholders' equity 116,142 111,786 100,295 4 16
Total equity 118,154 114,359 107,057 3 10
Capital ratios:
Total equity to assets 9.66 % 9.20 8.33 5 16
Risk-based capital (5):
Tier 1 capital 9.95 9.25 8.30 8 20
Total capital 13.92 13.26 12.30 5 13
Tier 1 leverage (5) 8.33 7.87 7.09 6 17
Tier 1 common equity (6) 7.10 6.46 3.12 10 128
Book value per common share $ 20.76 20.03 16.28 4 28
Team members (active, full-time equivalent) 267,400 267,300 272,800 - ( 2)
Common stock price:
High $ 31.99 31.53 30.47 1 5
Low 26.37 25.00 7.80 5 238
Period end 31.12 26.99 14.24 15 119
(1)
(2)
(3)
(4)
(5)
(6) See page 37 for additional information.
The March 31, 2010, ratios are preliminary.
Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.
Quarter ended
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the
Company's ability to generate capital to cover credit losses through a credit cycle.
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
- 19 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER SUMMARY FINANCIAL DATA Mar. 31,
($ in millions, except per share amounts) 2010 2009 2009 2009 2009
For the Quarter
Wells Fargo net income $ 2,547 2,823 3,235 3,172 3,045
Wells Fargo net income applicable to common stock 2,372 394 2,637 2,575 2,384
Diluted earnings per common share 0.45 0.08 0.56 0.57 0.56
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 0.84 % 0.90 1.03 1.00 0.96
Wells Fargo net income applicable to common stock to
average Wells Fargo common stockholders' equity (ROE) 8.96 1.66 12.04 13.70 14.49
Efficiency ratio (1) 56.5 56.5 52.0 56.4 56.2
Total revenue $ 21,448 22,696 22,466 22,507 21,017
Pre-tax pre-provision profit (PTPP) (2) 9,331 9,875 10,782 9,810 9,199
Dividends declared per common share 0.05 0.05 0.05 0.05 0.34
Average common shares outstanding 5,190.4 4,764.8 4,678.3 4,483.1 4,247.4
Diluted average common shares outstanding 5,225.2 4,796.1 4,706.4 4,501.6 4,249.3
Average loans $ 797,389 792,440 810,191 833,945 855,591
Average assets 1,226,120 1,239,456 1,246,051 1,274,926 1,289,716
Average core deposits (3) 759,169 770,750 759,319 765,697 753,928
Average retail core deposits (4) 573,653 580,873 584,414 596,648 590,502
Net interest margin 4.27 % 4.31 4.36 4.30 4.16
At Quarter End
Securities available for sale $ 162,487 172,710 183,814 206,795 178,468
Loans 781,430 782,770 799,952 821,614 843,579
Allowance for loan losses 25,123 24,516 24,028 23,035 22,281
Goodwill 24,819 24,812 24,052 24,619 23,825
Assets 1,223,630 1,243,646 1,228,625 1,284,176 1,285,891
Core deposits (3) 756,050 780,737 747,913 761,122 756,183
Wells Fargo stockholders' equity 116,142 111,786 122,150 114,623 100,295
Total equity 118,154 114,359 128,924 121,382 107,057
Capital ratios:
Total equity to assets 9.66 % 9.20 10.49 9.45 8.33
Risk-based capital (5):
Tier 1 capital 9.95 9.25 10.63 9.80 8.30
Total capital 13.92 13.26 14.66 13.84 12.30
Tier 1 leverage (5) 8.33 7.87 9.03 8.32 7.09
Tier 1 common equity (6) 7.10 6.46 5.18 4.49 3.12
Book value per common share $ 20.76 20.03 19.46 17.91 16.28
Team members (active, full-time equivalent) 267,400 267,300 265,100 269,900 272,800
Common stock price:
High $ 31.99 31.53 29.56 28.45 30.47
Low 26.37 25.00 22.08 13.65 7.80
Period end 31.12 26.99 28.18 24.26 14.24
(1)
(2)
(3)
(4)
(5)
(6) See page 37 for additional information.
The March 31, 2010, ratios are preliminary.
Quarter ended
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the
Company's ability to generate capital to cover credit losses through a credit cycle.
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.
- 20 -
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts) 2 010 2 009 % Change
Interest income
Trading assets $ 267 266 - %
Securities available for sale 2,415 2,709 (11)
Mortgages held for sale 387 415 (7)
Loans held for sale 34 67 (49)
Loans 10,038 10,765 (7)
Other interest income 84 91 (8)
Total interest income 13,225 14,313 (8)
Interest expense
Deposits 735 999 (26)
Short-term borrowings 18 123 (85)
Long-term debt 1,276 1,779 (28)
Other interest expense 49 36 36
Total interest expense 2,078 2,937 (29)
Net interest income 11,147
Provision for credit losses 5,330 4,558 17
Net interest income after provision for credit losses 5,817 6,818 (15)
Noninterest income
Service charges on deposit accounts 1,332 1,394 (4)
Trust and investment fees 2,669 2,215 20
Card fees 865 853 1
Other fees 941 901 4
Mortgage banking 2,470 2,504 (1)
Insurance 621 581 7
Net gains from trading activities 537 787 (32)
Net gains (losses) on debt securities available for sale (1) 28 (119) NM
Net gains (losses) from equity investments (2) 43 (157) NM
Operating leases 185 130 42
Other 610 552 11
Total noninterest income 10,301 9,641 7
Noninterest expense
Salaries 3,314 3,386 (2)
Commission and incentive compensation 1,992 1,824 9
Employee benefits 1,322 1,284 3
Equipment 678 687 (1)
Net occupancy 796 796 -
Core deposit and other intangibles 549 647 (15)
FDIC and other deposit assessments 301 338 (11)
Other 3,165 2,856 11
Total noninterest expense 12,117 11,818 3
Income before income tax expense 4,001
Income tax expense 1,401 1,552 (10)
Net income before noncontrolling interests 2,600
Less: Net income from noncontrolling interests 53 44 20
Wells Fargo net income $ 2,547 Wells Fargo net income applicable to common stock $ 2,372 Per share information
Earnings per common share $ 0.46 0.56 (18)
Diluted earnings per common share 0.45 0.56 (20)
Dividends declared per common share 0.05 0.34 (85)
Average common shares outstanding 5,190.4 4,247.4 22
Diluted average common shares outstanding 5,225.2 4,249.3 23
NM - Not meaningful
(1)
(2) Includes impairment losses from equity investments of $105 million and $247 million for the quarters ended March 31, 2010 and 2009, respectively.
Includes impairment losses on debt securities available for sale of $92 million and $269 million, consisting of $154 million and $603 million of total other-than-temporary impairment
losses, net of $62 million and $334 million recognized in other comprehensive income, for the quarters ended March 31, 2010 and 2009, respectively.
