Wells Fargo & Company 2010 Investor Conference

San Francisco May 14, 2010 (Thomson StreetEvents) -- Edited Transcript of Wells Fargo & Co corporate analyst meeting</ Thursday, May 13, 2010 at 7:15:00pm GMT

TEXT version of Transcript

Corporate Participants

   * Bob Strickland

      Wells Fargo &amp; Company - SVP of IR

   * John Stumpf

      Wells Fargo &amp; Company - Chairman, President and CEO

   * Howard Atkins

      Wells Fargo &amp; Company - Senior EVP and CFO

   * Kevin Rhein

      Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending

   * Mark Oman

      Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance

   * Mike Heid

      Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage

   * Cara Heiden

      Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage

   * Franklin Codel

      Wells Fargo &amp; Company - CFO, Home Mortgage

   * Carrie Tolstedt

      Wells Fargo &amp; Company - Senior EVP, Community Banking

   * Mike James

      Wells Fargo &amp; Company - EVP, Diversified Product Group

   * Laura Schulte

      Wells Fargo &amp; Company - President, Eastern Community Banking

   * Lisa Stevens

      Wells Fargo &amp; Company - President, California Community Banking

   * Avid Modjtabai

      Wells Fargo &amp; Company - EVP, Technology and Operations

Conference Call Participants

   * Nancy Bush

      NAB Research - Analyst


 Bob Strickland, Wells Fargo &amp; Company - SVP of IR [1]

 Good afternoon. Thank you for joining us at this, our first investor conference in about a dozen years. The last one was in May 1998, just weeks before Norwest announced the merger with Wells Fargo. I'm sure some of you remember that.

 The theme of the 1998 conference was clear vision. And this year's conference will demonstrate the vision that works. As many of you know, I am Bob Strickland, head of investor relations for about another six weeks, when I'm retiring to be on the other side of the aisle as a Wells Fargo shareholder and get to ask all the tough questions of senior management. I'll be leaving Wells Fargo investor relations in the hands of my very capable, extremely capable successor, Jim Rowe. And over the next day or so and a half we'll handle the logistical duties of this conference. Jim? You may be at the back there, but I think a good number of -- there he is, back there.

 Before we get started, there are a few housekeeping details that I should address. First I would like to remind you that we will be making a number of forward-looking statements during our investor conference. Please refer to the cautionary statement at the front of your binders and also screens in this room and on our website and to our SEC filings for a discussion of the various factors that could cause our results to differ materially from those in any forward-looking statements that we may make.

 During this conference we may also reference certain non-GAAP financial measures. Information about those measures including a reconciliation of those measures to GAAP measures can be found in our SEC filings available on our website at WellsFargo.com.

 Second, this conference is being webcast live, and a replay will be available for the next 90 days through our website. The PDFs of the Power Point presentation are also available on our website; just go to the investor relations page at WellsFargo.com to find the link.

 Third, we hope that before you leave tomorrow you will take the time to provide some feedback to us whether a 12-year interval is appropriate or something more frequent than that or whatever. There is a survey in the inside front pocket of your binder. You can fill it out and hand it to a member of the IR team or mail it back to us at your convenience.

 Let me discuss for a minute how we'll handle your questions. We're not going to slow down the momentum after each presentation. Instead, we plan to have a group Q&amp;A at the end of today and three more tomorrow. But you don't have to wait until a Q&amp;A session to submit questions. We have several methods to take them while the conference is going on. First, for those of you in the room and those who are joining us by webcast, feel free to e-mail your question at any time to liveeventQandA@WellsFargo.com. You can see that on the screen. That's one word, by the event Q&amp;A. That address is not case-sensitive.

 Additionally, for those investors viewing the webcast, there is a box marked -- ask a question -- under the video screen. Simply type your question into that box and click on submit. We'll even go old school -- I feel pretty much old school -- by making index cards available that you can pass to a Wells Fargo investor relations team member. Finally, we'll have a couple of handheld mics at the ready during the Q&amp;A's so you can ask your questions live from the floor. Again, there will be a group Q&amp;A at the end of today and three more throughout the session tomorrow. So please submit your questions as they arise, and will address as many of these questions as possible.

 Since we encourage you to e-mail your questions in, we won't ask you turn off your electronic devices but only to silence them. We have a jampacked day, but don't worry; we'll take a 15-minute break at 2:35. The restrooms are out toward the lobby, and you take a left as you head out to the lobby. There are also refreshments in the room behind you, so many of you had lunch back there. So the refreshments are in there, and there are screens also so you won't miss any of the presentations if you decide to take a break back there. At the end of the day we'll have buses just outside the hotel to take everyone to a taste of San Francisco dinner with management at the Bentley Reserve, which is the old -- those familiar with San Francisco, it's the old Federal Reserve building around the corner from our corporate headquarters at 420 Montgomery. It is actually located on Battery Street between Sacramento and Clay Streets.

 The highlight of the evening will be members of our Wells Fargo team who will be there with business exhibits that showcase some of the exciting technology, products and services that we believe distinguish us from the competition and connect us with our customers. We certainly hope you'll join us for dinner.

 Jim or I will be back as needed to provide any further logistics or announcements throughout the conference. And now, before we turn this over to our first speaker, our Chairman and CEO, John Stumpf, we'd like to open with a video that provides the framework for this conference. It's all about focusing on the vision that works.

 (Video presentation)


 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [1]

 Thank you, Bob, for that nice introduction. And I want to add my thanks to all of you who came here today, whether you are in person or by webcast, to learn more about Wells Fargo. We know that many of you follow many different companies and you have competing priorities. But to come here and spend time with us -- we really appreciate that.

 Let me ask, first of all, how many of you were with us 12 years ago? I know Tom Brown was, for sure. How many else? Did you hear Dick promise that bigger was not better? I know, he was not invited today. I'm just teasing.

 Over the course of today and tomorrow you will hear from our leaders, the leaders of major business lines and key corporate functions within the Company. Our objective of this conference is simple. We want to provide you with an in-depth view of our company, the drivers of our businesses and the challenges and opportunities that we see ahead. This event will have been a success if you leave with a greater understanding of Wells Fargo, the way we do our business and our strategic direction. We have provided time for Q&amp;A as well as this evening for an informal interaction. So I hope you will help us achieve our goal by asking us lots of questions.

 We have many outstanding competitive advantages at Wells Fargo, but let me highlight two that I believe will be evident to you over the course of these two days. First is our vision. The video you saw reflects the theme of the conference, the vision that works. Our vision at Wells Fargo discipline and it's straightforward, and it's powerful. It is this steadfast vision that has been the foundation for our success and that will continue to serve us well as we navigate whatever economic and regulatory environment lies ahead.

 Second is the Wells Fargo team. The banking business, like any business, is really all about people and I am convinced Wells Fargo has the strongest team in the industry and one of the strongest teams in all corporate America. You will hear from a number of our leaders today and tomorrow, and I'm confident you will be impressed with their experience and their judgment, and their deep understanding of the business and their ability to be nimble during these very unusual and changing times.

 While it is often said that we live in unprecedented times, it's invaluable to have a seasoned management team that has been through many economic cycles and helped navigate through them successfully in the past. That's why I'm grateful for the more than 300 years of collective financial services industry experience that my 11 direct reports bring to work everyday. Most of that experience, by the way, is Wells Fargo experience, and you can see that in the bios that we've included in your printed materials.

 In addition to the individual strengths they bring, we are also a team, and we're team based. Our culture is to work together as a team for the success of Wells Fargo, not the success of just one individual or the success of just one business. I interact constantly with my 11 direct reports including the three who are not based in the Bay Area, and they interact continually with each other. In fact, we get together as a group every Monday morning to ensure that we are not only helping each other and helping the business maximize value but also connecting the dots so we can create long-term value for our shareholders.

 I will take a moment now to share my perspective on the current landscape and the challenges for the financial services industry and Wells Fargo. Then I'll highlight a few themes you will hear throughout the conference that reflect how well prepared we are to succeed and achieve sustainable growth. I don't need to tell you that we are operating in an environment of great change and uncertainty. We work hard to control what we can control and to position our Company to generate strong, consistent earnings in a variety of economic and regulatory environments.

 Let me talk about five challenges. Financial regulatory reform is obviously a significant challenge facing the financial services industry. It is the unintended consequences that concern me the most. There are many issues of concern including too big to fail, Reg E, the Basel Accords and derivative proposals. And it's extremely important that legislators and regulators consider very carefully the impact proposed rules will have on our nation's position as a financial center of the world. There has been too much finger-pointing and not enough collaboration. We need to focus on protecting and enhancing the preeminent role the United States plays in the world financial market.

 But in my opinion the biggest risk among current regulatory proposals is losing preemption. A wrong decision on this topic would be problematic for our industry and, most of all, the American consumer and would hobble the United States competitively. It would make our banking system less efficient and less competitive. A fragmented, inconsistent financial services system would undermine banks' ability to offer customer friendly, affordable products and services. It would take us backwards relative to other nations that are trying to emulate the very system we have built.

 But I also consider regulatory reform an opportunity because, if done right, in a way that protects consumers and encourages banks to focus on serving customers, Wells Fargo is in the sweet spot because virtually everything we do starts with the customer.

 Economic downturn -- we are encouraged by the economic data that is unfolding, although the recent developments in Europe are concerning in that global momentum may be slowing. From a more direct perspective Wells Fargo's exposure to the five more troubled European economies is immaterial. Domestically, job creation is not nearly where it needs to be, and it -- which is the most important driver of our economic engine. While the diversity of our business lines helps us perform well through economic cycles, we, like all banks, perform better in good economic times.

 Earning assets -- loan demand across the board continues to be below normal and interest rates on investments are not yet attractive. This is an issue for all financial institutions. At Wells Fargo we approach this issue with a great deal of patience. We manage our balance sheet for the long-term benefit of our stockholders. We see some early signs of loan demand returning, but we have yet to see increased balances. Let me be very clear. We will not put assets on our books that fail to meet our various risk tolerances.

 Real estate values -- again, consumer and commercial real estate values are an issue for most of our industry. Wells Fargo clearly has a portfolio of concentration in real estate. We see stabilization and improvement in many housing markets. Commercial real estate has avoided serious deterioration due to the advantage of low interest rates. However, it will take time to work through the problem assets in this portfolio because it is in the best interests for the borrower and Wells Fargo to take time to work through these issues.

 Our Wachovia merger -- of course, this one is unique to Wells Fargo. And you are right if you are thinking that we see this merger primarily as an opportunity. We clearly do. But I also include it as a challenge, as well, because I want you to know that we remember every day that executing the largest merger ever is foremost on our mind.

 As our management team speaks today and tomorrow, you will hear several common themes that reflect why we fully Wells Fargo is well-positioned and prepared to meet the challenges I outlined and how excited I am about the opportunities that lie ahead. First you will hear about customer relationships, which is a direct link to our vision. Dave Hoyt and the wholesale team will talk about the long-term relationships we enjoy with business customers. David Carroll will speak of the value of enduring relationships in wealth, brokerage and retirement businesses. Kevin Ryan will tell you the customer is at the center of everything we do in card services and consumer lending. When Howard Atkins provides a financial overview in just a moment, he will show you that the customer is at the center of three corporate priorities -- profitable growth, capital strength and risk discipline. That's how ingrained our vision is and how we run our Company.

 Second, cross-selling will appear many times. The hallmark of Wells Fargo is our success in providing our customers with multiple products and services. We are an industry leader on this front. But still, so much opportunity lies ahead of us. Carrie Tolstedt will tell you how proud she is that her team achieved a cross-sell ratio of 6 for the first time last quarter, and she is gunning for 8. And the only reason she's gunning 8 -- it rhymes with great. If 10 would rhyme with great, we'd pick 10. David Carroll will talk about how his business of cross-sell with every other Wells Fargo business and only one third of the brokerage customers have a retail relationship with us -- what an opportunity. Mark Oman will discuss the value of mortgages as a relationship builder that can lead to many other products and services.

 Third, you will hear about our distribution power. You will hear how important our physical presence is to the success of brokerage treasury services, mortgage and many other businesses. Howard will show you a map of our bank, brokerage and mortgage stores, that excites me every time I see it. I can't see it often enough. And I Avid Modjtabai will share how we continue to enhance and grow our virtual distribution capabilities as well.

 While distribution does not show up on the balance sheet, it is one of our most valuable assets. Just consider this. We at Wells Fargo have a bank store or an ATM within two miles of almost half of all consumers in the United States. In order to win new customers and cross-sell to existing ones, you first need to be there with your customers in their communities where they live, where they work, where they recreate. Our local presence and involvement in communities across the nation makes Wells Fargo a Main Street bank rather than a Wall Street bank. It does not matter if the citizens of the local community know who John Stumpf is, but it's very important that they know they have a strong partner and they know the local leadership in their local community. This distribution network gives Wells Fargo a huge competitive advantage and one that cannot be easily duplicated.

 Fourth, you will see the Wells Fargo merger, the Wachovia merger. It's progress and opportunities throughout the presentations. We are building the premier financial services company in the world. We enjoy many exciting opportunities, and the one I'm most excited about, again, is the Wachovia merger. The distribution power of this combined company is number one, second to none. You will hear about the tremendous synergies in areas like international, government lending, sales and service and investment banking.

 Wells, as it bought Wachovia, obviously knew and understood that they had certain problems and issues. But we continue to be impressed with the core businesses and the talent of the wonderful new colleagues that came from Wachovia. We are on track and on plan with this merger. We've completed store conversions in Arizona, Nevada, Illinois, Colorado and, just recently, California. We plan to substantially complete merger integration by the end of 2011.

 We're customer-driven on this merger, not calendar-driven, but we do believe we'll be done and we'll graduate as juniors. If you are assessing our progress by the rate of sign changes on banking stores, the integration may appear to be going slowly. That's because we know the key to success is in the details and in the preparation. For the teams working on the integration, work is full steam, in-depth and moving fast. So we will be ready to complete major upcoming conversions in a way that's good for all of our constituencies, especially our customers and our team members. And our progress and the synergies have already exceeded our expectations.

 Fifth, throughout these two days you will hear many times about managing risk. You will hear this theme from our Chief Credit and Risk Officer, Mike Laughlin, but not only from him. You'll hear about managing risk from the mortgage company and about credit risk from the lending businesses. That's because we believe that business owners have the best understanding and are primarily accountable for risk.

 At Wells Fargo, our management team is very active. We debate issues openly. We are not afraid to disagree or raise unpleasant issues. Healthy debate leads to well-informed decisions and better risk management. We have learned how to disagree without being disagreeable.

 Our philosophy is that we are in business to take risks we understand, but we don't take risks we do not understand. We rely not only on models and rules but also on expert judgment. We don't make loans if we don't think they benefit a customer or if we don't think the customer can repay us. It sounds basic, but this culture of accountability is fundamental to our success. We recognize now more than ever financial institutions like Wells Fargo have to address reputation risk in addition to the more traditional types of risk. Pat Callahan will talk tomorrow about how we think about management reputation risk.

 All of our businesses have one important thing to come in. They are focused on helping customers succeed financially. We do that with mortgages, automobile loans, brokerage services, financial planning, small business loans, treasury management, trust services, commercial lines of credit, equity underwriting and trade finance and many, many other products and services. We provide this vast selection of financial services across all 50 states. This diversity in our business model and our lack of proprietary trading activity creates high-quality, less volatile earnings. Each of our businesses in business is strong and attractive in its own right on a standalone basis. But the value we bring to our customers, team members, communities and shareholders is significantly enhanced because these businesses are not operating as separate silos or in separate silos or as standalones. One Wells Fargo is a term that we use to describe how the whole of Wells Fargo is greater than the sum of its businesses or parts.

 We know that realizing this opportunity of a holistic approach is not easy work, but we have said that this is an advantage that our culture brings to play, and it's so strongly team based.

 In fact, I've heard from many of our new Wachovia teammates that the willingness to partner across business lines has been one of the highlights they found at Wells Fargo. The businesses are not competing with each other; they are competing with community banks, regional banks, investment banks, brokerage companies, etc. As you hear the business presentations you will note many references to synergies and connections across business lines. Again, that's the One Wells Fargo approach coming alive.

 In summary, Wells Fargo is in great position for sustainable growth. We are building the premier community-based, relationship-oriented financial services company of any size. There is no company in the world I would rather trade places with, no customer base I would rather prefer and, surely, no team I would rather work with.

 Now I would like to hand it over to Howard Atkins, our CFO, for a financial overview. Thank you.


 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [1]

 Thank you, John, and good afternoon, everyone. Over the course of the next two days my colleagues and I will provide you with a really deep dive on what makes our diverse set of businesses work. And we're going to talk about a lot of things in the next two days, but our focus is really going to be on four things in these business presentations. First, the strength of our market position in each of our major businesses; secondly, what differentiates us in each business; third, where we see specific opportunities for growth; and, fourth, how we think about and manage risk. We hope to enhance your appreciation of just how broad-based our Company truly is so you can gauge the breadth of opportunity we think we still have in front of us and can gain some additional insight about how distinctively our various businesses work in harmony to improve the financial well-being of our customers and, in doing so, improve the financial well-being of our shareholders. So hold onto your hats and enjoy the ride. We've got about 80 businesses to cover in the next two days.

 Now, what guides each and every one of our businesses is a set of financial principles that we believe leads to superior long-term financial performance over time. First, we are growth company. Growth, of course, needs to be profitable growth; otherwise, it's growth for growth's sake. And in our view, profitable growth needs to be relatively consistent over time to warrant a premium multiple.

 Secondly, we believe capital strength is an advantage. Capital flexibility is the foundation for sustainable growth, and it's the best way -- and the best way to build capital strength is to earn it.

 Thirdly, what links growth and capital formation together is how well we manage risk. Now, as John said, at the core of these principles is the customer. What do we mean by that? The revenue we earn is largely a reflection of what our consumer, small business and wholesale customers spend on the value added products and services we provide. The capital we invest back into the businesses is directed at doing more with and for our customers, particularly in building, broadening and deepening distribution so that our customers can access the Company when, where and how they want.

 And our risk appetite is also governed by our customers. We tend to only take those risks we need to take on behalf of our customers, not against our customers. And we tend not to take transactional risks unrelated to fulfilling a customer need. We have a saying at the Company that, if we keep our customers out of harm's way we will tend to keep the Company out of harm's way. A good example of that would be the option ARM business. The reason legacy Wells Fargo never offered option ARMs wasn't because we didn't understand the credit risk of that product; it was because we didn't think most borrowers truly understood the negative and/or reset risks that they would have by borrowing under those types of products.

 Now, we measure and track ourselves against numerous financial metrics at the company, but there are really three financial goals that you see listed here that form the compass by which all of our operating decisions across the Company are guided. We believe it's hard for any financial institution to sustain earnings growth of at least 10% per annum, which is what we're trying to do on average, without producing double-digit revenue growth. So 10% revenue growth is an important objective throughout the Company. This is the same goal that guided legacy Norwest, the same goal that guided legacy Wells Fargo for many years and it remains the goal of the new combined company going forward.

 For reasons I will explain in a moment, we believe we are in even better position with Wachovia to achieve strong top-line growth than we have been historically, and you will be learning a lot from our business leaders over the next two days as to why we feel so excited about our revenue prospects. If revenue growth is how we get paid for providing more and better products and services to our customers, then return on assets is where that revenue growth meets the effectiveness with which we deploy our expenses, balance sheet and capital resources to produce strong operating margins. Wells Fargo, as you know, has always had one of the highest ROA's among large banks, averaging about 1.4% in the seven years prior to acquiring Wachovia and 1.7% for the five years prior to the onset of the credit crisis two years ago. In a moment I'm going to be discussing with you why return on assets is so important to us.

 Third, Wells Fargo has always been committed to maintaining strong capital levels and maintaining a strong capital structure. Capital, in our view, needs to be measured relative to risk and growth opportunities and we believe we will have the right amount of capital for our Company's position, given our risk profile with a tier 1 comm ratio of about 8%.

 These targets and should be viewed as aspirational rather than as projections, let alone guidance for the next year or two. But we do believe that they're the right aspirational goals for our particular business model and our risk profile. Now, if these goals look remarkably similar to those we had as legacy Wells Fargo, it's because these goals have always worked well for us.

 Wells has historically generated higher and more consistent revenue growth than our large bank peers, as you can see from this slide. This is a function of our business model, which promotes growth in at least three ways. First, 80 different businesses gives us 80 different ways to grow the Company. Secondly, it gives us a lot of built-in diversification, which has worked well for us over the course of many cycles. Third, it gives us opportunity to create revenue synergy through cross-sell.

