WELLS FARGO REPORTS RECORD NET INCOME
SAN FRANCISCO - Wells Fargo & Company (NYSE: WFC) reported diluted earnings per common share
of $0.57 for second quarter 2009 compared with $0.56 for first quarter 2009 and $0.53 for second
quarter 2008. (Results prior to January 1, 2009, do not include Wachovia.) Wells Fargo net income was a
record $3.17 billion for second quarter 2009 and $6.22 billion for the first six months of 2009. "Our very
strong growth in revenue, deposits and net income this quarter and the first half of this year demonstrates
again that the combined Wells Fargo-Wachovia has significant power to generate capital internally," said
President and CEO John Stumpf. "Thanks to the customer focus of our 282,000 talented team members,
our revenue rose 28 percent (annualized) from first quarter as we set new cross-sell records and gained
even more market share by satisfying all our customers' financial needs and helping them succeed
financially. At legacy Wells Fargo, 41 percent of our retail households have a cross-sell ratio over six, and
one out of every four retail households now have at least eight products with us. Our Wachovia team
members also contributed significantly to our results this quarter and the first half of the year, generating
39 percent of consolidated second quarter revenue. Wells Fargo Advisors (formerly Wachovia Securities)
was ranked #1 by Forrester Research among all investment/brokerage firms based on client perceptions
for ‘doing what's best for me and my household.'
"Our top priority is to integrate Wachovia into Wells Fargo as smoothly and efficiently as possible to
benefit our 70 million customers, which equals about one of every three U.S. households. The Wells
Fargo-Wachovia integration is on track. In November, Colorado will become our first community banking
state to convert Wachovia's financial centers to Wells Fargo systems, brand and sales processes - a
conversion process that will continue deliberately and thoughtfully, region by region and state by state,
throughout next year and into 2011.
"Our team achieved these results while undertaking the largest merger integration in U.S. banking history
and despite the challenging economy. We intend to pay back the government's investment in Wells Fargo
on behalf of U.S. taxpayers in a shareholder-friendly way. We will work closely with our regulators to
determine the appropriate time to repay the funds while maintaining strong capital levels."
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Financial Performance
"We're very pleased with the Company's accomplishments and results this quarter," said Chief Financial
Officer Howard Atkins. "We earned another record profit - $ 3.17 billion - after earning $3.05 billion in
first quarter. We continued to profitably build our franchise for the long term, with revenue up 28 percent
(annualized) linked quarter across multiple, diverse business lines. We've extended more than
$471 billion of loans to creditworthy customers since October 2008, including $206 billion in new loan
commitments and originations this quarter. Our net interest margin increased to 4.30 percent, largely
reflecting what we believe is the best core customer deposit base among large banks, with checking and
savings deposits up 20 percent (annualized) this quarter. We took many actions to further strengthen our
balance sheet, including building credit reserves to $23.5 billion and building Tier 1 common equity to
$47.1 billion, or 4.49 percent of risk-weighted assets, and building Tier 1 capital to 9.8 percent of riskweighted
assets. While the Supervisory Capital Assessment Program (SCAP) will not be completed until
after the third quarter is finished, we have already generated $14.2 billion from market and internal
sources toward the $13.7 billion capital buffer required by the Federal Reserve and expect to generate
additional capital internally in the third quarter. We're seeing some signs of moderation in consumer and
small business credit losses, largely due to our efforts over the last two years to modify and restructure
loans for our customers, our successful efforts to reduce high risk loan portfolios and the write-downs we
already took in Wachovia's loan portfolios. The Wachovia integration remains on track, with business and
revenue synergies already exceeding our expectations."
Revenue
Record revenue of $22.5 billion increased 28 percent (annualized) from first quarter 2009. Year-to-date
revenue was $43.5 billion, almost double legacy Wells Fargo's revenue for the comparable period last
year. "We continued to have a very good balance in our revenue generation between commercial and
retail, between spread income and fee income, and between legacy Wells Fargo and Wachovia," said
Atkins. "The vast majority of our more than 80 businesses grew revenue again this quarter, including the
following diverse businesses that all achieved greater than 8 percent (annualized) linked-quarter growth:
regional banking, mortgage banking, investment banking/capital markets, asset-based lending, auto
lending, student lending, debit card, merchant card, wealth management, securities brokerage, retirement
services and international."
Net Interest Income
Net interest income was $11.8 billion, up 14 percent (annualized) from $11.4 billion in first quarter 2009.
Average earning assets were up $1.3 billion linked quarter, with an increase of $30.7 billion in securities
and mortgage loans held for sale. This increase was partially offset by a reduction of $3.7 billion in
average trading assets and a reduction of $21.6 billion in average loans, including $6.3 billion in the
higher-risk loan portfolios that the Company has been exiting, such as indirect home equity and indirect
auto from legacy Wells Fargo, and Wachovia's Pick-a-Pay and commercial real estate portfolios. "At
4.30 percent, our net interest margin remained the best among our large bank peers and reflected the
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benefit of continued growth in core customer deposits," said Atkins. "About 80 percent of our core
deposits are now in checking and savings deposits, one of the highest percentages in the industry."
Loans
Average total loans were $833.9 billion compared with $855.6 billion in first quarter 2009, reflecting
more moderate consumer and commercial demand for credit, as well as the Company's actions to reduce
certain higher-risk loan portfolios. Average total loans included $159.6 billion of these loans in the
portfolios that the Company is running off, down $6.3 billion, or 15 percent (annualized) from first
quarter and $10.9 billion year-to-date. "We continue to extend credit and meet loan demand for all of our
credit-worthy borrowers," said Atkins.
Deposits
Average total core deposits were $765.7 billion compared with $753.9 billion in first quarter 2009.
Average consumer checking and savings deposits increased 20 percent (annualized) to $613.3 billion,
from $583.8 billion in first quarter 2009. Average mortgage escrow deposits were $32.0 billion,
compared with $25.2 billion in first quarter 2009. Average consumer checking accounts at legacy Wells
Fargo grew a net 6.5 percent from second quarter 2008, and for Wells Fargo and Wachovia combined,
grew a net 9.5 percent in California for the same period. During the quarter, $24 billion of Wachovia's
higher-cost certificates of deposit matured and were replaced by $14 billion in checking, savings or lowercost
CDs. "We continue to see strong core deposit growth across all customer segments as we gain new
customers, deepen our market penetration and expand relationships with existing customers," said
Atkins.
Noninterest Income
Noninterest income of $10.7 billion increased 46 percent (annualized) from $9.6 billion in first quarter
2009 and included:
- Mortgage banking income of $3.0 billion, including:
- $2.2 billion in revenue from mortgage loan originations/sales activities on $129 billion of
originations, including net write-downs of the mortgage warehouse for spread and other liquidityrelated
valuation adjustments
- Mortgage applications of $194 billion, one of the Company's highest quarters, with an unclosed
application pipeline of $90 billion at quarter end
- $1.0 billion mortgage servicing rights (MSRs) mark-to-market gains, net of hedge results,
reflecting a $2.3 billion increase in the fair value of the MSRs offset by a $1.3 billion economic
hedge loss in the quarter, with the net difference largely due to hedge carry income reflecting low
short-term rates, which are likely to continue; MSRs as a percent of loans serviced of 0.91 percent
- Trust and investment fees of $2.4 billion, up 36 percent (annualized) linked quarter primarily
reflecting equity and bond origination fees and higher brokerage commissions as the Company builds
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its retail securities brokerage business; Client assets in Wealth, Brokerage and Retirement up
8 percent linked quarter
- Card and other fees of $1.9 billion, up 30 percent (annualized) linked quarter reflecting seasonally
higher purchase volumes and higher customer penetration rates
- Service charges on deposit accounts of $1.4 billion, up 16 percent (annualized) linked quarter driven
by continued strong checking account growth
- Trading revenue of $749 million, with approximately two-thirds related to customer transactions
- Net losses on debt and equity securities totaling $38 million, including $463 million of OTTI writedowns.
Net losses on debt securities of $78 million included OTTI of $308 million net of realized
gains of $230 million. Net gains on equity securities totaled $40 million after $155 million of OTTI
write-downs.
At June 30, 2009, the Company had net unrealized losses on securities available for sale reflected in
equity of only $400 million, down from losses of $4.7 billion at March 31, 2009. "The net unrealized
losses were virtually eliminated as credit spreads narrowed during the quarter and as unrealized gains
emerged on new mortgage-backed securities (MBS) purchased during the quarter at the peak in MBS
yields," said Atkins.
Noninterest Expense
Noninterest expense was $12.7 billion compared with $11.8 billion in first quarter. The increase was due
to the FDIC special assessment of $565 million and higher variable compensation in mortgage, brokerage,
and investment banking related to increased customer sales. Noninterest expense also included
$244 million of merger-related costs. "We continued to hire new sales professionals in the quarter in our
regional bank and retail securities brokerage business while improving sales force productivity," said
Atkins. "In addition, we opened 12 banking stores during the quarter. Even though we continue to invest
appropriately in our business for long-term revenue growth, expenses were relatively flat overall reflecting
the benefit of the consolidation of the two companies, and ongoing expense management initiatives."
Including the FDIC special assessment and merger costs, which together represented 6 percent of total
noninterest expense during the quarter, the efficiency ratio was 56.4 percent, flat from first quarter's
56.2 percent.
Capital
The Company continued to build capital in the second quarter. As a percentage of total risk-weighted
assets, Tier 1 capital, tangible common equity, and Tier 1 common equity increased to 9.80 percent,
5.24 percent, and 4.49 percent, respectively, at June 30, 2009, up from 8.30 percent, 3.84 percent, and
3.12 percent, respectively, at March 31, 2009. "As we previously stated, the Federal Reserve asked us to
generate a $13.7 billion regulatory capital buffer by November 9, 2009, based on what we believed were
their extremely conservative revenue assumptions in the adverse case scenario," said Atkins. "At June 30,
2009, with over a quarter to go before the SCAP plan is completed, we have exceeded this requirement by
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$500 million. We accomplished this through an $8.6 billion equity raise, and internally generated capital
including $2.4 billion of pre-provision net revenue (pre-tax pre-provision profit plus certain SCAP
adjustments) in excess of the Federal Reserve's estimate, $2.7 billion realization of deferred tax assets and
$500 million of other internally generated sources of capital, including core deposit intangible
amortization. We expect to realize additional internally generated SCAP-qualifying capital in the third
quarter which will add to the amount already generated in the second quarter. Our actual pre-provision
net revenue for the first two quarters of 2009 was above our own SCAP projection and surpassed the
Federal Reserve's projection by $4.2 billion, or 27 percent." See footnote (4) on page 18 and the table on
page 26 for more information.
Credit Quality2
"Credit losses rose in the second quarter, as expected, due to the weak economy and higher
unemployment in the quarter," said Chief Credit Officer Mike Loughlin. "We expect credit losses and
nonperforming assets to increase, although we're beginning to see some moderation in the rate of growth
of losses in a number of consumer portfolios, as evidenced by some stabilization in early stage
delinquencies, largely the result of actions we've taken over the last two years to reduce risk."
Net Loan Charge-Offs Quarter ended Quarter ended June 30, 2009 March 31, 2009 As a As a % of % of average Net loan average loans charge- loans (annualized) offs (annualized) Legacy Wells ($ in millions) Fargo Wachovia Commercial and commercial real estate:
Commercial $ 605 $ 99 $ 704 1.51 % $ 556 1.15 %
Other real estate mortgage 86 6 0 146 0.56 21 0 .08
Real estate construction 190 4 2 232 2.76 1 03 1.21
Lease financing 1 6 4 5 6 1 1 .68 17 0.43
Total commercial and commercial real estate 897 2 46 1 ,143 1 .35 697 0.80 Consumer:
Real estate 1-4 family
first mortgage 410 348 758 1 .26 3 91 0.65
Real estate 1-4 family
junior lien mortgage 991 1 80 1,171 4.33 847 3 .12
Credit card 6 05 59 6 64 11.59 582 1 0.13
Other revolving credit and
installment 456 1 48 6 04 2.66 696 3.05
Total consumer 2,462 735 3 ,197 2 .77 2 ,516 2.16 Foreign 4 3 3 46 0.61 4 5 0 .56 Total $ 3 ,402 $ 984 $ 4,386 2.11 $ 3 ,258 1 .54 Consolidated Consolidated Net loan charge-offs
2 See explanation on page 39 of the accounting for credit-impaired loans acquired from Wachovia accounted for
under SOP 03-3, and the impact on selected financial ratios.