Quarter ended March 31,
- 21 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED STATEMENT OF INCOME Mar. 31,
(in millions, except per share amounts) 2010 2009 2009 2009 2009
Interest income
Trading assets $ 267 230 216 206 266
Securities available for sale 2,415 2,776 2,947 2,887 2,709
Mortgages held for sale 387 446 524 545 415
Loans held for sale 34 32 34 50 67
Loans 10,038 10,122 10,170 10,532 10,765
Other interest income 84 86 77 81 91
Total interest income 13,225 13,692 13,968 14,301 14,313
Interest expense
Deposits 735 913 905 957 999
Short-term borrowings 18 12 32 55 123
Long-term debt 1,276 1,217 1,301 1,485 1,779
Other interest expense 49 50 46 40 36
Total interest expense 2,078 2,192 2,284 2,537 2,937
Net interest income 11,147
Provision for credit losses 5,330 5,913 6,111 5,086 4,558
Net interest income after provision for credit losses 5,817 5,587 5,573 6,678 6,818
Noninterest income
Service charges on deposit accounts 1,332 1,421 1,478 1,448 1,394
Trust and investment fees 2,669 2,605 2,502 2,413 2,215
Card fees 865 961 946 923 853
Other fees 941 990 950 963 901
Mortgage banking 2,470 3,411 3,067 3,046 2,504
Insurance 621 482 468 595 581
Net gains from trading activities 537 516 622 749 787
Net gains (losses) on debt securities available for sale 28 110 (40) (78) (119)
Net gains (losses) from equity investments 43 273 29 40 (157)
Operating leases 185 163 224 168 130
Other 610 264 536 476 552
Total noninterest income 10,301 11,196 10,782 10,743 9,641
Noninterest expense
Salaries 3,314 3,505 3,428 3,438 3,386
Commission and incentive compensation 1,992 2,086 2,051 2,060 1,824
Employee benefits 1,322 1,144 1,034 1,227 1,284
Equipment 678 681 563 575 687
Net occupancy 796 770 778 783 796
Core deposit and other intangibles 549 642 642 646 647
FDIC and other deposit assessments 301 302 228 981 338
Other 3,165 3,691 2,960 2,987 2,856
Total noninterest expense 12,117 12,821 11,684 12,697 11,818
Income before income tax expense 4,001
Income tax expense 1,401 949 1,355 1,475 1,552
Net income before noncontrolling interests 2,600
Less: Net income from noncontrolling interests 53 190 81 77 44
Wells Fargo net income $ 2,547 Wells Fargo net income applicable to common stock $ 2,372 Per share information
Earnings per common share $ 0.46 0.08 0.56 0.58 0.56
Diluted earnings per common share 0.45 0.08 0.56 0.57 0.56
Dividends declared per common share 0.05 0.05 0.05 0.05 0.34
Average common shares outstanding 5,190.4 4,764.8 4,678.3 4,483.1 4,247.4
Diluted average common shares outstanding 5,225.2 4,796.1 4,706.4 4,501.6 4,249.3
Quarter ended
- 22 -
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)
Quarter ended March 31,
2010 Interest Average Yields/ income/
(in millions) balance rates expense balance rates expense
Earning assets
Federal funds sold, securities purchased under
resale agreements and other short-term investments $ 40,833 0.33 % $ 33 24,074 0.84 % $ 50
Trading assets 27,911 3.91 272 22,203 4.97 275
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 2,278 3.62 20 2,899 0.93 7
Securities of U.S. states and political subdivisions 13,696 6.60 221 12,213 6.43 213
Mortgage-backed securities:
Federal agencies 79,730 5.39 1,023 76,545 5.71 1,068
Residential and commercial 32,768 9.67 790 38,690 8.57 1,017
Total mortgage-backed securities 112,498 6.67 1,813 1 15,235 6.82 2,085
Other debt securities (4) 32,346 6.51 492 30,080 6.81 551
Total debt securities available for sale (4) 160,818 6.59 2,546 1 60,427 6.69 2,856
Mortgages held for sale (5) 31,368 4.93 387 31,058 5.34 415
Loans held for sale (5) 6,406 2.15 34 7,949 3.40 67
Loans:
Commercial and commercial real estate:
Commercial 156,466 4.51 1,743 1 96,923 3.87 1,884
Real estate mortgage 104,971 3.61 936 1 04,271 3.47 894
Real estate construction 28,848 3.16 225 34,493 3.03 258
Lease financing 14,008 9.22 323 15,810 8.77 347
Total commercial and commercial real estate 304,293 4.29 3,227 3 51,497 3.89 3,383
Consumer:
Real estate 1-4 family first mortgage 245,024 5.26 3,210 2 45,494 5.64 3,444
Real estate 1-4 family junior lien mortgage 105,640 4.47 1,168 1 10,128 5.05 1,375
Credit card 23,345 13.15 767 23,295 12.10 704
Other revolving credit and installment 90,526 6.40 1,427 92,820 6.68 1,527
Total consumer 464,535 5.70 6,572 4 71,737 6.03 7,050
Foreign 28,561 3.62 2 56 32,357 4.36 3 49
Total loans (5) 797,389 5.09 10,055 8 55,591 5.09 10,782
Other 6,069 3.36 50 6,140 2.87 43
Total earning assets $ 1 ,070,794 5.06 % $ 13,377 1,107,442 5.22 % $ 14,488
Funding sources
Deposits:
Interest-bearing checking $ 62,021 0.15 % $ 23 80,393 0.15 % $ 30
Market rate and other savings 403,945 0.29 286 3 13,445 0.54 419
Savings certificates 94,763 1.36 317 1 70,122 0.92 387
Other time deposits 15,878 2.03 80 25,555 1.97 124
Deposits in foreign offices 55,434 0.21 29 45,896 0.35 39
Total interest-bearing deposits 632,041 0.47 7 35 6 35,411 0.64 9 99
Short-term borrowings 45,081 0.18 19 76,068 0.66 123
Long-term debt 209,008 2.45 1,276 2 58,957 2.77 1,783
Other liabilities 5,664 3.43 49 3,778 3.88 36
Total interest-bearing liabilities 891,794 0.94 2,079 9 74,214 1.22 2,941
Portion of noninterest-bearing funding sources 179,000 - - 1 33,228 - -
Total funding sources $ 1 ,070,794 0.79 2,079 1,107,442 1.06 2,941
Net interest margin and net interest income on a taxable-equivalent basis ( Noninterest-earning assets
Cash and due from banks $ 18,049 20,255
Goodwill 24,816 23,183
Other 112,461 1 38,836
Total noninterest-earning assets $ 155,326 1 82,274
Noninterest-bearing funding sources
Deposits $ 172,039 1 60,308
Other liabilities 44,739 50,566
Total equity 117,548 1 04,628
Noninterest-bearing funding sources used to
fund earning assets (179,000) (133,228)
Net noninterest-bearing funding sources $ 155,326 1 82,274
Total assets $ 1 ,226,120
(1)
(2)
(3)
(4)
(5)
(6)
Nonaccrual loans and related income are included in their respective loan categories.
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.
Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
Yields are based on amortized cost balances computed on a settlement date basis.
Includes certain preferred securities.
Our average prime rate was 3.25% for the quarters ended March 31, 2010 and 2009. The average three-month London Interbank Offered Rate (LIBOR) was 0.26% and 1.24% for the same quarters, respectively.
- 23 -
Wells Fargo & Company and Subsidiaries
NONINTEREST INCOME
(in millions) 2010 2009 % Change
Service charges on deposit accounts $ 1,332 1,394 (4) %
Trust and investment fees:
Trust, investment and IRA fees 1,049 722 45
Commissions and all other fees 1,620 1,493 9
Total trust and investment fees 2,669 2,215 20
Card fees 865 853 1
Other fees:
Cash network fees 55 58 (5)
Charges and fees on loans 419 433 (3)
Processing and all other fees 467 410 14
Total other fees 941 901 4
Mortgage banking (1):
Servicing income, net 1,366 906 51
Net gains on mortgage loan origination/sales activities 1,104 1,598 (31)
Total mortgage banking 2,470 2,504 (1)
Insurance 621 581 7
Net gains from trading activities 537 787 (32)
Net gains (losses) on debt securities available for sale 28 (119) NM
Net gains (losses) from equity investments 43 (157) NM
Operating leases 185 130 42
All other 610 552 11
Total $ 10,301 9,641 7
NM - Not meaningful
(1)
NONINTEREST EXPENSE
(in millions) 2010 2009 % Change
Salaries $ 3,314 3,386 (2) %
Commission and incentive compensation 1,992 1,824 9
Employee benefits 1,322 1,284 3
Equipment 678 687 (1)
Net occupancy 796 796 -
Core deposit and other intangibles 549 647 (15)
FDIC and other deposit assessments 301 338 (11)
Outside professional services 484 410 18
Contract services 347 216 61
Foreclosed assets 386 248 56
Outside data processing 272 212 28
Postage, stationery and supplies 242 250 (3)
Operating losses 208 172 21
Insurance 148 267 (45)
Telecommunications 143 158 (9)
Travel and entertainment 171 105 63
Advertising and promotion 112 125 (10)
Operating leases 37 70 (47)
All other 615 623 (1)
Total $ 12,117 11,818 3
Quarter ended March 31,
Quarter ended March 31,
2009 categories have been revised to conform to current presentation.
