consumer lending group - wells fargo lending group avid modjtabai, senior evp, consumer lending and...
TRANSCRIPT
Consumer Lending Group
Avid Modjtabai, Senior EVP, Consumer Lending and Operations
Shelley Freeman, EVP, Consumer Credit Solutions
Dawn Martin Harp, EVP, Dealer Services
Franklin Codel, EVP, Home Lending
May 24, 2016
© 2016 Wells Fargo & Company. All rights reserved.
Business Overview Consumer Lending Group (CLG)
Wells Fargo 2016 Investor Day Consumer Lending Group 2
Home Lending
Mortgage and Home Equity
#1 Retail lender (1)
#1 Correspondent lender (1)
#1 Jumbo lender (1)
#1 Mortgage servicer (1)
9.1MM households
$1.65T Residential servicing portfolio (1)
$213.0B in 2015 originations
$114.7B Jumbo loans (2)
$68.8B Home equity loans
Unsecured Lending
Credit Card
11.2MM General Purpose Credit card households
4.4MM Retail Services households
$70.3B in 2015 POS transactions
$33.1B Credit card loans
18,000 Retail Services merchants
Personal Lines and Loans
1.8MM Personal lines & loans households
$9.2B Personal lines and loans
Student Lending
#2 Private student lender (3)
676K Student lending households
$12.5B Private student loans
Auto Lending
Dealer Services
#1 Used auto lender (4)
#2 Overall auto lender (4)
3.7MM households
$57.8B Indirect auto loans
$10.3B Commercial auto loans (5)
14,000+ Dealer relationships
Direct Auto
242K households
$2.8B Direct auto loans
Business overview
All household data as of Dec 2015. All portfolio balances as of period end 1Q16, unless noted. (1) Source: Inside Mortgage Finance, FY2015 as of Jan 2016. (2) Jumbo loans originated post February 2009. (3) Source: MeasureOne, Jan – Dec 2015, as of Jan 2016. (4) Source: Autocount, rolling 12 months, as of Feb 2016. Based on annual findings, excludes leases. (5) Included in the company’s C&I portfolio.
Wells Fargo 2016 Investor Day Consumer Lending Group 3
Experienced leadership team
Avid Modjtabai
Consumer Lending Group
23 years at Wells Fargo
Franklin Codel Home Lending
23 years at Wells Fargo
Mortgage origination for sale
Portfolio lending (jumbo loans, home equity)
Mortgage servicing
Capital markets
Credit card (General Purpose, Co-brand, and Retail Services)
Personal Lending Group:
- Student lending
- Personal lines and loans
- Direct auto
Shelley Freeman Consumer Credit Solutions
20 years at Wells Fargo
Indirect auto lending
Commercial auto
Dawn Martin Harp Dealer Services
20 years at Wells Fargo
Consumer Lending Group 4 Wells Fargo 2016 Investor Day
How we’ve performed
Delivered strong performance across our businesses
Repositioned the Card business for growth
Delivered disciplined growth in Auto Lending
Maintained leadership position in Home Lending
Grew new accounts and originations
Improved the composition of our portfolio
Maintained credit discipline
Delivered historically low credit losses
Simplified and de-risked the business
Continued our customer experience transformation
Wells Fargo 2016 Investor Day Consumer Lending Group 5
Delivered strong performance across our businesses
Grew outstanding balances at 13% CAGR since 2013, outpacing total market growth of 4% (1)
Delivered new products (American Express and Visa), digital capabilities, and an award-winning relationship rewards platform
Deepened our share of wallet across segments, including Affluent
Repositioned the Card
business for growth
Maintained leadership position in
Home Lending
Maintained leading market position in originations (retail, correspondent, jumbo) and servicing (3)
Expanded portfolio lending, originating nearly $100B in high quality jumbo loans since 2013
Invested in new originations and eLending platform
Maintained #1 position in used car lending; #2 overall auto lender (2)
Grew outstanding balances at 9% CAGR since 2013, slightly below total market growth of 11% (1)
Grew the number of dealers with ≥10 funded applications per month by 24% since 2011
Delivered disciplined growth in
Auto Lending
All growth figures represent end of year 2015. (1) Source: Federal Reserve Bank of New York, “Household Debt and Credit Report”, total outstanding consumer debt, 4Q13-4Q15, as of January 2016. (2) Source: Autocount, rolling 12 months, as of February 2016. (3) Source: Inside Mortgage Finance, as of January 2016.
Consumer Lending Group 6 Wells Fargo 2016 Investor Day
Grew new accounts and originations
Consumer Credit Card (1)
New Accounts (in millions)
Auto Lending Originations
($ in billions)
1.5x
2015
$31.1
2013 2011
$21.4
1.9x
1.4
2015 2011
2.7
2013
Portfolio Home Lending Originations
($ in billions)
$57.2
2.5x
2015 2013 2011
$22.9
Jumbo Loans
Home Equity
Indirect
Direct
(1) Includes consumer credit card as well as certain Co-brand and Private Label relationship new account openings.
2.3 $27.6
$47.0
Wells Fargo 2016 Investor Day Consumer Lending Group 7
Improved the composition of our portfolio
68%
14%
18%
2011
$425
56%
19%
25%
2015
$460
78%
11%
11%
2013
$445
Liquidating (1)
Junior Lien (2)
Core (3)
Total Consumer Loans ($ in billions)
Balances are as of period end. (1) Non-strategic/liquidating portfolio consists of Pick-a-Pay, liquidating home equity, junior lien, legacy Wells Fargo Financial debt consolidation, and certain other legacy Wachovia portfolios. See pages 63-64 in our 2015 Annual Report for further information. (2) Excludes liquidating junior liens. (3) Excludes junior lien.