 Our revenue growth has been very consistent at roughly 8% to 10% per year over the decade prior to the Wachovia acquisition. One of the questions we are sometimes asked as a management team is whether we think we can continue to generate near double-digit growth now that we have doubled the size of the Company, the underlying assumption being that the bigger the firm, the harder it is mathematically to sustain the same growth rate. Now, generating double-digit growth is not easy at any size. But for several reasons, we think our opportunity for growth is not constrained by our size and, frankly, has never been as good as it is now. So let me tell you a little bit about why we believe that.

 First, while about one third of all US households now banks with Wells Fargo and while we already offer all the products and services our 70 million customers may want, we haven't saturated the potential demand from our customers for any of the products we offer. This slide shows you our approximate and estimated market share across some of the diverse set of businesses we operate in. I'll just walk you down through this slide in order of market share, low to high. Wells Fargo manages or administers only about 5% of all household assets in the country. We process about 8% of all payments made in the United States. That would be ACH checks, wire transfers and so on. We earn about -- we have about a 10% share of brokerage fees among the top 10 insurance brokerage companies of all kinds in the country, and we are involved in one way or the other in about 10% of all US debt and equity underwritings, based on deal value. We have about a 12% share of the market for loans in the country, checking accounts in the country, debit cards; and about 17% of the market for mortgage servicing.

 Now, if we had 30% to 40% market shares, our large size might, in fact, be an impediment to high growth. We've got a long way to go, even with our number one positions, in almost all those markets I just quoted to you; we've got a long way to go before we saturated any of our markets. The financial services industry is still one of the largest industries in the world, and our number one position in many of these businesses actually helps with our growth rate, not hurts with our growth rate. The fact that many parts of the industry are less fragmented today also helps play to our strength because consolidated markets tend to be more rational and we tend to gain market share in more rational markets.

 With Wachovia -- this is the map that John loves. We all love this map. With Wachovia we now serve more communities in the United States than any other bank. We have broader coverage of more large cities and SMAs in the country than any other bank, and we also serve more small communities in the country. We have the distinction, for example, of serving more communities whose elevation exceeds their population than any other bank in the country. And I will tell to the northernmost ATM machine in the United States is a Wells Fargo ATM machine, which you would know if you banked in Barrow, Alaska, where I've been -- a state, by the way, in which we actually do have about a 40% market share.

 Now, being a relationship-based community bank is why we say we serve Main Street, not Wall Street. And our biggest opportunity is still to deepen the relationships we have with consumers, small businesses and commercial customers across all of these communities that we serve. We believe that no bank is better positioned to realize this opportunity than we are.

 We serve our communities with what is the largest and arguably the best distributional system among US financial services companies. With almost 10,000 stores and over 55,000 sales people across the country we have the largest retail store network, we have the third-largest retail brokerage system, we have the largest mortgage sales force in the country. So the way to think about Wells Fargo, essentially, is that we are basically a very large distributor of financial services and we will continue to invest in making our distribution broader, deeper and more convenient for the customer in both the physical and online channels because that is the path to more revenue growth.

 Now, what differentiates Wells Fargo in generating revenue growth is, in fact, our cross-sell culture and our cross-sell success. There's a very causal link between cross-sell and revenue growth. On this slide you see, for example, our wholesale business at legacy Wells Fargo grew revenue at a compound annual growth rate of about 11% in the five-year period ending 2008, a period in which that business segment grew cross-sell from 4.84 products to 6.48 products, a 6% compound growth rate.

 So if you start with a 6% compound growth rate from cross-sell, add a few percentage points for more customers, for higher sales productivity and inflation, you can very quickly get to a double-digit revenue growth rate. We still have plenty of opportunity to grow cross-sell in both our retail and wholesale businesses as my business colleagues will describe to you this afternoon and tomorrow. So listen carefully, because that's where our growth is going to come from.

 Perhaps our best opportunity for growth is to apply the legacy Wells Fargo cross-sell model to the Wachovia customer base. When we started measuring Wachovia's cross-sell on the same basis as Wells Fargo in the second quarter of 2010, our new retail customers in the East had about 4.5 products per household with us. Bringing cross-sell in the east up to even the six products our retail customers in the West now purchase from us, on average, would represent a potential 30% lift on roughly the same size customer base as legacy Wells Fargo. And we are already making a lot of progress in the East. In the last nine months Wachovia's retail cross-sell increased to 4.85 products. That's a 9% annualized increase, which actually is faster than the legacy Wells Fargo cross-sell growth from that same 4.5 products to 4.85 products.

 Let me now turn to the second important financial goal I mentioned earlier, return on assets. We think return on assets is important for three reasons. First, of course, return on assets is a driver of return on equity. Second, ROE is very hard to manage day in and day out in the field, all 280,000 people who manage our businesses can measure and be held accountable for maintaining high ROA on the business that they do. Third, managing to a high return on assets, we believe, is a really good discipline for utilization of the Company's available expense, risk-taking and capital resources.

 As I mentioned before, Wells has always had one of the highest returns on assets in the business. Last 10 years, our average ROA was about 1.33%, one of the highest in the industry. And in 2009 our ROA was still 1%, roughly, despite the fact that last year was the peak credit loss year.

 Now, the comparative strength of our return on assets can be traced to four facets of our business. First, the growth and high checking account content component of our core deposit base from customers; second, the strength of our credit management practices; third, our operating leverage; and fourth, cross-sell across multiple fee-based products. I'm going to take each of these in turn, very quickly, starting with net interest margin, which is where the core deposit base comes in.

 Wells has historically had the widest net interest margin among large banking peers. As you can see from this slide, our margin in the first quarter of 2010 was 4.27%, about a third higher than the average large peer. After deducting loan charge-offs against net interest margin, net interest income, we still have always had the highest risk adjusted net interest margin among large peers, 2.25% in the first quarter versus 1.32% average risk-adjusted margin for the other large peers.

 So the point of this is that taking more credit risk is not the reason for our high net interest margin because we still have the highest risk-adjusted margin. What is important? Two primary reasons we've always had a wide risk-adjusted net interest margin. First and most important is our deposit base. Because a greater percentage of our core deposits are in the form of customer checking and savings accounts rather than time deposits, and because a much greater percentage of our loans and securities portfolio is funded with core customer deposits rather than higher cost debt or hot money from capital markets, we have a natural cost of funds advantage relative to all of our large peers.

 This is a funding mix issue reflecting our long-standing success in attracting and retaining core customer deposits, particularly our customers' operating accounts, and not so much a reflection of lower rates paid on time deposits.

 We believe we have the best retail deposit base in the industry in terms of its breadth, depth and growth potential. I'll give you a couple of statistics on this slide. Across the 940 or so MSAs in the United States, we have deposits from retail customers in 441 MSAs. So we attract deposits from customers in more communities than any other bank, including the other two large coast-to-coast banks. Across the country's MSAs there are 224 MSAs in which we have a deposit market share of at least 15%. That's nearly 2.5 times the number of large share of MSAs as our nearest competitor has and five times the number of large share of MSAs of our second biggest competitor.

 Now, Carrie Tolstedt will talk a little bit later this afternoon about the network effects of having such a deep penetration across so many communities. We also have the highest concentration of deposits among peers in the fastest-growing markets in the United States, as you can see from the right-hand box in this chart. Across the 20 fastest growing [SMAs] in the country we have a 15% average deposit market share, about twice the size of our two largest competitors in the same markets. So again, we have the broadest coverage, deepest market penetration on average and the top position and the fastest growing MSAs as far as deposits are concerned. We love our deposit base, and it just keeps on growing.

 Now, net interest margin is the net result of a lot of factors, some external, like interest rate levels, spreads, yield curves, loan demand, money supply and so on, and many, many internal factors. Some of the internal or structural factors at Wells that add to the end -- we have some that may add to the margin, some that may reduce the margin going forward. Some of the factors that could add to our margin over time would improve things like successfully shifting the composition of Wachovia's deposit base toward more checking in relation to higher-costs CDs so that their deposit base looks more like a legacy Wells Fargo deposit base. We are already way on our way towards making that happen; achieving greater low-cost deposit growth throughout the company by improving retention. That's usually associated with improving service, which we are achieving by adopting Wachovia's customer services practices in the West; by being very fussy about what assets we are prepared to hold on our scarce balance sheet. As John mentioned before, we are not going to compromise the long-term yield on our assets. Third and finally, by possibly recapturing some of the initial write-downs we took for PCI loans, which, if this occurs, would come back into the margin over time through addition to be accretable deal. We're going to talk about that a little bit later on this afternoon as well.

 Now, there are a number of factors that could reduce our margin over time, including the continued runoff of the higher-risk, non-strategic assets we have identified and publicly talked about. Those are coming off at the rate of about 4 billion a quarter. Those are actually some of our highest yielding assets, but they also are the highest risk assets that we have on our portfolio. Our loan mix may shift towards more commercial and corporate loans and, in fact, has with Wachovia in the mix, relative to what is now fewer consumer finance loans in the loan portfolio. And possibly, at some point, hopefully at some point, we will get asset growth. And if asset growth exceeds our core deposit growth, particularly if loan demand picks up, that actually is a margin depressor.

 Now, all the factors that I've just mentioned that could negatively impact net interest margin would actually improve our risk-adjusted returns, which is one of the many reasons why net interest margin, per se, is not an objective of the Company but merely an outcome of everything we do to improve revenue or improve ROA over time.

 The second reason our risk-adjusted margin is wider than our peers' is that our credit loss rate in total is typically lower than our peers'. In the first quarter of 2010 our consolidated loss rate was about 2.7% of loans compared with an average of over 4% for the large peers, as you see on this chart. Now, part of the difference in loss rates is attributable to purchase accounting, which helps this comparison in two ways. First, the quarterly loss on Wachovia's higher-risk PCI loans were, of course, already accounted for when we closed that deal 15 months ago -- 16 months ago. And second, the remaining part of Wachovia's loan portfolio that wasn't already written down through purchase accounting is, by definition, a less risky loan portfolio with ongoing loss rates that are more comparable to the stronger legacy Wells Fargo loan portfolio.

 Now, to gain some insight into why our loss rate is typically below our peers', this busy table shows you loss rates within our total loan portfolio by major loan category compared with the average for the three large peers that we compete with. I'll give you two observations about this chart. First, across all major loan categories except for credit card, our loss rate by portfolio had been below peer loss rates. Again, in part, this is due to purchase accounting, where we've already taken out the loss. But that's really not the only reason. Take C&amp;I loans, for example. The C&amp;I loan portfolio that we bought from Wachovia actually had very little PCI writedown when we did the acquisition. But as you can see from this chart, our aggregate C&amp;I loss rate is well below, a full point below the average large peer.

 The lower loss rates that we have almost across all categories, in our view, has more to do with the strength of our underwriting, loan modification and early problem resolution practices. The second observation I would give you is that our peer portfolios have a greater concentration of loans and credit cards. Their loan portfolios typically are three to four times the size of our credit card portfolio. Since card loss rates are five times other loan types, on average, that one factor alone accounts for about a third of the difference between our aggregate loss rate and the total loss rate of our peers.

 So when you think about it, our large peers have a much larger concentration of higher loss content, credit card and other unsecured consumer loans in their mix, whereas Wells Fargo has a greater concentration of secured real estate in our mix, and these are loans that we generally underwrite as if they were unsecured loans but with the additional protection of the collateral.

 As a result of their skewing towards unsecured, our peers tend to have higher quarterly credit loss rates than Wells Fargo, higher spot reserves as a percentage of spot loans -- but that's because they need higher current reserves to cover 12 months worth of higher projected loss rates than we would need to cover -- and their non-accruals loans either don't rise as fast or they fell faster than our non-accruals would, because they are charging off the whole loan, whereas we are writing down the non-accrual to net realizable value.

 The third reason our return on assets is above our large peers' is what I refer to as asset productivity. Now, this is essentially the extra revenue leverage we get from having so much of our customers' fee-based businesses in addition to their loans. At 8% our revenue per dollar of earning assets is about a third higher than the average large peer, and at 3.86% of earning assets, our fee income is about a quarter higher than our average large peer. And this is really where cross-sell has an impact and helps stabilize the revenue growth of the Company when demand is soft.

 You can see on this slide that the breadth of our fee-based revenue from cross-sell, especially now with Wachovia in the mix -- since retail brokerage, securities business and financial advisory have now become more prominent at Wells Fargo with Wachovia, our trust and investment fees have surpassed deposit services and mortgage as the largest source of non-interest income for us. But we, of course, also derive substantial fee-based income on everything from merchant processing, cards, insurance, M&amp;A advisory, loan commitments and trading. Of course, I'd be remiss if I didn't point out that our trading revenue in the most recent quarter was still only about 5% of our total revenue.

 Now, the final factor driving return on assets is our operating leverage. At 55%, our efficiency ratio is currently slightly better than the average large peer. Now, we know from experience that it is not easy to keep revenue growing at a consistently high rate. And to do so requires constant reinvestment of expenses back into our business lines. We do not hesitate to invest when we need to invest for long-term revenue growth. But at the same time we are diligent about trying to keep all other expenses that are not directly connected with revenue growth in check.

 What that means, the net of that, is, of reinvesting at the same time as we are economizing, is that our expenses will typically grow, but at a lower rate on average than our revenue growth. That's where we get the operating leverage.

 Now, cost management is something that we hold everyone in the Company accountable for. I'd like to point out three areas that are very significant priorities for Wells Fargo right now in terms of our ongoing expense management. First and foremost, we need to capture the remainder of the expected cost savings from the consolidation of the two companies. About 70% of the expected $5 billion of annual savings from the consolidation is already in our expense run rate. We expect the balance to be in a run rate by the middle to the latter part of 2011, when we finish converting the remaining Wachovia stores in the East.

 Also, we've already spent about half of the projected $5 billion or so of integration costs that will be needed to achieve those cost savings. That leaves about $2.5 billion of integration expenses, which will also come out of our current expense base, once the integration is completed at the end of 2011.

 Second, we are currently incurring significant expenses for loan mods, loss mitigation and problem with asset workout. To give you some idea, we currently have over 16,500 employees dedicated to just to home preservation efforts for homeowners, and in the last few quarters our OREO expenses were running at about $400 million per quarter. Problem asset modification and resolution expenses will remain elevated for a period of time until we work out our problems but will eventually decline and will probably trail declining charge-offs over a period of time. We intend to be extraordinarily diligent in taking out these costs when it's appropriate.

 Third, as part of our One Wells Fargo effort to bring the entire organization efficiently to each of our customers, we intend to simplify and streamline our Company to make it easier for our customers to do business with us and therefore earn more of their business. Now, all large financial intermediaries eventually develop some unnecessary complexity as they grow, and we intend to remove some of that complexity from our processes. While our objective here is to improve customer service, reduce turnaround times, improve time to market and so on, the cost takeout associated with simplifying and streamlining our Company across the Company could be very significant.

 Which brings us to capital -- legacy Wells was always committed to maintaining strong capital levels and a strong capital structure. Between 2001 and 2006, when many institutions were leveraging their companies at little, if any, return, we went the other way. We deleveraged our Company and we built capital. In my view, the strength of our capital position coming into the credit crunch in 2007 was one of the main reasons we were able to acquire Wachovia at the height of the economic crisis in late 2008.

 Our capital ratios now stand at levels that are higher than where they were -- than when we were operating company prior to Wachovia and prior to TARP. So we have higher capital ratios today despite having doubled the size of the Company.

 Now, we are focused on three primary capital ratios -- tier 1 capital, which we think should be, for us, roughly in the 10% range; tier 1 common, which should represent the preponderance or about 75% to 80% of our tier 1 capital, which implies tier 1 common at roughly 8% of risk rated assets. But we also think the basic leverage ratio is important, so with tier 1 common at around 8%, roughly, our leverage ratio would also be in the 8.5% to 9% range.

 So when you think about our capital, you want to keep some numbers simply in mind -- think 8, 9 and 10 -- 8%, 9%, 10% tier 1 common leverage and tier 1 regulatory. Now, to give you some idea of how much capital that is, if you add our $100 billion of tier 1 capital, add the $25 billion allowance we have, that adds up to $125 billion of total capital, if you will, including the allowance. If we -- to give you an illustration, if we would need, say, half of that after a major loss event to continue to run the Company effectively, we would have over $60 billion of what I'll call safe or loss absorption capacity in our current capital base.

 To give you some idea of how much spare room that is, in the last 10 years, almost an entire cycle since the previous credit cycle, legacy Wells Fargo and legacy Wachovia together incurred about $45 billion of after-tax provision expense including reserve builds at both banks during that ten-year period. So another way of thinking about this is that our current capital position and allowance after leaving half of that left would cover five times last year's peak losses for the combined Company after-tax and still leave $60 billion of capital to run the Company.

 We believe very strongly that capital needs to be sized relative to a Company's risk profile. Since different banks have different risk profiles, it shouldn't be surprising that different banks need to hold different amounts of capital. Banks essentially take four types of risk, financial risk -- credit risk, interest rate, market and liquidity. Banks can choose how much risk they're prepared to take. In our case, as I mentioned before, we try to take only as much of those four risks as we need to take to efficiently serve our customers. We believe our business model is less risky, in many respects, than that of our peers'. For example, we have less than 10% of the derivative exposure and less than 20% of the market risk of our large peers. On this slide, you can see the comparisons. We have less liquidity risk. We have less foreign or cross-border risk. Our loan portfolio that tends to produce lower loss rates in the aggregate, as I mentioned before.

 We also think that our financial risk as a Company has always been somewhat mitigated by the diversity of our business model and the size and consistency of our operating margins in relation to credit losses over the cycle. Finally, we believe that with Wachovia in the mix we are even more diversified today than we already have been. We have less geographic concentrations than either bank had on its own. We have more balance between our consumer and commercial revenue sources, and we have an almost even split between spread and fee-based revenue sources. Of course, with Wachovia we have an even broader product line.

 So finally, the ultimate, in our view, best source of capital strength is the rate at which a bank's business model generates new capital internally or organically, how our business model has always thrown off free cash flow at a higher rate than our peers'. In the last 10 years since the Wells/Norwest merger, we added over $80 billion to the Company's equity account just through profits and other internally generated sources of capital. In the last three, five and seven-year periods, we have added to capital at a rate of 18% in each of those periods through profits and other internally generated capital, more than any other large bank peer. And that's the financial result of our business model which you will be hearing about through the rest of the afternoon today and tomorrow from my business colleagues.

 So with that, I'd like to start the business session for you. What we will be doing today is this afternoon we're going to be devoting time with you to our retail businesses. The three leaders of those businesses will host the session. I'll introduce you very quickly to Kevin Ryan. Kevin is the group head and EVP for our Card Service and Consumer Lending business; that's CS/CL. Kevin is a 33-year veteran of financial services, has been with the Company for about 15 years. He's managed consumer finance businesses (inaudible) mortgage, retail banking, corporate trust and cards.

 Mark Goldman, of course, who many of you know, is the group head and Senior EVP of our consumer real estate businesses -- Mark has been with the company for 31 years, has been the President and CEO of the mortgage company from 21 years ago. And I think it's fair to say that Mark is the preeminent leader in the mortgage business.

 Carrie Tolstedt is a senior EVP responsible for our community banking businesses, retail, small business and business banking. Carrie has been with the company for over 20 years and has spent the last 12 years with progressively more market responsibilities within our US regional banking franchise and has been the head of that franchise since 2007.

 So these three business leaders will host a session on retail banking, and they will be joined by Avid Modjtabai at the end of their session to go over q-and-a with you. Avid has led our technology group since 2007. She's a 17-year veteran of Wells Fargo and has performed many leadership roles in our Company, including head of HR, and has been instrumental and in fact led our Internet services practice for many years. So with that, let me introduce Kevin. And we'll take it away from there.


 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [1]

 Well, thank you, Howard, and most of all, thank you to all of our attendees for investing this significant amount of your very valuable time to learn more about our terrific Company. I greatly appreciate the opportunity to talk with you today and tell you a little bit about the Card Services and Consumer Lending group.

 Card Services and Consumer Lending consists of six lines of business that provide many of the consumer lending, remittance, credit and debit card capabilities for our customers. In total, we have 20,000 team members that manage over $104 million of receivables. And last year, for full year 2009, we generated slightly more than $12 million in revenue.