- 24 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER NONINTEREST INCOME Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Service charges on deposit accounts $ 1,332 1,421 1,478 1,448 1,394
Trust and investment fees:
Trust, investment and IRA fees 1,049 1,038 989 839 722
Commissions and all other fees 1,620 1,567 1,513 1,574 1,493
Total trust and investment fees 2,669 2,605 2,502 2,413 2,215
Card fees 865 961 946 923 853
Other fees:
Cash network fees 55 55 60 58 58
Charges and fees on loans 419 475 453 440 433
Processing and all other fees 467 460 437 465 410
Total other fees 941 990 950 963 901
Mortgage banking (1):
Servicing income, net 1,366 2,150 1,919 816 906
Net gains on mortgage loan origination/sales activities 1,104 1,261 1,148 2,230 1,598
Total mortgage banking 2,470 3,411 3,067 3,046 2,504
Insurance 621 482 468 595 581
Net gains from trading activities 537 516 622 749 787
Net gains (losses) on debt securities available for sale 28 110 (40) (78) (119)
Net gains (losses) from equity investments 43 273 29 40 (157)
Operating leases 185 163 224 168 130
All other 610 264 536 476 552
Total $ 10,301 11,196 10,782 10,743 9,641
(1)
FIVE QUARTER NONINTEREST EXPENSE Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Salaries $ 3,314 3,505 3,428 3,438 3,386
Commission and incentive compensation 1,992 2,086 2,051 2,060 1,824
Employee benefits 1,322 1,144 1,034 1,227 1,284
Equipment 678 681 563 575 687
Net occupancy 796 770 778 783 796
Core deposit and other intangibles 549 642 642 646 647
FDIC and other deposit assessments 301 302 228 981 338
Outside professional services 484 632 489 451 410
Contract services 347 362 254 256 216
Foreclosed assets 386 393 243 187 248
Outside data processing 272 282 251 282 212
Postage, stationery and supplies 242 232 211 240 250
Operating losses 208 427 117 159 172
Insurance 148 111 208 259 267
Telecommunications 143 146 142 164 158
Travel and entertainment 171 188 151 131 105
Advertising and promotion 112 176 160 111 125
Operating leases 37 44 52 61 70
All other 615 698 682 686 623
Total $ 12,117 12,821 11,684 12,697 11,818
Quarter ended
Quarter ended
2009 categories have been revised to conform to current presentation.
- 25 -
Wells Fargo & Company and Subsidiaries
CONSOLIDATED BALANCE SHEET Mar. 31,
(in millions, except shares) 2010 2 009 % Change
Assets
Cash and due from banks $ 16,301 27,080 (40) %
Federal funds sold, securities purchased under resale
agreements and other short-term investments 54,192 40,885 33
Trading assets 47,028 43,039 9
Securities available for sale 162,487 172,710 (6)
Mortgages held for sale (includes $31,931 and $36,962 carried at fair value) 34,737 39,094 (11)
Loans held for sale (includes $297 and $149 carried at fair value) 5,140 5,733 (10)
Loans (includes $371 carried at fair value at March 31, 2010) 781,430 782,770 -
Allowance for loan losses (25,123) (24,516) 2
Net loans 756,307 758,254 -
Mortgage servicing rights:
Measured at fair value (residential MSRs) 15,544 16,004 (3)
Amortized 1,069 1,119 (4)
Premises and equipment, net 10,405 10,736 (3)
Goodwill 24,819 24,812 -
Other assets 95,601 104,180 (8)
Total assets (1) $ 1,223,630 1,243,646 (2)
Liabilities
Noninterest-bearing deposits $ 170,518 181,356 (6)
Interest-bearing deposits 634,375 642,662 (1)
Total deposits 804,893 824,018 (2)
Short-term borrowings 46,333 38,966 19
Accrued expenses and other liabilities 54,371 62,442 (13)
Long-term debt (includes $367 carried at fair value at March 31, 2010) 199,879 203,861 (2)
Total liabilities (2) 1,105,476 1,129,287 (2)
Equity
Wells Fargo stockholders' equity:
Preferred stock 9,276 8,485 9
Common stock - $1-2/3 par value, authorized 6,000,000,000 shares;
issued 5,245,971,422 shares and 5,245,971,422 shares 8,743 8,743 -
Additional paid-in capital 53,156 52,878 1
Retained earnings 43,636 41,563 5
Cumulative other comprehensive income 4,087 3,009 36
Treasury stock - 40,260,165 shares and 67,346,829 shares (1,460) ( 2,450) (40)
Unearned ESOP shares (1,296) (442) 193
Total Wells Fargo stockholders' equity 116,142 111,786 4
Noncontrolling interests 2,012 2,573 (22)
Total equity 118,154 114,359 3
Total liabilities and equity $ 1,223,630 1,243,646 (2)
(1)
(2)
Our consolidated assets at March 31, 2010, include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash and due
from banks, $359 million; Trading assets, $80 million; Securities available for sale, $1.8 billion; Net loans, $23.4 billion; Other assets, $2.3 billion, and Total assets, $27.9 billion. See the
"Changes in VIE Assets and Liabilities" on page 27 for additional information.
Our consolidated liabilities at March 31, 2010, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $316 million;
Accrued expenses and other liabilities, $591 million; Long-term debt, $11.1 billion; and Total liabilities, $12.0 billion. See the "Changes in VIE Assets and Liabilities" on page 27 for
additional information.