2011-2015 Core portfolio CAGR of 11%
Wells Fargo 2016 Investor Day Consumer Lending Group 8
Maintained credit discipline…
Portfolio Distributions by FICO (1)
13% 8%
7%
9%
6%
14%
10%
57%
72%
4Q11 4Q15
4% 9% 6%
9% 9%
15% 15%
63% 66%
4Q15
5%
4Q11
5%
10% 8%
8% 8%
15% 15%
21% 20%
46% 48%
4Q15 4Q11
18% 16%
13% 11%
18% 17%
17% 18%
34% 38%
4Q11 4Q15
(1) Rounded, excludes loans with no FICO. (2) Includes direct and indirect loans.
Real Estate 1-4 Junior Lien
Credit Card Auto Lending (2)
Real Estate 1-4 First Mortgage
680-719
640-679
<600
600-639
720+
Wells Fargo 2016 Investor Day Consumer Lending Group 9
…and historically low credit losses
1Q16
0.07%
1Q14
0.27%
1Q12
1.39%
0.70% 0.85%
1Q14
0.70%
1Q12 1Q16
(1) Quarterly net charge-offs as a percentage of average loans are annualized. See explanation on page 21 of the Company’s First Quarter 2016 Form 10-Q of the accounting for purchased-credit impaired (PCI) loans and impact on selected financial ratios.
Real Estate 1-4 First Mortgage Real Estate 1-4 Junior Lien
Auto Lending Credit Card
Net Charge-offs (1)
(as % of average loans)
1Q16
0.57%
1Q14
1.20%
1Q12
3.62%
4.40%
3.16%
1Q14
3.57%
1Q12 1Q16
Wells Fargo 2016 Investor Day Consumer Lending Group 10
Simplified and de-risked the business
Aligned infrastructure and support functions across CLG lines of business
Streamlined and consolidated systems (e.g., legacy origination systems for run-off real estate portfolios)
Leveraged automation to take paper out of our processes
Right-sized the business to respond to market dynamics
Exited segments, including:
- Home Lending Joint Ventures
- Mortgage Marketing Service Agreements
- Auto Lending Warranty Solutions
- Government student loan servicing portfolio
Simplified product pricing structures
Launched amortizing home equity lines
Proactively managed home equity end-of-draw
Reduced Risk
Improved Productivity
Wells Fargo 2016 Investor Day Consumer Lending Group 11
Continued our customer experience transformation
Account Open and Onboarding
Learning and Planning
Engaging and Transacting
Launched consumer education and strategies centered around financial health:
Free access to FICO® Scores with in-depth, personalized credit tips
My FirstHome®, a multi-channel interactive experience guide for first-time homebuyers
Smarter Credit™ Center, an online resource to build, improve, and manage credit
Delivered fully integrated eLending platform for all Consumer Lending products, including:
Cross-channel applications
Real-time application status and updates (e.g., yourLoanTrackerSM)
Digital document upload (e.g., mobile camera phone)
eSign capabilities
Developed comprehensive digital servicing and transacting capabilities:
Mobile wallet and payment capabilities, including WF Wallet, Apple Pay, Android Pay, and Samsung Pay
Account management (e.g., real-time, 2-way fraud alerts)
Industry leading rewards redemption capabilities via mobile and ATM
FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.
(Example Score)
Looking Ahead
Consumer Lending Group 13 Wells Fargo 2016 Investor Day
Despite some uncertainty, consumer outlook is positive
Household Net Worth (2) ($ in trillions)
2015
$86.8
2014
$84.2
2013
$79.4
2012
$69.6
2011
$63.4
17.7MM Projected light vehicle sales in 2016 (6)
Total WFC auto originations in 2015 up 13% from prior year
Housing prices are rising, up 5.7% YoY (3)
Average LTV of Wells Fargo mortgage loan portfolio
(4) was 65% in 4Q15, improved from 82% in 4Q12
US total retail sales continue to trend upward, reaching $4.7T in 2015 (5)
WFC credit card POS dollar volume and transaction volume in 2015 up 12% and 15%, respectively from prior year
Unemployment Rate (1)
2011 2012 2013 2014 2015
5.0% 5.6%
6.7% 7.9%
8.5%
(1) Source: US Department of Labor, Bureau of Labor Statistics, as of Jan 2016. (2) Source: Federal Reserve - Financial Account of the United States. Real estate equity calculated as value net of mortgage balances, as of Jan 2016. (3) Source: S&P/Case-Shiller 20-City Composite Home Price Index, as of Jan 2016. (4) All WFC owned mortgage and home equity, excluding PCI. (5) Source: U.S. Department of Commerce, Monthly and Annual Retail Trade Report (Total Retail sales), as of Jan 2016. (6) Source: National Automobile Dealers Association, as of Jan 2016.
Real Estate Equity All Other
Consumer Lending Group 14 Wells Fargo 2016 Investor Day
We are well positioned
8,000 Retail locations (stores, brokerage, and mortgage)
45,000+ Platform bankers and financial advisors
7,000+ Home Mortgage Consultants
14,000+ Auto dealers
18,000 Retail Services merchants
Unparalleled Physical
Distribution
Consistent performance across businesses throughout economic cycles
Scale, cost, and balance sheet advantages
Discipline in credit risk management
Experienced CLG business leadership team averaging over 14 years of tenure (1)
Proven Business Models
41MM Wells Fargo consumer households; 27MM have at least one CLG product
Full product suite to meet a broad range of customer needs, through every life stage
Proprietary behavioral insights on our 70MM customers
Powerful Customer
Relationships
As of December 31, 2015. (1) Average tenure for top 4 levels of CLG managers.