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Second quarter net charge-offs were $4.4 billion, or 2.11 percent of average loans, compared with first
quarter net charge-offs of $3.3 billion, or 1.54 percent of average loans. Legacy Wells Fargo net chargeoffs
were $3.4 billion compared with $2.9 billion in first quarter 2009 and Wachovia net charge-offs
totaled $984 million compared with $371 million in first quarter 2009. "As a result of our merger, the
Wachovia loans with the highest expected loss content were classified as impaired and the expected life of
loan loss content was reflected in purchase accounting write-downs at December 31, 2008," said
Loughlin. "The remaining non-impaired portfolio, by definition, should have lower loss content. The
losses in the non-impaired portfolio increased in the quarter as anticipated given the effects of purchase
accounting and portfolio deterioration. We expect the non-impaired portfolios to perform significantly
better than the impaired portfolios that have already been written down through purchase accounting.
"We continue to take actions to reduce risk in the portfolio and invest in loss mitigation activities. We took
significant write-downs in the Wachovia portfolio in purchase accounting; we have exited several higher
risk non-strategic businesses and are liquidating these portfolios, such as Pick-a-Pay, legacy Wells Fargo
indirect auto and the broker-originated home equity portfolios. We continue to monitor credit standards
to improve the credit quality of new loans, all in an effort to reduce the risk in the portfolio while
continuing to originate appropriately priced new business for our customers. Even with the challenges
that remain, our teams are effectively working together to manage the risk, and the Wells Fargo credit
culture is being implemented across the combined company."
Commercial and commercial real estate net charge-offs totaled $1.1 billion, including $897 million from
legacy Wells Fargo and $246 million from Wachovia, a combined increase of $446 million linked quarter.
"As expected, the challenging economy affected the commercial portfolios, and more specifically those
portfolios tied to the residential real estate industry," said Loughlin. "We believe that our disciplined
underwriting, the write-downs previously recognized through purchase accounting and our diligent work
with challenged borrowers will contain the growth in losses going forward."
Net charge-offs in the 1-4 family first mortgage portfolio totaled $758 million, including $410 million
from legacy Wells Fargo and $348 million from Wachovia, a combined increase of $367 million linked
quarter. "The loss levels in our 1-4 family first mortgage portfolio increased as expected, in part due to
increased loan modifications and the lifting of the foreclosure moratorium," said Loughlin. "While we are
seeing some encouraging signs of home sales in California, housing prices need to stabilize broadly before
credit results in the mortgage portfolio will improve." Credit card charge-offs increased $82 million linked
quarter to $664 million. "While late stage delinquencies and loss rates continue to be challenged by the
high levels of unemployment and bankruptcies, we are beginning to see some stabilization in early stage
delinquency in the unsecured consumer loan portfolios. Losses in the auto portfolio fell modestly in the
quarter as we've worked through some of the poorer performing vintages and used car pricing has
improved."
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Net charge-offs in the real estate 1-4 family junior lien portfolio totaled $1.2 billion, including
$991 million from legacy Wells Fargo and $180 million from Wachovia, a combined increase of
$324 million from first quarter 2009. "The rate of decline in home values appears to be moderating in a
number of markets," said Loughlin. "While the loss amounts are directly correlated to these property
values, other events affecting the consumer, such as unemployment, drive the loss frequency. Many of our
home equity losses involve customers who are having problems with their first mortgage due to
unemployment or over-indebtedness. Additionally, as more customers seek to modify their first
mortgages, there may be an adverse effect on the credit performance of junior lien holders behind these
modifications." More information about the Home Equity portfolio is available on page 40.
Nonaccrual Loans and Other Nonperforming Assets June 30, 2009 March 31, 2009 Legacy As a % As a % As a % As a % Wells of total of total of total of total ($ in millions) Fargo loans Wachovia loans Consolidated loans Consolidated loans Commercial and commercial real estate:
Commercial $ 2,100 2 .14 % $ 810 0 .97 % $ 2,910 1 .60 % $ 1,696 0 .88 %
Other real estate mortgage 1,057 2 .12 1 ,286 2 .39 2,343 2.26 1 ,324 1 .26
Real estate construction 1,991 1 0.72 219 1 .49 2 ,210 6 .65 1 ,371 4.04
Lease financing 112 1 .51 18 0 .25 130 0.89 1 14 0 .77
Total commercial and commercial real estate 5,260 3 .02 2,333 1.46 7,593 2 .28 4 ,505 1.30 Consumer:
Real estate 1-4 family
first mortgage 3 ,975 4 .93 2,025 1 .29 6 ,000 2 .53 4 ,218 1.74
Real estate 1-4 family
junior lien mortgage 1 ,415 1 .95 237 0 .69 1,652 1.54 1,418 1 .29
Other revolving credit and
installment 297 0 .64 3 0 0 .07 327 0.36 300 0.33
Total consumer 5 ,687 2 .59 2,292 0 .96 7,979 1 .74 5 ,936 1 .27 Foreign 67 1 .19 1 59 0 .65 2 26 0.75 7 5 0 .24 Total nonaccrual loans 11,014 2 .76 4,784 1 .13 15,798 1.92 10,516 1 .25 Foreclosed assets:
GNMA loans 932 - 932 768
All other 809 783 1,592 1,294
Total foreclosed assets 1,741 783 2,524 2,062 Real estate and other nonaccrual investments 20 20 34
Total nonperforming assets were $18.3 billion (2.23 percent of total loans) at June 30, 2009, and included
$15.8 billion of nonaccrual loans and $2.5 billion of foreclosed assets (repossessed real estate and
vehicles). Nonaccrual loans increased $5.3 billion from March 31, 2009, with increases in both the
commercial and consumer portfolios.
"The increase in nonaccrual loans was attributable to four factors," said Loughlin. "First, about 60 percent
of the increase came from Wachovia's non-impaired loan portfolios. This increase was expected and is
primarily the natural result of experiencing new inflows to nonaccruals after having virtually eliminated
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Wachovia's nonaccruals at the end of the year through purchase accounting write-downs. Going forward
the increase in nonaccrual loans attributable to this effect will be much less significant. Second, the
economics to liquidate assets in this market remain challenging and may cause us to temporarily hold
onto assets longer. Third, we've increased the number of loan modifications and other strategies to keep
our customers in their homes. These newly modified loans may remain in nonperforming assets until they
demonstrate performance. And finally, we have seen some deterioration in certain portfolios, particularly
commercial real estate, as some borrowers are distressed. Not all nonaccrual loans turn into future credit
losses. The vast majority are secured by residential or commercial real estate, and some write-downs may
already have occurred as loans migrated through delinquency buckets. We firmly believe our approach to
managing nonaccruals to minimize loss over time is sound, although the result will be continued high
levels of nonaccruals until economic conditions improve - a dynamic factored into our reserving
methodology."
Loans 90 Days or More Past Due and Still Accruing (Excluding Insured/Guaranteed GNMA and Similar Loans) Includes Wells Fargo and Wachovia June 30, (in millions) 2009 Commercial and commercial real estate:
Commercial $ 4 15 417
Other real estate mortgage 7 02 355
Real estate construction 860 6 24
Total commercial and commercial real estate 1,977 Consumer:
Real estate 1-4 family first mortgage 1 ,497 1,361
Real estate 1-4 family junior lien mortgage 660 5 98
Credit card 680 7 38
Other revolving credit and installment 1 ,160 1,105
Total consumer 3,997 Foreign 32 Total loans $ 6 ,006
*The table above does not include loans acquired from Wachovia accounted for under SOP 03-3 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.
Loans 90 days or more past due and still accruing totaled $16.7 billion at June 30, 2009, and $14.7 billion
at March 31, 2009. For the same periods, the totals included $10.7 billion and $9.5 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 Veterans Affairs.
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Allowance for Credit Losses (Includes Wells Fargo and, beginning December 31, 2008, Wachovia)
The allowance for credit losses, including the reserve for unfunded commitments, totaled $23.5 billion at
June 30, 2009, compared with $22.8 billion at March 31, 2009. Second quarter 2009 results included a
credit reserve build of $700 million, primarily for higher losses in several consumer credit portfolios,
increased levels of residential real estate modifications classified as troubled debt restructurings and
expected deterioration in the wholesale portfolios and commercial non-SOP 03-3 impaired loans. The
allowance coverage to total loans increased to 2.86 percent compared with 2.71 percent at March 31,
2009, and covered expected consumer losses for approximately the next 12 months and inherent
commercial and commercial real estate loan losses expected to emerge over approximately the next
24 months. "We believe the allowance was adequate for losses inherent in the loan portfolio at June 30,
2009, including both performing and nonperforming loans," said Loughlin.
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:
June 30, Mar. 31,
(in millions) 2 009 2009
Community Banking $ 2,008 $ 1,839
Wholesale Banking 1,067 1,180
Wealth, Brokerage and Retirement Services 363 259
Quarter ended
More financial information about the business segments is on pages 34 and 35.
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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.
June 30, Mar. 31,
(in millions) 2 009 2009
Total revenue $ 1 4,807 $ 13,953
Provision for credit losses 4 ,264 4,004
Noninterest expense 7,665 7,158
Segment net income 2,008 1,839
(in billions)
Average loans 5 40.7 5 52.8
Average assets 7 99.2 797.9
Average core deposits 5 43.9 538.0
Quarter ended
Community Banking reported net income of $2.0 billion in second quarter 2009, up $169 million, or
9 percent, from first quarter. Revenue increased $854 million, or 6 percent, driven by an increase in net
interest margin and strong regional banking and mortgage banking fee income. Noninterest income
increased $567 million, or 10 percent, from prior quarter driven by continued strength in mortgage
banking and strong growth in deposit service charges and card fees. Noninterest expense increased
$507 million, or 7 percent, due primarily to FDIC and other deposit assessments. The provision for credit
losses increased $260 million, and included a $479 million credit reserve build compared with a $1 billion
credit reserve build in the prior quarter.
Regional Banking Highlights for Legacy Wells Fargo
- Core product solutions (sales) of 6.38 million, up 14 percent from prior year on a comparable basis
- Core sales per platform banker FTE (active, full-time equivalent) of 5.64 per day, up from 5.18 in prior
year on a comparable basis
- Record retail bank household cross-sell of Wells Fargo products of 5.84 products per household;
25 percent of retail bank households had 8 or more products, our long-term goal
- Sales of Wells Fargo Packages® (a checking account and at least three other products) up 19 percent
from prior year, purchased by 76 percent of new checking account customers
- Customer loyalty scores up 4 percent, and welcoming and wait time scores up 7 percent from prior
year (based on customers conducting transactions with tellers)
- Business Banking
o Store-based business solutions up 16 percent from prior year
o Business Banking household cross-sell of 3.69 products per household
o Sales of Wells Fargo Business Services Packages (business checking account and at least
three other business products) up 28 percent from prior year, purchased by 55 percent of new
business checking account customers
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Regional Banking Highlights for Wachovia
- Retail bank household cross-sell of Wachovia products of 4.55 products per household
- Record customer experience scores, maintained already very high levels
Combined Regional Banking
- Consumer checking accounts up a net 5.5 percent from prior year
- Business checking accounts up a net 3.9 percent from prior year
- Opened 12 banking stores and converted 31 retail stores from Century Bancshares for retail network
total of 6,668
- 12,353 ATMs across our network, including 2,681 Envelope-FreeSM webATM machines
- #1 national SBA lender in both units and dollar volume (combined with Wachovia) through June 30
(the first nine months of the government's fiscal year)
Online Banking
- 15.9 million active online customers, including Wachovia
- 3.8 million active Bill Pay customers, including Wachovia
- Brookings Institution ranked Wells Fargo as #1 web site out of 68 leading U.S. corporations for
technology innovation
Home Mortgage
- Mortgage applications of $194 billion, up from $190 billion in prior quarter
- Mortgage application pipeline of $90 billion at quarter end, down from $100 billion at March 31,
2009
- Home Mortgage originations of $129 billion, up from $101 billion in prior quarter
- Owned residential mortgage servicing portfolio of $1.7 trillion, up from $1.6 trillion at March 31, 2009
Wells Fargo Financial
- Average loans of $62.5 billion compared with $65 billion in prior quarter
- Debt consolidation loans of $24.3 billion compared with $25 billion in prior quarter
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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.
