Wells Fargo & Company (WFC)

WFC 
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Wells Fargo & (WFC)

Q2 2011 Earnings Call

July 19, 2011 9:30 am ET

Executives

Timothy Sloan - Chief Financial Officer and Senior Executive Vice President

John Stumpf - Chairman, Chief Executive Officer and President

Jim Rowe - Director of Investor Relations

Analysts

John McDonald - Sanford C. Bernstein & Co., Inc.

Paul Miller - FBR Capital Markets & Co.

Betsy Graseck - Morgan Stanley

Joe Morford - RBC Capital Markets, LLC

Moshe Orenbuch - Crédit Suisse AG

Frederick Cannon - Keefe, Bruyette, & Woods, Inc.

Christopher Mutascio - Stifel, Nicolaus & Co., Inc.

Nancy Bush - NAB Research

Keith Horowitz - Citigroup Inc

Matthew O'Connor - Deutsche Bank AG

Presentation

Operator

Good morning. My name is Celeste, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Wells Fargo Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn today's call over to Jim Rowe, Director of Investor Relations. Please go ahead, sir.

Jim Rowe

Thank you, Celeste, and good morning, everyone. Thank you for joining our call today, during which our Chairman and CEO, John Stumpf; and CFO, Tim Sloan, will review second quarter results and answer your questions.

Before we get started, I would like to remind you that our second quarter earnings release and quarterly supplement are available on our website. I'd also like to caution you that we may make forward-looking statements during today's call and that those forward-looking statements are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing in the earnings release and quarterly supplement.

Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings, in the earnings release and in the quarterly supplement available on our website at wellsfargo.com.

I will now turn the call over to John Stumpf.

John Stumpf

Thank you, Jim, and good morning, and thanks for joining us today. The results we will review with you this morning are a product of our steadfast focus on 5 key priorities: helping customers succeed, growing revenue, reducing expense, living our vision and values and building strong relationships with our key stakeholders. The second quarter also reflected the strengths of Wells Fargo diversified business model and operating culture which continued to produce record high results in a tough economic business climate.

In the second quarter, all of our business fundamentals moved in the right direction, revenues, loans, deposits, expenses, credit and capital. This is how we delivered the highest earnings in Wells Fargo's history with net income of $3.9 billion, an increase of 29% from a year ago, and an EPS of $0.70, up 27% over the same period.

Our strong financial performance led to strong internal capital generation, producing an estimated Tier 1 common equity ratio under Basel III capital proposals of 7.4%. We grew capital even as we rewarded our loyal shareholders through dividends and with the reinstatement of our share buyback program during the quarter.

The second quarter also included many examples of the ongoing benefit of our merger with Wachovia, beginning with the successful completion of our largest state conversion, Florida. With Florida now operating under the Wells Fargo brand, we have 83% of our banking customers on a single system, a powerful advantage for the future. We have converted 2,215 Wachovia stores as well as 23.7 million customer accounts, including mortgage, deposits, trust, brokerage and credit cards.

Our success reflects the tremendous effort made by our entire team. For the conversions in Pennsylvania and Florida alone, team members in our banking stores completed over 217,000 hours of training and practice. To help support our stores during conversion, 2,360 bankers from stores in the West each spent more than a week in the converted states to ensure a smooth transition.

But the biggest benefit of the largest merger in our industry's history are revenue synergies, many of which we are already starting to realize. They reflect the payoffs that are possible when a team has a plan, follows it with discipline and doesn't allow headwinds to distract them.

Let me highlight just a few. Our continued strong growth in consumer checking accounts demonstrates our success at attracting new customers even during the integration. In our eastern retail banking stores, consumer checking accounts were up over 30% from a year ago. New credit card accounts also grew in the East, growing more than 140% from a year ago as we began to see a meaningful lift in credit card penetration rates in our converted markets, up from 13.2% at the end of 2010 to 14.5% at the end of the second quarter.

Wachovia had a well-run Auto business before the merger, and it has only become a more robust part of Wells Fargo, growing indirect auto loans by more than 50% since the merger. Our market share has also increased, and that has made Wells Fargo the largest used car auto lender and the second largest overall auto lender in the industry.

Wholesale Banking businesses have benefited from the merger as well, with more customers, a broader product line and higher cross-sell. For example, year-to-date, our investment banking market share for 2011 was 4.7%, up from 3.7% for the first 6 months of 2009.

Investment banking revenue with corporate and commercial customers also has increased, growing 53% during the first 6 months of 2011 versus the same period last year, reflecting continued success in cross-selling investment banking products to our wholesale customer base.

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