Wells Fargo 2016 Investor Day Consumer Lending Group 15
Our opportunities to grow
Customer journey with Wells Fargo
Bring more new households to
Wells Fargo
Win New Customers
Increase our Cross-sell
Meet all of the lending needs of
existing Wells Fargo consumer households
Deepen Engagement
Be top-of-mind and top-of-wallet with
existing CLG customers
Wells Fargo 2016 Investor Day Consumer Lending Group 16
Win new customers
“New-to-WFC” Households by CLG acquiring product
(2013-2015)
CLG is the 2nd largest source of new households to Wells Fargo
(1) Includes indirect loans. (2) Personal Lending includes direct auto, student lending, and personal lines and loans.
25%
6%
40%
29%
Auto Lending (1)
Home Lending
Retail Services
Personal Lending (2)
Total: ~9MM
households
How we will drive growth:
Attract more new households by expanding distribution (dealers, merchants, digital)
Develop new strategies to “lead with” lending products
Partner across businesses to turn more credit customers into long-term relationship customers
Wells Fargo 2016 Investor Day Consumer Lending Group 17
Cross-sell to existing customers
(1) Source: Hemisphere, as of Dec 2015; Includes total mortgage, home equity, general purpose credit card, and private student loan balances of customers who do not currently hold those WFC products.
(2) Data as of Dec 2015.
With CLG product
Without CLG product
2015
41MM
66%
34%
2013
39MM
62%
38%
WFC Consumer Households
WFC Consumer Households with CLG Products (2)
Total value of away-lending balances (1) of Wells Fargo
customers is $2.7T
79%
17%
4%
2 products 17%
1 product 79%
3+ products 4%
Wells Fargo 2016 Investor Day Consumer Lending Group 18
Deepen engagement
(1) Assumes 1% increase in each metric above, plus a 1% increase in home equity line utilization.
Line of Business Opportunities to Deepen Engagement
Credit Card Share of wallet – % of WFC credit card
customers total spend that we capture “on us”
Home Lending Recapture rate – % of servicing book
households who refinance or purchase an additional home with a WFC mortgage
Dealer Services Full spectrum dealers – % of dealers who
underwrite contracts at each of our credit tiers (vs. a single band)
Every 1% increase in engagement (1) of customers with existing
CLG products represents ~$5B in incremental balances
Wells Fargo 2016 Investor Day Consumer Lending Group 19
Consumer Lending Group: How we’ll execute
Simplify the end-to-end customer experience (e.g., streamlined authentication)
Deliver personalized financial information and guidance (e.g., contextual alerts and notifications)
Continue to sharpen value propositions to attract high opportunity segments (e.g., first-time homebuyer, affluent, millennials)
Transform the
Customer Experience
Grow digital (online/mobile) to become a significant sales channel and augment existing distribution channels
Expand distribution through Wells Fargo stores, Regional Business Centers (RBCs), and Home Mortgage Consultants (HMCs)
Drive targeted growth in our distributed and centralized sales teams
Continue to deepen relationships with retailers, dealers, and Co-brand partners
Expand and Deepen
Distribution
Use relationship data and insights to responsibly pre-qualify customers for their most relevant needs
Overlay marketing and risk analytics to drive improved response rates and efficiency of offers
Provide customers with a single unsecured credit limit that can be allocated across products by underwriting at the customer level
Leverage Data and Analytics
Credit Card
Wells Fargo 2016 Investor Day Consumer Lending Group 21
Credit Card: Our business model
General Purpose cards to meet payment needs from new-to-credit to high net worth
Distributed primarily through our stores, contact centers, or digital channels to existing customers
11.2MM households
82% of credit card households have a WFC deposit relationship
$25.1B Portfolio(1)
$61.4B in 2015 POS volume
Consumer Credit Card
Co-brand Credit Card
Retail Services
Co-brand credit cards issued on behalf of partners
Distributed through merchant partners (e.g., Dillard’s)
Committed to long-term growth in this sector
Customized Private Label credit programs and products to support merchants and consumers
Distributed through approximately 18,000 merchant relationships with over 33,000 locations
4.4MM households
19% of Retail Services households have a WFC deposit relationship
Acquired 1.2MM households in 2015
Data as of Dec 2015 unless otherwise noted. (1) As of 1Q16.
Wells Fargo 2016 Investor Day Consumer Lending Group 22
4Q11 4Q15
4Q11 4Q15
4Q11 4Q15
Repositioned the card business and accelerated growth
Credit Card Purchase Volume (1) ($ volume)
Credit Card Outstandings (1) ($ loans outstanding)
POS Active Credit Card Accounts (1)
(# of accounts)
14% CAGR
10% CAGR
16% CAGR
Strong portfolio growth across credit card businesses (General Purpose, Retail Services, Co-brand)
Engagement growth in consumer credit card
(2) portfolio since the end of 2011:
- The number of POS-active accounts have grown at 16% CAGR
- The rate of POS-active accounts (as a percent of total) are up 3.9 percentage points
Increased penetration in the Affluent (3) segment since 2013:
- Spend grew at a 16% CAGR
- Balances grew at a 20% CAGR
- Grew affluent and high net worth cards as a percent of total active accounts to 20%, from 9% (4)
(1) Reflects CCS cards including Co-brand and Retail Services. (2) General purpose cards. (3) Source: Experian. Affluent defined as combined annual cardholder spend on all cards of $25k or more. (4) Wells Fargo product mix reflects General Purpose cards only, and excludes co-brand. Product affluence based on type of card.