June 30, Mar. 31,
(in millions) 2 009 2009
Total revenue $ 5 ,238 $ 4 ,907
Provision for credit losses 738 545
Noninterest expense 2 ,807 2,531
Segment net income 1,067 1,180
(in billions)
Average loans 2 63.5 271.9
Average assets 381.7 403.8
Average core deposits 1 38.1 138.5
Quarter ended
Wholesale Banking reported net income of $1.07 billion in second quarter 2009, compared with
$1.18 billion in first quarter 2009. Revenue increased $331 million, primarily due to strong results in
investment banking and capital markets. Noninterest expense increased $276 million, primarily due to
higher FDIC assessments. The provision for credit losses was $738 million, an increase of $193 million
from first quarter 2009, and included $576 million from net charge-offs and $162 million of additional
provision recorded to build reserves for the wholesale portfolio.
- Customer-focused investment banking revenue up 29 percent from prior quarter driven by strength in
high-grade and high-yield debt and equity issuances and M&A advisory services
- Consistently strong trading results continued across all customer-centric capital markets businesses,
including fixed income, equities and interest rate activities
- Asset-based lending revenue up 13 percent from prior quarter due to large volume of lead positions
and competitive re-pricing
- Commercial Real Estate Group continued to originate high-quality commercial real estate loans at
improved spreads and terms, with spreads on new commitments up 19 percent linked quarter
- Through first half of 2009, customers deposited more than $1 trillion through Check 21 solutions,
including the award-winning Desktop Deposit® service
- Active Commercial Electronic Office® portal users up 19 percent from prior year, and customers
continued to initiate and receive more payments electronically than through checks
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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. Wealth Management 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 Wealth 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 full-service brokerage firms in the U.S. Retirement provides retirement services for individual investors and is a national leader in 401(k) and pension record keeping.
June 30, Mar. 31,
(in millions) 2 009 2009
Total revenue $ 2 ,986 $ 2 ,639
Provision for credit losses 115 2 5
Noninterest expense 2 ,289 2,219
Segment net income 363 259
(in billions)
Average loans 45.9 46.7
Average assets 1 10.2 1 04.0
Average core deposits 113.5 102.6
Quarter ended
Wealth, Brokerage and Retirement reported net income of $363 million, up 40 percent linked quarter.
Second quarter earnings were driven by increased brokerage transaction activity, improved market
valuations, strong deposit growth and securities gains.
Retail Brokerage
- Client assets increased 8 percent to $986 billion from prior quarter
- Managed account assets increased $22 billion, or 16 percent, from prior quarter, including net inflows
of $10 billion
- Continued strong broker recruiting - financial advisors hired this year are 60 percent more
productive than those who have left the firm
- Brokerage average sweep deposits up 6 percent from prior quarter
- Wachovia Securities rebranded as Wells Fargo Advisors
Wealth Management
- Average deposits up 19 percent from prior quarter, led by continued growth in the Unlimited NOW
account product
- Private banking revenue up 20 percent from prior quarter on strong deposit growth
Retirement
- Retirement plan assets of $250 billion, up $27 billion, or 12 percent, from prior quarter
- IRA assets of $212 billion, up $20 billion, or 10 percent, from prior quarter
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Recorded Message
A recorded message reviewing Wells Fargo's results is available at 5:30 a.m. Pacific Time through July 25,
2009. Dial 866-416-0522 (domestic) or 706-902-3479 (international). No password is required. The call
is also available online at wellsfargo.com/invest_relations/earnings.
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" or similar expressions. Forward-looking statements in this news release
include, among others, the following statements: we expect to internally generate additional SCAPqualifying
capital in the third quarter; in November, Colorado will become our first community-banking
state to convert Wachovia's financial centers to Wells Fargo's systems, brand and processes-a conversion
process that will continue throughout next year and into 2011; we intend to pay back the government's
investment in Wells Fargo on behalf of U.S. taxpayers in a shareholder-friendly way; short-term rates, for
purposes of hedge carry income, will likely continue to be low; we expect credit losses and nonperforming
assets to increase; the Wachovia non-impaired portfolio should have lower loss content; we expect
Wachovia's non-impaired portfolios to perform significantly better than the impaired portfolios that have
already been written down through purchase accounting; we believe that our disciplined underwriting,
the write-downs previously recognized through purchase accounting and our diligent work with
challenged borrowers will reduce losses going forward; housing prices need to stabilize broadly before
credit results in the mortgage portfolio will improve; we expect going forward the increase in nonaccrual
loans attributable to this effect will be much less significant; our loan modifications and other strategies to
keep our customers in their homes will result in continued future growth in nonperforming assets until
economic conditions improve; there will be continued high levels of nonaccruals until economic
conditions improve; and we believe the allowance was adequate for losses inherent in the loan portfolio at
June 30, 2009, including both performing and nonperforming loans.
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 economic and market conditions; our
capital requirements and ability to raise capital on favorable terms; the terms of capital investments or
other financial assistance provided by the U.S. government; legislative proposals to allow mortgage cramdowns
in bankruptcy or force other loan modifications; our ability to successfully integrate the Wachovia
merger and realize the expected cost savings and other benefits; our ability to realize efficiency initiatives
to lower expenses when and in the amount expected; the adequacy of our allowance for credit losses;
recognition of other-than-temporary impairment on securities held in our available-for-sale portfolio; the
effect of changes in interest rates on our net interest margin and our mortgage originations, mortgage
servicing rights and mortgages held for sale; hedging gains or losses; disruptions in the capital markets
and reduced investor demand for mortgages loans; our ability to sell more products to our customers; the
effect of the economic recession on the demand for our products and services; the effect of 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 stabilize or 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. There is no assurance that we will meet the SCAP
capital requirement on the November 9, 2009 deadline established by the Federal Reserve Board.
Although we exceeded the requirement at June 30, 2009, our common equity capital could fall between
- 17 -
now and the deadline, causing us not to meet the requirement. Failure to meet the requirement could
result in the issuance of equity securities or the conversion of preferred securities into common stock,
resulting in substantial dilution to existing stockholders. 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 Quarterly Report on Form 10-Q for the quarter ended March
31, 2009 and our Annual Report on Form 10-K for the year ended December 31, 2008, including the
discussions under "Risk Factors" in each of those reports, 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 $1.3 trillion in assets, providing
banking, insurance, investments, mortgage and consumer finance through more than 10,000 stores, over
12,000 ATMs and the internet (wellsfargo.com) across North America and internationally.
# # #
-18-
Wells Fargo & Company and Subsidiaries
SUMMARY FINANCIAL DATA
($ in millions, except per share amounts) 2009 2008 2009 2008
For the Period
Wells Fargo net income $ 3,172 1,753 6,217 3,752
Wells Fargo net income applicable to common stock 2,575 1,753 4,959 3,752
Diluted earnings per common share 0.57 0.53 1.13 1.13
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 1.00 % 1.19 0.98 1.29
Net income to average assets 1.02 1.20 1.00 1.30
Wells Fargo net income applicable to common stock to
average Wells Fargo common stockholders' equity (ROE) 13.70 14.58 14.07 15.71
Net income to average total equity 11.56 14.62 11.76 15.77
Efficiency ratio (3) 56.4 51.0 56.3 51.2
Total revenue $ 22,507 11,460 43,524 22,023
Pre-tax pre-provision profit (PTPP) (4) 9,810 5,615 19,009 10,736
Dividends declared per common share 0.05 0.31 0.39 0.62
Average common shares outstanding 4,483.1 3,309.8 4,365.9 3,306.1
Diluted average common shares outstanding 4,501.6 3,321.4 4,375.1 3,319.6
Average loans $ 833,945 391,545 844,708 387,732
Average assets 1,274,926 594,749 1,282,280 584,871
Average core deposits (5) 765,697 318,377 759,845 317,827
Average retail core deposits (6) 596,648 230,365 593,592 229,315
Net interest margin 4.30 % 4.92 4.23 4.81
At Period End
Securities available for sale $ 206,795 91,331 206,795 91,331
Loans 821,614 399,237 821,614 399,237
Allowance for loan losses 23,035 7,375 23,035 7,375
Goodwill 24,619 13,191 24,619 13,191
Assets 1,284,176 609,074 1,284,176 609,074
Core deposits (5) 761,122 310,410 761,122 310,410
Wells Fargo stockholders' equity 114,623 47,964 114,623 47,964
Total equity 121,382 48,265 121,382 48,265
Capital ratios:
Wells Fargo common stockholders' equity to assets 6.51 % 7.87 6.51 7.87
Total equity to assets 9.45 7.92 9.45 7.92
Average Wells Fargo common stockholders' equity to average assets 5.92 8.13 5.54 8.21
Average total equity to average assets 8.85 8.18 8.48 8.26
Risk-based capital (7)
Tier 1 capital 9.80 8.24 9.80 8.24
Total capital 13.84 11.23 13.84 11.23
Tier 1 leverage (7) 8.32 7.35 8.32 7.35
Book value per common share 17.91 14.48 17.91 14.48
Team members (active, full-time equivalent) 269,900 160,500 269,900 160,500
Common stock price:
High $ 28.45 32.40 30.47 34.56
Low 13.65 23.46 7.80 23.46
Period end 24.26 23.75 24.26 23.75
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Quarter ended June 30, Six months ended June 30,
Wells Fargo & Company (Wells Fargo) acquired Wachovia Corporation (Wachovia) on December 31, 2008. Because the acquisition was completed on December 31, 2008,
Wachovia's results are included in the income statement, average balances and related metrics beginning in 2009. Wachovia's assets and liabilities are included in the consolidated
balance sheet beginning on December 31, 2008.
The June 30, 2009, ratios are preliminary.
Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.
On January 1, 2009, we adopted Statement of Financial Accounting Standards (FAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of, on a retrospective basis for disclosure and, accordingly, prior period information reflects the adoption. FAS 160 requires that noncontrolling interests be reported as a
ARB No. 51
component of total equity.
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
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. Federal banking regulators used a similar measure, pre-provision net revenue, in
connection with the Supervisory Capital Assessment Program (SCAP) "stress test" to assess the capital adequacy of certain financial institutions. Under the SCAP guidelines, preprovision
net revenue is PTPP adjusted for certain items.
-19-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER SUMMARY FINANCIAL DATA June 30,
($ in millions, except per share amounts) 2009 2009 2008 2008 2008
For the Quarter
Wells Fargo net income (loss) $ 3,172 3,045 (2,734) 1,637 1,753
Wells Fargo net income (loss) applicable to common stock 2,575 2,384 (3,020) 1,637 1,753
Diluted earnings (loss) per common share 0.57 0.56 (0.84) 0.49 0.53
Profitability ratios (annualized):
Wells Fargo net income (loss) to average assets (ROA) 1.00 % 0.96 (1.72) 1.06 1.19
Net income (loss) to average assets 1.02 0.97 (1.72) 1.07 1.20
Wells Fargo net income (loss) applicable to common stock to
average Wells Fargo common stockholders' equity (ROE) 13.70 14.49 (22.32) 13.63 14.58
Net income (loss) to average total equity 11.56 11.97 (15.53) 13.66 14.62
Efficiency ratio (3) 56.4 56.2 61.3 53.0 51.0
Total revenue $ 22,507 21,017 9,477 10,377 11,460
Pre-tax pre-provision profit (PTPP) (4) 9,810 9,199 3,667 4,876 5,615
Dividends declared per common share 0.05 0.34 0.34 0.34 0.31
Average common shares outstanding 4,483.1 4,247.4 3,582.4 3,316.4 3,309.8
Diluted average common shares outstanding 4,501.6 4,249.3 3,593.6 3,331.0 3,321.4
Average loans $ 833,945 855,591 413,940 404,203 391,545
Average assets 1,274,926 1,289,716 633,223 614,194 594,749
Average core deposits (5) 765,697 753,928 344,957 320,074 318,377
Average retail core deposits (6) 596,648 590,502 243,464 234,140 230,365
Net interest margin 4.30 % 4.16 4.90 4.79 4.92
At Quarter End
Securities available for sale $ 206,795 178,468 151,569 86,882 91,331
Loans 821,614 843,579 864,830 411,049 399,237
Allowance for loan losses 23,035 22,281 21,013 7,865 7,375
Goodwill 24,619 23,825 22,627 13,520 13,191
Assets 1,284,176 1,285,891 1,309,639 622,361 609,074
Core deposits (5) 761,122 756,183 745,432 334,076 310,410
Wells Fargo stockholders' equity 114,623 100,295 99,084 46,957 47,964
Total equity 121,382 107,057 102,316 47,259 48,265
Capital ratios:
Wells Fargo common stockholders' equity to assets 6.51 % 5.40 5.21 7.54 7.87
Total equity to assets 9.45 8.33 7.81 7.59 7.92
Average Wells Fargo common stockholders' equity to average assets 5.92 5.17 8.50 7.78 8.13
Average total equity to average assets 8.85 8.11 11.09 7.83 8.18
Risk-based capital (7)
Tier 1 capital 9.80 8.30 7.84 8.59 8.24
Total capital 13.84 12.30 11.83 11.51 11.23
Tier 1 leverage (7) 8.32 7.09 14.52 7.54 7.35
Book value per common share 17.91 16.28 16.15 14.14 14.48
Team members (active, full-time equivalent) 269,900 272,800 270,800 159,000 160,500
Common stock price:
High $ 28.45 30.47 38.95 44.68 32.40
Low 13.65 7.80 19.89 20.46 23.46
Period end 24.26 14.24 29.48 37.53 23.75
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.