 So, beginning with our consumer credit card business, which is run by Mike McCoy, we are the seventh largest credit card company in the United States with close to $16 billion in receivables. In total, as Howard mentioned, our balances represent about 3% of Wells Fargo's total assets. We have over 7 million reward card holders -- 7 million total cardholders, of which 4.3 million are enrolled in one of our rewards programs.

 You will see from the slide that currently 35% of our legacy Wells Fargo households have our credit card, while only 15% of the legacy Wachovia Bank households have a credit card. The lower Wachovia Bank penetration is attributable to their fairly recent reintroduction into the credit card business in 2006, and it represents a significant opportunity for us to be able to cross-sell our cards to the Wachovia households.

 What is important to know about our card business is we only offer our cards to new and existing Wells Fargo customers. We don't have co-branded cards, we don't offer affinity cards. We view the credit card as a key element in the broader Wells Fargo relationship. The cards are sold through our distribution systems, primarily Carrie's retail banking distribution systems, and we have limited reliance on direct mail. Our goal is not to be the largest credit card company, by any means. Rather, our goal is to be the best credit card for Wells Fargo customers, bar none.

 Ed Kadletz is our business manager for our debit card and prepaid businesses. Both Ed and Mike are here with us today and I hope you'll have an opportunity to meet them either at the break or at the reception deceiving. Their bios are in the back of the consumer lending section in your binders.

 As you can see from the bottom graph, we are the second largest debit card issuer in the country with over $173 billion of point-of-sale purchase volume. Ed and his team service over 33 million cardholders, and approximately 5 million of these cardholders are enrolled in either our debit-only or our combo rewards programs. Notably, approximately 90% of our consumer DEA accounts had a debit card.

 Kirk Bare runs our educational finance or student lending business. We're the number two provider of student loans in the company, and we were responsible for $11 billion in federally guaranteed and private loan originations in 2009. In total, Kirk and his team have over 2.4 million customers and nearly $28 billion dollars in outstandings.

 Dave Kvamme is here with us today, and his bio is also in the back of your binder. Dave runs Wells Fargo Financial, which is a multifaceted business that services the near-prime and sub-prime customers. David and his 15,000 team members have approximately 5.3 million customers with over $53 billion in outstandings. And what's important to note is approximately 85% of those outstandings are secured by either real estate, automobiles or other collateral.

 Danny Ayala is the business manager for our consumer money transfer business called Global Remittance Services. And through our patented Express Send technology, we provide outbound remittance services to more than 15 Latin American and Asian countries. Our Express Send capabilities are extensive, providing our customers with multiple ways of transacting, either through our banking stores, over the phone or through our online channel.

 GRS's growth, Global Remittance Services' growth, has been excellent as indicated by the quarter-over-quarter growth in both remittance dollars and transactions, which leads us to our number one rank among US bank managed networks.

 And our last business is personal credit management or PCM, run by Brent Vallat. PCM supplies unsecured lines and loans to Wells Fargo customers, primarily sold through Carrie's retail banking network. In total, PCM has 2.1 million accounts and close to $7 billion in loans.

 As you can see from this slide, this is the composition of the $104 billion in total outstandings that we have in CS/CL. It's quite diverse, and 47% of our total outstandings are secured by either real estate or automobiles. Our revenue sources are also very balanced in CS/CL between interest income and non-interest income. With slightly more than 60% of our revenue from balances and approximately 40% coming from fees.

 And what's notable on the right-hand side graph is that less than 7% of our prime-based card revenues come from late and over-limit fees. These are fees that will clearly be impacted by the current Card Act and the future changes to that act. We already discontinued charging over-limit fees in February of 2010, and we are waiting for further direction from the regulators regarding additional changes that might be relevant for our late fees.

 So moving to our core capabilities and our growth opportunities, our strategic model is fully embraced by all of the CS/CL lines of businesses and really, there are four cornerstones to the model. The first is the significant opportunity that we have to cross-sell our products to new and existing Wells Fargo customers, and I'll talk a little bit more about that in a few slides. The second is the importance of foundational activities, and that means really being brilliant on the basics. For example, in our card businesses we will process more than 5 billion transactions in a year, and you simply have to have good processes, great technology and really solid controls to be able to manage that business appropriately.

 The third factor is what really differentiates us, and we believe that's our team members. They are the key to helping us achieve customer engagement. We spend a lot of time with our managers and supervisors, helping them develop strategies to help increase team member engagement. Finally, as Howard indicated, we try to put the customer at the center of everything we do, and our ultimate goal is our total customer engagement. We strive to create a meaningful value proposition so that the customer will use our card versus somebody else's, and they will think about Wells Fargo when it comes to looking for their next financial product.

 Our core capabilities and growth opportunities are significant and can be captured in these three ideas. Number one is cross-sell. We integrate our products and we work in partnership with the regional bank and our other partners in Wealth Management and mortgage to leverage their touch points with the customer. Our philosophy and practicality is we help our customer-facing team members offer solutions to customers when they are choosing to do business with us.

 The second idea is share of wallet. We want to be our customers' payment provider of choice, whether they are choosing to pay with credit cards, debit cards, ACH, checks, bill pay, whatever their mechanism is. And we hope they'll choose us whether they want to pay ahead, which is prepaid products, pay now with a debit card or pay later with a credit card. And we've built our payments platform and our strategy around offering our customers a superior value proposition with better manage money management tools, better rewards and better protection.

 Finally, we are striving to provide customers to as many credit-worthy customers as possible. We want to offer consumer credit solutions across the full credit spectrum in all CS/CL products and in all of our Wells Fargo distribution channels.

 Our growth opportunities are significant as we work with all of our distribution partners on cross-selling to both new and existing customers. In particular, the Wachovia acquisition is a major opportunity for CS/CL, as many of our products were not offered in Wachovia Bank. a second big driver is the growth in personal consumption expenditure, or PCE and in particular, the increased use of plastic over paper. In total, there's over $8.9 trillion of PCE that is still being done with paper, primarily cash and checks, and we are very encouraged by the trends in increased card acceptance and in card usage.

 And then, finally, share of wallet -- as we look at our existing customers, we have a significant opportunity to capture more wallet share. Across the CS/CL products we have less than 15% of our customers' wallet. So what that means is, for every $100 in credit that a customer has in aggregate, we are only capturing $15 of that. It means we have a major opportunity to earn more of our customers' existing balances by providing them with increased reasons to bring their business to Wells Fargo.

 And some of the mechanisms for growth are detailed on the right side of the page. Introducing the legacy Wells Fargo products and services and the excellent disciplined sales process that exists in all of our just tradition channels, coupled with the integrated technology that Howard referenced earlier, bringing that into the Wachovia Bank structure is a major growth opportunity. You will hear later today from Laura Schulte and she will already highlight how the progress around the disciplined sales process is making a significant difference in product sales already.

 This cross-sell slide will give you some idea of our current legacy performance, which is the first column, the current Wachovia Bank performance which is the second column. And you can see that, between those two, that the Wachovia performance is at least one-third to one-half of what exists in the legacy Wells Fargo group. And even more exciting is the information in the last column, which really indicates how our best performing region in the legacy Wells Fargo markets are doing. So that can give you some idea of the potential that might exist if we could get all of our regions performing at the level of our best performing region.

 Another very significant opportunity is our growth in our credit and debit card spending. As the graphs indicate, both have a history of double-digit point of sale growth. On the left side, debit card has a compound annual growth rate of 11% and $173 billion in point-of-sale spending. And on the right side you will see that the credit card business has a compound annual growth rate of 17% and $30 billion in POS activity.

 The key to our growth is the integrated payment strategy that we bring to the party and the way we try to introduce added value to the overall payment proposition. Our payment strategy focuses on three basic ideas -- how do we help people better manage their money? And you will see that, hopefully, tonight in our patented my spending report. How can we give customers better rewards as provided by the debit-only, credit-only and combo rewards program? And how can we better protect our customer spending? You will see that with our real-time alerts, Verified by Visa, Zero Liability and are optional identity theft products.

 Tonight at the trade show many of these programs can be viewed up close, and I really would encourage you to stop by and see how we offer those products and services.

 Rewards cards have a very significant impact on card holder engagement, and the graph on the left illustrates our progress enrolling customers in our rewards programs. The blue bar represents the credit and debit card rewards enrollments, and the compound growth rate is 43%. Debit-only rewards is reflected in the green bars, and their growth rate is 32%. The pie charts on the right illustrate the percentage of our total customer spend being done on a rewards card. You will note the top pie chart in red that over 77% of our credit card spend is on a rewards card, and the significant opportunity that we have to increase rewards card spending on the consumer and business debit accounts.

 Customer activation and utilization is dramatically impacted by rewards program enrollment, and you can see the material lift in customer activation across all three of these products. Our focus is not just putting a polite piece of plastic in somebody's wallet, but it's getting them to activate and use that card.

 And not only do reward customers activate at a higher level, but their transaction activity and revolving balance activity is materially higher as well. And importantly, their loyalty to their card is much higher, as demonstrated by the attrition rate. You'll note that the attrition rate is less than 50% on rewards cards versus the non-rewards cards; it's materially better.

 Our sales opportunity with existing customers is significant. Across CS/CL products, as I mentioned, less than 15% of our customers have their balances with Wells Fargo. We are excited about this opportunity because it confirms the value of our cross-sell strategy and supports our contention that there are major opportunities for full spectrum lending in all of our different distribution channels. We recently introduced some of these capabilities in direct auto lending and in our credit card businesses, in the Wells Fargo financial distribution channels and in Carrie's community banking stores, and we are very encouraged by the early results.

 We remain excited about the opportunity in the student lending business in spite of the recent legislative changes. Those changes will eliminate financial institution involvement in the government guaranteed lending business. Several reasons give us reason for optimism. Number one is the growth of enrollments, and the cost of education continues to increase. As indicated on the chart on the right, the compound growth rate in average student loans was 9.5% from 2002 through 2009. We think the aggregate opportunity for private loans is somewhere between $16 billion to $30 billion per year.

 Wells Fargo is well-positioned to grow our private student lending business with nearly 5 million households with children 13 to 18 years old, and also many of our competitors have exited the market and alternative sources of college financing and real estate continue to be challenged. Several recent legislative changes have and will continue to impact CS/CL's businesses. Most notable are the Card Act and SAFRA. For the Card Act, we believe that our relationship-based sales approach will help mitigate some of the impact. And as we mentioned earlier, less than 7% of our fees are based on late and over-limit fees.

 We also think that out of chaos comes opportunity. For example, some of the provisions of the Card Act around providing credit to individuals under 21 years old play well into our educational finance business, which has a very high percentage of customers that have cosigners. And we believe that we can get those joint account holders to also be -- approved a student card, if it's necessary. And for SAFRA, we will discontinue government funding on July 1. We've been planning for the transition for some time, and we remain very optimistic about the private referral loan opportunity, as we have 70 million households and we are sourcing referrals from 1600 schools in terms of the private loan market.

 So moving to our financial results, our legacy CS/CL businesses have a history of double-digit revenue growth, as noted in this slide. Wells Fargo Financial's revenue growth was negatively impacted by their exit from the sub-prime indirect auto lending business. If you exclude the indirect auto business, their revenue growth would have been 10%. In total, CS/CL has revenue growth of 10% excluding the auto business and 8.5% if you include the liquidating indirect business.

 As you can see on this chart, the history of legacy Wells Fargo's loan growth in red and the lift we are getting from the Wachovia business in blue. Notable is that the only major business with significant loan activity in Wachovia is the student lending business. This helps illustrate the excellent opportunity we have with new loan products being offered to the legacy Wachovia Bank customers. And the lower level of balance growth in Wells Fargo Financial, which is the graph on the lower left side of the slide, is attributable to lower originations of subprime portfolio real estate loans due to our tightened credit standards.

 In addition, in 2009, we shifted our emphasis from portfolio lending to FHA lending, which now makes up the vast majority of Wells Fargo Financial's real estate loans. As mentioned in the Q1 release, absent any significant economic shock to the system, we believe that the quarterly loan losses have peaked in the majority of our consumer loan portfolios. The graph highlights the 60-plus day delinquency trends for credit cards in the top left graph, for Wells Fargo Financial's direct and indirect auto lending in the top right graph and in our personal credit management unsecured lines and loans, shown in the bottom graph.

 Now, Wells Fargo Financial's real estate portfolio has certainly not been immune to the economic problems in 2008 and 2009. But it's notable to compare their performance to the rest of the non-prime industry. Note that Wells Fargo Financial's 90-plus day delinquency, as shown in the graph on the left, and their foreclosure rates as shown on the graph on the right are approximately one-third that of the industry average. We believe they performed relatively well because of our disciplined, responsible lending principles and sound underwriting practices. During all the heydays of creative financing, Wells Fargo Financial continued to only originate fully documented loans with comprehensive income verification, no negative amortizing products, no option ARMs and all loans needed to demonstrate a clear borrower benefit.

 Moving to a quick update on our merger activities, CS/CL is very involved in the enterprise integration efforts and we have already completed several milestone conversions. The legacy Wachovia credit card business and the debit and credit card rewards programs were successfully converted to the enterprise systems in April of this year. And the community bankers in the legacy Wachovia Bank stores are now accusing the enterprise credit card and reward systems to sell and service their customers, and we are very encouraged by their sales progress.

 EFS is in the process of insourcing their loan servicing and collections from several third-party providers. Debit card conversions occur concurrent with the deposit conversions in the community bank and personal credit management's unsecured credit loans will convert in June of this year and lines later this year. With the conversion of the community bank deposit systems and debit card, legacy Wells Fargo technology is introduced, and that supports banker and teller sales that has been so part of our past success.

 So, to wrap up, I want to again thank you for the opportunity to share some insights on the CS/CL businesses and the role that we play in supporting the Wells Fargo enterprise. I am excited about the opportunity ahead and the ability of CS/CL to continue to contribute to Wells Fargo's future success. We have a consistent sales record of double-digit growth, and our opportunity for continued sales growth is significant with the Wachovia Bank customers.

 In addition to the franchise growth, there's also the major cross-sell opportunity with our existing customers. Recall that we only have 15% of our existing customers' balances. In our time tested sales process of profiling customers, offering relevant product solutions can be a major factor in earning more of our customers' business.

 Our customer-centric model works because we understand our role and we know that we exist to support our distribution partners' sales and service efforts, like in Mark's mortgage business with his home mortgage consultants, David's financial advisory business, and Carrie's multiple community banking distribution channels. We believe that, based on current economic conditions and forecasts, that our quarterly credit losses have peaked in the vast majority of our consumer lending portfolios.

 And, finally, we believe that the impact of the new legislation is manageable and we remain focused on transitioning our businesses and managing in the new normal.

 And now it's my pleasure to introduce the next speaker, senior executive vice president and group head for the consumer real estate group, Mark Oman.


 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [1]

 Thanks, Kevin. Good afternoon, everybody. I am excited to have the opportunity to share the story of the consumer real estate group with you today, including the opportunities that we have for continued growth. The Consumer Real Estate group is focused on the first mortgage business, including Wells Fargo Home Mortgage and a variety of portfolios, including the Pick-a-Pay portfolio.

 Now I have had the opportunity to meet or speak with many of you over a number of years, including presenting at the last investor conference in 1998. And I am particularly pleased that I am joined today by Cara Heiden and Mike Heid, who are co-Presidents of Wells Fargo Home Mortgage, and by Franklin Codel, who is Executive Vice President of Finance at the mortgage company and is also heavily involved in managing the Pick-a-Pay portfolio. So I'm going to lead off the discussion today with a broad overview of the Consumer Real Estate group, why we like the mortgage business, our competitive advantages and why we are well positioned and excited for the future. Then Mike and Cara are going to drill down deeper into Wells Fargo Home Mortgage, and Franklin will cover the Pick-a-Pay portfolio in more detail.

 Now this slide gives you some of the dimensions of the Consumer Real Estate group totaling nearly 34,000 employees, $201 billion in assets, $21 billion in escrow deposits, and servicing 9 million loans. Wells Fargo Home Mortgage led by Cara and Mike was the largest mortgage originator in 2009, generating over $400 billion in volume and with a 23.5% market share. We were also the second largest servicer with a 16.7% market share.

 The mortgage origination and service activities of Wachovia, which were a fraction of the size of legacy Wells Fargo, were totally integrated in 2009 and are included in these numbers. You can also say we have a separate dedicated team aggressively managing the liquidating of Wachovia Pick-a-Pay portfolio. Now I want to provide some perspective on the growth of our mortgage business while highlighting the strength and tenure of the other leaders that you're going to hear from today.

 Now I have been part of Wells Fargo for over 31 years associated with the mortgage company since 1985 and was named President and CEO in 1989. At that time we did not have a servicing portfolio, and our origination market share was under 1%. Mike Heid joined the Company in 1991, and he has served as our Controller, our Head of Servicing, our Chief Financial Officer, and has been co-President of the mortgage company with responsibility for secondary marketing, market risk management, finance, credit and technology, as well as more recently the Pick-a-Pay portfolio.

 Cara joined the mortgage company in 1992 and has served as CFO, Head of Servicing, Head of Retail Production, and has been co-President since 2004 responsible for origination channels, marketing and servicing. In other words, Cara has the customer side of our business, while Mike has the other side of our business.

 Now Franklin joined the mortgage company in 1996 and was named EVP of Finance in 2004. Of course, 1998 was a pivotal year when Norwest and Wells Fargo merged. And since that time, Wells Fargo Home Mortgage marketshare has tripled. In 2009 we originated nearly one of out every four mortgage loans in the United States. And here you can see the growth for our servicing portfolio over that same period of time, today totaling over $1.6 trillion and representing roughly one out of every six mortgage loans outstanding in the US.

 As you can see, our mortgage business has a strong history of growth and success, and from my standpoint the opportunities for future growth remain profound.

 Additionally one of the key messages that I want to leave you with today is that our Consumer Real Estate group has a very experienced and very senior team of leaders who have successfully grown and successfully managed our business through a variety of interest rate and credit cycles.

 Now Wells Fargo likes the mortgage business for many reasons. But they can be summed up in two complementary value streams. First is the customer value stream. Our vision calls on us to house their help our customers succeed financially and to satisfy all of their financial needs. And one of the most basic needs of our customers and products that they want is a mortgage loan, which can help them achieve and sustain their dream of home ownership.

 In addition to meeting that need, our mortgage company is a major source of new high-value homeowning households, which represent a significant cross-sell opportunity. At the same time, the mortgage company benefits greatly from the brand, distribution, customer base and financial strength of Wells Fargo. Historically when we have banks in a market, our mortgage marketshare goes up, which is why we are very excited about the Wachovia merger. Our cross-sell success going both ways, bank to mortgage and mortgage to bank has been tremendous, and Cara will be sharing some of the successes achieved through our strong partnerships across Wells Fargo.

 The second value stream is a strong earnings power and earnings growth achieved through mortgage banking. We have purposely managed the growth and balance of our origination and servicing businesses which are countercyclical to each other in order to dampen the inherent earnings volatility exhibited by these businesses individually. While originations and servicing are naturally countercyclical, both businesses benefit from an environment with a steep yield curve and low short-term interest rates. And this sensitivity to the yield curve means that the mortgage business is also somewhat countercyclical to Wells Fargo's deposit businesses.

 Now recognizing that interest rates and the yield curve affect the mortgage company's results, our goal has been to generate acceptable returns in a poor environment, strong returns in a normal environment, and outstanding returns in a favorable environment, and we have been successful.

 Now, as you know, we do not disclose the mortgage company's earnings separately, rather as part of the community bank as it is so closely tied to our other retail businesses. But I want to share that, as we keep score internally, Wells Fargo Home Mortgage has been profitable every year since 1988, and further we have achieved the goals that I have mentioned in terms of returns.

 During the last 20-year period, assuming a 7% equity allocation, the lowest return on equity in Wells Fargo Home Mortgage in any year was 8%. There are only three years with ROEs below 15%, and the weighted average return on equity over the entire 20-year period was 23%.

 Now we have been successful long term in mortgage banking because we have brought a disciplined approach to the business, including balance in our business model between originations and servicing.

 Consistent with Wells Fargo's vision, we have focused heavily on our retail origination channel, building a strong sales culture and a broad, deep referral network of realtors, homebuilders, corporations, and, of course, our wonderful Wells Fargo partners. As a result, Wells Fargo has been the leading retail originator each year since 1990. And importantly, we have taken our obligation as an intermediary between our customers and mortgage investors very seriously and have also taken a long-term view. We have focused on providing quality products and services to our customers while at the same time delivering quality loans to our investors.