- 26 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED BALANCE SHEET Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Assets
Cash and due from banks $ 16,301 27,080 17,233 20,632 22,186
Federal funds sold, securities purchased under
resale agreements and other short-term investments 54,192 40,885 17,491 15,976 18,625
Trading assets 47,028 43,039 43,198 40,110 46,497
Securities available for sale 162,487 172,710 183,814 206,795 178,468
Mortgages held for sale 34,737 39,094 35,538 41,991 36,807
Loans held for sale 5,140 5,733 5,846 5,413 8,306
Loans 781,430 782,770 799,952 821,614 843,579
Allowance for loan losses (25,123) (24,516) (24,028) (23,035) (22,281)
Net loans 756,307 758,254 775,924 798,579 821,298
Mortgage servicing rights:
Measured at fair value (residential MSRs) 15,544 16,004 14,500 15,690 12,391
Amortized 1,069 1,119 1,162 1,205 1,257
Premises and equipment, net 10,405 10,736 11,040 11,151 11,215
Goodwill 24,819 24,812 24,052 24,619 23,825
Other assets 95,601 104,180 98,827 102,015 105,016
Total assets $ 1,223,630 1,243,646 1,228,625 1,284,176 1,285,891
Liabilities
Noninterest-bearing deposits $ 170,518 181,356 165,260 173,149 166,497
Interest-bearing deposits 634,375 642,662 631,488 640,586 630,772
Total deposits 804,893 824,018 796,748 813,735 797,269
Short-term borrowings 46,333 38,966 30,800 55,483 72,084
Accrued expenses and other liabilities 54,371 62,442 57,861 64,160 58,831
Long-term debt 199,879 203,861 214,292 229,416 250,650
Total liabilities 1,105,476 1,129,287 1,099,701 1,162,794 1,178,834
Equity
Wells Fargo stockholders' equity:
Preferred stock 9,276 8,485 31,589 31,497 31,411
Common stock 8,743 8,743 7,927 7,927 7,273
Additional paid-in capital 53,156 52,878 40,343 40,270 32,414
Retained earnings 43,636 41,563 41,485 39,165 36,949
Cumulative other comprehensive income (loss) 4,087 3,009 4,088 (590) (3,624)
Treasury stock (1,460) (2,450) (2,771) (3,126) (3,593)
Unearned ESOP shares (1,296) (442) (511) (520) (535)
Total Wells Fargo stockholders' equity 116,142 111,786 122,150 114,623 100,295
Noncontrolling interests 2,012 2,573 6,774 6,759 6,762
Total equity 118,154 114,359 128,924 121,382 107,057
Total liabilities and equity $ 1,223,630 1,243,646 1,228,625 1,284,176 1,285,891
- 27 -
Wells Fargo & Company and Subsidiaries
NEWLY CONSOLIDATED VIE ASSETS AND LIABILITIES
Total VIE Derecognition Net
assets and of existing VIE increase
(in millions) liabilities (1) interests (2) (decrease)
Assets
Cash and due from banks $ 154 - 154
Trading assets 18 137 155
Securities available for sale 1,178 (8,768) (7,590)
Loans, net of $693 allowance 25,657 - 25,657
Other assets 164 29 193
Total assets $ 27,171 (8,602) 18,569
Liabilities
Short-term borrowings (3) $ 5,161 (34) 5,127
Accrued expenses and other liabilities 38 (70) (32)
Long-term debt 13,134 - 13,134
Total liabilities $ 18,333 (104) 18,229
(1)
(2)
(3)
CHANGES IN VIE ASSETS AND LIABILITIES
March 31, 2010
Newly Previously
consolidated consolidated Reconsider- VIE
(in millions) VIEs (1) VIEs (1)(2) Total ations (3) activity (1) Total
Assets
Cash and due from banks $ 154 267 421 (11) (51) 359
Trading assets 18 77 95 (15) - 80
Securities available for sale 1,178 980 2,158 - (325) 1,833
Loans, net 25,657 561 26,218 (1,551) (1,278) 23,389
Other assets 164 2,432 2,596 (431) 104 2,269
Total assets $ 27,171 4,317 31,488 (2,008) (1,550) 27,930
Liabilities
Short-term borrowings (4) $ 5,161 317 5,478 - (331) 5,147
Accrued expenses and other liabilities (4) 38 689 727 (137) 105 695
Long-term debt (4) 13,134 1,396 14,530 (1,942) (1,293) 11,295
Total liabilities $ 18,333 2,402 20,735 (2,079) (1,519) 1 7,137
(1)
(2)
(3)
(4)
Excludes VIE assets and liabilities that are eliminated in the consolidated financial statements of Wells Fargo.
Includes derecognition of existing interests in newly consolidated VIEs and net impacts of deconsolidating certain VIEs.
Includes commercial paper liabilities of our multi-seller asset-based commercial paper conduit with recourse to the general credit of Wells Fargo.
Consolidated VIEs include VIEs consolidated prior to the adoption of amended ASC 810 (FAS 167) as well as VIEs newly consolidated upon adoption. ASC 810
requires companies to continually reassess whether they are the primary beneficiary of a VIE. As a result of events that occurred during the quarter, we
deconsolidated certain VIEs. The following table presents the detail of changes in the assets and liabilities of all consolidated VIEs from January 1, 2010, through
March 31, 2010.
Includes deconsolidation of certain VIEs upon adoption of FAS 167.
Includes the following VIE liabilities at March 31, 2010, with recourse to the general credit of Wells Fargo: Short-term borrowings, $4.8 billion; Accrued expenses and other liabilities, $104
million; and Long-term debt, $175 million.
Effective January 1, 2010, we adopted changes in consolidation accounting pursuant to amendments by ASU 2009-17 to ASC 810 (FAS 167) and, accordingly,
consolidated certain VIEs that were not included in our consolidated financial statements at December 31, 2009. On January 1, 2010, we recorded the assets and
liabilities of the newly consolidated VIEs and derecognized our existing interests in those VIEs. We also recorded a $183 million increase to beginning retained
earnings as a cumulative effect adjustment and recorded a $173 million increase to other comprehensive income. The following table presents the net incremental
assets and liabilities recorded upon adoption of the ASU 2009-17 amendments to ASC 810 (FAS 167).
Excludes VIE assets and liabilities that are eliminated in the consolidated financial statements of Wells Fargo.
Due to events that occurred during first quarter 2010, we deconsolidated certain residential mortgage-backed securitizations and other VIEs.
January 1, 2010
January 1, 2010
- 28 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER AVERAGE BALANCES Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Earning assets
Federal funds sold, securities purchased under
resale agreements and other short-term investments $ 40,833 46,031 16,356 20,889 24,074
Trading assets 27,911 23,179 20,518 18,464 22,203
Debt securities available for sale:
Securities of U.S. Treasury and federal agencies 2,278 2,381 2,545 2,102 2,899
Securities of U.S. states and political subdivisions 13,696 13,574 12,818 12,189 12,213
Mortgage-backed securities:
Federal agencies 79,730 85,063 94,457 92,550 76,545
Residential and commercial 32,768 43,243 43,214 41,257 38,690
Total mortgage-backed securities 112,498 128,306 137,671 133,807 115,235
Other debt securities (1) 32,346 33,710 33,294 30,901 30,080
Total debt securities available for sale (1) 160,818 177,971 186,328 178,999 160,427
Mortgages held for sale (2) 31,368 34,750 40,604 43,177 31,058
Loans held for sale (2) 6,406 5,104 4,975 7,188 7,949
Loans:
Commercial and commercial real estate:
Commercial 156,466 164,050 175,642 187,501 196,923
Real estate mortgage 104,971 104,773 103,450 104,297 104,271
Real estate construction 28,848 30,887 32,649 33,857 34,493
Lease financing 14,008 14,107 14,360 14,750 15,810
Total commercial and commercial real estate 304,293 313,817 326,101 340,405 351,497
Consumer:
Real estate 1-4 family first mortgage 245,024 232,273 235,051 240,798 245,494
Real estate 1-4 family junior lien mortgage 105,640 103,584 105,779 108,422 110,128
Credit card 23,345 23,717 23,448 22,963 23,295
Other revolving credit and installment 90,526 88,963 90,199 90,729 92,820
Total consumer 464,535 448,537 454,477 462,912 471,737
Foreign 28,561 30,086 2 9,613 3 0,628 32,357
Total loans (2) 797,389 792,440 810,191 833,945 855,591
Other 6,069 6,147 6,088 6,079 6,140
Total earning assets $ 1,070,794 1,085,622 1 ,085,060 1 ,108,741 1 ,107,442
Funding sources
Deposits:
Interest-bearing checking $ 62,021 61,229 59,467 79,955 80,393
Market rate and other savings 403,945 389,905 369,120 334,067 313,445
Savings certificates 94,763 109,306 129,698 152,444 170,122
Other time deposits 15,878 16,501 18,248 21,660 25,555
Deposits in foreign offices 55,434 59,870 56,820 49,885 45,896
Total interest-bearing deposits 632,041 636,811 6 33,353 6 38,011 635,411
Short-term borrowings 45,081 32,757 39,828 59,844 76,068
Long-term debt 209,008 210,707 222,580 235,590 258,957
Other liabilities 5,664 5,587 5 ,620 4 ,604 3 ,778
Total interest-bearing liabilities 891,794 885,862 901,381 938,049 974,214
Portion of noninterest-bearing funding sources 179,000 199,760 183,679 1 70,692 133,228
Total funding sources $ 1,070,794 1,085,622 1,085,060 1,108,741 1,107,442
Noninterest-earning assets
Cash and due from banks $ 18,049 19,216 18,084 19,340 20,255
Goodwill 24,816 24,093 24,435 24,261 23,183
Other 112,461 110,525 118,472 1 22,584 138,836
Total noninterest-earning assets $ 1 55,326 153,834 160,991 166,185 182,274
Noninterest-bearing funding sources
Deposits $ 172,039 179,204 172,588 174,529 160,308
Other liabilities 44,739 45,058 47,646 49,570 50,566
Total equity 117,548 129,332 124,436 112,778 104,628
Noninterest-bearing funding sources used to
fund earning assets (179,000) (199,760) (183,679) (170,692) (133,228)
Net noninterest-bearing funding sources $ 1 55,326 153,834 160,991 166,185 182,274
Total assets $ 1 ,226,120
(1) Includes certain preferred securities.