The June 30, 2009, ratios are preliminary. Because the Wachovia acquisition was completed on December 31, 2008, the Tier 1 leverage ratio at December 31, 2008, which considers period-end
Tier 1 capital and quarterly average assets in the computation of the ratio, does not reflect average assets of Wachovia for 2008.
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. Federal banking regulators used a similar measure, pre-provision net revenue, in connection with the Supervisory
Capital Assessment Program (SCAP) "stress test" to assess the capital adequacy of certain financial institutions. Under the SCAP guidelines, pre-provision net revenue is PTPP adjusted for certain
items.
Quarter ended
Wells Fargo & Company (Wells Fargo) acquired Wachovia Corporation (Wachovia) on December 31, 2008. Because the acquisition was completed on December 31, 2008, Wachovia's results
are included in the income statement, average balances and related metrics beginning in 2009. Wachovia's assets and liabilities are included in the consolidated balance sheet beginning on
December 31, 2008.
On January 1, 2009, we adopted Statement of Financial Accounting Standards (FAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 , on
a retrospective basis for disclosure and, accordingly, prior period information reflects the adoption. FAS 160 requires that noncontrolling interests be reported as a component of total equity.
-20-
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts) 2009 2008 2009 2008
Interest income
Trading assets $ 206 38 472 85
Securities available for sale 2,887 1,224 5,596 2,356
Mortgages held for sale 545 423 960 817
Loans held for sale 50 10 117 22
Loans 10,532 6,806 21,297 14,018
Other interest income 81 46 172 98
Total interest income 14,301 8,547 28,614 17,396
Interest expense
Deposits 957 1,063 1,956 2,657
Short-term borrowings 55 357 178 782
Long-term debt 1,485 849 3,264 1,919
Other interest expense 40 - 76 -
Total interest expense 2,537 2,269 5,474 5,358
Net interest income 11,764
Provision for credit losses 5,086 3,012 9,644 5,040
Net interest income after provision for credit losses 6,678 3,266 13,496 6,998
Noninterest income
Service charges on deposit accounts 1,448 800 2,842 1,548
Trust and investment fees 2,413 762 4,628 1,525
Card fees 923 588 1,776 1,146
Other fees 963 511 1,864 1,010
Mortgage banking 3,046 1,197 5,550 1,828
Insurance 595 550 1,176 1,054
Net gains (losses) on debt securities available for sale
(includes impairment losses of $308 and $577, consisting of $972 and $1,575
of total other-than-temporary impairment losses, net of $664 and $998
recognized in other comprehensive income, for the quarter and six months
ended June 30, 2009, respectively) (78) (91) ( 197) 232
Net gains (losses) from equity investments 40 47 ( 117) 360
Other 1,393 818 2,862 1,282
Total noninterest income 10,743 5,182 20,384 9,985
Noninterest expense
Salaries 3,438 2,030 6,824 4,014
Commission and incentive compensation 2,060 806 3,884 1,450
Employee benefits 1,227 593 2,511 1,180
Equipment 575 305 1,262 653
Net occupancy 783 400 1,579 799
Core deposit and other intangibles 646 46 1,293 92
FDIC and other deposit assessments 981 18 1,319 26
Other 2,987 1,647 5,843 3,073
Total noninterest expense 12,697 5,845 24,515 11,287
Income before income tax expense 4,724
Income tax expense 1,475 834 3,027 1,908
Net income before noncontrolling interests 3,249
Less: Net income from noncontrolling interests 77 16 121 36
Wells Fargo net income $ 3,172 Wells Fargo net income applicable to common stock $ 2,575 Per share information
Earnings per common share $ 0.58 0.53 1.14 1.13
Diluted earnings per common share 0.57 0.53 1.13 1.13
Dividends declared per common share 0.05 0.31 0.39 0.62
Average common shares outstanding 4,483.1 3,309.8 4,365.9 3,306.1
Diluted average common shares outstanding 4,501.6 3,321.4 4,375.1 3,319.6
Quarter ended June 30, Six months ended June 30,
-21-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED STATEMENT OF INCOME June 30,
(in millions, except per share amounts) 2009 2009 2008 2008 2008
Interest income
Trading assets $ 206 266 51 41 38
Securities available for sale 2,887 2,709 1,534 1,397 1,224
Mortgages held for sale 545 415 362 394 423
Loans held for sale 50 67 14 12 10
Loans 10,532 10,765 6,726 6,888 6,806
Other interest income 81 91 41 42 46
Total interest income 14,301 14,313 8,728 8,774 8,547
Interest expense
Deposits 957 999 845 1,019 1,063
Short-term borrowings 55 123 204 492 357
Long-term debt 1,485 1,779 955 882 849
Other interest expense 40 36 - - -
Total interest expense 2,537 2,937 2,004 2,393 2,269
Net interest income 11,764
Provision for credit losses 5,086 4,558 8,444 2,495 3,012
Net interest income after provision for credit losses 6,678 6,818 ( 1,720) 3,886 3,266
Noninterest income
Service charges on deposit accounts 1,448 1,394 803 839 800
Trust and investment fees 2,413 2,215 661 738 762
Card fees 923 853 589 601 588
Other fees 963 901 535 552 511
Mortgage banking 3,046 2,504 (195) 892 1,197
Insurance 595 581 337 439 550
Net gains (losses) on debt securities available for sale (78) (119) 721 84 (91)
Net gains (losses) from equity investments 40 (157) (608) ( 509) 47
Other 1,393 1,469 (90) 360 818
Total noninterest income 10,743 9,641 2,753 3,996 5,182
Noninterest expense
Salaries 3,438 3,386 2,168 2,078 2,030
Commission and incentive compensation 2,060 1,824 671 555 806
Employee benefits 1,227 1,284 338 486 593
Equipment 575 687 402 302 305
Net occupancy 783 796 418 402 400
Core deposit and other intangibles 646 647 47 47 46
FDIC and other deposit assessments 981 338 57 37 18
Other 2,987 2,856 1,709 1,594 1,647
Total noninterest expense 12,697 11,818 5,810 5,501 5,845
Income (loss) before income tax expense (benefit) 4,724
Income tax expense (benefit) 1,475 1,552 (2,036) 730 834
Net income (loss) before noncontrolling interests 3,249
Less: Net income (loss) from noncontrolling interests 77 44 (7) 14 16
Wells Fargo net income (loss) $ 3,172 Wells Fargo net income (loss) applicable to common stock $ 2,575 Per share information
Earnings (loss) per common share $ 0.58 0.56 (0.84) 0.49 0.53
Diluted earnings (loss) per common share 0.57 0.56 (0.84) 0.49 0.53
Dividends declared per common share 0.05 0.34 0.34 0.34 0.31
Average common shares outstanding 4,483.1 4,247.4 3,582.4 3,316.4 3,309.8
Diluted average common shares outstanding 4,501.6 4,249.3 3,593.6 3,331.0 3,321.4
Quarter ended
-22-
Wells Fargo & Company and Subsidiaries
CONSOLIDATED BALANCE SHEET June 30,
(in millions, except shares) 2009 2008
Assets
Cash and due from banks $ 2 0,632 23,763
Federal funds sold, securities purchased under
resale agreements and other short-term investments 1 5,976 49,433
Trading assets 4 0,110 54,884
Securities available for sale 2 06,795 151,569
Mortgages held for sale (includes $40,190 and $18,754 carried at fair value) 4 1,991 20,088
Loans held for sale (includes $141 and $398 carried at fair value) 5 ,413 6,228
Loans 8 21,614 864,830
Allowance for loan losses (23,035) (21,013)
Net loans 7 98,579 8 43,817
Mortgage servicing rights:
Measured at fair value (residential MSRs) 1 5,690 14,714
Amortized 1 ,205 1,446
Premises and equipment, net 1 1,151 11,269
Goodwill 2 4,619 22,627
Other assets 1 02,015 109,801
Total assets $ 1,284,176 1 ,309,639
Liabilities
Noninterest-bearing deposits $ 1 73,149 150,837
Interest-bearing deposits 6 40,586 630,565
Total deposits 8 13,735 7 81,402
Short-term borrowings 5 5,483 108,074
Accrued expenses and other liabilities 6 4,160 50,689
Long-term debt 2 29,416 267,158
Total liabilities 1 ,162,794 1,207,323
Equity
Wells Fargo stockholders' equity:
Preferred stock 3 1,497 31,332
Common stock - $1-2/3 par value, authorized 6,000,000,000 shares;
issued 4,756,071,429 shares and 4,363,921,429 shares 7 ,927 7,273
Additional paid-in capital 4 0,270 36,026
Retained earnings 3 9,165 36,543
Cumulative other comprehensive loss (590) (6,869)
Treasury stock - 87,923,034 shares and 135,290,540 shares (3,126) (4,666)
Unearned ESOP shares (520) (555)
Total Wells Fargo stockholders' equity 1 14,623 99,084
Noncontrolling interests 6 ,759 3,232
Total equity 1 21,382 102,316
Total liabilities and equity $ 1,284,176 1 ,309,639
-23-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED BALANCE SHEET June 30,
(in millions) 2009 2009 2008 2008 2008
Assets
Cash and due from banks $ 20,632 22,186 23,763 12,861 13,610
Federal funds sold, securities purchased under
resale agreements and other short-term investments 15,976 18,625 49,433 8,093 4,088
Trading assets 40,110 46,497 54,884 9,097 9,681
Securities available for sale 206,795 178,468 151,569 86,882 91,331
Mortgages held for sale 41,991 36,807 20,088 18,739 25,234
Loans held for sale 5,413 8,306 6,228 635 680
Loans 821,614 843,579 864,830 411,049 399,237
Allowance for loan losses (23,035) (22,281) (21,013) (7,865) (7,375)
Net loans 798,579 821,298 843,817 403,184 391,862
Mortgage servicing rights:
Measured at fair value (residential MSRs) 15,690 12,391 14,714 19,184 19,333
Amortized 1,205 1,257 1,446 433 442
Premises and equipment, net 11,151 11,215 11,269 5,054 5,033
Goodwill 24,619 23,825 22,627 13,520 13,191
Other assets 102,015 105,016 109,801 44,679 34,589
Total assets $ 1,284,176 1,285,891 1,309,639 622,361 609,074
Liabilities
Noninterest-bearing deposits $ 173,149 166,497 150,837 89,446 85,062
Interest-bearing deposits 640,586 630,772 630,565 264,128 254,062
Total deposits 813,735 797,269 781,402 353,574 339,124
Short-term borrowings 55,483 72,084 108,074 85,187 86,139
Accrued expenses and other liabilities 64,160 58,831 50,689 28,991 31,618
Long-term debt 229,416 250,650 267,158 107,350 103,928
Total liabilities 1,162,794 1,178,834 1,207,323 575,102 560,809
Equity
Wells Fargo stockholders' equity:
Preferred stock 31,497 31,411 31,332 625 723
Common stock 7,927 7,273 7,273 5,788 5,788
Additional paid-in capital 40,270 32,414 36,026 8,348 8,266
Retained earnings 39,165 36,949 36,543 40,853 40,534
Cumulative other comprehensive loss (590) (3,624) (6,869) (2,783) (1,060)
Treasury stock (3,126) (3,593) (4,666) (5,207) (5,516)
Unearned ESOP shares (520) (535) (555) (667) (771)
Total Wells Fargo stockholders' equity 114,623 100,295 99,084 46,957 4 7,964
Noncontrolling interests 6,759 6,762 3,232 302 301
Total equity 121,382 107,057 102,316 47,259 4 8,265
Total liabilities and equity $ 1,284,176 1,285,891 1,309,639 622,361 609,074
-24-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER AVERAGE BALANCES
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Earning assets
Federal funds sold, securities purchased under
resale agreements and other short-term investments $ 20,889 24,074 9,938 3,463 3,853
Trading assets 18,464 22,203 5,004 4,838 4,915
Debt securities available for sale:
Securities of U.S. Treasury and federal agencies 2,102 2,899 1,165 1,141 1,050
Securities of U.S. states and political subdivisions 12,189 12,213 7,124 7,211 7,038
Mortgage-backed securities:
Federal agencies 92,550 76,545 51,714 50,528 40,630
Residential and commercial 41,257 38,690 18,245 21,358 22,419
Total mortgage-backed securities 133,807 115,235 69,959 71,886 63,049
Other debt securities (1) 30,901 30,080 14,217 12,622 13,600
Total debt securities available for sale (1) 178,999 160,427 92,465 92,860 84,737
Mortgages held for sale (2) 43,177 31,058 23,390 24,990 28,004
Loans held for sale (2) 7,188 7,949 1,287 677 734
Loans:
Commercial and commercial real estate:
Commercial 187,501 196,923 107,325 100,688 95,263
Other real estate mortgage 104,297 104,271 45,555 43,616 39,977
Real estate construction 33,857 34,493 19,943 19,715 19,213
Lease financing 14,750 15,810 7,397 7,250 7,087