 As a result of this uncommon discipline, we are much better positioned than others to successfully manage through the very challenging environment recently.

 Now as many competitors in our industry have discovered, especially during the last few years, you cannot survive long term in this business without excellent risk management. I believe we are best in the business and that our best in the industry delinquency and foreclosure rates prove it.

 Additionally effectively managing operational capacity as volumes ramp up and down is a critical capability, especially with our retail heavy business model.

 Now another important capability that we don't talk about often or that gets lost in all of our discussion about our sales and service is the quantity and quality of the science that underpins how we manage our businesses. For example, our discipline and excellence in consumer marketing, customer retention, cross-sell, quality, risk management and operational management are all built upon large quantities of data in rigorous science, models and metrics that have been in use and improved over many years, and you are going to be hearing and seeing some of that today.

 Now we may be sales and service on the outside, but we are applied science and control on the inside. And, of course, all of this requires a strong management team, and I believe that our Consumer Real Estate team is by far the best in the business.

 As I have said, we have been successful for many years, and I remain very excited about the opportunities in front of us. Now I want to highlight three opportunities that you will be hearing more about today.

 First, continued controlled profitable market share growth. While the mortgage market has consolidated, the retail market, which is the point of sale and our unique strength, still remains quite fragmented. Second, with 9 million mortgage households and over 40 million Wells Fargo and Wachovia households, the untapped market share and cross-sell potential remains huge. And third, we have continued to invest heavily in our businesses to improve distribution, operational efficiency, cost and control. And we are in the early stages of rolling out a new technology platform that holds great promise for improvement in each of these areas.

 Now earlier I mentioned that I was one of the presenters at our 1998 Investor Day. At that event I shared this slide predicting that industry consolidation would continue and showing the characteristics we felt were imperative for long-term success.

 Now I show this slide again for two reasons. First, consolidation has continued, and today the survivors are mostly large, diversified bank holding companies like Wells Fargo that fit this profile. And second, we believe this slide remains as relevant today as it was 12 years ago. While we are much larger and a much better company today, our fundamental business model, high-level strategic approach and belief that there are significant opportunities ahead of us remains unchanged. Since that time the industry has continued to consolidate and many companies, especially those that did not have the balance between originations and servicing, strong risk management or access to capital, have not survived. In fact, of the top 25 lenders as recently as in 2006, only eight remain in business today. This fallout has contributed to the consolidation of both originations and servicing so that today the top five originators and services have a combined 60% market share.

 And this slide shows who the top five servicers and originators were in 2009. You will note that the names are all the same, and with the exception of GMAC, all are large diversified banks. We think this is good for Wells Fargo. For the first time in mortgage industry history, we have the opportunity to compete on a level playing field with competitors who are publicly owned and who have largely the same regulators and who are not monolines trying to drive up their market share or their stock price by doing irrational things.

 You will also note that there is a significant difference in the size and scale between the top two and the rest of the industry, especially in originations which ultimately drives the growth of your servicing portfolio. In 2009 our origination market share was over 6 times that of the number five originator. As Cara and Mike will describe, we believe that we are very well positioned for the future and to successfully compete against these folks.

 Now some of you might be thinking, okay, but the industry is already largely consolidated. So how much opportunity is there left? And the answer is, we think a lot of opportunity. This slide shows the top five retail originators, many of the companies actually dealing directly with the customer at the point of sale to do a mortgage loan. And here you can see an even bigger divergence in market share between the top two and everyone else. Our market share is nearly 4 times that of the number three company and more than 9 times that of the number five competitor. And importantly, you can see that even though Wells Fargo is the largest retail originator, our marketshare is still under 13%. There remains plenty of room to grow as the industry remains incredibly fragmented with literally thousands of smaller competitors.

 For over 20 years, we believed that retail mortgage lending, controlling the point of sale is the high ground in mortgage banking, and we believe that the combination of retail and servicing is particularly powerful. We want to have a relationship with our customer from the origination through servicing and serve them so well that they come back to Wells Fargo for the next transaction. This slide shows the relationship of retail market share to servicing marketshare for the top five servicers.

 Why is this important? Because when a refinance wave hits like it did in 2009, we want to have another retail capacity to serve our customers. There is a great opportunity to help our customers lower their mortgage payments while doing so at favorable margin and simultaneously generating valuable mortgage servicing that should have a longer average life. And, as you can see, none of the other top five servicers have our retail-based replenishment capability.

 Now our focus on balance and retail has allowed us to respond quickly to refinance markets. This chart shows our monthly -- this is monthly origination volume and servicing payoffs over the last 10 years, a period of time when our servicing portfolio grew by over 400%. I want to emphasize four key points.

 First, this is no accident. Rather this is the outcome of how we plan fully to execute our business model. Second, this demonstrates the need for extreme skill in managing capacity up and down. Third, this graphically depicts the very strong natural business offset that exists between origination and servicing. For example, low rates, which are generally good for origination volume and margins, are generally bad because for servicing because they increase payoffs and reduce servicing valuation. The opposite is true when rates are higher. The point is we understand this relationship, and we manage the business to take advantage of it.

 And finally, because servicing prepayment speeds are so important to the business model and are also the single biggest driver of servicing valuation, we managed the hedging of the servicing portfolio within the mortgage company, which is unique among our large peers. We believe managing the MSR hedge in the mortgage company where we also hedge our pipeline and warehouse provides the best connection between our business experience, our information and insights and our MSR valuation assumptions. Managing the hedge on the mortgage company also allows us to best consider the natural business hedge that exists from origination in constructing our servicing hedge, as well as maximizing the natural cost hedge opportunity that exists between our pipeline and warehouse position and our MSR position. Importantly, this is all done within the framework of very strong corporate involvement and oversight of the hedge position.

 Now I have just covered a lot and quite quickly, and I know that the topic of how we hedge and our hedge performance is of interest to you. So Mike Heid will be separately discussing MSR hedging tomorrow in the risk management section so that we can focus today on our business model and our marketplace opportunities.

 And speaking of opportunities, I want to wrap up my comments by restating that we believe we are well-positioned for the future and that we are excited by our growth opportunities. We have industry-leading marketshare, yet believe we have significant opportunity to continue growing our share as the industry remains fragmented, especially at the point of sale. We have unique and strong capabilities, yet believe there are significant opportunities to become even better and more efficient. And we have industry-leading cross-sell, yet we believe we have much more room to grow.

 Let me just mention our wallet share opportunity. We know that the home owning households within Wells Fargo's existing 40 million households collectively have over $4 trillion of outstanding mortgage debt. Let me repeat, our existing 40 million households have in excess of $4 trillion currently in outstanding mortgage debt. Which means that if we had 100% of our existing customers' current mortgage debt, we would more than double the size of the mortgage business. So we have work to do.

 And with that, let me turn it over to Mike and Cara to go a little deeper in the mortgage business.


 Mike Heid, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [1]

 Thank you, Mark, and good afternoon, everyone. For most of our time this afternoon, Cara and I will talk about a deeper discussion about the mortgage business itself but really first some points of context. Mark talks a lot about what has changed in the mortgage business over the years. But it's also important to note that at least for us there have been some very critical constants as well over that period of time. One of which is the very way in which we define ourselves. And by that what I mean is that we have stayed very true to the mortgage banking model over the years.

 This particular chart is more than just a chart. It is really a way of thinking about what is important to the business. And what I mean by that is we see ourselves and define ourselves as being in the middle of the consumer and the investor, which means that every decision we make, every action we take, needs to take into account the needs and interests of both groups. It is this very orientation that kept us very focused on doing what is right for the long haul and, therefore, avoiding many of the common mistakes and poor choices that many in the business were making over the last few years.

 The way we have structured the Company is really in two primary ways. We've got a transaction business, which we referred to as originations, serving the customers' needs for home loans in the first place. And we've got a servicing business, which is structured more as an annuity business, and the line items that you can see on the slides are the ways in which the revenue results from these business lines show up in our public financial statements.

 Now you cannot really talk about the mortgage company without also talking about how the mortgage company fits in the scheme of total Wells Fargo. Now I'm sure over the years you have seen many charts that look just like this that, but in our case it's really very accurately depicts how we see ourselves and how we function inside the total Wells Fargo family. That is how we monitor for progress, that is how we measure ourselves, and what we are really doing is driving a primary source of new customers into the Wells Fargo family. We do that a combination of ways, including referrals from all the different Wells Fargo business channels, as well as from the outside world. So it is a sourcing function that mortgage is really doing to bring home-owning households into the family. Once we have them, providing great quality service, and then not only in the mortgage company but across all of Wells Fargo, taking serious action to deepen the relationship, which allows us to continue to retain customers as time goes on.

 Now it is just an interesting chart, but, as you can see from our results, if you can bring this chart alive and into action, it becomes a very, very powerful thing.

 Cara Heiden, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [2]

 So with that business model, as well as that customer opportunity, we have successfully competed in an ever changing mortgage industry because of these time-tested fundamentals. Along with what Mark has already discussed with you, we just wanted to reemphasize the first two. We have long-lived and executed with our responsible lending and servicing principles, and in 2004 we published -- 2004 we published our responsible lending principles on the Internet for all to see. The list of responsible lending principles are several, but the overarching principle, as you would guess, is that we only approve markets on application for borrowers where we believe they, in fact, have the ability to repay that loan.

 Secondly, we lead our team of over 32,000 individuals with a focus on control, profitability and market share growth by building lasting relationships with customers and clients. And that focus is throughout the team and all the way to the store sales presence location. Probably best to demonstrate what it means to live with responsible lending principles is our market share trend graph, and I would draw your attention to 2004 to 2006.

 You all know that during those years credit was expanded and expanding, and nontraditional mortgage products were being offered throughout the mortgage industry. We chose not to offer certain products because we believed they were not right for the customer or our loan investor. Let me just give you a couple of examples.

 We did not offer stated income -- stated. So there was no income documentation or validation of that income. We did not offer stated income for borrowers with a subprime credit profile. What is our overarching responsible lending principles? That we believe the borrower has the ability to repay the loan. How do we know that they have the ability when we don't look at income, we don't document income, we don't validate income, and the credit profile of the borrower is subprime? We said no to that business. And, as Howard has already mentioned, we did not offer pay option ARMs with negative amortization.

 We were not confident that we could bring that product up at scale and ensure for every borrower that we originated that loan for that they completely understood it, that they have the confidence that they could manage that credit particularly considering the negative amortization aspects. And those are just two examples. We chose to give up market share. We did not grow market share in those years. We did not have all the products that were available in the industry, and also we were not able to recruit and grow our sales force, and in fact, we were leaving sales reps at the time.

 2008/2009 the industry returns to a responsible product set, and the Company Wells Fargo Home Mortgage receives unprecedented market share of 23.5%. More customers chose Wells Fargo, a committed, a strong and a responsible lender. Over the years we have primarily offered prime conventional Fannie Mae, Freddie Mac, government, FHA and VA, as well as prime conventional jumbos. As you can see from this chart, this is back to 2006 when credit was expanded, 77% of our product mix was in prime conventional and [govi], while the industry was at 52%. And again back to the offerings of Alt-A and non-prime, our mix was at 11%, but the industry was at 3 times that at 34%. Responsible lending focus, doing right by the customer, has been and always will be key to our success.

 Mike Heid, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [3]

 When you think about that quality focus and look at our servicing portfolio and how it compares, I think you will see the evidence in living color. What you are looking at here is our end of year statistics in the servicing portfolio. Our numbers also include not just service for others but the entire Pick-a-Pay portfolio, home equity, as well as Wells Fargo Financial are all reflected in the Wells Fargo column. But you can see a total default rate comparison. The green is the foreclosure rate. The orange is the delinquency rate at that point in time. You can see how favorably we compare to Chase, Citi, BofA, and keep in mind we are part of the industry in the far right column. So if you took us out, the gap between us and the rest of the participants would be even greater.

 A key takeaway, is that at the end of the year, in spite of all the troubles and all the turmoil in the economy at that point in time, 91% of our customer base was staying current in their mortgage payments. So if you think about a summary concept, to what Cara said earlier, what we are all about is driving controlled profitable market share growth by building lasting relationships with our customers and our clients. And just like we tell our team very frequently, there is a comma between the statements for a very good purpose. It is all about control, profit and share growth. You cannot pick your favorite. You cannot go after the one you like. They key is striking the balance between all three. That is really the mark of a successful company over the long haul.

 Cara Heiden, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [4]

 And to bring that strategic outcome about, in originations we go to market in all three channels -- retail, wholesale and correspondent. Our market position in these channels is very strong, being the number one retail and wholesale lender in 2009 and second in correspondent lending. In total, we funded over $400 billion in loans, 53% coming through retail, 36% through correspondent, and 11% through wholesale.

 In retail we are dealing directly with our customer. We are located in all 50 states, and we cover those states with 8500 locations where we have a sales presence. Our sales force numbers 10,400 home mortgage consultants strong. Home mortgage consultants is what we call our sales reps. In our marketplaces, we are out there developing relationships thousands and thousands with realtors, builders, bankers, financial advisors. And tonight at the business exhibit, if you are interested, you can go to our booth and see our relationship management tool. We think it's actually best in that business as to how we keep track of all these referral relationships, and for relationships we have yet to build, we also know those to make sure we get adequate coverage by salesforce. We also have telesales platforms located throughout the country who handle business from our corporate, very strong corporate relocation business, leads from our customer retention marketing efforts, as well as customers who come through our Internet site.

 In wholesale we source loan applications from 8000 brokers who are Wells Fargo Home Mortgage approved and who agree to do business our way and according to our standards. That loan application is processed and underwritten by our team, Wells Fargo Home Mortgage, and closed in our name. In correspondent we have 850 Wells Fargo Home Mortgage approved correspondent clients, and those loans adhere to our standards, as well as investor requirements.

 Mike Heid, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [5]

 So, as Cara mentioned, we are in all three of the traditional mortgage channels -- retail, wholesale, correspondent. But here is the reasons why. For years, as Mark said, retail has been a very heavy area of strategic focus for us and always will be. The reasons for that are listed on the slide. First, [310] to go together. You think about retail being a point of sale high ground, retail allows you to control the customer experience. Retail also gives you the best early opportunity for cross-sell and relationship building. If you were to sum it up, it is your chance to make -- to have control of the first impression you are choosing to make with your customer.

 Beyond that, retail also has the widest profit margins, the best credit quality and serves as the best natural hedge for us against the total servicing portfolio.

 With all that said, we also like the wholesale and correspondent businesses as we choose to do those businesses. The reason for that is it is a great source of new homeowning households to bring into the Wells Fargo family. It allows us to build scale, leverage expertise, but it also gives us very attractive returns, and it does serve as part of our overall natural business hedge.

 Cara Heiden, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [6]

 Just to drill down a little bit deeper into retail originations, okay, so we all have our map that we are excited about. These are the Wells Fargo Home Mortgage locations across the country where we have a sales presence. 8500 of them obviously with concentration in markets where home sales activity is greater. These locations are our stand-alone mortgage locations, our banking locations, as well as where we sit within our realty and builder partnership facilities. Obviously we are very excited about the Wells Fargo/Wachovia combination and the added banking stores that enables us to have yet another sales presence.

 In each and every one of our marketplaces, we work hard to be a meaningful competitor. And what this map shows you is that we rank number one, two or three in 48 states and DC. And just to point out the states that are colored blue is number one, our sales leadership teams making pretty good progress.

 Mike Heid, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [7]

 As we said earlier that retail is the widest profit margins, here is the proof. The slide you are looking at is our actual profit margins by each of the channels. Blue is the retail, red is the wholesale, and green is the correspondent. It is the actual profit margins by year over the last decade. We chose to group this by the kind of market that we were in, the left panel being low refinance and higher interest rate, low refinance environment with flatter yield curves. We saw it in 2005, 2006 and 2007. The middle is the balanced period of time -- 2000, 2004, and 2008. And then the far right panel is the lower rate, higher refinance, steeper yield curve environment that we saw at the beginning of the decade, as well as 2009.

 So you can see no matter what the environment, no matter what the circumstances surrounding us, over the last decade, retail has consistently outperformed the other two channels in terms of the profit margin itself. So if you are choosing to be in the retail business, you also have to be very expert and very disciplined in your cost management.

 This particular slide charts our quarterly direct retail origination expense versus the quarterly volume. Now it is not a great insight to say as you have more volume you have more expense. That's not the point of the slide. What we are trying to illustrate is that no matter what the volume, we are able -- the organization is able to stage and adjust its expense base to fit those circumstances. That is a task that is much easier said than done.

 If you're going to be in the retail business, you also have to have the capability to very rapidly scale up your operating capacity. This chart shows the last two years -- it is really the last cycle we have been through. And you can see how we were able to add 6300 people in just the first six months of 2009 to capture the market opportunity that was presenting itself as rates were dropping. And then as demand changed, as circumstances changed, we also scaled it back to the tune of 2800 people.

 Now every company in the land has some form of a business continuation program and plan in case of an emergency. In our case we also have a rapid ramp-up plan that gives you basically a manual of how to pull the triggers on adding capacity whenever we say go. But capacity adds is interesting, but capacity add with cost effectiveness that is what gets really beautiful. What you're looking at here is the same window of time last two years, but it's a chart that shows how the fixed and variable dimensions of our cost base have changed. The line itself shows our funding volume in each of those quarterly periods of time. The orange at the bottom shows you how we have kept the fixed cost base constant over that window of time irrespective of the volume change. The blue is our variable expense base. So we put a heavy emphasis on the use of temporary workforce.

 We also put a very heavy emphasis on using physical and open office facilities across Wells Fargo so that we are not having to goal and attract leases and be locked into that expense for the long haul.

 Cara Heiden, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [8]

 To capture business and grow market share, this is how we look at it. So on the left, we analyze the opportunities we have for marketshare growth. So the top layer, if you will, affectionately referred to as our wedding cake, are Wells Fargo Home Mortgage customers. So we understand in that opportunity customers who are going to -- who originate a refinance or a purchase money mortgage. Our strategies around all of that is to be there for them when they go for that purchase money mortgage, new home, second home, investment property or refinance.

 The second layer of marketshare opportunity would be working with the Wells Fargo retail banking relationships who have yet to become a Wells Fargo Home Mortgage customer, and those strategies come from working across the enterprise with Carrie and the bankers, with David Carroll and financial advisors and private bankers and the wealth plan professional, etc., etc. And the lower layer, if you will, is the big external market, as well as those Wells Fargo relationships that are not quite as deep as the retail ranking household.

 We continually focus on innovation and strategies to capture more and more of that mortgage market share. In 2009 our sharers are on the right. So we captured 49% of our customers in our servicing portfolio, again who originated the refinance or purchase money mortgage. Close to 15% of the retail banking households in Wells Fargo and 6% for the broad market. That wraps up to 12.9% for the year in 2009, the largest retail real estate lender in America. So we know our market share, but as importantly we know the opportunities that we have to grow market share. And through data we have externally and internally, we know what that is in purchase money mortgages and refinances. We know the strategies that worked, and we know where we can continually focus our sales and marketing efforts to continue to gain market share over time.

 Our retail team continues to work hard on this, and just to demonstrate this is a split between refinance and purchase money mortgages in first quarter of 2010 of the business done with our Wells Fargo Home Mortgage customers. In the first quarter of this year, customers who originated a refinance, we captured 73% of that business. In contrast, on the purchased money mortgage side, we captured 25% of the business. Initially that may appear low to you. Keep in mind that the realtor and builder concessions, they still have influence over directing the mortgage finance. And also, I would point out that 25% is 5 times greater than when we did not have a Wells Fargo relationship.

 What is also absolutely key to retail success going forward is our steadfast focus on operational excellence. What does operational excellence mean? Higher and higher levels of customer satisfaction, quality control built into our processes and our systems, and cost efficiencies for the shareholders. We are very excited about our new loan origination system calls CORE. It is live and it is in production. It is being rolled throughout the states into all our products. The system has very compelling features and benefits as presented on the slide, and we brought for tonight's business exhibit PPO. It is preferred product options. Our entire sales force has access to this already where based on a series of questions -- so you can tell the guys answers to the questions about the mortgage loans needs you have based on those answers -- the system will provide preferred product options. So you may want to go see that system.

 Anyway we are very excited about the overall CORE loan origination system. It will acquit our already strong team so that they can consistently and predictably deliver to our customer, as well as to our business requirements.