Consumer Lending Group 23 Wells Fargo 2016 Investor Day
Substantial opportunities to drive credit card growth
Win New Cards and Customers
Expand penetration within existing Wells Fargo households (both deposit and non-deposit)
Attract new customers through refreshed credit card product offerings
Expand Distribution
Deliver omnichannel experience by meeting our customers in their channel of choice
Reach customers in non-captive digital channels
Deepen Engagement
Grow share of wallet by expanding companion card offers
Strengthen the reward value proposition to drive card usage and engagement
Enhance Capabilities
Develop and deliver customer-centric digital marketing and customer experience capabilities
Increase customer engagement through financial education with online resources to build, improve, and manage credit
Wells Fargo 2016 Investor Day Consumer Lending Group 24
Drive growth by penetrating our household base
New marketing to WFC customers in Retail Services, Auto, Wealth & Investment Management, and new Home Lending households
Engage current cardholders
Acquire households without a card
Acquire new to bank households
21 Million Retail checking households (1)
20 Million Consumer non-checking households
41 Million WFC consumer households
Credit Card
(2) Retail Checking Household (1) Penetration (% of total HHs)
2012 2014 2015
Credit Card
(3) Consumer non-Checking Household Penetration (% of total HHs)
33.5% 37.4%
43.2%
10.0% 7.7% 9.0%
(1) Retail checking households include households that hold at least one retail checking account. (2) General Purpose and Co-brand, excludes Retail Services. (3) General Purpose card only, excludes Co-brand and Retail Services.
2013
41.5%
9.3%
2012 2014 2015 2013
Wells Fargo 2016 Investor Day Consumer Lending Group 25
New and refreshed offerings to win new customers
Straightforward, relevant products targeted to specific payment needs
New To Credit/ Repairing Credit Mass and Mass Affluent Affluent and High Net Worth
College and secured cards provide an accessible and responsible entry point
Lending, cash back, and points cards tailored to segments within the broader base of credit card holders
Premium-service value propositions for travel enthusiasts, clients of Wealth and Investment Management
• New Propel™ American Express
card rolling out nationally
• New Cash Wise™ Visa card launched in May
Wells Fargo 2016 Investor Day Consumer Lending Group 26
2012 2013 2014 2015
Go FarTM Rewards deepens engagement
Average monthly spend of customers (3)(4)
(Awards non-redeemers vs. Awards redeemers)
4.3x higher spend by cardholders who redeem
CAGR = 17%
Go FarTM Rewards delivers differentiated, hard to replicate, omnichannel earning and redemption experiences that engage across our customers’ Wells Fargo relationships:
Earn rewards in one account across all of the customer’s WFC consumer credit card products
Annual earning bonuses for customers with other WFC relationships
Easily pool or share rewards within a household, or with other WFC customers
Redeem rewards directly to nine WFC products (including paying down principal balance on a mortgage, personal loan, or credit card)
Redeem for cash at more than 13,000 WFC ATMs
Open Reward Accounts (2)(3)
(1) Corporate Insight Dec 2015; Wells Fargo received an A-, and tied for highest rated rewards program. (2) Includes all Go Far Rewards open accounts, excludes Co-brand and Retail Services. (3) Figures represent year end open accounts. (4) Represents 12-month average POS spend per account in 2015.
Non Redeemer Redeemer
Go FarTM Rewards received the highest rating given in the Credit Card MonitorSM “Rewards Redemption Options” report
by Corporate Insight (1)
Wells Fargo 2016 Investor Day Consumer Lending Group 27
Single Card Multiple Cards
Drive spend and balance growth with companion cards
Multiple cards meet full range of payment needs
Two networks One rewards program
One banking relationship
Travel Rewards and
Cash Back Lending
Significant opportunity: only 1.8% of primary credit card customers have more than one Wells Fargo Credit Card (1)
Early results show companion cards drive increased activity:
Our approach to companion cards is differentiated from competitors:
(1) Excludes Co-brand and Retail Services. (2) Source: Internal analysis; 3-month pre/post analysis reflects 2015 vintage multi-card
accounts, through November 2015.
Credit line flexibility One view of spending
Move line between cards
Average monthly spend (2)
(Before and after multi-card)
Average monthly transactions (2)
(Before and after multi-card)
Single Card Multiple Cards
+22%
+20%
My Money Map
Wells Fargo 2016 Investor Day Consumer Lending Group 28
Enhancements to reach and serve our customers
Optimize and expand distribution across all channels
Adding capabilities to better engage our customers
Smarter Credit™ & Path to Good Credit Online and mobile credit building tips, education, and videos
Digital Wallets Secure payment options for our customers
Cash Track™ Clear, transparent graphics to communicate cash rewards balances and lifetime earnings
Digital Servicing Expanded and optimized alerts and chat
Increased focus on meeting customers in their channel of choice: stores, contact centers, or digitally
New digital marketing experiences are driving acquisition results
Wells Fargo 2016 Investor Day Consumer Lending Group 29
Continually refresh our product offerings to capture additional share of wallet and win more households
Offer a differentiated and award-winning experience with our customer loyalty/rewards program
Develop best-in-class digital tools and refresh experiences to exceed customers’ expectations
Transform the
Customer Experience
Strengthen capabilities to continue to acquire more customers through digital channels
Grow companion cards as a way to win new cards, deepen relationships
Build infrastructure and evaluate additional co-brand opportunities to grow our portfolio
Expand and Deepen
Distribution
Use relationship data to pre-qualify more customers and deliver better value propositions and targeted offers
Enhance our credit models to offer cards to new-to-bank and select non-Wells Fargo customers
Leverage Data and Analytics
Credit Card: How we’ll execute
Auto Lending
Consumer Lending Group 31 Wells Fargo 2016 Investor Day
Auto Lending: Our business model
Indirect Auto Finance ($57.8B in balances)
Loans originated by dealers and purchased by Wells Fargo (dealers as “distribution”)
Specializes in financing for used vehicles
Dealer relationships managed through 57 Regional Business Centers (RBCs)
14,000+ Dealer
Relationships
3.7MM Customer
Households
Treasury Management
Commercial Services
($10.3B in balances)
“Deliver the whole bank to the dealer”
Floorplan Financing
Real Estate
Wealth Management
Employee Benefits (1)
Treasury Management
Direct Auto ($2.8B in balances)
Sales through traditional bank channels (stores, website, inbound/outbound phone, direct mail)
Primarily used by customers for refinance
Period end balances as of 1Q16. (1) Includes payroll, retirement plans, and discounts on Wells Fargo products for dealership employees.