Total commercial and commercial real estate 340,405 351,497 180,220 171,269 161,540
Consumer:
Real estate 1-4 family first mortgage 240,798 245,494 78,251 76,197 73,663
Real estate 1-4 family junior lien mortgage 108,422 110,128 75,838 75,379 75,018
Credit card 22,963 23,295 20,626 19,948 19,037
Other revolving credit and installment 90,729 92,820 52,638 54,104 54,842
Total consumer 462,912 471,737 227,353 225,628 222,560
Foreign 30,628 32,357 6,367 7,306 7,445
Total loans (2) 833,945 855,591 413,940 404,203 391,545
Other 6,079 6,140 1,690 2,126 2,033
Total earning assets $ 1,108,741 1,107,442 547,714 533,157 515,821
Funding sources
Deposits:
Interest-bearing checking $ 79,955 80,393 6,396 5,483 5,487
Market rate and other savings 334,067 313,445 178,301 166,710 161,760
Savings certificates 152,444 170,122 41,189 37,192 37,634
Other time deposits 21,660 25,555 8,128 7,930 5,773
Deposits in foreign offices 49,885 45,896 42,771 49,054 51,884
Total interest-bearing deposits 638,011 635,411 276,785 266,369 262,538
Short-term borrowings 59,844 76,068 60,210 83,458 66,537
Long-term debt 235,590 258,957 104,112 103,745 100,552
Other liabilities 4,604 3,778 - - -
Total interest-bearing liabilities 938,049 974,214 441,107 453,572 429,627
Portion of noninterest-bearing funding sources 170,692 133,228 106,607 79,585 86,194
Total funding sources $ 1,108,741 1,107,442 547,714 533,157 515,821
Noninterest-earning assets
Cash and due from banks $ 19,340 20,255 11,155 11,024 10,875
Goodwill 24,261 23,183 13,544 13,531 13,171
Other 122,584 138,836 60,810 56,482 54,882
Total noninterest-earning assets $ 166,185 182,274 85,509 81,037 78,928
Noninterest-bearing funding sources
Deposits $ 174,529 160,308 91,229 87,095 88,041
Other liabilities 49,570 50,566 30,651 25,452 28,434
Total equity 112,778 104,628 70,236 48,075 48,647
Noninterest-bearing funding sources used to
fund earning assets (170,692) (133,228) (106,607) (79,585) (86,194)
Net noninterest-bearing funding sources $ 166,185 182,274 85,509 81,037 78,928
Total assets $ 1 ,274,926
(1) Includes certain preferred securities.
(2) Nonaccrual loans are included in their respective loan categories.
-25-
Wells Fargo & Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in millions) 2009 2008
Balance, beginning of period
Cumulative effect from adoption of:
EITF 06-4 and 06-10 (3) - (20)
FAS 158 change of measurement date (4) - (8)
Net income before noncontrolling interests 6,338 3,788
Wells Fargo other comprehensive income (loss), net of tax, related to:
Translation adjustments 35 (6)
Investment securities (5):
Unrealized losses related to factors other than credit (2) (628) -
All other 6,667 (1,732)
Derivative instruments and hedging activities (300) (49)
Defined benefit pension plans 558 2
Common stock issued 9,308 608
Common stock repurchased (63) (520)
Preferred stock released to ESOP 33 248
Common stock dividends (1,657) (2,050)
Preferred stock dividends (1,060) -
Other, net (165) 90
Balance, end of period $ 121,382
(1)
(2)
(3)
(4)
(5)
Six months ended June 30,
On January 1, 2009, the Company adopted FAS 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 , on a retrospective
basis for disclosure and, accordingly, prior period information reflects the adoption. FAS 160 requires that noncontrolling interests be reported as a component of
stockholders' equity.
Emerging Issues Task Force (EITF) Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance, and Issue No. 06-10, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance
On March 31, 2009, we early adopted FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly. This FSP addresses determining fair values for securities in circumstances where the market for such
Decreased and Identifying Transactions That Are Not Orderly
securities is illiquid and transactions involve distressed sales. In such circumstances, the FSP permits use of other inputs in estimating fair value that may include pricing
models. As a result of adopting FSP FAS 157-4, we recorded in first quarter 2009 a $4.4 billion reduction ($2.8 billion after tax) to our unrealized securities losses in other
comprehensive income.
The impact on prior periods of adopting FASB Staff Position (FSP) FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments , was
to increase the beginning balance of retained earnings and reduce the beginning balance of other comprehensive income by $85 million ($53 million after tax). The unrealized
losses in Wells Fargo other comprehensive income in the first half of 2009 that related to factors other than credit, where the credit portion was recorded as other-thantemporary
impairment in earnings, amounted to $998 million ($628 million after tax).
FAS 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R) .
-26-
Wells Fargo & Company and Subsidiaries
TANGIBLE AND TIER 1 COMMON EQUITY
Quarter ended
June 30,
(in billions) 2009 2009
Total equity $ 1 21.4 1 07.1
Less: Preferred equity (31.0) (30.9)
Goodwill and intangible assets (other than MSRs) $ (38.7) ( 38.5)
Applicable deferred taxes 5.5 5.7
Goodwill and intangible assets, net of deferred taxes (33.2) (32.8)
Noncontrolling interests (2.3) (2.3)
Tangible common equity (1) (A) $ 5 4.9 4 1.1
Additional Tier 1 regulatory adjustments:
Noncontrolling interests with equity characteristics $ (4.5) (4.5)
Deferred tax asset limitation (2.0) (4.7)
MSRs over specified limitations (1.6) (1.3)
Cumulative other comprehensive income 0.6 3.6
Other (0.3) (0.8)
Tier 1 common equity (B) $ 4 7.1 3 3.4
Total risk-weighted assets (2) (C) $ 1 ,048.4 1 ,071.5
Tangible common equity to total risk-weighted assets (A)/(C) 5 .24 % 3 .84
Tier 1 common equity to total risk-weighted assets (B)/(C) 4 .49 3 .12
(1)
(2) 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 June 30, 2009, preliminary risk-weighted assets reflect estimated on-balance sheet risk-weighted assets of $875.2 billion and derivative and off-balance
sheet risk-weighted assets of $173.2 billion.
Tangible and Tier 1 common equity are non-GAAP financial measures that are 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. Tangible common equity includes total equity, less preferred equity,
goodwill and intangible assets (excluding MSRs), net of related deferred taxes, and the portion of noncontrolling interests accounted for under FAS 160 that does not have risk
sharing attributes similar to common equity. The methodology of determining tangible common equity may differ among companies. Tier 1 common equity includes tangible
common equity, adjusted for specified Tier 1 regulatory capital limitations covering deferred tax, MSRs, noncontrolling interests with common equity characteristics and
cumulative other comprehensive income. Management reviews tangible and 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 partici
-27-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER LOANS June 30,
(in millions) 2009 2009 2008 2008 2008
Commercial and commercial real estate:
Commercial $ 182,037 191,711 202,469 104,281 99,188
Other real estate mortgage 103,654 104,934 103,108 44,741 41,753
Real estate construction 33,238 33,912 34,676 19,681 19,528
Lease financing 14,555 14,792 15,829 7,271 7,160
Total commercial and commercial real estate 333,484 345,349 356,082 175,974 167,629
Consumer:
Real estate 1-4 family first mortgage 237,289 242,947 247,894 77,870 74,829
Real estate 1-4 family junior lien mortgage 107,024 109,748 110,164 75,617 75,261
Credit card 23,069 22,815 23,555 20,358 19,429
Other revolving credit and installment 90,654 91,252 93,253 54,327 54,575
Total consumer 458,036 466,762 474,866 228,172 224,094
Foreign 30,094 31,468 33,882 6,903 7,514
Total loans (net of unearned income) (1) $ 821,614 843,579 864,830 411,049 399,237
(1)
FIVE QUARTER NONACCRUAL LOANS AND OTHER NONPERFORMING ASSETS June 30,
(in millions) 2009 (1) 2009 (1) 2008 (1) 2008 2008
Nonaccrual loans:
Commercial and commercial real estate:
Commercial $ 2,910 1,696 1,253 846 685
Other real estate mortgage 2,343 1,324 594 296 198
Real estate construction 2,210 1,371 989 736 563
Lease financing 130 114 92 69 59
Total commercial and commercial real estate 7,593 4,505 2,928 1,947 1,505
Consumer:
Real estate 1-4 family first mortgage (2) 6,000 4,218 2,648 1,975 1,638
Real estate 1-4 family junior lien mortgage (2) 1,652 1,418 894 780 668
Other revolving credit and installment 327 300 273 232 207
Total consumer 7,979 5,936 3,815 2,987 2,513
Foreign 226 75 57 61 55
Total nonaccrual loans 15,798 10,516 6,800 4,995 4,073
As a percentage of total loans 1.92 % 1.25 0.79 1.22 1.02
Foreclosed assets:
GNMA loans (3) $ 932 768 667 596 535
All other 1,592 1,294 1,526 644 595
Real estate and other nonaccrual investments (4) 20 34 16 56 24
Total nonaccrual loans and other
nonperforming assets $ 18,342 12,612 9,009 6,291 5,227
As a percentage of total loans 2.23 % 1.50 1.04 1.53 1.31
(1)
(2)
(3)
(4) Includes real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans.
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.
Includes $55.2 billion, $58.2 billion and $58.8 billion of SOP 03-3 loans at June 30, 2009, March 31, 2009, and December 31, 2008, respectively. See table on page 39 for detail of SOP 03-3 loans.
Excludes loans acquired from Wachovia that are accounted for under SOP 03-3.
Includes nonaccrual mortgages held for sale.
-28-
Wells Fargo & Company and Subsidiaries
CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES
(in millions) 2009 2008 2009 2008
Balance, beginning of period $ 22,846
Provision for credit losses 5,086 3,012 9,644 5,040
Loan charge-offs:
Commercial and commercial real estate:
Commercial (755) (333) ( 1,351) (592)
Other real estate mortgage (152) (6) ( 183) (10)
Real estate construction (236) (28) ( 341) (57)
Lease financing (65) (13) ( 85) (25)
Total commercial and commercial real estate ( 1,208) ( 380) ( 1,960) ( 684)
Consumer:
Real estate 1-4 family first mortgage (790) (103) ( 1,214) (184)
Real estate 1-4 family junior lien mortgage (1,215) (352) ( 2,088) (807)
Credit card (712) (369) ( 1,334) (682)
Other revolving credit and installment (802) (488) ( 1,702) (1,031)
Total consumer ( 3,519) ( 1,312) ( 6,338) ( 2,704)
Foreign ( 56) ( 58) ( 110) ( 126)
Total loan charge-offs ( 4,783) ( 1,750) ( 8,408) ( 3,514)
Loan recoveries:
Commercial and commercial real estate:
Commercial 51 32 91 63
Other real estate mortgage 6 2 16 3
Real estate construction 4 1 6 2
Lease financing 4 3 7 6
Total commercial and commercial real estate 65 38 120 74
Consumer:
Real estate 1-4 family first mortgage 32 7 65 13
Real estate 1-4 family junior lien mortgage 44 18 70 35
Credit card 48 40 88 78
Other revolving credit and installment 198 121 402 246
Total consumer 322 186 625 372
Foreign 10 14 19 28
Total loan recoveries 397 238 764 474
Net loan charge-offs (1) ( 4,386) ( 1,512) ( 7,644) ( 3,040)
Allowances related to business combinations/other ( 16) 4 ( 181) (1)
Balance, end of period $ 23,530
Components:
Allowance for loan losses $ 23,035 7,375 23,035 7,375
Reserve for unfunded credit commitments 495 142 495 142
Allowance for credit losses $ 23,530 7,517 23,530 7,517
Net loan charge-offs (annualized) as a
percentage of average total loans (2) 2.11 % 1.55 1.82 1.58
(1)
(2)
Quarter ended June 30, Six months ended June 30,
Because the Wachovia acquisition was completed on December 31, 2008, charge-offs and recoveries for 2008 include only those of Wells Fargo, and exclude those of
Wachovia for that period. For Wachovia loans accounted for under SOP 03-3, loan losses on SOP 03-3 loans in the first half of 2009 are reported as a reduction of the
nonaccretable difference rather than as charge-offs. This affects the comparability of certain ratios as described on page 39.