(2) Nonaccrual loans are included in their respective loan categories.
Quarter ended
- 29 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER LOANS Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Commercial and commercial real estate:
Commercial (1) $ 150,587 158,352 169,610 182,037 191,711
Real estate mortgage (1) 104,514 104,798 103,442 103,654 104,934
Real estate construction 27,837 29,707 31,719 33,238 33,912
Lease financing 13,887 14,210 14,115 14,555 14,792
Total commercial and commercial real estate 296,825 307,067 318,886 333,484 345,349
Consumer:
Real estate 1-4 family first mortgage (1) 240,528 229,536 232,622 237,289 242,947
Real estate 1-4 family junior lien mortgage (1) 103,800 103,708 104,538 107,024 109,748
Credit card 22,525 24,003 23,597 23,069 22,815
Other revolving credit and installment (1) 89,463 89,058 90,027 90,654 91,252
Total consumer 456,316 446,305 450,784 458,036 466,762
Foreign 28,289 29,398 30,282 30,094 31,468
Total loans (net of unearned income) (2) $ 781,430 782,770 799,952 821,614 843,579
(1)
(2)
FIVE QUARTER NONACCRUAL LOANS AND OTHER NONPERFORMING ASSETS Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Nonaccrual loans:
Commercial and commercial real estate:
Commercial $ 4,273 4,397 4,540 2,910 1,696
Real estate mortgage (1) 4,757 3,984 2,856 2,343 1,324
Real estate construction 2,915 3,025 2,711 2,210 1,371
Lease financing 185 171 157 130 114
Total commercial and commercial real estate 12,130 11,577 10,264 7,593 4,505
Consumer:
Real estate 1-4 family first mortgage (1) 12,347 10,100 8,132 6,000 4,218
Real estate 1-4 family junior lien mortgage (1) 2,355 2,263 1,985 1,652 1,418
Other revolving credit and installment (1) 334 332 344 327 300
Total consumer 15,036 12,695 10,461 7,979 5,936
Foreign 135 146 144 226 75
Total nonaccrual loans (2) (3) 27,301 24,418 20,869 15,798 10,516
As a percentage of total loans 3.49 % 3.12 2.61 1.92 1.25
Foreclosed assets:
GNMA loans (4) $ 1,111 960 840 932 768
Other (1) 2,970 2,199 1,687 1,592 1,294
Real estate and other nonaccrual investments (5) 118 62 55 20 34
Total nonaccrual loans and other
nonperforming assets $ 31,500 27,639 23,451 18,342 12,612
As a percentage of total loans 4.03 % 3.53 2.93 2.23 1.50
(1)
(2)
(3)
(4)
(5)
Loans at March 31, 2010, include the following assets of certain variable interest entities (VIEs) that were consolidated due to the adoption of FAS 167: Commercial, $3.8 billion; Real estate mortgage, $77
million; Real estate 1-4 family first mortgage, $14.5 billion; Real estate 1-4 family junior lien mortgage, $3.0 billion; and Other revolving credit and installment, $1.9 billion.
Includes real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans, and nonaccrual debt securities.
Includes $49.5 billion, $51.7 billion, $54.3 billion, $55.2 billion and $58.2 billion of purchased credit-impaired (PCI) loans at March 31, 2010, and December 31, September 30, June 30 and March 31,
2009, respectively. See table on page 30 for detail of PCI loans.
Excludes loans acquired from Wachovia that are accounted for as PCI loans.
Includes nonaccrual mortgages held for sale and loans held for sale in their respective loan categories.
Nonperforming assets at March 31, 2010, include the following assets of certain VIEs that were consolidated due to the adoption of FAS 167: Commercial real estate mortgage, $7 million; Real estate 1-4
family first mortgage, $821 million; Real estate 1-4 family junior lien mortgage, $79 million; Other revolving credit and installment, $2 million; and Other foreclosed assets, $95 million. See the "Changes in
VIE Assets and Liabilities" on page 27 for additional information.
Consistent with regulatory reporting requirements, foreclosed real estate securing Government National Mortgage Association (GNMA) loans is classified as nonperforming. Both principal and interest for
GNMA loans secured by the foreclosed real estate are collectible because the GNMA loans are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.
- 30 -
Wells Fargo & Company and Subsidiaries
PURCHASED CREDIT-IMPAIRED (PCI) LOANS All PCI other
(in millions) loans loans Total loans loans Total
Commercial and commercial real estate:
Commercial $ 1,431 149,156 150,587 $ 1,911 156,441 158,352
Real estate mortgage 5,252 99,262 104,514 5,631 99,167 104,798
Real estate construction 3,538 24,299 27,837 3,713 25,994 29,707
Lease financing - 13,887 13,887 - 14,210 14,210
Total commercial and commercial real estate 10,221 286,604 296,825 11,255 295,812 307,067
Consumer:
Real estate 1-4 family first mortgage 37,378 203,150 240,528 38,386 191,150 229,536
Real estate 1-4 family junior lien mortgage 315 103,485 103,800 331 103,377 103,708
Credit card - 22,525 22,525 - 24,003 24,003
Other revolving credit and installment - 89,463 89,463 - 89,058 89,058
Total consumer 37,693 418,623 456,316 38,717 407,588 446,305
Foreign 1,593 26,696 28,289 1,733 27,665 29,398
Total loans $ 49,507 731,923 781,430 $ 51,705 731,065 782,770
As a result of the application of ASC 310-30 to credit-impaired Wachovia loans, certain ratios of the combined company cannot be used to
compare a portfolio that includes PCI loans against one that does not, or to compare ratios across quarters or years. The ratios particularly
affected include the allowance for loan losses and allowance for credit losses as percentages of loans, of nonaccrual loans and of
nonperforming assets; nonaccrual loans and nonperforming assets as a percentage of total loans; and net charge-offs as a percentage of loans.
Because PCI loans were written down in purchase accounting to an amount estimated to be collectible, such loans are not classified as
nonaccrual even though they may be contractually past due. Also, losses on such loans are charged against the nonaccretable difference
established in purchase accounting and, as such, are not reported as charge-offs.
March 31, 2010
At the time of acquisition, certain loans acquired from Wachovia had evidence of credit deterioration since origination and it was considered
probable that we would not collect all contractually required principal and interest payments (referred to as "purchased credit-impaired" (PCI)
loans). Such loans are accounted for under ASC 310-30, Receivables (American Institute of Certified Public Accountants Statement of
Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer ). These accounting provisions require that acquired
loans be recorded at fair value at the acquisition date and prohibits carryover of the related allowance for loan losses. The difference between
contractually required payments and cash flows expected to be collected is referred to as the nonaccretable difference. The difference between
the cash flows expected to be collected and the fair value is referred to as the accretable yield.
- 31 -
Wells Fargo & Company and Subsidiaries
CHANGES IN NONACCRETABLE DIFFERENCE FOR PCI LOANS
Commercial,
CRE and Other
(in millions)
Balance at December 31, 2008 $ (10,410) (26,485) (4,069) (40,964)
Release of nonaccretable difference due to:
Loans resolved by payment in full (1) 330 - - 330
Loans resolved by sales to third parties (2) 86 - 85 171
Reclassification to accretable yield for loans with improving cash flow (3) 138 27 276 441
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4) 4,853 10,218 2,086 17,157
Balance at December 31, 2009 $ (5,003) (16,240) (1,622) (22,865) Release of nonaccretable difference due to: Loans resolved by payment in full (1) 146 - - 146 Loans resolved by sales to third parties (2) 36 - - 36 Reclassification to accretable yield for loans with improving cash flow (3) 92 549 27 668 Use of nonaccretable difference due to: Losses from loan resolutions and write-downs (4) 728 1,177 183 2,088 Balance at March 31, 2010 $ (4,001) (14,514) (1,412) (19,927)
(1)
(2) Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.