Consumer Lending Group 32 Wells Fargo 2016 Investor Day
Indirect Auto Lending Originations ($ in billions)
Maintained disciplined growth in Auto Lending
$25.9
2011
$20.2
2015
$29.5
2013
Average FICO (2)
699 695 696
Maintained #1 position in used car lending; #2 overall auto lender (1)
Grew Indirect Auto portfolio to $57.8B in 1Q16, (from $39.6B in 4Q11); maintained credit discipline
Deepened relationships with our dealer customers:
- 9.6% of dealers had 20+ contracts monthly in 1Q16, up 24% YoY
- Since last Investor Day, added 3 new Regional Business Centers (RBCs), most recently in Texas and New Jersey
(1) Source: Autocount, as of Feb 2016 rolling 12 months. Based on annual findings, excludes leases. (2) Average FICO at point of origination for primary applicant.
Consumer Lending Group 33 Wells Fargo 2016 Investor Day
Local Strategy
57 RBCs on the ground in communities, building long-tenured relationships with local dealers
Community-based origination teams close to local economic trends
Full spectrum approach allows us to capture more applications from each dealer relationship and supports our balanced approach to portfolio management
Integrated commercial model – differentiated from captives and other banks
Consistent Credit Approach
Deep expertise in financing pre-owned vehicles – every day transportation to and from work (65% of total volume is used vehicles)
(1)
Despite industry pressure, conservative approach to car valuations and loan terms – 84 month terms comprise <0.1% of our indirect auto portfolio
(1)
Stable market presence, consistent balance sheet funding through the cycle
Purchase-focused strategy (no leasing presence)
Our keys to success
(1) As of March 31, 2016.
Consumer Lending Group 34 Wells Fargo 2016 Investor Day
Philadelphia RBC
54 team members
Manages 320 dealer relationships
6% market share (1)
$1.9B portfolio
$656MM in 2015 originations
Santa Rosa RBC
19 team members
Manages 99 dealer relationships
17% market share (1)
$508MM portfolio
$266MM in 2015 originations
Our 57 RBCs are central to our local strategy
Data as of December 31, 2015. (1) Market share FY 2015. Source: Autocount.
Consumer Lending Group 35 Wells Fargo 2016 Investor Day
Deepening dealer relationships drives our growth
Greater engagement with dealer customers drives greater value through increased contract and funding volume, and conversion (efficiency of relationships)
Dealers with 20+ monthly funded contracts accounted for 21% of total application volume, and 29% of funding volume in 2015
2015 2011
45% 48%
10+ Funded
Total Applications up 1.4x
55% <10 Funded
52%
Indirect Auto Applications (by dealer segment)
2015
51%
49%
2014
29% Full
Spectrum
Not Full Spectrum 71%
The portfolios of dealers who underwrite contracts at each of our credit tiers (instead of focusing on a single band), are more profitable – these “full spectrum” dealer relationships have an ROA that is 22% higher than other dealers
Dealer Relationships (full spectrum vs. not full spectrum)
Consumer Lending Group 36 Wells Fargo 2016 Investor Day
Average Products and Services per Commercial Relationship (2)
11.711.0
9.6
2015 2013 2011
Integrated Commercial Auto model is an advantage
Commercial Auto is a competitive advantage – captives and other finance companies do not offer a full suite of products
Dealers can have all of their financial needs met by Wells Fargo’s lines of business, with a single relationship manager
Significant synergies and benefits from retail and commercial relationships, including:
- Combined sales calls from retail and commercial managers
- Our top 150 commercial relationships generated 18% higher application conversion to loans than average indirect auto dealers (1)
(1) As of 4Q15. (2) As of end of period.
Wells Fargo 2016 Investor Day Consumer Lending Group 37
Access to credit for the everyday driver
Super-prime Prime Non-prime
% of total 2015 originations ($) (1) 27% 63% 10%
Borrower Characteristics
Annual income $104,894 $82,646 $62,550
Time at job (in years) 10.9 8.3 6.0
Time at residence (in years) 11.5 8.9 6.5
Collateral Characteristics
Vehicle age (in years) 2.7 3.8 4.9
Vehicle mileage 31,774 48,667 65,208
Loan to Value (2) 99.2% 117.0% 111.1%
Loan Structure
Amount financed $24,344 $21,381 $16,273
Terms (in months)
65.0 66.6 63.4
All data 12-month average for loans at originations, full year 2015. (1) Super-prime, Prime, and Non-prime categories based on Moody’s expected loss bands. (2) Loan to Value (LTV) is calculated as origination loan amount including add-ons divided by adjusted vehicle value (adjustments are made for manufacture rebates, year end model, and minimum sales price and book-sheet or wholesale value).
Consumer Lending Group 38 Wells Fargo 2016 Investor Day
(1) Source: TransUnion Total Auto Peer Group Benchmarking; Vantage Score mapped to comparable FICOs.