 Mike Heid, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [9]

 Now you cannot be in the mortgage business at any kind of scale if you're not also expert at secondary market execution and secondary markets skills. For that reason we have invested very heavily and focused very heavily on building skills over time. For us it looks like a very sophisticated set of secondary market execution skills to not only have sales execution but also specified pooling capabilities. Very efficient delivering clearing processes and a depth of product new market participation to serve the broad customer base.

 Now keep in mind, we touch one out of every four mortgage originations in America. So with that comes over well of access to data for a variety of purposes, and it gives us a very strong presence in the newly issued securities market. 27% of all Freddie Mac issuances come from us, 20% Fannie Mae and 26% of all the new Ginnie Mae securities formed are coming in backed by Wells Fargo paper.

 Which then brings us to servicing. Now some organizations, some companies think about servicing as a back-office operations platform. A cost per unit kind of metric-driven organization. We have never think of it as a business. We think of it as an integral part of the overall business model of the mortgage company, and we like the business for all the reasons you are looking at on the slide. Being in the servicing business allows you to source new customers for retail production recapture as life events or interest rate environments dictate. It gives you the opportunity to cross-sell while you have the customer in your care. It gives you a true economy of scale business unit that you can take and run -- or take it to the bank. Also generates very attractive returns as we manage it. And one feature that does not always get a lot of play but it is very evident in the servicing business is that when you look at the MSR, the asset, it is really unnatural offset or naturally funded by the same features of the asset, namely the escrow balances and the deferred tax liabilities. When you put the two together more often than not, the net of the two is a net cash flow into the organization.

 We have done a lot of acquisitions over the year where the seller on the deal ends up writing us a check at the end of the day because the escrow and deferred tax balance exceeds the size of the asset purchase itself. This business unit throws off about $4 billion of cash annually, and it provides a very key and natural business model offset to the variability of the production origination franchise. So for all those reasons, we have consistently grown servicing over time.

 Now you can get a little numb to big numbers, so we thought we would show you what $1.6 trillion actually looks like in dollars and cents. Forgive us, a small attempt at humor. I can see it was a very small attempt. Anyway, $1.6 trillion is what we have grown the servicing portfolio to at the end of 2009.

 The other key point for servicing is that the vast majority of what we do is service for others. In fact, 86% of the portfolio, the bulk of the 14% that is on our balance sheet consists of the Pick-a-Pay portfolio that is included in the overall servicing count. But 86% of the portfolio is serviced for others. The vast majority of that in the form of Fannie, Freddie and Ginnie Mae.

 Cara Heiden, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [10]

 The servicing business definitely comes with its challenges, but we know what it takes to be successful. And that is being an expert in default, customer service, operations management and the interest rate risk management mortgage servicing rights. So, as our servicing portfolio has grown significantly, so have our competencies in all of those areas, and, as previously mentioned, Mike is going to be spending some time with you tomorrow on how we manage the risks and the MSRs.

 Perhaps the most significant challenge for servicing in the last couple of years has been responding to all of the borrowers who are struggling with their mortgage payments throughout the recession. Since the beginning of January -- beginning of 2009, 523,000 active trial and completed modifications have been provided by servicing to our struggling borrowers. As you can see, 28% of them were through the Administration's Home affordable Modification Program and the other 72% coming from FHA and VA programs, our proprietary modification programs, as well as our Pick-a-Pay modifications.

 Know that our team does whatever is possible to keep our customers in their homes. And fewer than 2% of our owner occupied homes have gone to foreclosure over the last 12 months. Also know that we have allocated adequate staffing and resources to ensure that we are there for our struggling borrowers, as well as to follow-through on our commitment to loan investors.

 As Mark had mentioned, Wells Fargo Home Mortgage can and does provide a significant customer value stream to Wells Fargo. We look at it this way. We can win, and we can bring brand-new customers to Wells Fargo. Those are valuable homeowning customers because they have a lot of products. We can deepen Wells Fargo relationships in a couple of ways. One, we can originate a mortgage for a Wells Fargo customer who has yet to become a Wells Fargo Home Mortgage customer, and we can deepen the relationships by offering helpful products working across again the enterprise with cards, insurance, banking products, investments, etc. to that overall customer base, and as I already talked about, customer retention, retaining those customers for ongoing shareholder value.

 Just to make a couple of points here, we are the top two generator of brand-new homeowning households to Wells Fargo. Over time generating 20% of all the new homeowning households.

 With respect to deepening the relationship, we keep track of the number of products our Wells Fargo Home Mortgage households own. Bottom line are the servicing accounts, the relationships, top line the number of products. As you can see, as our servicing portfolio has grown, so it is with the overall products owned.

 In 2009 we added the Wells Fargo Wachovia mortgages to the bottom line and all the Wachovia bank products to the top line. We got a nice top. There's a couple of reasons for that.

 Keep in mind that -- first reason, keep in mind that we have been in all 50 states for a long time, so we have then originating Wells Fargo Home Mortgage mortgages for Wachovia customers. So when the Wachovia/Wells Fargo combination happened, we were able to match up the Wachovia products, bank products, all the products that they owned with the formerly originated Wells Fargo Home Mortgage for that Wachovia relationship. In addition, we are now able to provide Wells Fargo Home Mortgage leads to our Wachovia bankers, Wells Fargo Home Mortgage customers who have yet to establish either a Wells Fargo or a Wachovia banking relationship. Leads are going to the Wachovia bankers, and they are having great success with that.

 And then the final slide, just to tell you why we are motivated here. We know we can bring homeowning households to Wells Fargo, and when that household is a retail banking household, it has relationships with Wells Fargo bankers and we originate a Wells Fargo Home Mortgage mortgage for that household, on average those households have 8.28 products. So a way to get to our strategic imperative of on average eight products per household and serve our customers' needs.

 Mike Heid, Wells Fargo &amp; Company - EVP, Co-President, Home Mortgage [11]

 So we hope you can see why Cara and I are so proud of the efforts of the 32,000 team members that make up Wells Fargo Home Mortgage. Generated some great results, filled some great capabilities, and have really positioned us in a very great spot for bigger opportunities yet ahead.

 From our perspective in Wells Fargo Home Mortgage, we built a very unique set of business capabilities that combined with consistent and disciplined execution is really very, very special. We believe we have got a balanced business model between origination and servicing, leading retail origination franchise, a very disciplined sales and sales management culture, excellence in risk management both interest rate and credit risk management, the ability to lead at scale and origination, and in servicing and hands down the best leadership team in the business.

 So we thank you for taking some time out of your busy schedules to give us an opportunity to share the Wells Fargo Home Mortgage story with you today. As Mark said at the very open, not only the Mortgage Company but also our responsibility as the Pick-a-Pay portfolio and to give you a status update of how things stand with that portfolio, we would like to things over to Franklin Codel.


 Franklin Codel, Wells Fargo &amp; Company - CFO, Home Mortgage [1]

 Thank you, Mike, and good afternoon. As Cara said, Wells Fargo never originated or serviced pay option products, so it is no small irony that we then turn around and acquire the largest pay option portfolio in the industry. I'm happy to say that at the time of the acquisition we understood the product. We understood the risks, and we were able to properly evaluate the loss content of that portfolio. Today both the realized and expected lifetime loss content of the portfolio are running better than the acquisition model on this portfolio. I'm able to make this statement because of the hard work of our San Antonio-based servicing team and the dedicated support groups that work closely with them such as finance, credit risk, marketing and technology.

 Immediately upon acquiring the portfolio, we embarked on an extensive loss mitigation program to deal with at risk customers in the portfolio. At the heart of that program was a loan modification effort, a proprietary loan modification effort, which featured at its heart an industry-leading combination of interest rate reductions, term extension, and principal balance forgiveness to arrive at a sustainable payment for the borrowers. And I am happy to say that through this date, the re-default rates on our modifications of this portfolio are running at about half the rate of the industry average for comparable products. So we are very pleased with our loss mitigation efforts.

 At this point in time, nonaccrual levels continue to grow in the portfolio, primarily driven by foreclosure moratoriums, judicial state timeline extensions, and working with borrowers on modifications. We will talk a little about non-accruals a little later on here. Additionally there are features in this portfolio that I believe make it compare favorably to other pay option portfolios in the industry.

 So, first, let's jump into some numbers here. I will start with the principal balance. The portfolio we acquired is $117 billion of customer principal balances. At the time of the acquisition, we split the portfolio into two pieces, the purchase credit impaired portfolio, which, as Howard mentioned, we wrote down based on the estimated lifetime loss content, and the non-PCI portfolio. You see here the non-PCI portfolio, the balance productions of about $7 billion over the last five quarters, has primarily been driven by prepayments. Many of the borrowers in this portfolio have equity today and are able to purchase or refinance into their next mortgage.

 The PCI portfolio, on the other hand, is more credit stressed, and here we see the balances decline by about $9 billion, primarily driven by short sale and foreclosure where the loans are resolved and principal forgiveness as part of the modification program. So in aggregate, balances are down by $17 million.

 Now some of the most common questions that I get about the portfolio are about the adequacy of the non-accretable difference and about how that accretable yield really works. I'm going to de-mystify that over the next few slides. I am going to take a little bit of a deep dive into the accounting.

 First, I'm going to start with the PCI portfolio. This is our disclosure on the PCI portfolio from the March 31 press release. You'll see that when we acquired the portfolio, we assigned $26.5 billion of non-accretable difference to cover the lifetime loss content on that portfolio. Since then we have allocated -- reclassified -- excuse me, just under $600 million out of non-accretable difference to accretable yield based on the performance in the portfolio. I'm going to talk about that a little further later on.

 The remaining $11.4 billion has been consumed in two ways, and I have broken out a table below to show you that. $5.4 billion has been consumed by loans that have been resolved through loan modification, short sale or foreclosure, and I will show you a breakdown of that coming up on the next slide. The remaining $6 billion is actually allocated to loans that are still here on the portfolio but are severely delinquent and very likely to go to loss. So remember those numbers as we go through the next couple of slides here.

 First, the $5.4 billion. It is broken down into two pieces. The left-hand column here is the principal balance that I showed you a couple of pages ago. The right-hand column shows the consumption of the non-accretable difference over the last five quarters. The loans that are paid in full or are partially amortizing do not consume any non-accretable difference. $5.9 billion of loans have gone to short sale or foreclosure, and we have taken loss on those loans that is known now. $2.7 billion, about a 46% severity on the loans that have gone to loss. And the other $2.7 billion are loans where we have forgiven principal as part of a modification program. That is a dollar for dollar consumption of non-accretable when we do principle forgiveness. So this is the $5.4 billion has been consumed of the non-accretable.

 As I mentioned before, just under $600 million was reclassified from non-accretable difference to accretable during the fourth quarter and the first quarter of 2010 based upon the credit performance of the portfolio both realized and estimated. I am going to talk for a little bit more in a minute about accretable yield. But these three items are important parts of the consumption of non-accretable difference.

 Now I'm going to bring in the severely delinquent loans. The first row is where we left off on the prior slide. The second row shows the $6 billion that has been allocated to loans that are 180 days or more past due. There is about $14.6 billion of principal balance associated with those loans. If you do the math, the severity calculated is about 42%. We actually do loan by loan of valuation of estimated recoverable value on these loans. So these are the actual estimates of recoverable value on these transactions should they go to loss. We will continue to work with borrowers all the way through the foreclosure process to see if there is a modification or a chance for that borrower to return to performing status.

 So here is how I think about the remaining non-accretable difference we disclose, the $14.5 billion. It is associated with $38.7 billion of remaining principal balance in the PCI portfolio. There's a couple of interesting characteristics about this remaining balance.

 First of all, almost 80% of the loans are current today, and the majority of them have never been delinquent in the entire life of their mortgage. Now how they are going to perform in the future is going to be an estimate that we are going to keep monitoring very closely.

 The other point I wanted to make is the average loan to value of these loans is at least 15 percentage points better than the loans that have already gone to loss or are highly delinquent. So should the loans that are in this $38 billion actually go to loss, absent a further deterioration in the housing market, it is likely that the loss content should be lower than those that have all ready gone to loss.

 Now I'm going to turn to the accretable yield. The accretable yield, when we took the non-accretable difference, the remaining carrying value does have a yield. The accounting model for the accretable yield is to provide for a level yield over the life of the asset based on estimated and realized cash flows. We estimate these cash flows every quarter using a combination of realized events as well as models.

 The forces that will drive the accretable yield are listed below here. They include the underlying interest rates of the loans, the pre-payment activity that is going on, the timing of liquidations, as well as the credit performance of the loans and the delinquency rates. Over the last five quarters, the accretable yield has ranged between 5.05% and 5.34% in each of those quarters. It has been relatively stable even as the indices tied to these loan balances has fallen because at the same time we have improved the credit performance of the portfolio through the loan modification program.

 In the future we will continue to monitor the performance of the re-defaults, as well as the cash flows coming from the portfolio in order to calculate that accretable yield at each time period.

 Now I'm going to turn to the non-PCI portfolio. The non-PCI portfolio is accounted for like a traditional held for investment asset, identical to all the rest of our consumer real estate portfolios using FFIEC accounting standards. Loans are placed in nonaccrual when they go 120 days late. Accrued interest is reverse. When the loans hit 180 days past due, we do an appraisal, and we charge loan off to estimated recoverable value. We continue to work with the borrowers. If the loans stay delinquent, no less than every six months we get another appraisal on the property, and if there is subsequent deterioration in property value, we take an additional charge-off at that point in time.

 So while the nonaccrual balances have been growing, I don't see growth in nonaccruals an indicator of loss deferral in this portfolio. Additionally we disclose various slices of the nonaccrual balance. This is from the first-quarter disclosures. You can see here that about 75% of the balances of nonaccruals have been charged off through the P&amp;L. The remaining 27% represent loans that are between 120 and 180 days past due. The loss content on these loans is fully considered as part of our allowance.

 Now there is a lot of accounting. I'm going to move onto the portfolio of characteristics. First of all, when we acquired the portfolio, about 85% of the loans had negative amortization pay option future associated with them. Since we have acquired the portfolio and primarily driven by the loan modification program, which removes the negative amortization feature when we do a modification from that borrower, we have now a portfolio that is less than 70% pay option product. And you can see there that about 18% of them represent modified loans, and the balance are fixed-rate and hybrid ARM loans that are not pay option products, not pay option ARM products.

 Additionally with the decline in interest rates over the last few quarters and the modification programs, which include principal balance forgiveness, the deferred interest outstanding, also known as the accumulated negative amortization, has declined for the last four quarters.

 Recast. Recast is a significant issue for some portfolios in the industry. However, the Wachovia, Golden West portfolio was primarily underwritten using 10-year recasts. This means that in 2010 we will only see 115 loans. That is not a typo. 115 loans out of over 225,000 pay option products recast with a payment increase of greater than 7.5%. In the next three years, there is very minimal level of recast risk in this portfolio.

 Loss mitigation efforts. As I mentioned earlier, we very quickly when we took over the portfolio embarked upon a loan modification program. At the heart of the loan modification program, we fully underwrite and document the borrowers income, and as I mentioned earlier, we reestablished the terms of the loans, including principal balance forgiveness to provide for a sustainable, meaningful payment reduction for the borrower, which we believe is very important to modification success.

 Since the beginning of 2009, we have completed over 57,000 proprietary loan modifications and forgiven over $2.8 billion in principal balance on these modifications. However, for some borrowers, modification is not a loss mitigation option, in which case we pursue short sell. I have been very pleased with the efforts of the team on short sales. We have completed over 11,000 short sales out of this portfolio. Short sales are better for the borrowers, better for the communities, and better for the loss content in this portfolio.

 In the event that a short sell is not an object for the customer, we will proceed through the foreclosure process and take title to the property as real estate owned. There is a narrative out there about banks sitting on inventory or holding inventory once they take title of the property. Nothing could be further from the truth for Wells Fargo. We moved very quickly once we take title to dispose of the property.

 In the first quarter on average, from taking title all the way to loan sale completion was less than 80 days. That includes preparing the property for sale, marketing it, and going through the closing process with the next homeowner. We have very aggressively manage this inventory to move it out as quickly as we can. We do not want to be in the property management business.

 The last thought I will leave you with is the early-stage delinquency rates. Very pleased with the recent performance of early-stage delinquencies. You can see here on both the PCI and the non-PCI portfolio current to 30-day delinquent roll rates have been improving steadily for the last few months. In fact, on the PCI portfolio, those roll rates are the lowest rates they have been in almost two years, and on the non-PCI portfolio, the current to 30-day roll rate is better than it has been in over a year. This is a good sign if borrowers slow down becoming delinquent. As we continue working with them, we will have less nonaccrual inflows going forward.

 So, in conclusion, when we acquire the portfolio, we understood the risks. We very quickly embarked on a loss mitigation program, which includes loan modifications, short sales and other loss mitigation tools and efforts. The hard work of the team has resulted in both realized losses to date and expected lifetime losses in the portfolio to be better than the acquisition model.

 Thank you very much for your time, and now I'm going to turn it over back over to Mark Oman for some closing comments. Thank you.


 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [1]

 Thanks, Franklin, and thanks, Mike and Cara. Very well done. I'm going to wrap up very quickly. We have a break coming up, and we are a little over time so I will be very brief.

 As you heard today, we have been very successful for many, many years executing a consistent and disciplined approach to mortgage banking, and we believe that we are very well positioned for the future. We are competing today on the most level playing field that we have ever had, and we think this really allows us to leverage the competitive advantages that we have built and that we have. We have a great brand. We have tremendous distribution. We have fabulous partners. Love you guys. We mean that. We really love these guys. We have the skill, and, as you have heard, we have the scale. And we have the tools, and we have more coming, and we have the talent. We know what it takes to win, and importantly we have built a culture that competes to win long-term in a manner consistent with our vision and values.

 Importantly, we have strong momentum, and, as we look to the future, we think we are very well positioned. We are excited about the opportunities ahead of us, and as John said, we would not trade places with anyone.

 So with that, I guess it is time for a break. Any guidance on how long -- 3.05 to come back together. Thanks, again, for your attention.


 Carrie Tolstedt, Wells Fargo &amp; Company - Senior EVP, Community Banking [1]

 Good afternoon. I'm Carrie Tolstedt and I have the honor of leading the Community Bank at Wells Fargo. We've organized our presentation into three categories, beginning with a business overview, then we'll discuss our competitive advantages, and close with our opportunities.

 As you may know, we have an external and internal definition of Community Banking at Wells Fargo. Externally, our Community Banking reporting segment includes the mortgage company, Wells Fargo Financial, among others. Community Banking, as we manage it day-to-day, includes regional banking -- the largest, and we believe, the best coast-to-coast branch distribution network in the United States, serving over 20 million households, approximately one in 5 million -- or one in five American families, with nearly 6,600 branches, what we call stores, and over 12,000 ATMs. Retail banking also serves over 2.5 million small business and business banking relationships.

 Our online and mobile banking channels, with over 17 million active online customers, and over 3 million active mobile users, already serve three out of four checking accounts and are an increasingly important access point for our customers.

 And our customer contact center, what we call Wells Fargo Customer Connections, we have 31 centers and 12,000 team members. Whether by voice or through email, we handle over 500 million customer contacts annually.

 Also included in Community Banking is the Diversified Product Groups led by Mike James, whom you will hear from later. This team includes product development and management of consumer and business deposits, and home equity. It also is responsible for supporting the Small Business and Business Banking segments, with infrastructure, credit underwriting and risk management, modeling and analytics, and leadership for services including business direct, business payroll services, SBA lending and merchant services.

 In many of our products and markets, we're a national leader, including being number one lender to small businesses in the country. Enterprise marketing coordinates the Company's brand and advertising strategies including customer insight, market information and analytics.

 All told, Community Banking represents around 120,000 team members who collaborate every day to help our customers succeed financially. Our core advantage for Wells Fargo is our brand. For over 158 years, the Wells Fargo brand has stood for strength and stability. We're only one of about a dozen US public companies of that era that still operate in its founding business under its founding name. This is a source of pride of all team members who are tasked with protecting and enhancing its value.

 As this slide shows, our brand has been ranked among the most valuable in the world and even the most valuable in the US-headquartered banks. Our brand's promise focuses on what we stand for, how we differ, and why customers should care. The promise is this -- we'll take the time to understand our customers' complete financial picture, and together, we'll work with them, now and over time, to provide the best information and guidance about the products and services they might need to help them reach their financial goals.

 For decades, we've developed, refined, and executed a growth business model that we believe is unique among financial services companies. I will describe this model over the next few slides.