(3)
(4)
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 releases due to pool accounting for those loans.
Write-downs to net realizable value of PCI loans are charged to the nonaccretable difference when 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 loan.
Reclassification of nonaccretable difference for increased cash flow estimates to the accretable yield will result in increasing income and thus the rate of return realized. Amounts
reclassified to accretable yield are expected to be probable of realization.
The nonaccretable difference was established in purchase accounting for PCI loans to absorb losses expected at that time on those loans. Amounts
absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. The following table provides an
analysis of changes in the nonaccretable difference related to principal that is not expected to be collected.
- 32 -
Wells Fargo & Company and Subsidiaries
CHANGES IN ACCRETABLE YIELD RELATED TO PCI LOANS
1)
2)
3)
(in millions)
Total, December 31, 2008 (refined) $ (10,447)
Accretion 2,606
Reclassification from nonaccretable difference for loans with improving cash flows (441)
Changes in expected cash flows that do not affect nonaccretable difference (1) (6,277)
Total, December 31, 2009 (14,559) Accretion 686 Reclassification from nonaccretable difference for loans with improving cash flows (668) Changes in expected cash flows that do not affect nonaccretable difference (1) (1,262) Total, March 31, 2010 $ (15,803)
(1)
CHANGES IN ALLOWANCE FOR PCI LOAN LOSSES
Commercial,
CRE and Other
(in millions) foreign Pick-a-Pay consumer Total
Balance at December 31, 2008 $ - - - -
Provision for losses due to credit deterioration 850 - 3 853
Charge-offs (520) - - (520)
Balance at December 31, 2009 330 - 3 333 Provision for losses due to credit deterioration 152 - 13 165 Charge-offs (251) - - (251) Balance at March 31, 2010 $ 231 - 16 247
Represents changes in interest cash flows due to the impact of modifications incorporated into the quarterly assessment of expected future cash flows and/or changes in interest
rates on variable rate PCI loans.
When it is estimated that the expected cash flows have decreased subsequent to acquisition for a PCI loan or pool of loans, an allowance is
established and a provision for additional loss is recorded as a charge to income. The following table summarizes the changes in allowance for
The excess of cash flows expected to be collected over the initial fair value of PCI loans is referred to as the accretable yield and is accreted into
interest income over the estimated life of the PCI loans using the effective yield method. The accretable yield will change due to:
estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be
collected;
estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the
nonaccretable difference); and
indices for PCI loans with variable rates of interest.
For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash
flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the
expected future cash flows were based on the variable rates that were in effect at that time. The change in the accretable yield related to PCI loans
is presented in the following table.
- 33 -
Wells Fargo & Company and Subsidiaries
PICK-A-PAY PORTFOLIO ( )
Ratio of
carrying
Unpaid Current value to Unpaid Current
principal LTV Carrying current principal LTV Carrying
(in millions) balance ratio (2) value (3) value balance ratio (2) value (3)
March 31, 2010 California $ 36,113 135 % $ 24,447 91 % $ 23,285 88 % $ 22,953 Florida 5,594 142 3,169 80 4,942 106 4,776 New Jersey 1,621 99 1,249 76 2,829 81 2,818 Texas 428 82 379 72 1,908 66 1,913 Washington 618 102 531 87 1,409 84 1,398 Other states 8,967 115 6,398 81 13,064 87 12,907 Total Pick-a-Pay loans $ 53,341 $ 36,173 $ 47,437 $ 46,765
December 31, 2009
California $ 37,341 141 % $ 25,022 94 % $ 23,795 93 % $ 23,626
Florida 5,751 139 3,199 77 5,046 104 4,942
New Jersey 1,646 101 1,269 77 2,914 82 2,912
Texas 442 82 399 74 1,967 66 1,973
Washington 633 103 543 88 1,439 84 1,435
Other states 9,283 116 6,597 82 13,401 87 13,321
Total Pick-a-Pay loans $ 55,096 $ 37,029 $ 48,562 $ 48,209
(1)
(2)
(3)
PCI loans All other loans
The current loan-to-value (LTV) ratio is calculated as the unpaid principal balance plus the unpaid principal balance of any equity lines of credit that share common collateral divided by the collateral value.
Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing
large volumes of market data including market comparables and price trends for local market areas.
Carrying value, which does not reflect the allowance for loan losses, includes purchase accounting adjustments, which, for PCI loans, are the nonaccretable difference and the accretable yield, and for all other
loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.
The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2010. The December 31, 2009 table has been revised to
conform to the 2010 presentation of top five states.
- 34 -
Wells Fargo & Company and Subsidiaries
HOME EQUITY PORTFOLIOS
% of loans
two payments Loss rate (annualized)
or more past due Quarter ended
Mar. 31,
(in millions) 2010 2009 2010 2009 2010 2009
Core portfolio
California $ 29,335 30,264 3.88 % 4.12 6.56 6.12
Florida 12,923 12,038 5.11 5.48 7.14 6.98
New Jersey 9,033 8,379 2.53 2.50 2.31 1.51
Virginia 6,023 5,855 2.10 1.91 2.34 1.13
Pennsylvania 5,629 5,051 1.90 2.03 1.34 1.81
Other 54,491 53,811 2.76 2.85 3.34 3.04
Total 117,434 115,398 3.21 3.35 4.34 3.90
Liquidating portfolio
California 3,022 3,205 8.12 8.78 17.18 17.94
Florida 386 408 9.22 9.45 17.10 19.53
Arizona 180 193 9.70 10.46 21.33 19.29
Texas 148 154 1.96 1.94 2.98 2.40
Minnesota 104 108 4.44 4.15 9.36 7.53
Other 4,179 4,361 4.65 5.06 8.55 7.33
Total 8,019 8,429 6.24 6.74 12.43 12.16
Total core and liquidating portfolios $ 125,453 123,827 3.40 3.58 4.86 4.48
(1)
(2)
Consists of real estate 1-4 family junior lien mortgages and lines of credit secured by real estate from all groups, excluding PCI loans.
Outstanding balances
Includes equity lines of credit and closed-end second liens associated with the Pick-a-Pay portfolio totaling $1.8 billion at March 31, 2010, and December 31, 2009.
- 35 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Balance, beginning of quarter $ 25,031
Provision for credit losses 5,330 5,913 6,111 5,086 4,558
Adjustment for passage of time on certain impaired loans (1) (74) - - - -
Loan charge-offs:
Commercial and commercial real estate
Commercial (767) (1,028) (986) (755) (596)
Real estate mortgage (337) (360) (215) (152) (31)
Real estate construction (349) (380) (254) (236) (105)
Lease financing (34) (56) (88) (65) (20)
Total commercial and commercial real estate (1,487) (1,824) (1,543) (1,208) (752)
Consumer:
Real estate 1-4 family first mortgage (1,397) (1,089) (1,015) (790) (424)
Real estate 1-4 family junior lien mortgage (1,496) (1,384) (1,340) (1,215) (873)
Credit card (696) (683) (691) (712) (622)
Other revolving credit and installment (750) (861) (860) (802) (900)
Total consumer (4,339) (4,017) (3,906) (3,519) (2,819)
Foreign (47) (56) (71) (56) (54)
Total loan charge-offs (5,873) (5,897) (5,520) (4,783) (3,625)
Loan recoveries:
Commercial and commercial real estate
Commercial 117 101 62 51 40
Real estate mortgage 10 11 6 6 10
Real estate construction 11 5 5 4 2
Lease financing 5 7 6 4 3
Total commercial and commercial real estate 143 124 79 65 55
Consumer:
Real estate 1-4 family first mortgage 86 71 49 32 33
Real estate 1-4 family junior lien mortgage 47 55 49 44 26
Credit card 53 49 43 48 40
Other revolving credit and installment 203 175 178 198 204
Total consumer 389 350 319 322 303
Foreign 11 10 11 10 9
Total loan recoveries 543 484 409 397 367
Net loan charge-offs (5,330) (5,413) (5,111) (4,386) (3,258)
Allowances related to business combinations/other 699 3 ( 2) (16) (165)
Balance, end of quarter $ 25,656
Components:
Allowance for loan losses $ 25,123 24,516 24,028 23,035 22,281
Reserve for unfunded credit commitments 533 515 500 495 565
Allowance for credit losses $ 2 5,656 25,031 24,528 23,530 22,846
Net loan charge-offs (annualized) as a percentage of average
total loans 2.71 % 2.71 2.50 2.11 1.54
Allowance for loan losses as a percentage of:
Total loans 3.22 3.13 3.00 2.80 2.64
Nonaccrual loans 92 100 115 146 212
Nonaccrual loans and other nonperforming assets 80 89 102 126 177
Allowance for credit losses as a percentage of:
Total loans 3.28 3.20 3.07 2.86 2.71
Nonaccrual loans 94 103 118 149 217
Nonaccrual loans and other nonperforming assets 81 91 105 128 181
(1)
Quarter ended
Certain impaired loans have a valuation allowance determined by discounting expected cash flows at the respective loan's effective interest rate. Accordingly, the
valuation allowance for these impaired loans reduces with the passage of time and that reduction is recognized as interest income.