Low delinquencies demonstrate portfolio quality
For 60+ DPD delinquency, WFC had among the lowest rates of delinquency in the industry both across the full portfolio and within the lowest credit band:
60+ DPD Rate (1)
All Vantage Scores
%60+
DPD
Rate
%60+
DPD
Rate
1.0
1.5
0.5
4Q14 2Q15 4Q15 2Q14 4Q13 4Q12 2Q13
3
4
5
2
1
6
4Q15 2Q15 4Q14 2Q14 4Q12 2Q13 4Q13
Non-Captive Peer Group 2
Captive Peer Group 1
Captive Peer Group 2
All Other Lenders Non-Captive Peer Group 1
Wells Fargo
60+ DPD Rate (1) Vantage <671 only (equivalent to FICO <640)
Other considerations:
In recent months, Manheim index has trended lower, driven by slowdown in post-recession pent-up demand and increasing number of off-lease vehicles entering the market in 2016
Continued decreases in used-car values could potentially drive increased loss severity compared to recent historic lows
Wells Fargo 2016 Investor Day Consumer Lending Group 39
Auto Lending: How we’ll execute
Enhance and simplify the Dealer experience through eContracting, dealer affinity and recognition programs, and core platform upgrades
Improve the end-customer experience through digitization, new mobile offerings, and increased transparency and financial education
Transform the
Customer Experience
Capitalize on off-lease used vehicle inventory through used-car expertise
Improve existing dealer engagement through focus on increasing full spectrum and 10+/20+ monthly contract relationships and deepening commercial relationships
Identify opportunities to open new RBCs based on market demand
Expand and Deepen
Distribution
Continue to enhance underwriting and credit models by incorporating behavioral insights and advanced analytical techniques
Leverage trusted source data to accelerate key processes (e.g., origination, fraud detection, collections)
Leverage Data and Analytics
Home Lending
Consumer Lending Group 41 Wells Fargo 2016 Investor Day
Servicing for others and for our own portfolio ($1.65T servicing portfolio; 9MM households)
Originations
Originations through Retail and Correspondent channels ($213B total originations in 2015; 780,000 customers served)
Portfolio
Portfolio of high quality jumbo and home equity originations ($57B originations in 2015), as well as liquidating portfolios
Consistent Industry Leadership
(1):
- #1 Retail lender
- #1 Correspondent lender
- #1 Servicer
- #1 Jumbo lender
- #1 Lender to low-to-moderate income borrowers
Broad Retail Distribution to Serve Customers:
- Over 7,000 Distributed Home Mortgage Consultants (HMCs)
- Over 1,000 Centralized HMCs
- 500 stand-alone mortgage locations plus co-locations with Community Bank and Wealth/Advisors
Home Lending: Our business model
Servicing portfolio balance as of 4Q15. (1) Source: Inside Mortgage Finance, as of Dec 2015.
Servicing
Consumer Lending Group 42 Wells Fargo 2016 Investor Day
A long-term commitment to the mortgage business
Our keys to success:
Committed, long-term perspective to the business
Experienced leadership team
Strong operational, credit, and interest rate risk management skills
Ability to lead at scale in origination and servicing
Ability to manage origination capacity through rate cycles
Disciplined sales and management culture
Leading retail origination franchise
Continuous innovation in technology and customer experience
We have been a top 5 lender and servicer for over 20 years, a claim no other lender can make, and profitable every year for 25 years
Source: Inside Mortgage Finance, as of Dec 2015.
Consumer Lending Group 43 Wells Fargo 2016 Investor Day
$0
$50
$100
$150
$200
$250
WFC Chase Quicken BofA US Bank PennyMac Freedom Citi Flagstar loanDepot
Retail Purchase Retail Refinance Correspondent Wholesale
12.0%
3.3%
6.6%
1.7% 2.0%
4.5%
1.6% 2.1%
2.8% 3.0%
28%
49%
72%
51%
1Q13 1Q14 1Q15 1Q16
Fannie Mae/Freddie Mac Sellers by Type
#1 Originator, balanced across channels
Top Mortgage Lenders in 2015
($ in billions, % market share)
Source: Inside Mortgage Finance, FY 2015; excludes home equity; Internal analysis.
Depositories Non-banks
Consistent leadership in Retail Purchase
Consumer Lending Group 44 Wells Fargo 2016 Investor Day
Our origination mix reflects our strategic focus
(1) Sources: Inside Mortgage Finance FY 2015 for Industry (Home Equity includes newly originated HELOC commitments); Internal data and analysis for WFHL (Home Equity includes only funded amount on new originations). GSE = Government-Sponsored Enterprise. VA = U.S. Department of Veteran Affairs. RD = Rural Development. FHA = Federal Housing Administration.
WFHL Correspondent
(40% of Originations)
Total Industry
2015 Origination Market (1)
WFHL Retail
(60% of Originations)
23%
17%
1%
17%
10% 3% 3%
57%
40%
50%
9%
13%
46%
6% 5%
Home Equity
Jumbo
Subprime & Alt-A
Fannie Mae/ Freddie Mac
(GSE)
VA/RD
FHA
Wells Fargo 2016 Investor Day Consumer Lending Group 45
Continuing to add high quality assets to our portfolio
0%
5%
10%
15%
20%
25%
30%
$50
$100
$150
$200
$250
$300
$350
2009 2010 2011 2012 2013 2014 2015 1Q16
En
din
g B
ala
nce
Pre-1/1/09 Post-1/1/09 1-4 Res RE % of WFC Assets (right axis)
Post-1/1/09 Key Attributes (2)
Average FICO 748
Average LTV 61%
1st Lien % 94%
Full Documentation
Pre-1/1/09 Key Attributes (2)
Average FICO 679
Average LTV 71%
1st Lien % 70%
Includes Reduced Documentation
(1) Includes home equity (non-PCI and PCI), jumbo, Pick-a-Pay, conforming, and government insured/guaranteed loans. (2) As of 03/31/16.
Only 367 (or 0.14% of funded balances) of the
269,000+ jumbo loans funded since
February 2009 have ever been 60+ days past due
WFC Consumer Real Estate Portfolio Loans (1)
($ in billions)
Consumer Lending Group 46 Wells Fargo 2016 Investor Day
Quicken
PHH
Walter Invest.
Ocwen
Citi
US Bank
Nationstar
BofA
Chase
Wells Fargo
#1 Servicer with $1.65T portfolio and 9MM households
Servicing $UPB (Market Share) (1)
($ in billions)
19%
32%
39%
44%
60%
51%
38%
1997 2000 2003 2006 2009 2012 2015
Top 5 Servicer Share
(1) Source: Inside Mortgage Finance, as of Dec 31, 2015. UPB = Unpaid principal balance. Wells Fargo includes Home Equity loans and lines.