 It starts with out-local the nationals and out-national the locals. As the name of our business suggests, we are community-based. And by community-based, we mean not just a bank that happens to be in the community. We're local first, then national. We may look like a national bank, with the convenience of national distribution, a broad product line, and superior technology and systems; but we act like a local bank, with local leadership making decisions closest to the customer and the communities, and with full accountability to run their business.

 We have over 60 regional presidents managing over 200 major markets and thousands of communities in 39 states and the District of Columbia. Ours is a decentralized model with centralized expertise and shared outcomes built on the understanding of control, profitability, and growth.

 Our regions have full P&amp;L accountability. Our product team P&amp;Ls are aligned with the geography, so that both share in the success. To execute this model requires a careful balance of elements that we have refined over decades. A combination of experienced team members, careful checks and balances, solid risk management, and clear accountabilities all built on a solid foundation of trust. Our business model has delivered over the long-term.

 As you can see on this slide, our model is centered on our customer and we focus on three areas. First, we want to acquire new customer relationships. Second, we want to deepen product ownership by understanding our customers' financial needs and delivering product solutions to meet those needs. Many times this is about customers consolidating their business at Wells Fargo.

 And third, we strive to retain our customers' business over a lifetime. Our model delivers value, including unparalleled distribution in the United States, a great customer experience, product leadership in critical areas, continued innovation to stay relevant with our customers, and the ability to serve all our customer segments while managing risk.

 As a result, we pay close attention to customer focus measures, such as household growth and cross-sell, listed on this slide, and others not listed, such as sales, deposit growth and customer loyalty. As we've said for many years, if you help your customers and serve them well, they'll reward you with more of your business.

 Simply put, our model translates to service, advice, and people. How do we operationalize that? One team member at a time across all of our channels -- that's where our customer and team member engagement processes come into focus. They are the leading indicators to the health of our model.

 We translate these into understandable actions that lead to excellence and execution. There are three parts to our customer engagement processes. Welcoming -- how a customer is welcomed to a Wells Fargo store sets the stage for how a customer perceives the experience. Delivering value -- ensuring mastery of needs-based selling processes, and building lifelong relationships by continuing to learn about the customers' needs and proactively reaching out to them over time.

 Team member engagement also includes developing great managers and coaches, talent managers, learning and development, rewarding recognition, among others.

 The combination of Wells Fargo and Wachovia gives us a once-in-a-lifetime opportunity take our model to the next level -- adding the strength of Wachovia, some of which are shown on this slide, including the industry-leading customer experience, ability to deliver the massive fluent customer, and an extensive distribution network in the east and southeast. We're almost through the integration of Wachovia customers in the states where we have overlapping distribution. Texas is our final overlapping state and we will convert in July.

 We begin the conversion of the Eastern states later this year and into 2011. We're not waiting, however, to integrate the proven practices of our organization and take advantage of our shared opportunities. There are many aspects of our business models, and we believe are a competitive advantage -- not easily copied or replicated. Our advantages don't stand alone. Instead, they build on one another, creating a system to drive value. Like Mark's businesses, supporting our day-to-day process and practices around our strategic advantages is data, analysis, control pilots, and a quest to take learning and execution to the next level.

 There are four advantages that we'll review. First, we'll talk about our unparalleled distribution and our industry-leading multichannel network, which promotes household acquisitions, geographic distribution, and cross-sell momentum.

 Second, our experience in cross-sell. Our goal is to offer value-added and integrated solutions to build relationships with consumer and business customers. When executed well, this results in greater value for our customers and a higher profit per household.

 Third, we'll discuss our customer experience and how the service we provide helps to build lifelong relationships, enhance our reputation, and can lead to higher customer loyalty and household retention.

 And finally, our most important competitive advantage, our people. Nothing happens without a great team. I believe we have the best, most experienced and talented team in the financial services industry, and our team has only been enhanced with the Wachovia talent.

 Let's start with distribution. Our distribution channels work together to provide customers with products, services and information. Our banking stores, the most in the United States, are densely distributed, providing convenience to our customers. Approximately half of census households and businesses in our footprint are located within two miles of a Wells Fargo store or ATM.

 The network is also in great markets. We're located in 15 of the fastest-growing states in the United States and in 18 of the 20 largest metro areas. For years, some have speculated that banking stores are becoming less relevant. We don't think so and neither do our customers.

 In fact, we have conducted nearly 0.75 billion transactions through them annually. These transactions are often important sources of sales and cross-sell for our bankers, as they recognize the changing needs of our customers over time. And we have the third-largest bank-branded ATM networks in the country.

 The ATM is the bank for many of our customers. At Wells Fargo, all of our ATMs are Web-enabled. Not only are these ATMs typically faster and easier to use, the technology allows for targeting messaging, You Know Me features that remember transaction preferences, and smart offers to customers using them. Nearly half of our ATMs are envelope-free, and California is completely envelope-free. And we're deploying Web-enabled, envelope-free machines to the east.

 Our award-winning online and mobile channels now host over 2.6 billion visits per year and climbing, averaging 10% growth a year. Our mobile channel serves over 3 million customers. These channels drive customer engagement, and are a source of customer satisfaction and increasing levels of cross-sell and customer connection, which includes our phone banks.

 While this channel can be a customer access for accounts, it also is a critical distribution point for answering questions and resolving issues for customers. We are dedicated to resolving customer questions on their first call, and do so eight out of 10 times, as you can see on this slide.

 We apply extensive analytics and modeling in managing our distribution. We deploy a mix of format types to help keep costs controlled and gain a density advantage. Why does distribution density matter? We've learned customers demand convenience and may choose their bank based on its location.

 Much like other retailers, we seek to optimize our banking store population coverage, which is plotted along the X axis of this illustrative graph on this slide. This is important to gaining sufficient household share in any given trade area, represented by the Y axis. Without enough distribution, the lower end of this curve, it's very difficult to provide the level of service and convenience necessary to grow household share.

 There are also points near the top of the curve, where you might have too much distribution; and therefore, likely too much expense for the level of household share. Within a range of household coverage, the steep part of the curve, you can enjoy benefit of network economics where you can often add households at a faster rate than you add distribution coverage. We have strategies for each plot on the curve that might include a combination of building or consolidating stores, or maintaining existing distribution.

 Our distribution density provides us at least three advantages. One, deep household penetration in great markets. We have relationships with 20% or more of our households in 13 of 18 major metro markets in the country and over 30% in seven.

 Two, a barrier to entry. We believe competitors with low density will find it difficult and expensive to gain sufficient distribution in the right locations in many of our markets.

 And three, continued market share growth. We believe we have opportunity to continue to gain household share as we add distribution to areas where we're under-represented. We opened 70 new stores last year and 11 in the first quarter.

 Customers can use our channels when, where, and how they choose -- and they do. Customers are increasingly demanding -- demanding that all channels work together to deliver a seamless experience. They compare their cross channel experience to other retailers, like Apple, Target, or Best Buy, and ask, why can't my bank do this too? Well, we can, and we're working on it.

 We provide some examples on this slide, many of which are in pilot or development -- like eReceipts, where we'll send your ATM receipt to your online mailbox, saving paper and providing a way for filing transaction records; or make an appointment, where a customer can set up a preferred time to meet in the store through their online channels. We'll have live demonstrations of many of these during the exhibits at tonight's dinner, and Avid, my partner in Technology and Operations, will cover more of our innovations later today.

 As the chart demonstrates, there is evidence to suggest that multichannel usage is a contributor to household profit. That's the goal. We want to invest wisely to drive cross-sell and increase customer engagement while keeping costs controlled.

 As this slide demonstrates, our distribution has helped us grow households faster than the market in which we do business. We added over 400,000 retail bank households at legacy Wells Fargo in 2009 and we look forward to serving these customers for years to come.

 Cross-sell is at the core of our customer-centric strategy -- an advantage that we have proven over decades. We view ourselves as a distributor that delivers a wide variety of products to a proprietary systems of channels. I have been with Wells Fargo for over 20 years and the Company has been focused on cross-sell since I can remember. And we continue to get better every year, constantly finding ways to innovate and perfect our processes around our unrelenting commitment to earn all of our customers' business.

 Retail household cross-sell at Wells Fargo has consistently grown for over 10 years. Cross-sell is simple math -- the total number of Wells Fargo products our customers own, divided by the total number of our retail households. And that's about all that is simple about it.

 Our cross-sell focus starts with customer needs. As we mentioned early, we continue to grow our households. As seen in the upper left chart, we have gained over 2.2 million net new households at legacy Wells Fargo since 2003, reflecting our ability to both acquire and retain customers. This actually can dilute our cross-sell rate, as new households typically start their relationship with Wells Fargo with fewer products than our existing households. So, as we grow new households, we must continue to expand with existing customers. At the same time, our team needs to innovate and improve new account cross-sell.

 One way to facilitate this is our product design. Our products are designed to work together to provide clear value for our customers. This requires systems, technology, operations, partnership across business lines, to develop and manage the product linkages that provide customer value.

 One way we communicate this is through packages -- a combination of a checking account and at least three additional products. As you can see in the upper right chart, nearly 8 of 10 new consumer and small business checking accounts buy a package from us today. Packages help with new account cross-sell. We must also sell deeply to existing customers. As noted in cross-sell by tenure charts on the bottom left of this slide, customers may start their relationship with perhaps three or four products; and it grows over time.

 As you can see, we have expanded product ownership across all tenure bands since 2004, an indicator of our improved effectiveness at deepening cross-sell.

 And finally, all this translates into higher household profit, as cross-sell increases. This profit growth is not linear; rather it typically accelerates over time, as financial needs tend to get more complex, as do product solutions that satisfy them, and the marginal cost of adding a solution to an existing customer is low.

 To ensure we're ready to satisfy the next financial need of our customers, we must have the right number of platform bankers ready to reactively and proactively serve them. We manage what we call the household coverage ratio, or the number of households per platform FTE, as seen in the upper left chart. At Wells Fargo, while we grew our store network by about 10% since 2003, we nearly doubled our platform bankers' sales force during that same period. This brought our household coverage ratio down from 950 in 2003 to 635 last quarter.

 As we've added platform bankers, they're also more productive, as measured by solutions per platform per FTE per day. The upper right chart shows that. What do we do? It includes hiring for fit to increase time in job; training processes to reduce speed to competency; product development; systems aligned to our sales process; enhanced staffing tools; store hours; contact events; lead and management systems; customer offers at desktops; sales process and management -- all contribute to a more productive banker, and we manage each of these and more.

 In our business, the key to consistently growing household profits is consistently growing sales while managing our cost of sales. The bottom left side chart shows that we've grown sales at double-digit rates year in and year out at Wells Fargo, from both increasing our productivity and adding bankers. In 2003, we sold 11.5 million products compared to last year, when we delivered over 26 million solutions to customers' needs -- more than double. And in the first quarter, we had a record 7.8 million solutions, up 16% last year.

 And finally, as shown at the bottom right chart, at Wells Fargo, we've reached a record six products per retail bank household, up from three products at the time of the Wells Fargo/Norwest merger. Wachovia is at 4.85, a wonderful opportunity that Laura Schulte will speak to later.

 We calculate that consumers and businesses conceivably purchase 14 to 16 products across financial services providers. We want to win all of our customers' business but we're aiming for eight. Already, 26% of our households have eight or more products. We deliver many of our products our customers may purchase from other providers through partner businesses at Wells Fargo, such as our mortgage team, our insurance team and student lending.

 You've heard Kevin and Karen and Mark talk about the opportunity earlier, and you will hear David Carroll talk about it more tomorrow. We've referred nearly 1.5 million closed product solutions to our partners last year, not including Wachovia and not including our wealth, brokerage and retirement activities.

 We transferred nearly $3 billion in legacy Wells Fargo retail deposit balances to our wealth group last year, as customers grew their relationships such that they were more appropriately served in that business. We continue to leverage our retail banking franchise to cross-sell partner products, and we have thousands of Wells Fargo advisors and home mortgage consultants in our stores.

 Service matters, and we have a long-standing focus to deliver a world-class customer experience where the customer is emotionally connected to our Company. Wachovia is making us better. We perform over 250,000 telephone shops per quarter for store and phone-transacting customers. With that data, we analyze the indicators and activities to drive a quality customer experience at the right level of investment.

 Each one of our stores receives feedback from these surveys daily. Since we began this survey process in 2004, we've conducted millions of customer interviews and dramatically improved the customer experience in our store.

 We're striving for loyalty, not just satisfaction, and our customers are more loyal than ever before. We believe in order to be best-in-class, a customer must give us top box, strongly-agree response to every question on their surveys. We use these surveys in examining many customer experience factors, including loyalty, satisfaction with the most recent visits, and satisfaction with wait time.

 As you can see on the table on the right, 59% of our surveyed customers who conducted a transaction with a teller or had a conversation with a banker in the first quarter were loyal to Wells Fargo. 81% were extremely satisfied with their last visit. And we're learning from Wachovia and have replicated many of their processes, including the key driver metric.

 We measure the customer experience in all of our channels, as this table shows. We believe the experience we provide differentiates us, whether in a banking store, at an ATM, online, or on the phone. While the channels must work together seamlessly, they must also be accountable for the customer experience. We say we are only good as our last interaction. A customer relationship is built over time and is based on a series of transactions and experiences. We measure the business impact of customer loyalty, and we see the more loyal customers buy more, stay longer, and are more profitable.

 That takes us to our single biggest influence our customers -- our people, which brings us to our engaged, caring, diverse, highly energized team. Our team members come to work to make a special connection with customers each day. We must recruit and retain the best talent, ensure people are doing what they do best every day and provide a great place to work.

 Our team engagement results, combined with Wachovia team members who took this for the first time last year, show we have 5.3 engaged team members for every one actively disengaged team member, comparing very favorably to the US working population of 1.5 to 1.0. We believe that when team engagement grows, team member retention improves, productivity grows, and the customer satisfaction and loyalty increases.

 Our Company's vision, values and cultures are core to how we get our work done and what we expect. Our local leaders and managers are the link between our vision and values, our team members and our customers. They are responsible for creating healthy, engaging and fun work environments.

 As you can see by the table, our leaders are experienced. Our store managers have been with the Company an average of 10 years; business bankers, an average of nine years; community bank presidents, an average of 19 years; and our regional presidents have been with us over 21 years experience with Wells Fargo.

 Our leaders have lived our vision and values for years. They know how to make solid business decisions, and they know how to work together and with their partners to get things done. Our team's tenure represents more than years at a Company; it represents volumes of knowledge and experience that could never be catalogued. And it represents a commitment to who we are, what we stand for, and where we're trying to go. The combination of our competitive advantages provides a source of confidence as we go forward to seize our opportunities.

 In this section, I'm going to cover how we're working to continue to grow the franchise, acquiring new customers, and expanding existing relationships, leveraging our largely fixed infrastructure.

 Mike James, head of the Diversified Product Group and a 36-year veteran at Wells Fargo, will talk about opportunities with his segments and businesses he leads. Laura Schulte, a Wells Fargo team member for over 28 years, the Regional President for the Eastern Region, which includes most of our Wachovia distribution, will talk about how they've adopted the Wells Fargo cross-sell model and are beginning to see the early benefits.

 And then Lisa Stevens, who has been with Wells Fargo for over 20 years, is our Regional President for California. And she will review how we're adopting learnings from Wachovia while we continue to expand relationships with our existing base in the West.

 Let's start with growing the franchise and creating operating leverage. There are at least three areas that we are focused on.

 First, we must continue to acquire new and retain existing households. We believe the checking account is the cornerstone to building a full relationship with our customers. Second, we'll talk about product design and management, specifically, the package strategy. And third, we're continuing to build out our mass affluent partnership with our wealth, brokerage, and retirement team.

 We're the largest retail deposit bank in the US. We have number one or two share in 24 of our 39 states, including Arizona, California, the Carolinas, Colorado, Florida, Georgia, New Jersey, Texas, and Virginia. We're first or second position in 13 of the nation's 20 largest metro areas where we have banking presence, including Atlanta, Denver, Houston, Los Angeles, Miami, Philadelphia, Phoenix, and San Francisco.

 Our share, breadth and depth of distribution, coupled with the strength of our brand, has continued to help us grow the franchise. Checking accounts were up 7% from the prior year for both consumer -- for the consumer business and a net 4.5% for the small-business business.

 We grow checking accounts in at least three ways. First, we're positioned well to acquire new customers. We already have number one share in 20 of the fastest-growing MSAs. Even if we were only to maintain share in these markets, we would experience growth.

 Second, our partner businesses present incredible opportunity, particularly with mortgage, wealth, brokerage and retirement. In mortgage alone, over 5 million households don't yet have a Wells Fargo checking account.

 Third, we must continue to retain customers by delivering a value-added advice and a great experience. While net checking growth is core to growing the franchise, we don't believe a customer is fully served by holding a checking account alone.

 To experience the full value of Wells Fargo, we want all of our customers to understand the benefits of an account access and the convenience of everyday banking through a debit card, managing account balances via mobile, paying bills by online, saving through one of our many savings options, having a home equity line or line of credit, or having overdraft protection linked to a credit card.

 We communicate these benefits through packages. Packages position us to offer the next product as a customer's needs change, and ultimately, build a lifelong relationship with greater household profitability over time. We believe packages also lower our cost of sales. If we demonstrate the value of multiple products during the first sales conversation, the fewer one-off contacts will be needed to sell the same products in the future.

 Nearly 8 in 10 checking customers purchase a package from us today. An emerging opportunity is what we call Pack Plus, a checking account and four or more products. In Arizona, they're already selling one in three customers a Package Plus. We're also focused on the opportunity at Wachovia, where 27% of customers purchase a simulated package today, very similar to where we were at Wells Fargo when we initiated packages in 2003.

 The chart on the right shows how retention improves as household cross-sell increases. Whereas about 70% of single service customers might stay with us over a year, we retain approximately 98% of households over 10 years -- over 10 cross-sells. This demonstrates the importance of continued cross-sell over the life of the customer relationship.

 Our focus on building lifelong relationships, ensuring customers experience our full value across many products and channels, also helps us to keep our industry-leading low-cost deposits. We pay competitive rates that generally are decided weekly by local committees, region-by-region across our network. We're disciplined in how we view our relationship product pricing. Our deposit mix skews towards checking and savings, and fully 95% of our core deposits in the Community Bank are lower-yielding categories.

 Managing expenses is a core accountability. With different macroeconomic factors during any given cycle, our team must adapt quickly to changing circumstances. As a result, we insist on breakevens on investments that add to the expense base.

 We deploy staffing models in major job families and expect productivity increases each year. We review the distribution network for consolidation opportunities within our distribution strategy discussed earlier. And we've developed an investment methodology for equipment, driving innovation without large increases in run rate expense. We highlight many investments to prove them out first, carefully considering scalability, understanding many will revert to the main in full production.

 As a result, despite significant increases in stores, in bankers, in new ATMs, in new store technology, legacy Wells Fargo regional banking improved its efficiency ratio by 4 percentage points since 2003. We leverage our fixed cost infrastructure by growing households per store and adding bankers to serve them.

 At Wells Fargo, we average 3,500 households per store and have as many as 17,000. We place in the store on average more than five platform FTEs to serve the households. And depending on the actual number of households per store and the mix between mass-market, small business, and mass affluent, many of our stores require platform bankers, with our highest store having 27. More platform bankers serving more households, while growing in productivity and effectiveness over time, results in more solutions. Solutions per store for Wells Fargo were more than 7,800 in 2009 per store, double what they were in 2003.

 An important outcome of these leveraging activities we believe is deposits per store. Deposits per store are a proxy for franchise value. We view deposits per store as akin to retailers' sales per square foot. Once you have reached breakeven on the store investment, our cost of raising an additional $1 of deposits is very low and our franchise value can increase. Based on the latest publicly available data, scrubbed to eliminate non-retail deposits, Wells Fargo deposit per store were 40% higher than the industry average.

 At Wells Fargo, we have a long and proud history of the mass affluent strategy in partnership with our wealth group. With the addition of Wachovia, we have new insight on how to increase our effectiveness and gain share of wallet against the opportunity, including the retirement and investment business. David Carroll, my partner, and his team will highlight the cross-sell opportunity tomorrow in greater detail.

 Now let me introduce my friend, Mike James, who will talk about his Business and the Diversified Product Group. Mike?


 Mike James, Wells Fargo &amp; Company - EVP, Diversified Product Group [1]

 Thanks, Carrie. I promise you I'm not going to talk as long as Carrie.