The allowance for loan losses and the allowance for credit losses include $49 million for the quarter ended June 30, 2009, and none for prior periods related to loans
acquired from Wachovia that are accounted for under SOP 03-3. Loans acquired from Wachovia are included in total loans net of related purchase accounting writedowns.
These factors affect the comparability of these ratios for the periods ended June 30, 2009, to the comparable periods in 2008 as described on page 39.
-29-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Balance, beginning of quarter $ 22,846
Provision for credit losses (1) 5,086 4,558 8,444 2,495 3,012
Loan charge-offs:
Commercial and commercial real estate:
Commercial (755) (596) (756) ( 305) (333)
Other real estate mortgage (152) (31) (10) ( 9) (6)
Real estate construction (236) (105) (85) ( 36) (28)
Lease financing (65) (20) (21) ( 19) (13)
Total commercial and commercial real estate ( 1,208) ( 752) ( 872) ( 369) (380)
Consumer:
Real estate 1-4 family first mortgage (790) (424) (210) ( 146) (103)
Real estate 1-4 family junior lien mortgage (1,215) (873) (728) ( 669) (352)
Credit card (712) (622) (485) ( 396) (369)
Other revolving credit and installment (802) (900) (683) ( 586) (488)
Total consumer ( 3,519) ( 2,819) ( 2,106) ( 1,797) ( 1,312)
Foreign ( 56) ( 54) ( 60) ( 59) (58)
Total loan charge-offs ( 4,783) ( 3,625) ( 3,038) ( 2,225) ( 1,750)
Loan recoveries:
Commercial and commercial real estate:
Commercial 51 40 24 27 32
Other real estate mortgage 6 10 1 1 2
Real estate construction 4 2 1 - 1
Lease financing 4 3 4 3 3
Total commercial and commercial real estate 65 55 30 31 38
Consumer:
Real estate 1-4 family first mortgage 32 33 17 7 7
Real estate 1-4 family junior lien mortgage 44 26 26 28 18
Credit card 48 40 34 35 40
Other revolving credit and installment 198 204 118 117 121
Total consumer 322 303 195 187 186
Foreign 10 9 9 12 14
Total loan recoveries 397 367 234 230 238
Net loan charge-offs (2) ( 4,386) ( 3,258) ( 2,804) ( 1,995) ( 1,512)
Allowances related to business combinations/other ( 16) ( 165) 8,044 10 4
Balance, end of quarter $ 23,530
Components:
Allowance for loan losses $ 23,035 22,281 21,013 7,865 7,375
Reserve for unfunded credit commitments 495 565 698 162 142
Allowance for credit losses $ 23,530 22,846 21,711 8,027 7,517
Net loan charge-offs (annualized) as a percentage of average
total loans (2) 2.11 % 1.54 2.69 1.96 1.55
Allowance for loan losses as a percentage of (3):
Total loans 2.80 % 2.64 2.43 1.91 1.85
Nonaccrual loans 146 212 309 157 181
Nonaccrual loans and other nonperforming assets 126 177 233 125 141
Allowance for credit losses as a percentage of (3):
Total loans 2.86 % 2.71 2.51 1.95 1.88
Nonaccrual loans 149 217 319 161 185
Nonaccrual loans and other nonperforming assets 128 181 241 128 144
(1)
(2)
(3)
Provision for credit losses for the quarter ended December 31, 2008, included $3.9 billion to conform reserve practices of Wells Fargo and Wachovia.
Because the Wachovia acquisition was completed on December 31, 2008, charge-offs and recoveries for 2008 include only those of Wells Fargo, and exclude those of
Wachovia for that period. For Wachovia loans accounted for under SOP 03-3, loan losses on SOP 03-3 loans in the first half of 2009, are reported as a reduction of the
nonaccretable difference rather than as charge-offs. This affects the comparability of certain ratios as described on page 39.
The allowance for loan losses and the allowance for credit losses include $49 million for the quarter ended June 30, 2009, and none for prior periods related to loans
acquired from Wachovia that are accounted for under SOP 03-3. Loans acquired from Wachovia are included in total loans net of related purchase accounting write-downs.
These factors affect the comparability of these ratios for the quarters ended June 30, 2009, March 31, 2009, and December 31, 2008, to other periods presented as described
on page 39.
-30-
Wells Fargo & Company and Subsidiaries
NONINTEREST INCOME
(in millions) 2009 2008 2009 2008
Service charges on deposit accounts $ 1,448 800 2,842 1,548
Trust and investment fees:
Trust, investment and IRA fees 839 566 1,561 1,125
Commissions and all other fees 1,574 196 3,067 400
Total trust and investment fees 2,413 762 4,628 1,525
Card fees 923 588 1,776 1,146
Other fees:
Cash network fees 58 47 116 95
Charges and fees on loans 440 251 873 499
All other fees 465 213 875 416
Total other fees 963 511 1,864 1,010
Mortgage banking:
Servicing income, net 753 221 1,596 494
Net gains on mortgage loan origination/sales activities 2,203 876 3,785 1,143
All other 90 100 169 191
Total mortgage banking 3,046 1,197 5,550 1,828
Insurance 595 550 1,176 1,054
Net gains from trading activities 749 516 1,536 619
Net gains (losses) on debt securities available for sale (78) (91) ( 197) 232
Net gains (losses) from equity investments 40 47 ( 117) 360
Operating leases 168 120 298 263
All other 476 182 1,028 400
Total $ 10,743 5,182 20,384 9,985
NONINTEREST EXPENSE
(in millions) 2009 2008 2009 2008
Salaries $ 3,438 2,030 6,824 4,014
Commission and incentive compensation 2,060 806 3,884 1,450
Employee benefits 1,227 593 2,511 1,180
Equipment 575 305 1,262 653
Net occupancy 783 400 1,579 799
Core deposit and other intangibles 646 46 1,293 92
FDIC and other deposit assessments 981 18 1,319 26
Outside professional services 451 212 861 383
Insurance 259 206 5 26 367
Postage, stationery and supplies 240 138 490 279
Outside data processing 282 122 494 231
Travel and entertainment 131 112 236 217
Foreclosed assets 187 92 435 199
Contract services 256 104 472 212
Operating leases 61 102 131 218
Advertising and promotion 111 104 236 189
Telecommunications 164 82 322 160
Operating losses (reduction in losses) 159 56 331 (17)
All other 686 317 1,309 635
Total $ 12,697 5,845 24,515 11,287
Quarter ended June 30, Six months ended June 30,
Quarter ended June 30, Six months ended June 30,
-31-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER NONINTEREST INCOME
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Service charges on deposit accounts $ 1 ,448 1 ,394 8 03 8 39 8 00
Trust and investment fees:
Trust, investment and IRA fees 839 722 487 5 49 566
Commissions and all other fees 1,574 1,493 174 1 89 196
Total trust and investment fees 2 ,413 2 ,215 6 61 7 38 7 62
Card fees 9 23 8 53 5 89 6 01 5 88
Other fees:
Cash network fees 58 58 45 4 8 47
Charges and fees on loans 440 433 272 2 66 251
All other fees 465 410 218 2 38 213
Total other fees 9 63 9 01 5 35 5 52 5 11
Mortgage banking:
Servicing income, net 753 843 (40) 5 25 221
Net gains on mortgage loan
origination/sales activities 2,203 1,582 (236) 2 76 876
All other 90 79 81 9 1 100
Total mortgage banking 3 ,046 2 ,504 (195) 8 92 1 ,197
Insurance 5 95 5 81 3 37 4 39 5 50
Net gains (losses) from trading activities 749 787 (409) 6 5 516
Net gains (losses) on debt securities available for sale (78) (119) 721 8 4 (91)
Net gains (losses) from equity investments 40 (157) (608) (509) 47
Operating leases 168 130 62 1 02 120
All other 476 552 257 1 93 182
Total $ 1 0,743 9 ,641 2 ,753 3 ,996 5 ,182
FIVE QUARTER NONINTEREST EXPENSE
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Salaries $ 3 ,438 3 ,386 2 ,168 2 ,078 2 ,030
Commission and incentive compensation 2,060 1,824 671 5 55 806
Employee benefits 1,227 1,284 338 4 86 593
Equipment 575 687 402 3 02 305
Net occupancy 783 796 418 4 02 400
Core deposit and other intangibles 646 647 47 4 7 46
FDIC and other deposit assessments 981 338 57 3 7 18
Outside professional services 451 410 258 2 06 212
Insurance 259 267 214 1 44 206
Postage, stationery and supplies 240 250 141 1 36 138
Outside data processing 282 212 127 1 22 122
Travel and entertainment 131 105 117 1 13 112
Foreclosed assets 187 248 116 9 9 92
Contract services 256 216 107 8 8 104
Operating leases 61 70 81 9 0 102
Advertising and promotion 111 125 93 9 6 104
Telecommunications 164 158 83 7 8 82
Operating losses 159 172 96 6 3 56
All other 686 623 276 3 59 317
Total $ 1 2,697 1 1,818 5 ,810 5 ,501 5 ,845
-32-
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)
Quarter ended June 30,
2 009 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 $ 20,889 0.66 % $ 34 3,853 2.32 % $ 22
Trading assets 18,464 4.61 213 4,915 3.24 39
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 2,102 3.45 17 1,050 3.77 10
Securities of U.S. states and political subdivisions 12,189 6.47 206 7,038 6.62 118
Mortgage-backed securities:
Federal agencies 92,550 5.36 1,203 40,630 5.92 588
Residential and commercial 41,257 9.03 1,044 22,419 5.87 340
Total mortgage-backed securities 133,807 6 .60 2,247 63,049 5 .90 928
Other debt securities (4) 30,901 7.23 572 13,600 6.30 226
Total debt securities available for sale (4) 178,999 6 .67 3,042 84,737 6 .00 1,282
Mortgages held for sale (5) 43,177 5.05 545 28,004 6.04 423
Loans held for sale (5) 7,188 2.83 50 734 5.63 10
Loans:
Commercial and commercial real estate:
Commercial 187,501 4.11 1,922 95,263 6.09 1,444
Other real estate mortgage 104,297 3.46 900 39,977 5.77 573
Real estate construction 33,857 2.69 227 19,213 5.01 240
Lease financing 14,750 9.22 340 7,087 5.64 100
Total commercial and commercial real estate 340,405 3 .99 3,389 161,540 5 .86 2,357
Consumer:
Real estate 1-4 family first mortgage 240,798 5.53 3,328 73,663 6.79 1,250
Real estate 1-4 family junior lien mortgage 108,422 4.77 1,290 75,018 6.68 1,246
Credit card 22,963 12.74 731 19,037 1 1.81 561
Other revolving credit and installment 90,729 6.64 1,502 54,842 8.78 1,198
Total consumer 462,912 5 .93 6,851 222,560 7 .67 4,255
Foreign 30,628 4 .06 310 7,445 1 0.61 197
Total loans (5) 833,945 5 .07 10,550 391,545 6 .98 6,809
Other 6,079 2.91 45 2,033 4.47 24
Total earning assets $ 1,108,741 5 .21 % $ 14,479 515,821 6 .69 % $ 8,609
Funding sources
Deposits:
Interest-bearing checking $ 79,955 0.13 % $ 26 5,487 1.18 % $ 16
Market rate and other savings 334,067 0.40 336 161,760 1.21 486
Savings certificates 152,444 1.19 451 37,634 3.06 287
Other time deposits 21,660 2.00 108 5,773 2.72 38
Deposits in foreign offices 49,885 0.29 36 51,884 1.83 236
Total interest-bearing deposits 638,011 0 .60 957 262,538 1 .63 1,063
Short-term borrowings 59,844 0.39 58 66,537 2.16 357
Long-term debt 235,590 2.52 1,484 100,552 3.41 856
Other liabilities 4,604 3.45 40 - - -
Total interest-bearing liabilities 938,049 1 .08 2,539 429,627 2 .13 2,276
Portion of noninterest-bearing funding sources 170,692 - - 86,194 - -
Total funding sources $ 1,108,741 0 .91 2,539 515,821 1 .77 2,276
Net interest margin and net interest income on a taxable-equivalent basis ( Noninterest-earning assets
Cash and due from banks $ 19,340 10,875
Goodwill 24,261 13,171
Other 122,584 54,882
Total noninterest-earning assets $ 166,185 78,928
Noninterest-bearing funding sources
Deposits $ 174,529 88,041
Other liabilities 49,570 28,434
Total equity 112,778 48,647
Noninterest-bearing funding sources used to
fund earning assets (170,692) ( 86,194)
Net noninterest-bearing funding sources $ 166,185 78,928
Total assets $ 1,274,926
(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.