$1,649 (16.5%)
$910 (9.1%)
$565 (5.6%)
$424 (4.2%)
$296 (3.0%)
$291 (2.9%)
$270 (2.7%)
$247 (2.5%)
$224 (2.2%)
$196 (2.0%)
Serviced for Others Owned
Wells Fargo 2016 Investor Day Consumer Lending Group 47
Delinquency and foreclosure rates at pre-crisis levels
4.45%
5.38%
7.07%
5.83% 5.63% 4.94% 4.87% 4.72%
4.27%
0.88%
1.41%
1.89%
2.19% 2.33%
2.10% 1.53%
1.07%
0.92%
5.33%
6.79%
8.96%
8.02% 7.96%
7.04%
6.40%
5.79%
5.19%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Home Lending Servicing Full-Time Equivalents (FTE):
20% in performing servicing
80% in default servicing
− FTE down ~17% since 4Q14 (as of 03/31/16)
Wells Fargo Home Lending Servicing Portfolio Delinquency and Foreclosure Rates
Foreclosure
Delinquency
Source: Inside Mortgage Finance.
Consumer Lending Group 48 Wells Fargo 2016 Investor Day
What has transpired since our last Investor Day?
Continued to take steps to de-risk the business
- Exited higher risk business segments (Joint Ventures, Marketing Services Agreements)
- Reduced non-performing assets and delinquency levels
- Began managing through Home Equity “End of Draw”
- Reduced our FHA retail share from 9% (2013) to 3% (2015)
Put significant financial crisis exposures behind us and implemented major regulatory changes, including:
- Southern District of New York / Department of Justice FHA
- National Servicing Standards
- TILA/RESPA Integrated Disclosures (TRID) Rule; Consumer Financial Protection Bureau (CFPB) Servicing Rules
- Ability-to-Repay / Qualified Mortgage (ATR/QM) Rule
TILA = Truth in Lending Act. RESPA = Real Estate Settlement Procedures Act.
Consumer Lending Group 49 Wells Fargo 2016 Investor Day
Emerging Trends How we’re positioning
Leveraging community-based, diverse sales force to expand
outreach; developing and deploying new policies and programs to
enhance access for growth segments
Demographic trends point to growth in new household formation,
homeownership rates, and increasing diversity of new homeowners
Consumers’ homebuying and lender selection process shifting from
referral-driven to self-initiated/researched
Customer expectations for digital capabilities raised by banking and everyday transactional experiences
Using data and analytics to anticipate customer needs and provide robust
early stage pre-approvals
Streamlining and reinventing the lending process (e.g., source data for
income and assets, document exchange and storage)
Wells Fargo and the industry are at an inflection point
We are moving from an era defined by the aftermath of the financial crisis to the “Age of the Consumer”
Wells Fargo 2016 Investor Day Consumer Lending Group 50
9 Million Competitor mortgage
15 Million
Non-homeowners
8 Million Do not have a
mortgage
26 Million Home-owning households
41 Million WFC consumer households
Recapture opportunity
First-time homebuyer opportunity
Other WFC consumer households
Lender switch opportunity
9 Million WFC mortgage
Servicing households
2nd Home and equity opportunity
We have significant opportunity within WFC's base
In the current environment, each 1% increase of WFC customer share equates to an additional ~$7B in originations per year
Consumer Lending Group 51 Wells Fargo 2016 Investor Day
Using digital to transform the way we serve customers
Current Customer Engagement Customer Benefits WF Benefits
yourLoanTrackerSM experience
2MM+ customer sessions per month
eSign Consent
eDelivery (62% of customers access yourLoanTrackerSM and view documents within 48 hours)
Access, real-time updates, alerts via mobile
Deployed across production channels
Customers choose how they are served
Convenience (mobile or online)
Simpler, easier, and faster document submission (e.g., with mobile camera)
Increased clarity and transparency through eStatus updates
Faster closings
Highest satisfaction ratings are from customers who use yourLoanTrackerSM and work with an HMC
Reduced cycle times by an average of 5 days
Improved productivity
Lower costs
Improved compliance and auditability
Fully imaged-based
1.4MM eDelivered disclosures to date
2.2MM customer document uploads
~40MM document images per month
67% of prior-to-close documents available on yourLoanTrackerSM
(targeting 100% by the end of 2016)
Our strategy seamlessly integrates the best of both worlds: digital capabilities with personal guidance from trusted team members
The WFC brand, customer insights, and technology platforms afford us unique strategic advantages – our mortgage site has ~1.5MM unique monthly visitors
Mid-2015, we launched yourLoanTrackerSM – an online/mobile application experience with our integrated originations platform that delivers key capabilities:
Wells Fargo 2016 Investor Day Consumer Lending Group 52
Home Lending: How we’ll execute
Make the origination (including pre-approval) and servicing processes simpler, easier, and faster
Provide personalized education and trusted guidance to help customers before, during, and after their home purchase or refinance
Be known as a leader in access to credit and sustainable homeownership, both nationally and in local communities
Transform the
Customer Experience
Further build out digital/online/mobile capabilities to expand reach
Expand distribution through Wells Fargo referral sources
Drive targeted growth in our distributed and centralized sales teams
Expand and Deepen
Distribution
Build digital capabilities to leverage source data in originations and servicing, while improving the customer experience and efficiencies in our internal processes
Leverage data to offer pre-approvals to existing WFC customers to better serve their future mortgage needs
Leverage Data and Analytics
Consumer Lending Group
Wells Fargo 2016 Investor Day Consumer Lending Group 54
Key opportunities
Credit Card
Win new customers and increase penetration of existing WFC households (deposit and non-deposit)
Deepen engagement and wallet share through companion card offers, strengthened value propositions, and new digital capabilities
Maximize and expand distribution in both physical and digital channels
Auto Lending
Refine our local market strategy to win more business from existing dealer relationships
Capitalize on emerging market opportunities (e.g., off-lease used vehicle inventory) by leveraging our scale, relationships, and expertise
Maintain our consistent approach to credit risk
Home Lending
Capture the “next” mortgage of existing Home Lending customers and win new home lending business from other WFC customers
Serve the home lending needs of new and emerging segments (e.g., first time home buyers, diverse owners)
Transform the end-to-end lending experience with new digital and mobile capabilities
Biographies
Wells Fargo 2016 Investor Day Consumer Lending Group 56
Avid Modjtabai is responsible for Wells Fargo’s Consumer Lending Group (CLG) and Operations Group, and leads approximately 65,000 team members.