 Good afternoon and thank you for attending. I'm going to brief you on four areas that I'm responsible for at Wells Fargo. The Small Business and Business Banking segments, these are customers that are served in the regional bank; Wells Fargo Dealer Services, which is our auto business and home equity. All of these businesses are significant asset generators for our Company.

 Start with small business. We assist these customers -- which we define, by the way, as customers with less than $2 million in annual sales. And they're really serviced through our banking stores, through our five dedicated business phone banks, our award-winning online banking service, and our private support teams.

 The product support teams are responsible for product development, marketing analytics, credit underwriting, pricing guidance, and risk management.

 We believe our store-based small business model works, because working with a small business owner is the same as working with a consumer, in that they have really the same needs. They need checking and savings accounts; credit and debit cards; loans and lines; investments, insurance, information reporting. The big difference between a small business customer and a consumer is that a consumer gets a paycheck that's pretty dependable. A small business owner needs to build a product or service; they've got to sell it; and they've got to collect their money. So this makes the life of a small business owner much more complicated and it makes managing the relationship for us more complex.

 We've had dedicated resources focused on the small business market since the early 90s. And these customers have proven to be an excellent source of low-cost deposits to us and an attractive source of loans for our Company.

 The other segment, Business Banking customers, which we define as customers with $2 million to $20 million in annual sales, are served by dedicated, seasoned business bankers who are part of the business banking teams that report locally through the regional bank management.

 The business bankers are the primary point of contact for their customers. They manage the customer relationship and deliver products like cash management and lending. The business bankers also partner with other lines of business to deliver specialized products like merchant services, payroll, international services, investment insurance. They also work with our mortgage company and other groups to meet the needs of the owner.

 This next chart is one way of looking at the results of our small business and business banking efforts. The chart on the left shows legacy Wells Fargo performance data, and the chart on the right shows the combined product penetration rates for Wells Fargo and Wachovia. As you can see, we have experienced significant growth over the last five years, even though 2009 -- 2008 and 2009 were very challenging for these segments, primarily due to business failures and a decline in new business formations in this country.

 We believe there is significant opportunity for growth in both the Small Business and Business Banking segments as the economy improves, by winning new customers and providing more services to existing customers.

 As you can see from the next slide, which are lending statistics, we're open for business and working to meet the needs of business owners. Loan demand in both of these segments has remained soft, as business owners continue to be cautious due to economic conditions. However, we're starting to see some positive indicators.

 We led a national survey with Gallup -- I'll call it our small business survey -- and in that survey, owner optimism, small business owner optimism has improved over the last three quarters. And same store sales in our merchant business, which primarily focuses on this segment, are up year-over-year.

 We also believe that credit quality is improving in these segments. When the economy started to deteriorate in 2007, we took aggressive steps to mitigate our risk on these loan portfolios. Some of the actions that we took included tightening credit underwriting, reducing unused lines as appropriate, and investing in our workout area. Because of these early actions and a stabilizing economy, we believe that losses in our small business and business banking portfolios have peaked. Key indicators would suggest that improvements there, but you know it's always difficult to predict the future, so we'll see.

 The next area that I'd like to talk about is Wells Fargo Dealer Services, which is our business group that's organized around the automobile dealership.

 Dealer Services is focused on meeting all the needs of automobile dealerships. The business is actually a combination of WFS Financial, which was an indirect auto lending business that Wachovia acquired in 2006, GE's warranty service business that was acquired in 2007, and the automobile commercial banking businesses at Wachovia and Wells Fargo.

 The Commercial Services part of this group provides inventory flooring, term debt, cash management, interest rate management, merchant services, and treasury management services to automobile dealers. Both Wells and Wachovia had some very similar business strategies, in that we focused on high quality, multi-franchised dealerships that cover a higher percentage of their fixed costs through their service organizations. This proved to be the absolutely correct strategy, in that the credit quality in this business through the economic downturn and the problems in the automotive industry have been just outstanding.

 Besides providing banking services to the automobile dealerships and wealth management services to their owners through our private bank, Dealer Services also provides auto loans and vehicle service contracts to consumers purchasing cars from our network of preferred dealerships.

 In the indirect lending area, we are the number one used car lender in the country, and our primary focus is on transportation -- transportation lending, which is financing cars that consumers use to get to and from work.

 Our indirect loans are originated in partnership with the automobile dealerships and the 47 regional banking centers that we have around the country. The regional banking centers are responsible for sales, credit underwriting, funding, and late-stage collections in their local markets. Each regional banking center has its own profit and loss statement, and the managers are measured based on meeting profit targets along with risk management and compliance goals.

 The regional banking centers are supported by a centralized team of professionals that do early-stage collections, liquidations, marketing analytics, pricing, and the development and monitoring of risk management systems. Regional banking centers are monitored daily using information technology to track their progress against their goals, and by ongoing audits and business reviews.

 As I mentioned, we're the number one used car lender in the country and we like this business, because we're meeting a customer need and we get attractive, risk-adjusted returns, and we've been able to grow profitable market share, as many of our competitors have either pulled out of the business or scaled back due to concerns about credit risk and/or access to capital.

 This business is off to a great start in 2010. We believe that it is poised to capitalize on the reemerging auto industry.

 This last slide on auto provides some credit statistics on our $31 billion auto portfolio, and there's a profile of the borrowers that we made loans to in the first quarter. This portfolio has performed very well during this economic downturn, and we attribute it to disciplined credit underwriting going into the recession and strong used car prices.

 We believe that we're well-positioned to grow this business by deepening our relationships with existing dealers, acquiring new dealerships within our risk reward criteria, providing more indirect auto lending and vehicle service contract business through geographic expansion, and by maintaining our growing market share as auto sales increase over the next couple of years.

 The last area that I want to discuss is home equity. This is a product that has been a challenging -- it's been a challenge for the industry over the last few years, largely due to credit issues and the weak housing market. Despite these challenges, home equity is still a very important product for our customers, and we remain committed to meeting our customer needs, when we can do so prudently.

 Our strategy is focused on selling to Wells Fargo customers. Today, we primarily deliver this product through our banking stores and the Wells Fargo home mortgage consultants. We also provide the product to existing customers through our customer contact centers and at wellsfargo.com.

 These four distribution channels are supported by our Home Equity Group, which is responsible for product development, pricing and strategy, credit underwriting, customer fulfillment, compliance, portfolio management and risk management.

 While our portfolio has shown deterioration since 2007, we're starting to see some early signs that loan losses may have peaked. These positive credit indicators include an improvement in delinquency rates in the first quarter of 2010, and an improvement in roll rates, which bodes well for the future. These improvements, along with a stabilization in unemployment rates and home prices in many parts of the country, are why we're cautiously optimistic that losses may have peaked.

 Our Home Equity team has taken many actions to manage the risk in this portfolio. For example, we made a sizable investment in the loss mitigation area of this business, both to manage the portfolio risk and to assist customers who are having financial difficulties. Since the beginning of 2008, we have added over 2,000 team members in our loss mitigation area.

 We continue to focus on managing the risk in this portfolio by keeping customers in their home whenever possible or taking other actions as appropriate. 2MP, the government's second mortgage loan modification program, closely mirrors what we do in our own proprietary modification programs, which we've been doing since 2008.

 Here's how 2MP works. If the borrower is approved for a first mortgage HAMP modification, we are notified by a third party vendor that the modification has occurred. The customer qualifying for a first HAMP modification automatically qualifies for a second lien modification. The first mortgage modification under HAMP reduces the customer's first mortgage payment or payment to income ratio to 31%, and the second mortgage interest rate is reduced to 1% or 2%, depending if the loan is amortizing or interest-only.

 Also, if the first mortgage holder does a principal reduction, or a principal forbearance, the second lien holder must also do a proportional forbearance. When we modify a home equity loan, either under the government program or our own proprietary loan modification programs, we take a significant write-down by setting up a reserve to reflect the lower cash flows resulting from the modification -- this is primarily driven by interest rate compression -- and we factor in an estimate of the number of customers we've modified who will default on their modification agreement.

 The re-default rate is based on our experience on our own proprietary modification program and individual customer characteristics, such as credit bureau score, combined loan to value, delinquency status at the modification date, debt service ratio, et cetera.

 As I mentioned earlier, home equity loans are an important product for our customers, and we are booking new loans. This slide provides a view of the customers that we made home equity loans to in 2009.

 Finally, our focus for home equity going forward is in three areas -- managing the risk in the existing portfolio; meeting the borrowings needs of current and future Wells Fargo customers; and improving the customer experience by simplifying the application process without compromising sound credit underwriting principles. Home equity loans are an important product for our customers; and properly underwritten and priced, an attractive asset for our Company.

 Thank you. I'd now like to turn the microphone over to Laura Schulte, who is the Regional President for the Eastern Banking Group.


 Laura Schulte, Wells Fargo &amp; Company - President, Eastern Community Banking [1]

 Thank you, Mike. Our East Coast markets, essentially the former Wachovia footprint in the East, has great distribution. We have presence in 14 states plus the District of Columbia, with over $200 billion in deposits; over 2,800 stores; and 9 million households. We have number one, two, or three market -- deposit market share in 10 of these markets, with banking store share similarly ranked.

 These markets include four of the USA's top metropolitan areas -- Philadelphia, Miami, Washington, DC, and Atlanta. Charlotte, North Carolina, as you know, was the Wachovia headquarters, which was moved to San Francisco. We quickly announced we were maintaining significant operations in Charlotte and other cities in North Carolina at the time of the merger; but still, this would represent a perceived loss to the region.

 In order to ensure we understood the culture, the environment and the impacts of the acquisition and headquarter move, and could learn as much as possible about the opportunities within the Community Bank on the east, I moved to Charlotte from Los Angeles 17 months ago. I quickly learned that the two cultures and teams, while not exactly the same, were extremely compatible. As John sometimes says, while our accents and barbecue may be different, we believe in the same things -- starting with taking care of our team members, customers and communities.

 Because of these shared beliefs, it was easier to begin to take advantage of the synergies of our two companies. Almost immediately, I recognized the Community Banking group in the East was doing many things well. They had some of the most loyal customers I've ever experienced. There just weren't enough team members and bankers in the store to capture the market opportunity.

 With these learnings, we identified four business imperatives -- one, move to the Wells Fargo business model and introduce process elements as quickly as possible before conversion, to capitalize on revenue opportunities. Two, at the same time, we said don't damage what is going well because there is much we won't want to change.

 Third, grow the business while we were waiting for the convergence. We have been doing that, and one result is that consumer checking net gain in the first quarter of 2010 was 6.4% -- significantly above the household formation rate.

 And four, ensure a seamless conversion for our customers, recognizing that we were going to carefully approach this process, customer-driven, not calendar-driven, so it would take a couple of years to complete.

 Our business models were primarily different in four places. The decision-making process, where accountability expectations were placed, how team members were rewarded for cross-sell and partnering across lines of business, and the resources allocated to the market opportunity, which were lower at Wachovia.

 In the first three months of 2009, we established six lead regions across the East to mirror the local management at Wells Fargo. These included retail and business banking leaders. Many of the decisions that had previously been made centrally, such as staffing or market coverage, moved to the local leaders. Many accountabilities, such as operational controls, credit risk management supported by Wells Fargo's policies and procedures, and community strategies all became the responsibility of the local leaders. Our more decentralized decision-making and accountability model, coupled with the strong national franchise, moved us to the out-local-the-nationals and out-national-the-locals model Carrie referred to earlier.

 For example, while Wachovia did have financial responsibility in the field, we added partner referral mechanisms and shared accountabilities to align market and product group P&amp;L's, like we have in the West. Wachovia's well-known customer service history was definitely one of the "don't damage what is going well" imperatives. We went to school on what drove their success. We found many disciplined protocols that were consistently followed and inspected -- an intricate systems of elements. We kept virtually all of them.

 2009 was one of the most tumultuous times imaginable for our eastern team members, particularly for those serving customers directly, like tellers and bankers. And yet, as we endorsed rather than changed or even adjusted their service protocols, customer loyalty and satisfaction with the store experience has actually improved from already very-high level since the merger was announced.

 Also notable is that we assured every customer-facing team member a position in the new Company. Our team members are the single most important influence on our customers. This helped with stability among the faces in the stores and business banking teams, and in turn, built confidence for our customers. We believe no one banks with a company. Everyone banks with the person they know and trust. We're taking great care to maintain and build the engagement of the team as a result.

 Wachovia and Wells Fargo had very similar retail sales processes for their bankers to follow. As a result, the Wachovia bankers were very proficient in needs-based product and services assessments. The difference and the opportunity was in the focus on cross-sell expectations, and the coaching and incentives that supported their processes, as well as the investment in people and sales capacity to capture the market opportunity.

 This page represents the most significant changes we've made since the merger, and the changes that have had the most material impact on driving our customer-focused success indicators and metrics. In the first 12 months, we completely changed the leadership model at the retail line of business to align with Wells Fargo. We moved to a region-based, market-focused organization. We added leaders and reduced the span of control.

 Previously, there were multiple points of leadership for sales, service and operations in the chain of store leadership at Wachovia. We introduced a store manager role responsible for all revenue and cross-sell that could be generated in the stores through the products we distribute and the partners supporting them. We completely changed the business banking model, moving accountability for portfolio management and credit administration closer to the customer.

 Incentives were more balanced with a mix of customer acquisition and retention, cross-sell, and risk management. Every retail and business banking leader placed has a more holistic and balanced view of their roles. And everything from risk management, resource allocation, responsibility for service and sales, to expectations for ensuring their team's engagement -- all grounded in our Company's vision and values.

 I've been involved in a number of transitions over my career, and I have never seen a team absorb and want to live our vision and values more. I believe most of them could recite its themes as if they'd written it themselves. They reinforce it daily with their teams, and this has been a huge positive in aligning the culture.

 By the end of 2009, all 29,000 team members had new job expectations, completely new incentive plans that aligned with those expectations, a much more decentralized way of making decisions based on what was right in their local markets. We closed the year feeling good with a sense of urgency and exuberance to move forward as the new combined Company, and began to grow the business while we were waiting for the conversions.

 There are really two critical drivers in the retail business -- how many customers you interact with each day and what happens during those interactions. As a result, we focused on a more-people-selling and people-selling-more approach to growth that has included several factors.

 We added bankers to existing stores, sometimes needing to remodel to add desks. We also continued to invest in new stores, opening 54 since December of 2008. We engaged everyone in the store in identifying solutions to customer needs, including tellers and customer service team members who previously had no sales or referral goals.

 Using the same sales skills bankers already had, we aligned expectations and incentives around the retail sales cycle, which, as you know, is really a daily and sometimes hourly sales cycle. We established solutions and profit proxy expectations per banker per day, and incented tellers to refer customers to bankers for a financial checkup or for a specific need that could be identified during the teller interaction.

 We focused on proactivity, reaching out to existing customers by setting minimum expectations per banker for daily appointments, teller referrals, utilization of lead lists, and leveraging our Wachovia At Work and campus partnerships, which are significant acquisition sources for new households.

 Finally, we introduced a one Wells Fargo approach to working with partner businesses for both retail and business banking. We want customers to be introduced to the line of business that can provide the most value to meet their needs. In a perfect world at Wells Fargo, no one owns the customer, but everyone owns the customer experience.

 Through it all, we've emphasized, as Carrie mentioned, that our strategy must be customer-centric, not product-centric. We cannot view any product in isolation. We must view it as part of a relationship that helps our customers exceed financially.

 So what did we learn? Well, in one year, we were able to achieve our goal of more people selling. We currently have 7% more bankers in the stores, and by the end of 2010, we expect to have added a total of 1,300 additional bankers to the East Coast stores since the merger occurred. And we still have a long way to go before we mirror Wells Fargo's household coverage.

 Teller contributions, mainly through referrals, have tripled in one year. These daily referrals per teller are very helpful in creating banker interactions.

 And finally, every position in the store now has a solution or referral goal. Previously, only one-third of the team members in Wachovia Financial Centers had accountability to sales goals.

 Our focus on people-selling-more is really an emphasis on cross-sell and also includes many elements. We review each customer's needs assessment -- that's the process we use to learn about our customer's financial situation -- to make sure we're providing them with information on all the financial products and services that can meet their needs. We track what we call CP3, a checking account plus three additional products, to simulate the Wells Fargo pack penetration until we can convert.

 We also began to track solutions per banker per day. Alignment of incentives to support these goals was important as well. The result was that we doubled the daily solutions per store in our first year. We also increased overall products per household by one-third of a product during that time.

 As you can see by the comparison to legacy Wells Fargo's household cross-sell, we have a long runway in terms of adding products per household by continuing to hone our selling skills and eventually adding more products at conversion.

 This slide really sums up the broad opportunity that lies ahead in the East. Retail households in the legacy Wells Fargo base hold over one additional product on average than Wachovia households. And the highest Wells Fargo market, household cross-sell is more than double where Wachovia is today.

 Wachovia serves almost 1,000 customers per banker compared to just over 600 at Wells Fargo. This clearly represents an opportunity to serve our customers at a higher level and capture more customer business by continuing to add bankers.

 In the Eastern region, the only product penetration that exceeds legacy Wells Fargo is brokerage, which is a result of substantially more licensed bankers and an emphasis on the Mass Affluent Customer segment. As Kevin and Mark mentioned earlier, tactics are already in place to close the penetration gap in other consumer products, which represents significant revenue opportunity.

 Let me wrap up by talking about what really makes or breaks any merger -- or any business, for that matter. It is the people. The more than 2,000 leaders put in place in the Eastern region are nearly all legacy Wachovia leaders, which was by design.

 We strategically placed a few legacy Wells Fargo leaders in each of the six lead regions to help connect the dots, but we found we didn't need to take many people at all from their jobs out West. That's because, to a person, our Eastern leaders are some of the most experienced, talented, passionate, customer-centric, community-focused, resilient individuals I've had the pleasure to work beside. They've embraced our new combined Company with a zeal I've not seen in any acquisition. And in my 28 years at Wells Fargo, I've seen many.

 I'm not sure we could have hand-picked talent any better. I believe the team of leaders we have in the East are exactly the kind of talent we want representing the Wells Fargo brand, and driving the opportunity and revenue that we discussed. I'm confident many of them will become the future leaders across other parts of our Company, as we've added incredible bench strength to our already outstanding talent pool.

 And finally, the team in the field, those that really matter to our customers, possess all of the same characteristics. They are tireless customer advocates. They have experience and tenure, and they want to be part of the new Wells Fargo. And we're so happy they're on our team.

 I hope you can see that just because the signs haven't changed, the Eastern team hasn't stood still. There's been a lot of really exciting progress. Additionally, opportunities remaining will keep things exciting well into the future.

 That's our game plan and journey for the Eastern region. Thank you for allowing me to share it with you today.

 And now let me introduce my colleague, Lisa Stevens, California Region President, who will share what's happening in the Golden State, one of our most important and long-standing markets.


 Lisa Stevens, Wells Fargo &amp; Company - President, California Community Banking [1]

 Thank you, Laura. It's evident the Eastern team has much to be excited about. My colleagues and I on the West share Laura's enthusiasm about the opportunities we have at Wells Fargo.

 It's my pleasure to talk to you about Wells Fargo California's retail business, the positive impact of the Wachovia merger, the recent conversion of Wachovia branches, and our opportunities for continued growth in our headquartered state.

 Wells Fargo has had a presence in California since it was founded here more than 158 years ago. The state still offers significant opportunities for our Company. As the eighth largest economy in the world, California has a population of more than 36 million people and is home to more than small businesses than any other state.

 You can see on this slide Wells Fargo's strong growth in California. Over the last several years, we have grown in several key metrics, including deposits, cross-sell, productivity, net gain and solutions. We're very excited to apply our time-tested business model to the legacy Wachovia banking stores.

 Wells Fargo in California has nearly doubled deposits, tripled the rate of checking account net gain, and tripled solutions over the past six years. With the integration of Wachovia, there's increased opportunity to cross-sell, especially among customer segments like Small Business.

 The combination of Wells Fargo and Wachovia presents many new opportunities. As Laura stated, Wachovia brought us a talented group of team members to add to our already accomplished team. With them came important learnings and best practices. Together, we now have over 1,000 banking stores, the largest retail banking store network in California; and more than 3,200 ATMs; we serve more than 4.6 million customer households, and now over one in every three Californians bank with us.