- 36 -
Wells Fargo & Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in millions) 2010 2 009
Balance, beginning of quarter (
Cumulative effect from change in accounting for VIEs (2) 183 -
Wells Fargo net income 2,547 3,045
Wells Fargo other comprehensive income (loss), net of tax, related to:
Translation adjustments 5 (18)
Investment securities (3):
Unrealized losses related to factors other than credit (39) (210)
All other 1,023 3,473
Derivative instruments and hedging activities 73 (16)
Defined benefit pension plans 16 69
Common stock issued 464 524
Common stock repurchased (38) (54)
Preferred stock discount accretion - 98
Preferred stock released to ESOP 209 19
Common stock dividends (260) (1,443)
Preferred stock dividends, accretion and other (175) (661)
Noncontrolling interests and other, net (213) (85)
Balance, end of quarter $ 118,154
(1)
(2)
(3)
Quarter ended March 31,
The impact of adopting new accounting provisions for recording other-than-temporary impairment on debt securities as prescribed in ASC 320-10, Investments - Debt(FASB Staff Position (FSP) FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments ), was to increase
and Equity Securities
the 2009 beginning balance of retained earnings and reduce the 2009 beginning balance of other comprehensive income by $85 million ($53 million after tax).
Effective January 1, 2010, we adopted changes in consolidation accounting pursuant to amendments by ASU 2009-17 to ASC 810 (FAS 167) and, accordingly,
consolidated certain VIEs that were not included in our consolidated financial statements at December 31, 2009. We recorded a $183 million increase to beginning
retained earnings as a cumulative effect adjustment.
On March 31, 2009, we early adopted new fair value measurement provisions contained in ASC 820-10, Fair Value Measurements and Disclosures (FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
distressed sales. In such circumstances, ASC 820-10 permits use of other inputs in estimating fair value that may include pricing models.
- 37 -
Wells Fargo & Company and Subsidiaries
TIER 1 COMMON EQUITY
Quarter ended
Mar. 31,
(in billions) 2010 2009
Total equity $ 118.1 114.4
Less: Noncontrolling interests (2.0) (2.6)
Total Wells Fargo stockholders' equity 116.1 111.8
Less: Preferred equity (8.1) (8.1)
Goodwill and intangible assets (other than MSRs) (37.2) (37.7)
Applicable deferred tax assets 5.2 5.3
Deferred tax asset limitation - (1.0)
MSRs over specified limitations (1.5) (1.6)
Cumulative other comprehensive income (4.1) (3.0)
Other (0.3) (0.2)
Tier 1 common equity (A) $ 70.1 65.5
Total risk-weighted assets (2) (B) $ 987.7 1,013.6
Tier 1 common equity to total risk-weighted assets (A)/(B) 7.10 % 6.46
(1)
(2)
Tier 1 common equity is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies, including the Federal Reserve in the
Supervisory Capital Assessment Program, to assess the capital position of financial services companies. Tier 1 common equity includes total Wells Fargo stockholders'
equity, less preferred equity, goodwill and intangible assets (excluding MSRs), net of related deferred taxes, adjusted for specified Tier 1 regulatory capital limitations
covering deferred taxes, MSRs, and cumulative other comprehensive income. Management reviews Tier 1 common equity along with other measures of capital as part
of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such
information on the part of market participants.
Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to
one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk
category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for
determining total risk-weighted assets. The Company's March 31, 2010, preliminary risk-weighted assets reflect estimated on-balance sheet risk-weighted assets of
$817.0 billion and derivative and off-balance sheet risk-weighted assets of $170.7 billion.
Wells Fargo & Company and Subsidiaries - 38 -
FIVE QUARTER OPERATING SEGMENT RESULTS Mar. 31,
(income/expense in millions, average balances in billions) 2010 2009 2009 2009 2 009
COMMUNITY BANKING
Net interest income (2) $ 8,307 8,537 8,841 8,953 8,667
Provision for credit losses 4,530 4,952 4,635 4,303 4,020
Noninterest income 5,755 7,043 6,709 6,285 5,727
Noninterest expense 7,230 7,676 7,034 7,922 7,410
Income before income tax expense 2,302 2,952 3,881 3,013 2 ,964
Income tax expense 799 605 1,089 849 9 57
Net income before noncontrolling interests 1,503 2,347 2,792 2,164 2 ,007
Less: Net income from noncontrolling interests 48 150 56 73 61
Segment net income $ 1,455 2,197 2,736 2,091 1 ,946
Average loans $ 555.2 543.8 553.2 565.8 5 67.8
Average assets 784.9 800.8 804.9 824.0 8 10.8
Average core deposits 532.2 542.8 550.2 565.6 5 55.0
WHOLESALE BANKING
Net interest income (2) $ 2,500 2,681 2,535 2,460 2 ,343
Provision for credit losses 799 955 1,368 738 5 43
Noninterest income 2,825 2,574 2,399 2,775 2 ,550
Noninterest expense 2,660 2,703 2,647 2,802 2 ,533
Income before income tax expense 1,866 1,597 9 19 1,695 1 ,817
Income tax expense 666 578 322 619 6 41
Net income before noncontrolling interests 1,200 1,019 5 97 1,076 1 ,176
Less: Net income from noncontrolling interests 3 11 3 7 5
Segment net income $ 1,197 1,008 5 94 1,069 1 ,171
Average loans $ 232.2 238.5 247.0 258.4 2 78.2
Average assets 361.4 362.5 368.4 377.7 4 08.5
Average core deposits 160.9 162.4 146.8 137.4 1 39.6
WEALTH, BROKERAGE AND RETIREMENT
Net interest income (2) $ 664 549 580 637 6 41
Provision for credit losses 63 93 233 111 23
Noninterest income 2,246 2,105 2,188 2,187 1,878
Noninterest expense 2,390 2,558 2,333 2,300 2,235
Income before income tax expense (benefit) 4 57 3 2 02 4 13 2 61
Income tax expense (benefit) 173 (10) 69 158 1 07
Net income before noncontrolling interests 2 84 13 1 33 2 55 1 54
Less: Net income (loss) from noncontrolling interests 2 29 22 (3) (22)
Segment net income (loss) $ 282 (16) 1 11 2 58 1 76
Average loans $ 43.8 4 4.8 4 5.4 4 6.0 4 6.6
Average assets 137.8 137.7 129.8 127.0 1 17.1
Average core deposits 121.1 124.1 116.3 113.5 1 02.8
OTHER ( )
Net interest income (2) $ (324) (267) (272) (286) (275)
Provision for credit losses (62) (87) (125) (66) (28)
Noninterest income (525) (526) (514) (504) (514)
Noninterest expense (163) (116) (330) (327) (360)
Loss before income tax benefit (624) (590) (331) (397) (401)
Income tax benefit (237) (224) (125) (151) (153)
Net loss before noncontrolling interests (387) (366) (206) (246) (248)
Less: Net income from noncontrolling interests - - - - -
Other net loss $ (387) (366) (206) (246) (248)
Average loans $ (33.8) (34.7) (35.4) (36.3) (37.0)
Average assets (58.0) (61.5) (57.0) (53.8) (46.7)
Average core deposits (55.0) (58.5) (54.0) (50.8) (43.5)
CONSOLIDATED COMPANY
Net interest income (2) $ 11,147 11,500 11,684 11,764 11,376
Provision for credit losses 5,330 5,913 6,111 5,086 4 ,558
Noninterest income 10,301 11,196 10,782 10,743 9 ,641
Noninterest expense 12,117 12,821 11,684 12,697 11,818
Income before income tax expense 4,001 3,962 4,671 4,724 4 ,641
Income tax expense 1,401 949 1,355 1,475 1 ,552
Net income before noncontrolling interests 2,600 3,013 3,316 3,249 3 ,089
Less: Net income from noncontrolling interests 53 190 81 77 44
Wells Fargo net income $ 2,547 2,823 3,235 3,172 3 ,045
Average loans $ 797.4 792.4 810.2 833.9 8 55.6
Average assets 1,226.1 1,239.5 1,246.1 1,274.9 1,289.7
Average core deposits 759.2 770.8 759.3 765.7 7 53.9
(1)
(2)
(3)
Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment
has excess liabilities, interest credits for providing funding to other segments. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to
fund its assets, a funding charge based on the cost of excess liabilities from another segment.