The Consumer Lending Group serves 27 million households and helps consumers with their borrowing needs—from everyday goods and services, to major purchases, to achieving and sustaining homeownership. CLG includes Home Lending, Dealer Services, Direct Auto Finance, Consumer Credit Cards, Education Financial Services, Personal Lines and Loans, and Retail Services.
Wells Fargo’s Operations Group manages core bank functions across Wells Fargo, including check processing, statement processing, ATM operations, ACH and wires, fraud disputes, cash vaults, lockbox, safe-deposit processing, armored logistics, accounting support for retail stores, and deposit document retention.
A 23-year veteran of Wells Fargo, Modjtabai has served in a number of leadership roles. Prior to leading CLG and Operations, she was the head of the Technology and Operations Group and Chief Information Officer. She also served as head of Human Resources and led the Internet Services Group. Her early roles at the company included management positions in Consumer Deposits and the Investment Group, following work at McKinsey & Company, where she focused on strategy initiatives in financial services.
She earned a Bachelor’s degree in industrial engineering from Stanford University and an MBA in finance from Columbia University.
Avid Modjtabai Senior Executive Vice President,
Consumer Lending and Operations
Wells Fargo 2016 Investor Day Consumer Lending Group 57
Shelley Freeman is head of Wells Fargo’s Consumer Credit Solutions (CCS), a group focused on providing consumers the financing they need to achieve their financial goals and dreams. The group includes direct auto lending, consumer credit card (general purpose, co-brand, and private label), personal lines and loans, and Wells Fargo’s industry leading private student lending business. Shelley also leads the group’s collections and servicing, marketing and strategy functions.
Prior to taking the helm of Consumer Credit Solutions, Shelley served as the Community Bank’s Affluent Segment and Customer Experience Executive, overseeing all aspects of customer service in Wells Fargo’s banking stores and launching the company-wide effort to drive the partnership between the Community Bank and Wealth and Investment Management businesses.
Shelley also served as lead region president for Wells Fargo’s Florida Community Bank, regional president of Wells Fargo’s Los Angeles Metro Community Bank, and head of Wells Fargo’s Investment Internet Services. She joined Wells Fargo in 1996 to lead its bank brokerage business.
Shelley serves on the board of directors and executive committee for the Point Foundation and as a member of the board for the Jewish Federation of Los Angeles. She has been honored with the Point Passion Award (2011), the Jewish Vocational Service Leadership Award (2009), and the L.A. Community Development Corporation Community Responsibility Award (2009). A graduate of Wilkes University, she holds Series 7, 24 and 66 licenses.
Shelley Freeman Executive Vice President,
Consumer Credit Solutions
Wells Fargo 2016 Investor Day Consumer Lending Group 58
Dawn Martin Harp Executive Vice President,
Wells Fargo Dealer Services
Dawn Martin Harp is the head of Wells Fargo Dealer Services, the nation’s second largest auto finance lender, offering an integrated financial solution for the auto industry. She is responsible for the strategy, growth, and profitability of Indirect Auto Finance and Commercial Services. Wells Fargo Dealer Services has relationships with over 14,000 automobile dealers and serves 3.7 million households. Dawn is a member of the Wells Fargo management committee.
Previously, Dawn served as Chief Operating Officer for Wells Fargo Dealer Services from 2006 to 2011. From 1999 to 2006, Dawn served as Chief Information Officer with WFS Financial and was the Director of Network Computing with WFS Financial from 1997 to 1999. Wachovia acquired WFS Financial in 2006 and then merged with Wells Fargo in 2008.
Dawn spent 10 years as System Integration Officer with American Savings Bank. She also held management positions with Imperial Automation, On Line Computer Systems, and The Coding Factory. She has 30 years of experience in auto finance and technology.
She currently serves as a board member of the American Financial Services Association and is Vice Chair of the organization’s Auto Finance Committee and a founding member of the Women’s Leadership Council. In addition, she is a member of the Consumer Lending Group Diversity and Inclusion Leadership Committee.
Wells Fargo 2016 Investor Day Consumer Lending Group 59
Franklin Codel Executive Vice President,
Home Lending
Franklin Codel serves as head of Wells Fargo Home Lending. Wells Fargo Home Lending is the nation’s leading combined mortgage and home equity lender and servicer, funding nearly one of every eight loans and servicing one of every six loans in the country.
In his role, Codel leads a team of 40,000 mortgage professionals in sales, operations, servicing, capital markets, portfolio management, and related business, risk management, and supporting functions. Codel joined Wells Fargo in 1993 and previously served as head of Mortgage Production (2011-2015) and as head of Mortgage Finance (2004-2011).
Codel earned a Bachelor’s degree in engineering science from Harvard University in 1986. In 1989, he received his M.B.A. in Finance from the University of Texas at Austin. He currently represents Wells Fargo Home Lending on the board of the Mortgage Bankers Association and the Housing Policy Council of the Financial Services Roundtable. He also currently serves as a board member for the Des Moines Community Foundation and the United Way of Central Iowa. Codel and his family live in West Des Moines, Iowa.