Wells Fargo 3q09 press release

WELLS FARGO REPORTS RECORD Q3 AND YEAR-TO-DATE NET INCOME

• 3rd consecutive quarter of record earnings

- Record Wells Fargo net income of $3.2 billion, up 98 percent from last year; $9.5 billion year to
date, up 75 percent from last year
- Diluted earnings per common share of $0.56, up 14 percent from last year; $1.69 per share year to date
- Results driven by record $10.8 billion pre-tax, pre-provision profit (PTPP); PTPP has been more than two times quarterly net charge-offs each quarter this year, despite cyclically elevated net charge-offs. (See footnote 4 on page 20 for information on PTPP)

=> awesome results and consistent with 2q09

• Continued strong revenue

- Revenue of $22.5 billion, flat with record revenue in second quarter 2009
- $169 billion of credit extended to customers in the quarter
- Average checking and savings deposits up 11 percent (annualized) from prior quarter
- Net interest margin of 4.36 percent, up 6 basis points from prior quarter
- Cross-sell for legacy Wells Fargo a record 5.90 for retail bank households
- Broad-based revenue contribution from diverse businesses, including double-digit linked-quarter growth in asset management, auto lending, consumer finance, debit cards, retirement services, SBA lending and wealth management, along with continued strong performance from regional banking and mortgage banking

=> net interest margin improved to 4.36, best among peers and a trend that Wachovia start adpoting the high margin economic moat from legacy Wells Fargo.

• Significant increases in capital, reduction in risk

- Wells Fargo stockholders’ equity increased to $122 billion (10 percent of total assets), up
$23 billion from year end
- Generated $20 billion during the past six months toward the $13.7 billion Supervisory Capital
Assessment Program (SCAP) buffer requirement; PTPP tracking above Company’s internal SCAP estimates and 35 percent above supervisory adverse scenario estimate
- Credit reserves built by $1.0 billion ($3.0 billion year to date), reaching $24.5 billion, or
3.07 percent of total loans and 118 percent of nonaccrual loans
- Substantial increases in capital ratios driven by record retained earnings and other sources of
internal capital generation

=> I personally high the capital ratio in general is too high for the entire bank industry, but if that's what the regulatory and the analysts love to see, I think Wells Fargo has more than enough to meet their wants.

• Current projections show credit losses peaking in 2010, with consumer losses potentially peaking in first half of the year and gradually declining, absent further economic deterioration

- Growth in nonperforming loans and net charge-offs slowing as of third quarter, for consumer and commercial portfolios
- Credit performance of recent vintage legacy Wells Fargo consumer portfolios improving, largely the result of proactive credit management over past two years
- 90 days past due and still accruing levels flat with second quarter; consumer 90 days past due and still accruing declined from prior quarter
- Significantly smaller credit card portfolio than large bank peers
- Pick-a-Pay portfolio currently estimated to have lower life-of-loan losses than originally
estimated, driven in part by extensive and successful loan modification efforts
- Collateral values improving in auto market and housing prices stabilizing in many regions
- Legacy Wells Fargo commercial and commercial real estate portfolio well underwritten and
diversified; Wachovia commercial and commercial real estate portfolio marked down at merger
close at end of last year
- Legacy Wells Fargo loss rate of 3.37 percent, below large bank peers; overall loss rate of
2.50 percent reflected benefit of purchase accounting on Wachovia loan portfolio; combined
losses less than half of Company’s quarterly PTPP

=> provision rise according to my expectation, I think Wells Fargo's estimation is fair and conservative. In certain degree, this is a very econuraging bad news.

• Wachovia integration on track and on schedule

- Estimated cumulative merger expenses reduced to approximately $5.5 billion from $7.9 billion;
on track to achieve $5.0 billion annual run-rate cost savings by completion of integration in 2011
- Cross-sell revenues already being realized
- Credit overall performing in line with original expectations
- First state community bank conversion (Colorado) scheduled for November; conversion of
remaining overlapping markets expected in 2010

=> good!!

• Increased loan modifications

- Provided 62,989 trial and completed modifications through the Home Affordable Modification
Program (HAMP) and 292,005 through Company’s proprietary programs, bringing total this year through September 30, 2009, to 354,994
- Refinanced 987,000 customers’ mortgages using the Home Affordable Refinance Program
(HARP) and other standard refinance programs
- Over 20 percent of PCI Pick-a-Pay portfolio modified through September 30, 2009, with positive early performance

=> mortgage application down 11% last month, but the trend is still going up and I am sure the house market has hit the bottom even though house price rise slowly in the coming year, may upset lots of analysts and economists.