Our average prime rate was 3.25% and 5.08% for the quarters ended June 30, 2009 and 2008, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 0.84% and 2.75% for the same quarters,
respectively.
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.
-33-
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)
Six months ended June 30,
2 009 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 $ 22,472 0.75 % $ 84 3,870 2.81 % $ 54
Trading assets 20,323 4.81 488 5,022 3.49 87
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 2,498 2.00 24 1,012 3.81 19
Securities of U.S. states and political subdivisions 12,201 6.45 419 6,664 7.00 238
Mortgage-backed securities:
Federal agencies 84,592 5.51 2,271 38,364 6.00 1,123
Residential and commercial 39,980 8.80 2,061 21,706 5.97 664
Total mortgage-backed securities 124,572 6 .71 4,332 60,070 5 .99 1,787
Other debt securities (4) 30,493 7.02 1,123 12,213 6.58 422
Total debt securities available for sale (4) 169,764 6 .68 5,898 79,959 6 .14 2,466
Mortgages held for sale (5) 37,151 5.17 960 27,138 6.02 817
Loans held for sale (5) 7,567 3.13 117 691 6.52 22
Loans:
Commercial and commercial real estate:
Commercial 192,186 3.99 3,806 93,174 6.50 3,013
Other real estate mortgage 104,283 3.47 1,794 38,701 6.09 1,173
Real estate construction 34,174 2.86 485 19,073 5.53 525
Lease financing 15,277 8.99 687 6,956 5.71 198
Total commercial and commercial real estate 345,920 3 .94 6,772 157,904 6 .25 4,909
Consumer:
Real estate 1-4 family first mortgage 243,133 5.59 6,772 72,985 6.84 2,496
Real estate 1-4 family junior lien mortgage 109,270 4.91 2,665 75,140 6.99 2,614
Credit card 23,128 12.42 1,435 18,907 1 2.06 1,140
Other revolving credit and installment 91,770 6.66 3,029 55,376 8.94 2,462
Total consumer 467,301 5 .98 13,901 222,408 7 .86 8,712
Foreign 31,487 4 .22 659 7,420 1 0.94 404
Total loans (5) 844,708 5 .08 21,332 387,732 7 .26 14,025
Other 6,110 2.89 88 1,930 4.50 44
Total earning assets $ 1,108,095 5 .22 % $ 28,967 506,342 6 .94 % $ 17,515
Funding sources
Deposits:
Interest-bearing checking $ 80,173 0.14 % $ 56 5,357 1.54 % $ 41
Market rate and other savings 323,813 0.47 755 160,812 1.59 1,270
Savings certificates 161,234 1.05 838 39,774 3.54 700
Other time deposits 23,597 1.98 232 5,269 3.09 80
Deposits in foreign offices 47,901 0.32 75 49,262 2.31 566
Total interest-bearing deposits 636,718 0 .62 1,956 260,474 2 .05 2,657
Short-term borrowings 67,911 0.54 181 59,754 2.63 782
Long-term debt 247,209 2.65 3,267 100,619 3.85 1,933
Other liabilities 4,194 3.64 76 - - -
Total interest-bearing liabilities 956,032 1 .15 5,480 420,847 2 .56 5,372
Portion of noninterest-bearing funding sources 152,063 - - 85,495 - -
Total funding sources $ 1,108,095 0 .99 5,480 506,342 2 .13 5,372
Net interest margin and net interest income on a taxable-equivalent basis ( Noninterest-earning assets
Cash and due from banks $ 19,795 11,262
Goodwill 23,725 13,166
Other 130,665 54,101
Total noninterest-earning assets $ 174,185 78,529
Noninterest-bearing funding sources
Deposits $ 167,458 86,464
Other liabilities 50,064 29,246
Total equity 108,726 48,314
Noninterest-bearing funding sources used to
fund earning assets (152,063) ( 85,495)
Net noninterest-bearing funding sources $ 174,185 78,529
Total assets $ 1,282,280
(1)
(2)
(3)
(4)
(5)
(6) 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.
Our average prime rate was 3.25% and 5.65% for the six months ended June 30, 2009 and 2008, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 1.04% and 3.02% for the same periods,
respectively.
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.
Nonaccrual loans and related income are included in their respective loan categories.
-34-
Wells Fargo & Company and Subsidiaries
OPERATING SEGMENT RESULTS
Community Wholesale Wealth, Brokerage Consolidated
Banking Banking and Retirement Other (2) Company
2009 Quarter ended June 30,
Net interest income (3) $ 8,784 5,235 2,479 1,025 7 64 1 99 (263) (181) 11,764 6,278
Provision for credit losses 4 ,264 2,766 738 246 115 4 (31) (4) 5,086 3,012
Noninterest income 6,023 3,637 2,759 1,388 2,222 481 (261) (324) 10,743 5,182
Noninterest expense 7,665 4,300 2,807 1,358 2,289 497 (64) (310) 12,697 5,845
Income (loss) before income
tax expense (benefit) 2 ,878 1,806 1,693 809 582 179 (429) (191) 4,724 2,603
Income tax expense (benefit) 798 604 618 235 222 68 (163) ( 73) 1,475 834
Net income (loss) before
noncontrolling interests 2 ,080 1,202 1,075 574 360 111 (266) (118) 3,249 1,769
Less: Net income (loss) from
noncontrolling interests 72 18 8 (2) (3) - - - 77 16
Net income (loss) $ 2,008 1 ,184 1 ,067 5 76 3 63 1 11 (266) (118) 3 ,172 1 ,753
Average loans $ 540.7 2 83.2 2 63.5 1 07.7 4 5.9 1 4.8 (16.2) (14.2) 8 33.9 3 91.5
Average assets 799.2 4 39.9 381.7 151.4 110.2 17.8 (16.2) (14.4) 1 ,274.9 594.7
Average core deposits 543.9 2 51.1 138.1 64.8 113.5 22.5 (29.8) (20.0) 765.7 318.4
Six months ended June 30,
Net interest income (3) $ 17,281 9,953 4,846 2,051 1,501 3 53 (488) (319) 23,140 1 2,038
Provision for credit losses 8 ,268 4,631 1,283 407 140 6 (47) (4) 9,644 5,040
Noninterest income 11,479 7,119 5,299 2,539 4,124 964 (518) (637) 20,384 9,985
Noninterest expense 14,823 8,205 5,338 2,702 4,508 982 (154) (602) 24,515 11,287
Income (loss) before income
tax expense (benefit) 5 ,669 4,236 3,524 1,481 977 329 (805) (350) 9,365 5,696
Income tax expense (benefit) 1,688 1,501 1,265 415 380 125 (306) (133) 3,027 1,908
Net income (loss) before
noncontrolling interests 3 ,981 2,735 2,259 1,066 597 204 (499) (217) 6,338 3,788
Less: Net income (loss) from
noncontrolling interests 134 29 12 7 (25) - - - 121 36
Net income (loss) $ 3,847 2 ,706 2 ,247 1 ,059 6 22 2 04 (499) (217) 6 ,217 3 ,752
Average loans $ 546.7 2 82.9 2 67.7 1 04.3 4 6.3 1 4.3 (16.0) (13.8) 8 44.7 3 87.7
Average assets 798.6 4 35.9 392.7 145.7 107.1 17.3 (16.1) (14.0) 1 ,282.3 584.9
Average core deposits 540.9 2 48.8 138.3 66.5 108.1 21.8 (27.5) (19.3) 759.8 317.8
(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.
(income/expense in millions,
average balances in billions)
"Other" includes integration expenses and the elimination of items that are included in both Community Banking and Wealth, Brokerage and Retirement Services, 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. As a result of the combination of Wells Fargo and Wachovia, management
realigned its segments into the following three lines of business: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement Services. We revised prior period information
to reflect this realignment; however, segment information for periods prior to the first quarter of 2009 does not include Wachovia information.
-35-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER OPERATING SEGMENT RESULTS
Quarter ended
June 30,
(income/expense in millions, average balances in billions) 2009 2009 2008 2008 2008
COMMUNITY BANKING
Net interest income (2) $ 8,784 8,497 5,296 5 ,293 5,235
Provision for credit losses 4,264 4,004 6,789 2 ,202 2,766
Noninterest income 6,023 5,456 2,096 3 ,209 3,637
Noninterest expense 7,665 7,158 4,320 3 ,982 4,300
Income (loss) before income tax expense (benefit) 2 ,878 2 ,791 (3,717) 2 ,318 1 ,806
Income tax expense (benefit) 798 890 (1,606) 764 604
Net income (loss) before noncontrolling interests 2 ,080 1 ,901 (2,111) 1 ,554 1 ,202
Less: Net income (loss) from noncontrolling interests 72 62 ( 11) 14 18
Segment net income (loss) $ 2 ,008 1 ,839 (2,100) 1 ,540 1 ,184
Average loans 5 40.7 5 52.8 2 88.9 2 87.1 2 83.2
Average assets 799.2 797.9 466.0 4 52.3 439.9
Average core deposits 543.9 538.0 260.6 2 52.8 251.1
WHOLESALE BANKING
Net interest income (2) $ 2,479 2,367 1,400 1 ,065 1,025
Provision for credit losses 738 545 414 294 246
Noninterest income 2,759 2,540 515 631 1,388
Noninterest expense 2,807 2,531 1,251 1 ,329 1,358
Income before income tax expense (benefit) 1 ,693 1 ,831 250 73 8 09
Income tax expense (benefit) 618 647 31 ( 30) 235
Net income before noncontrolling interests 1 ,075 1 ,184 219 103 5 74
Less: Net income (loss) from noncontrolling interests 8 4 4 - (2)
Segment net income $ 1 ,067 1 ,180 215 103 5 76
Average loans 2 63.5 2 71.9 1 24.2 1 16.3 1 07.7
Average assets 381.7 403.8 163.2 1 58.1 151.4
Average core deposits 138.1 138.5 8 1.0 64.4 64.8
WEALTH, BROKERAGE AND RETIREMENT
Net interest income (2) $ 764 737 251 223 199
Provision for credit losses 115 25 293 3 4
Noninterest income 2,222 1,902 417 458 481
Noninterest expense 2,289 2,219 512 498 497
Income (loss) before income tax expense (benefit) 582 395 (137) 180 1 79
Income tax expense (benefit) 222 158 ( 52) 68 68
Net income (loss) before noncontrolling interests 360 237 ( 85) 112 1 11
Less: Net loss from noncontrolling interests (3) (22) - - -
Segment net income (loss) $ 3 63 259 ( 85) 112 1 11
Average loans 45.9 46.7 16.5 1 5.9 14.8
Average assets 110.2 104.0 2 0.0 19.1 17.8
Average core deposits 113.5 102.6 2 5.6 23.5 22.5
OTHER
Net interest income (2) $ (263) (225) (223) (200) (181)
Provision for credit losses (31) (16) 948 ( 4) (4)
Noninterest income (261) (257) (275) (302) (324)
Noninterest expense (64) (90) (273) (308) (310)
Loss before income tax benefit (429) (376) (1,173) (190) (191)
Income tax benefit (163) (143) (409) ( 72) (73)
Net loss before noncontrolling interests (266) (233) (764) (118) (118)
Less: Net income from noncontrolling interests - - - - -
Other net loss $ (266) (233) (764) (118) (118)
Average loans (16.2) (15.8) (15.7) (15.1) (14.2)
Average assets (16.2) (16.0) (16.0) (15.3) (14.4)
Average core deposits (29.8) (25.2) (22.2) (20.6) (20.0)
CONSOLIDATED COMPANY
Net interest income (2) $ 11,764 11,376 6,724 6 ,381 6,278
Provision for credit losses 5,086 4,558 8,444 2 ,495 3,012
Noninterest income 10,743 9,641 2,753 3 ,996 5,182
Noninterest expense 12,697 11,818 5,810 5 ,501 5,845
Income (loss) before income tax expense (benefit) 4 ,724 4 ,641 (4,777) 2 ,381 2 ,603
Income tax expense (benefit) 1,475 1,552 (2,036) 730 834
Net income (loss) before noncontrolling interests 3 ,249 3 ,089 (2,741) 1 ,651 1 ,769
Less: Net income (loss) from noncontrolling interests 77 44 ( 7) 14 16
Wells Fargo net income (loss) $ 3 ,172 3 ,045 (2,734) 1 ,637 1 ,753
Average loans 8 33.9 8 55.6 4 13.9 4 04.2 3 91.5
Average assets 1,274.9 1,289.7 633.2 6 14.2 594.7
Average core deposits 765.7 753.9 345.0 3 20.1 318.4
(1)
(2)
(3)
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. As a result of the combination of Wells Fargo and Wachovia, management realigned its segments into the following three lines of business:
Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement Services. We revised prior period information to reflect this realignment; however, segment information for periods prior to the first quarter of
2009 does not include Wachovia information.