Quarter ended
Includes Wachovia integration expenses and the elimination of items that are included in both Community Banking and Wealth, Brokerage and Retirement, largely representing wealth management
customers serviced and products sold in the stores.
The management accounting process measures the performance of the operating segments based on our management structure and is not necessarily comparable with other similar information for other
financial services companies. We define our operating segments by product type and customer segment. In first quarter 2010, we conformed certain funding and allocation methodologies of legacy
Wachovia to those of Wells Fargo; in addition, amounts remaining in "Other" related to integration expense were revised to reflect only integration expense related to the Wachovia merger. Prior periods
have been revised to reflect both changes.
- 39 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Residential MSRs measured using the fair value method:
Fair value, beginning of quarter $ 16,004 14,500 15,690 12,391 14,714
Adjustments from adoption of ASU 2009-17 (FAS 167) (118) - - - -
Acquired from Wachovia (1) - - - - 34
Servicing from securitizations or asset transfers 1,054 1,181 1,517 2,081 1,447
Net additions 936 1,181 1,517 2,081 1,481
Changes in fair value:
Due to changes in valuation model inputs
or assumptions (2) (777) 1,052 (2,078) 2,316 (2,824)
Other changes in fair value (3) (619) (729) (629) (1,098) (980)
Total changes in fair value (1,396) 323 (2,707) 1,218 (3,804)
Fair value, end of quarter $ 15,544 16,004 14,500 15,690 12,391
(1)
(2)
(3)
Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Amortized MSRs:
Balance, beginning of quarter $ 1,119 1,162 1,205 1,257 1,446
Adjustments from adoption of ASU 2009-17 (FAS 167) (5) - - - -
Purchases 1 1 - 6 4
Acquired from Wachovia (1) - - - (8) (127)
Servicing from securitizations or asset transfers 11 18 21 18 4
Amortization (57) (62) (64) (68) (70)
Balance, end of quarter (2) $ 1,069 1,119 1,162 1,205 1,257
Fair value of amortized MSRs:
Beginning of quarter $ 1,261 1,277 1,311 1,392 1,555
End of quarter 1,283 1,261 1,277 1,311 1,392
(1)
(2)
Quarter ended
Quarter ended
First quarter 2009 results reflect refinements to initial purchase accounting adjustments.
There was no valuation allowance recorded for the periods presented.
2009 periods reflect refinements to initial purchase accounting adjustments.
Principally reflects changes in discount rates and prepayment speed assumptions, mostly due to changes in interest rates.
Represents changes due to collection/realization of expected cash flows over time.
- 40 -
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING (CONTINUED) Mar. 31,
(in millions) 2010 2009 2009 2009 2009
Servicing income, net:
Servicing fees (1) $ 1,053 1,059 1,085 951 1,081
Changes in fair value of residential MSRs:
Due to changes in valuation model inputs
or assumptions (2) (777) 1,052 (2,078) 2,316 (2,824)
Other changes in fair value (3) (619) (729) (629) (1,098) (980)
Total changes in fair value of residential MSRs (1,396) 323 (2,707) 1,218 (3,804)
Amortization (57) (62) (64) ( 68) (70)
Net derivative gains (losses) from economic hedges (4) 1,766 830 3,605 ( 1,285) 3,699
Total servicing income, net $ 1,366 2,150 1,919 816 906
Market-related valuation changes to MSRs
and economic hedges (2)+(4) $ 989 1,882 1,527 1,031 875
(1)
(2)
(3)
(4)
Mar. 31,
(in billions) 2010 2009 2009 2009 2009
Managed servicing portfolio ( ):
Residential mortgage servicing:
Serviced for others $ 1,417 1,422 1,419 1,394 1,379
Owned loans serviced 371 364 365 377 377
Subservicing 10 10 11 12 13
Total residential servicing 1,798 1,796 1,795 1,783 1,769
Commercial mortgage servicing:
Serviced for others 449 454 458 470 474
Owned loans serviced 105 105 103 104 105
Subservicing 10 10 10 10 10
Total commercial servicing 564 569 571 584 589
Total managed servicing portfolio $ 2,362 2,365 2,366 2,367 2,358
Total serviced for others $ 1,866 1,876 1,877 1,864 1,853
Ratio of MSRs to related loans serviced for others 0.89 % 0.91 0.83 0.91 0.74
Weighted-average note rate (mortgage loans serviced for others) 5.59 5.66 5.72 5.74 5.83
(1)
Quarter ended
Principally reflects changes in discount rates and prepayment speed assumptions, mostly due to changes in interest rates.
Represents changes due to collection/realization of expected cash flows over time.
Represents results from free-standing derivatives (economic hedges) used to hedge the risk of changes in fair value of MSRs.
The components of our managed servicing portfolio are presented at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans
serviced.
Includes contractually specified servicing fees, late charges and other ancillary revenues. 2009 amounts have been revised to conform to current presentation.
- 41 -
Wells Fargo & Company and Subsidiaries
SELECTED FIVE QUARTER RESIDENTIAL MORTGAGE PRODUCTION DATA Mar. 31,
(in billions) 2010 2009 2009 2009 2009
Application data:
Wells Fargo Home Mortgage first mortgage
quarterly applications $ 125 144 123 194 190
Refinances as a percentage of applications 61 % 72 62 73 82
Wells Fargo Home Mortgage first mortgage
unclosed pipeline, at quarter end $ 59 57 62 90 100
Mar. 31,
(in billions) 2010 2009 2009 2009 2009
Residential Real Estate Originations:
Wells Fargo Home Mortgage first mortgage loans
Retail $ 43 51 50 71 51
Correspondent/Wholesale 32 42 45 57 49
Other (1) 1 1 1 1 1
Total quarter-to-date $ 76 94 96 129 101
Total year-to-date $ 76 420 326 230 101
(1)
CHANGES IN RESERVE FOR MORTGAGE LOAN REPURCHASE LOSSES Quarter ended Mar. 31,
(in millions) 2010 2009
Balance, beginning of period $ 1,033 620 (1)
Additions:
Loan sales 44 302
Change in estimate - primarily due to credit deterioration 358 625
Total additions 402 927
Losses (172) (514)
Balance, end of period $ 1,263 1,033
(1)
Consists of home equity loans and lines and Wells Fargo Financial.
Quarter ended
Quarter ended
Reflects purchase accounting refinements.
Loan Modifications.
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