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.
"Other" includes integration expenses and the elimination of items that are included in both Community Banking and Wealth, Brokerage and Retirement Services, largely representing wealth management customers serviced and
products sold in the stores. "Other" also includes the $1.2 billion provision for credit losses recorded at the enterprise level in fourth quarter 2008 to conform Wachovia estimated loss emergence coverage periods to Wells Fargo
policies.
-36-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Residential MSRs measured using the fair value method:
Fair value, beginning of quarter $ 12,391 14,714 19,184 1 9,333 14,956
Purchases - - - 5 7 82
Acquired from Wachovia (1) - 34 479 - -
Servicing from securitizations or asset transfers 2,081 1,447 808 8 51 994
Sales - - - - (177)
Net additions 2 ,081 1 ,481 1 ,287 9 08 8 99
Changes in fair value:
Due to changes in valuation model inputs
or assumptions (2) 2,316 (2,824) (5,129) (546) 4,132
Other changes in fair value (3) (1,098) (980) (628) (511) (654)
Total changes in fair value 1 ,218 (3,804) (5,757) (1,057) 3 ,478
Fair value, end of quarter $ 1 5,690 1 2,391 1 4,714 1 9,184 1 9,333
(1)
(2)
(3)
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Amortized MSRs:
Balance, beginning of quarter $ 1,257 1,446 433 4 42 455
Purchases 6 4 3 2 2
Acquired from Wachovia (1) (8) (127) 1,021 - -
Servicing from securitizations or asset transfers 18 4 7 8 4
Amortization (68) (70) (18) (19) (19)
Balance, end of quarter (2) $ 1 ,205 1 ,257 1 ,446 4 33 4 42
Fair value of amortized MSRs:
Beginning of quarter $ 1,392 1,555 622 5 95 601
End of quarter 1,311 1,392 1,555 6 22 595
(1)
(2)
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.
-37-
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING (CONTINUED)
Quarter ended
June 30,
(in millions) 2009 2009 2008 2008 2008
Servicing income, net:
Servicing fees (1) $ 888 1,018 952 980 959
Changes in fair value of residential MSRs:
Due to changes in valuation model inputs
or assumptions (2) 2,316 (2,824) (5,129) (546) 4,132
Other changes in fair value (3) (1,098) (980) (628) ( 511) (654)
Total changes in fair value of residential MSRs 1,218 ( 3,804) ( 5,757) ( 1,057) 3,478
Amortization (68) (70) (18) ( 19) (19)
Net derivative gains (losses) from economic hedges (4) (1,285) 3,699 4,783 621 (4,197)
Total servicing income, net 753 843 ( 40) 525 221
Market related valuation changes to MSRs,
net of hedge results (2)+(4) $ 1,031 875 (346) 75 (65)
(1)
(2)
(3)
(4)
June 30,
(in billions) 2009 2009 2008 2008 2008
Managed servicing portfolio:
Residential mortgage loans serviced for others (1) $ 1,394 1,379 1,388 1,323 1,305
Owned loans serviced (2) 270 267 268 96 99
Total owned residential mortgage loans serviced 1,664 1,646 1,656 1,419 1,404
Commercial mortgage loans serviced for others 470 474 472 142 142
Total owned mortgage servicing portfolio 2,134 2,120 2,128 1,561 1,546
Sub-servicing 22 23 26 19 20
Total managed servicing portfolio $ 2,156 2,143 2,154 1,580 1,566
Ratio of MSRs to related loans serviced for others 0.91 % 0.74 0.87 1.34 1.37
Weighted-average note rate (owned servicing only) 5.74 5.83 5.92 5.98 6.00
(1)
(2)
Includes contractually specified servicing fees, late charges and other ancillary revenues.
Consists of 1-4 family first mortgage loans.
Consists of residential mortgages held for sale and 1-4 family first mortgage loans.
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.
-38-
Wells Fargo & Company and Subsidiaries
SELECTED FIVE QUARTER RESIDENTIAL MORTGAGE PRODUCTION DATA
Quarter ended
June 30,
(in billions) 2009 2009 2008 2008 2008
Application data:
Wells Fargo Home Mortgage first mortgage
quarterly applications $ 194 190 116 83 100
Refinances as a percentage of applications 73 % 82 68 39 44
Wells Fargo Home Mortgage first mortgage
unclosed pipeline, at quarter end $ 90 100 71 41 47
Quarter ended
June 30,
(in billions) 2009 2009 2008 2008 2008
Residential Real Estate Originations:
Wells Fargo Home Mortgage first mortgage loans
Retail $ 71 51 20 23 31
Correspondent/Wholesale 57 49 28 25 27
Home equity loans and lines 1 1 1 2 3
Wells Fargo Financial - - 1 1 2
Total quarter-to-date $ 129 101 50 51 63
Total year-to-date $ 230 101 230 180 129
(1) Consists of residential real estate originations from all Wells Fargo channels.
-39-
Wells Fargo & Company and Subsidiaries
LOANS SUBJECT TO SOP 03-3 All SOP 03-3 other
(in millions) loans loans Total loans loans Total loans loans Total
Commercial and commercial real estate:
Commercial $ 2,667 179,370 182,037 3,088 188,623 191,711 4,580 197,889 202,469
Other real estate mortgage 5,826 97,828 103,654 6,597 98,337 104,934 7,762 95,346 103,108
Real estate construction 4,295 28,943 33,238 4,507 29,405 33,912 4,503 30,173 34,676
Lease financing - 14,555 14,555 - 14,792 14,792 - 15,829 15,829
Total commercial and
commercial real estate 12,788 320,696 333,484 14,192 331,157 345,349 16,845 339,237 356,082
Consumer:
Real estate 1-4 family first mortgage 40,471 196,818 237,289 41,520 201,427 242,947 39,214 208,680 247,894
Real estate 1-4 family junior lien mortgage 398 106,626 107,024 615 109,133 109,748 728 109,436 110,164
Credit card - 23,069 23,069 - 22,815 22,815 - 23,555 23,555
Other revolving credit and installment - 90,654 90,654 32 91,220 91,252 151 93,102 93,253
Total consumer 40,869 417,167 458,036 42,167 424,595 466,762 40,093 434,773 474,866
Foreign 1,554 28,540 30,094 1,849 29,619 31,468 1,859 32,023 33,882
Total loans $ 55,211 766,403 821,614 58,208 785,371 843,579 58,797 806,033 864,830
(1) In the first and second quarters of 2009, we refined certain of our preliminary purchase accounting adjustments based on additional information as of December 31, 2008. These refinements include
a net increase to the nonaccretable difference of $3.8 billion ($2.2 billion of which related to Pick-a-Pay loans), and a net increase to the accretable yield of $1.9 billion ($2.0 billion of which related
to Pick-a-Pay loans and reflects changes in the amount and timing of cash flows). The effect on goodwill of these adjustments amounted to a net increase to goodwill of $1.9 billion.
As a result of the application of SOP 03-3 to credit-impaired Wachovia loans, certain ratios of the combined company cannot be used to compare a portfolio that
includes acquired credit-impaired loans accounted for under SOP 03-3 against one that does not, or to compare ratios across quarters or years. The ratios
particularly affected by the accounting under SOP 03-3 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.
Certain loans acquired from Wachovia have evidence of credit deterioration since origination and it is probable that we will not collect all contractually required
principal and interest payments (referred to as "credit impaired" loans). Such loans are accounted for under American Institute of Certified Public Accountants
Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 requires 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.
Because SOP 03-3 loans have been 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.
June 30, 2009 (1)
-40-
Wells Fargo & Company and Subsidiaries
HOME EQUITY PORTFOLIOS
% of loans
two payments Annualized
or more past due loss rate
June 30,
(in millions) 2009 2009 2009 2009 2009 2009
Core portfolio
California $ 31,479 31,784 3.63 % 3 .56 5 .36 3.97
Florida 11,697 12,067 3.91 3 .73 4 .55 2.03
New Jersey 8,224 8,086 1.70 1 .58 1 .37 0.45
Virginia 5,805 5,653 1.26 1 .45 0 .99 0.76
Pennsylvania 5,048 5,129 1.46 1 .04 1 .29 0.29
Other 55,248 56,342 2.22 2 .06 2 .46 1.59
Total 117,501 119,061 2 .65 2 .53 3 .25 2 .09
Liquidating portfolio
California 3,616 3,835 8.16 8 .49 1 7.13 13.98
Florida 460 492 9.14 1 0.35 1 8.11 13.33
Arizona 219 233 8.16 8 .37 1 8.13 15.04
Texas 169 179 1.13 1 .40 2 .96 2.66
Minnesota 117 122 3.88 3 .88 7 .41 6.92
Other 4,764 5,001 4.00 3 .96 6 .25 5.29
Total 9,345 9,862 5 .91 6 .10 1 1.29 9 .27
Total core and liquidating portfolios $ 126,846 128,923 2 .89 2 .80 3 .85 2 .65
(1)
(2)
Consists of real estate 1-4 family junior lien mortgages and lines of credit secured by real estate from all groups, excluding SOP 03-3 loans.
Includes equity lines of credit and closed-end second liens associated with the Pick-a-Pay portfolio totaling $2.0 billion and $2.1 billion at June 30, 2009, and March 31, 2009,
respectively. Related credit losses for first quarter 2009 of $12 million are reported separately with the Pick-a-Pay portfolio.
Outstanding balances
-41-
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 (1) value (2) value balance ratio (1) value
June 30, 2009 California $ 40,657 146 % $ 26,177 95 % $ 25,117 9 0 % $ 25,170 Florida 6,117 130 3,903 84 5,276 9 6 5,287 New Jersey 1,717 99 1,226 71 3,162 8 0 3,169 Texas 466 80 341 59 2,108 6 6 2,112 Arizona 1,553 148 1,001 96 1,195 9 9 1,197 Other states 9,041 108 6,227 75 14,607 8 3 14,640 Total Pick-a-Pay loans $ 59,551 $ 38,875 $ 51,465 $ 51,575
March 31, 2009
California $ 42,216 152 $ 26,907 98 $ 25,875 9 0 $ 25,979
Florida 6,260 129 3,779 79 5,412 9 2 5,433
New Jersey 1,750 101 1,271 74 3,358 7 6 3,372
Texas 475 76 336 54 2,204 6 0 2,213
Arizona 1,642 161 987 99 1,239 1 04 1,244
Other states 9,306 110 6,397 77 15,282 7 9 15,324
Total Pick-a-Pay loans $ 61,649 $ 39,677 $ 53,370 $ 53,565
(1)
(2)
SOP 03-3 loans All other loans
The current LTV ratio is calculated as the outstanding loan balance plus the outstanding balance of any equity lines of credit that share common collateral divided by the collateral value. Collateral values are
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 SOP 03-3 loans, are a deduction of $24.5 billion nonaccretable difference and an addition
of $3.8 billion accretable yield at June 30, 2009, and for all other loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.
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