 The addition of 86 Wachovia stores to our retail network essentially gives us 86 instant de novos as a [help] in coverage gaps in key markets. We should benefit from the network effects this creates, which means more convenience and more places to bank for our customers, which can translate into higher household growth and cross-sell.

 The addition of these stores also helps improve our overall site quality and alleviate congestion in some of the nearby existing Wells Fargo stores. California Community Banking has historically been Wells Fargo's top-performing region for new distribution, with deposit growth in our de novos over 25% higher than the Company's new store.

 As we got to know the Wachovia team members, we realized they have incredible talent and knowledge, along with an enduring commitment to outstanding customer service. I am delighted that we have been able to retain almost all of our customer-facing Wachovia team members. This is in keeping with our long-held belief that people are our most important competitive advantage.

 We have also retained senior level managers. For example, our Greater Bay Regional President Jim Foley was the Western President for Wachovia. Our cultures are so similar, before we converted, the only way we could tell which Company a team member was from was by the brand on their name badges. The combination of Wells Fargo's discipline and legacy in the market, tied with Wachovia's strengths and the customer experience, is already beginning to produce benefits.

 Wells Fargo has been focused on customer engagement and satisfaction for a very long time. As you can see by this slide, we continue to improve in California despite historically being challenged by wait times. Our stores are very busy. Some in California do over 25,000 transactions a month. Those transaction types can vary market-by-market and store-by-store.

 We use industrial engineering to produce staffing models and manage FTE levels in 30-minute increments. We believe wait time satisfaction is the foundation of a good experience. If a customer waits too long, it's very difficult to have a satisfying interaction no matter how nice or how friendly you are. Now our wait times have improved dramatically in recent years, and we believe we now have among the best wait times in the industry.

 Wells Fargo has long fostered a culture of learning from each other. In doing so, we know we can move the organization to excellence at a much faster pace. Wachovia joining us is a huge advantage, as it allows us to leverage their extensive customer service knowledge across our footprint.

 The box on the left of this slide shows some of the customer experience tools Wachovia developed and we've since adopted. One example is service signals, which sensitizes team members to the customer's attitude about their experience. We learned that some experiences are never discussed and, therefore, feedback from customers sometimes is never received. By observing the verbal and the non-verbal cues of a customer, the team member can determine whether or not the interaction was positive. Our team members are then encouraged to ask their manager to reach out to the customer to reinforce the positive or recover from a suspected negative response.

 Another example is statement of commitment, which provides customers with a written team member promise regarding any unresolved questions they had during their visit. Little is more frustrating to a customer than to be told they will receive follow-up that never happens. This tool ensures both the customer and the team member are clear on promises made. These statements of commitment can also be tracked so we can monitor fulfillment and outcomes.

 Now the box on the right gives an example of sales and service tools at Wells Fargo. One example includes the Stagecoach, where a banker or a service manager stands behind the teller line coaching tellers in interacting with the customer, to ensure that the transaction is a superior experience. The Stage Director is a team member located at the lobby entrance that's responsible for welcoming customers and orchestrating a seamless experience, by promptly getting the customer to the right place in the store.

 And then the box at the bottom, that pulls it all together. This is where we took the best from Wachovia and Wells Fargo, and created five questions that are key drivers that will help us to manage behaviors and to continuously improve.

 Wachovia customer satisfaction scores in California remain higher than Wells Fargo, particularly in the area of teller and wait time satisfaction. There are significant volume differences between Wachovia and Wells Fargo stores, which do contribute to this difference. Still, we believe this opportunity for us is to quickly migrate our One Wells Fargo customer experience to best-in-class levels for all of our stores.

 Along with our attention to customer service, we're still focused on our opportunity to continue to expand relationships with customers through cross-sell. We're not sacrificing service for sales or sales for service. That's a false choice to us. We can make progress in both at the same time. Great service helps retain customers, giving us numerous opportunities to cross-sell over time. Delivering a consistently great experience also provides referrals back from our customers, as they recommend their friends and their family for help with their financial needs.

 As we look forward, we see many opportunities in the West. First, the competitive landscape in California has changed in the last few years with the consolidation of financial institutions in the state. This places Wells Fargo in a very strong position. We can leverage our new distribution advantage in California to continue to grow households and deposit share.

 Second, we must continue to leverage Wachovia's best-in-class customer experience across the footprint with the momentum that legacy Wells Fargo had already built. And third, our 86 instant de novos from Wachovia have an average household cross-sell of four, while Wells Fargo California's average household cross-sell is 6.4. The average sales per platform FTE at legacy Wachovia in California is 3.77, while being at 6.09 for Wells Fargo.

 As Carrie mentioned, we calculate the average American financial services consumer retains 14 to 16 products across providers. Our goal, as you've already heard earlier today, is to have eight of those products with Wells Fargo. We have districts within our Company at a cross-sell already of almost eight. One of them includes our Greater Bay District here in California. These team members are proving that our vision of eight products per customer is certainly achievable.

 How does this happen? By bringing collective talent and experience of all of our businesses together as One Wells Fargo; pulling all the horses of the Stagecoach in the same direction for the customer. In California, we have great local partners, and I just want to say, we love you just as much. We meet regularly to discuss how we can work together to expand relationships. I'm incredibly optimistic about our business in the West, and my colleagues and I look forward to arriving at a cross-sell of eight and beyond.

 I believed it was possible prior to the merger, and now with Wachovia's talent and distribution, it will happen even faster. We have the best team and we have a winning game plan.

 Thank you. And now I will turn it back over to Carrie.


 Carrie Tolstedt, Wells Fargo &amp; Company - Senior EVP, Community Banking [1]

 Thank you, Mike, Lisa, and Laura. In closing, we believe the community bank has a differentiating model with compelling advantages -- a great brand; unparalleled coast-to-coast distribution, promoting household acquisition and geographic diversification; a proven expertise in expanding cross-sell, providing customers value and higher profit per household; excellence in service and customer experience, leading to higher loyalty and household retention, all driven by a talented and experienced team, the best in the industry, centered around our guiding principles and a balanced business model.

 We focus on execution, and we could not be more excited about our next stage. Thank you.

 It is now my pleasure to introduce one of my partners, Avid Modjtabai, the leader of Technology and our Operations Group. Avid?


 Avid Modjtabai, Wells Fargo &amp; Company - EVP, Technology and Operations [1]

 Good afternoon, and thank you, Carrie. It's my pleasure this afternoon to share with you the Wells Fargo technology story and how we use technology to serve our customers in a way that clearly distinguishes us from our competition and our competitors, and also in a way that connects the customer with Wells Fargo.

 So consistent with some of the themes that you heard earlier today, the priorities of the technology and operation group are about the integration and I will talk more about that. It's about serving our customers and meeting their financial needs. And very importantly, it's also about managing our expenses so that we could deliver the operating leverage that Howard talked about earlier today.

 So, first, the integration. As you know, this is the largest merger and integration in the financial services industry. It's a tremendous amount of work. My team is very much focused on this. It's a very high priority for me and the technology and operations team.

 We approach the integration with three key principles. One principle was that we are going to keep the customer and the team member top of mind as we do the planning. So we worked very closely with our business partners as we went through decisions around the sequence of events, the calendar for the conversions, which applications we're going to be keeping, what product apps we're going to be closing. And all of these decisions were all about how do we optimize for the customer, and also making sure that we have enough time so that our team members can prepare to deliver a great experience for our customers.

 A second principle for us was that we are going to be consolidating on the best-of-breed applications and on the best-of-breed assets of both companies. So we didn't want to be running and managing redundant systems after the conversion. At the same time, we didn't want to brute force on the Wells Fargo systems just because the Wells Fargo team members were more comfortable and familiar with the Wells Fargo applications.

 Again, we worked with all of our business partners as we went through assessments of which applications we're going to be retaining. And we looked at whole sets of criteria, customer experience being very important, functionality, product gaps, the business process and the business model and how that is integrated with the technology. And we also looked at the technology architecture, the cost structure, where the assets are located, and a number of different criteria.

 And based on all of this analysis, we are going to be consolidating on 3,000 applications. That's down from 4,000. So 25% reduction in the total number of applications for both companies.

 And we also made similar kinds of decisions on the infrastructure side. We're going to be consolidating on three core data centers. That's down from seven, [toward] from legacy Wachovia, what is Legacy Wells Fargo? And all three of the go-forwards core data centers are Tier 4 data centers, which are the highest level of resiliency and availability for any data centers.

 Similarly, for our regional data centers we are consolidating on 10 and that's down from 13. And we are going to be closing over 80 processing sites as we complete the conversions.

 And a third and extremely important criteria for us was that we are going to be retaining the best talent of both organizations. As you heard many times this afternoon, people are our competitive advantage. And we are extremely fortunate to have a truly first-class technology and operations teams from both organizations.

 Our go-forward organization and our current organization is 49% legacy Wachovia and 51% Legacy Wells Fargo. And amongst this team, in the leadership team, we have over 1200 years of combined experience. And a lot of that experience is around executing on very complex integrations in both legacy organizations. So we feel extremely fortunate with the quality of the team that we have and the leadership that we have in the group.

 Now in terms of where we stand, again, you heard through several of the presentations earlier today, we started the integration activities with the overlap markets. We've already completed Colorado, Arizona, Nevada, Illinois and California. The last overlap market is Texas, and that's scheduled in July with Missouri and Kansas. And then the Eastern states will start in the fall.

 But also just to restate some of the comments by my partners, we are in advance of the signage and in advance of the account conversions. We've also done a lot of work preparing for that. So for example, the go forward ATM technology is a Wells technology. We've already rolled out the Wells Fargo technology in many of the eastern states. Georgia and North Carolina is complete. Florida and South Carolina is about to be complete. And before the end of the year, the Wells Fargo ATM technology, still Wachovia signage, is in the Eastern states.

 We're working with Carrie and Laura and her team as well to start -- and we've already started that, the upgrade of the equipment in the stores. So even though the signage and the account conversions aren't happening -- starting to happen until fall in Eastern states, but there's a lot of work.

 Now all the product gaps that we have completed, all the bridges that we have built, the ability for our Eastern team members to sell some of the Legacy Wells Fargo products, so again a lot of work that's in addition to the signage and account conversion activities has been complete.

 Mark and Kevin also talked about the conversion of some of our credit portfolios and loan portfolios, credit cards complete, mortgages complete. SBA loans are complete. In summer, we are going to be completing the home equity personal loans and lines business; direct loans and lines; much of the student lending portfolio would be complete. So in addition to the market conversions, there's also a lot of progress in terms of converting our loan portfolios and product portfolios.

 So again, just to summarize and reiterate around the integration, it's big. We all know it's extremely complex, but a big, big priority for everyone at Wells Fargo and specifically for the technology and operations team, and we are on track with the plans that we have developed.

 Now, again, in addition to the integration and frankly just as important as the integration for us is how we use technology to serve our customers. And just to share a little bit with you about our philosophy around how we use technology at Wells Fargo, we don't deploy technology for technology's sake. We deploy technology when it really matters for our customers.

 We don't think of technology by itself as a competitive advantage. It's how we use technology to serve our customers. That's what creates a competitive advantage for Wells Fargo. And we're all customers -- every single team member at Wells Fargo; we are customers of financial services and we all know what customers expect.

 Customers expect that they can access and manage their accounts anytime and anywhere they want to manage those accounts. They want to receive excellent service when they are interacting with our bankers, with our financial advisors. They have many financial services needs and they want to go to one place to be able to buy everything that they need. They don't want to -- when they move from one state to another state, they don't want to close their accounts and then have to open up a new account in a different place.

 Our customers want us to know them. They give us a lot of information and they don't want us to go back every time they want to do a transaction with us to ask them for the same information over and over again. They want us to respect their time. And very importantly, they want us to act as one company, as one Wells Fargo.

 So, what I would like to do is just share a couple of examples of how we use technology to deliver on these customers' expectations, and how we use technology to deliver convenient timely, friendly and easy to use experiences for our customers. And you'll also get the opportunity to see some of these experiences later this evening at the dinner time.

 So anytime, anywhere capabilities. Again, as you know, we serve our customers through many channels and there are very, very few customers who don't use all of our channels. They practically use all the tracks that we lay out for them.

 Again, as Carrie mentioned, we do have the largest retail store distribution network in our industry. But we do complement this network with very robust, innovative leading virtual channels, whether it's our Internet banking and online banking, mobile services, or ATMs.

 Wells Fargo was the first bank to offer Internet banking in 1995, 15 years ago. And we have over 17 million active users. We have 71% of our checking accounts are online. That's the highest penetration anywhere. Over the last 15 years, consistently, we have been delivering leading and first-to-market capabilities and functionality that really matters to our customers, not just functionality. That's cool -- nice to have, but nobody uses functionality that our customers are using.

 And just to give you a sense of order of magnitude, in 2009, wellsfargo.com, we hosted 1.2 billion banking sessions. Wachovia, add to that 1.2 billion, another 800 million on wachovia.com. And actually those numbers, the unique visitors who came to our public site, in 2009, we had over 2.5 billion opportunities to interact with our customers, to understand their needs and to deliver on their needs.

 Similarly, our network of over 12,000 ATMs, it also leads the industry the industry with many, many industry-leading innovations. Carrie mentioned that we were the first to offer Web-enabled ATMs. We've been leading the industry with envelope-free ATMs. We are the only bank that offers eReceipts. So when you do your transaction at a Wells Fargo ATM, right now it's only in northern California and in Colorado and for our team members. But it's going to be rolling out to the other states in the next couple of months. But for your transaction on the ATM, you could choose to get the receipt for that transaction either in your e-mail box or on your WellsFargo.com inbox.

 And actually, Wells Fargo was named, partly because of our ATM technology and partly because of other reasons, as one of the top 10 innovators in any industry by information world. So this is not just in the financial services industry, but in any industry. I think we were actually number three.

 In the corporate and commercial segment, our CEO portal is also very much a leading industry capability. We provide access to over 60 services by our wholesale banking group to our customers through the portal. And the portal is actually customized for our customers based on the product holdings that they have. And Steve Ellis will be sharing a lot more about this capability for you tomorrow.

 And then very -- most recently or more recently in the last couple of years, we have also been expanding our mobile services. And again, several first and innovative offerings in this space.

 Our mobile customers can actually use their mobile devices to do a lot of things, including moving money between their own accounts, moving money between their own accounts and other customers' Wells Fargo accounts, Bill Pay. They could use GPS-enabled ability to find Wells Fargo ATMs, which I know is very popular with Mark's kids, and one of the many reasons why actually this offering is extremely popular with our younger population and has had explosive growth. Just over the last year, we doubled the size of our mobile users from 1.5 million to over 3 million customers.

 So we clearly use technology to bring our services very directly to our customers. But as importantly, when our customers interact with our bankers and with our financial advisors, we also use technology to give the information and the tools that our team members need to deliver that excellent service for our customers. We have developed a series of portals for our team members across the company. These portals are very much customized by the needs of the business and the needs of those team members. Sometimes they're customized by geography depending on what are the needs by geography. But what's very common across all of these portals is again, how we've used technology to bring an aggregated view of the customer's relationship for our bankers and our financial advisors, so our financial advisors have the full view of that relationship. It's very easy to do transactions on the entire scope of the customer's relationship by our team members, whether they are phone bankers; whether they are store bankers; financial advisors; wealth professionals; wholesale banking relationship managers.

 And also we have provided a lot of tools unique to what they need. For example, some of our offers are what products are appropriate or could be presented to a customer are provided through these portals with consistent scripting across the various channels -- alerts, real-time information, access to their policies and procedures. So again, we are trying to -- we have used technology to deliver what our team members need so that they could deliver that excellent service to our customers.

 As I'm sure you've heard many times today, cross-sell is clearly the DNA of Wells Fargo. You know, it's part of our core strategy, whether you are in a line of business or whether you're in the technology and operations group, you heard that the retail households now have over six products with us, and technology plays a big role in supporting our success and our results in this space. We actually use technology to predict what our customers want based on their transaction history, what products they hold; what channels they use; when they use those channels; how often they use it; what is the combination that they do; what pages they go on our website. And we present these offers through these portals, as well as through ATMs, online banking, to our customers.

 The offers are intelligent offers, so depending on the response that the customer gives us, we actually make those offers more unique and specific to the needs of the customer. They're also very much coordinated across the Company. So the offers are consistent throughout the various channels.

 Another example of how technology supports cross-sell is Carrie, again, talked about the packages and the packs that we offer to our customers. Again, by using technology, we have the ability to relationship price effectively for our customers. We also have given the tools to our bankers so that they could set up all the features and the products within the pack in one place and very quickly for our customers.

 Another example I would like to use is how we use technology to personalize the customer's experience with Wells Fargo. So we don't use technology to depersonalize the relationship. We actually use the information that customers have either explicitly given us or information that we should know based on the interactions that the customers have had with us, to really understand what their preferences are and how they want to interact with us and make it easy, user-friendly, convenient, timely, for the customers to interact with Wells Fargo.

 So, again, one example is in our envelope-free ATMs. We use data, stated preferences, data that customers give us as well as implied preferences, information that we have based on how our customers have been using the ATMs, to identify the top three transactions that the customer we think prefers to have. And based on that -- preferences, those three top transactions are presented on the entry screen to the customer, so with one touch they could do what they typically do with us or what they have told us that they would like to do.

 We remember their language preferences. We remember how they want to get their receipts. So through this you-know-me capability, we make it much easier, user-friendly, for our customers to use us for the services that they want.

 And then as you've heard many times from John, One Wells Fargo is one of our core components of our business model. Customers expect that we act as One Wells Fargo. They have multiple products with us. They interact with us through multiple channels and they do expect that seamless, integrated experience as they move from channel to channel, as they use multiple products with us. And there are many examples that I could use in this space, but I will just go quickly through three of them.

 So what is our Command account. And that's the integrated banking and brokerage account that we offer. And many brokerage firms and many banks I'm sure you've heard from them offering integrated banking and brokerage, which is primarily a sweep capability as well as consolidated statement.

 But this goes much, much deeper from an integration perspective. And this is actually a legacy Wachovia account that we are going to be converting to all of the Wells Fargo customers and through our systems. But today in Legacy Wachovia and post conversions in all of Wells Fargo, Command account customers can get full-service capabilities through the entire network of our store banks and ATMs. And that's level of integration is extremely unique.

 Another example is how our customers have consistent experiences and how we leverage multiple channels to deliver services for our customers. So our customers, at the ATM, they could enroll for mobile banking. At the ATM, they could update their mobile information and contact information; in real-time, that information is updated.

 And then the third example is actually one that Kevin Rhein mentioned as well, is My Spending Report, which is again about how we use technology to aggregate information across multiple products that the customer has with us. So customer spending across credit cards, debit cards, bill pay, checking account is aggregated and is categorized into groupings that the customer finds useful and that we provide, budgeting and other financial management tools, so that the customers can actually more effectively manage their spending.

 So by delivering this capability and using technology, we are actually creating a reason why our customers would want to have more products with us and consolidate their relationship with Wells Fargo.

 And then the last sort of example I wanted to use is about the fact that customers, especially, these days, want everything right now. They don't want to wait a few hours. They don't want to wait days to get their information. And we have used technology to take time out of the process; things that used to take days or weeks are now literally taking seconds and minutes.

 One example is rapid alerts, and that's in our credit card product offering, which Kevin talked about. And you have the opportunity to see that this evening as well. For our credit card customers who sign up for this service, we actually send them an SMS text message when there's a new charge authorization on their credit card. And oftentimes, they get that text message even before they sign the receipt. So it's that instantaneous. So customers love it. It's also a great tool for us to manage fraud.

 Another example that I think Steve may be talking about tomorrow is about our Desktop Deposit offer, which is for our business customers. They use Desktop Deposit to deposit their checks anywhere they want using a scanner. So it saves them time. It saves them a trip to the bank. They get access to their funds more quickly, but it's also good for us because it's a much more efficient way of processing that deposit than that deposit going through the paper process.

 So how do we do this? A lot of work in the background with the technology and operations team. But what I would like to share with you is just an illustration because it's truly our technology and data capabilities that is one of the key reasons in addition to a lot of the additional capabilities that we have within our businesses that enables us to deliver these kinds of innovations over and over and over again at the rapid pace that we do for our customers across all of our products, all of our channels, time after time, month after month again.

 And, this chart provides -- promise this is the only technology chart I'll be sharing with you. But this chart really illustrates in a very simplistic way the multiple layers in our architecture. So in the third layer that you see there in the blue cylinders, that's our systems of record. We have been extremely disciplined to have single systems of record for each one of our products.

 Now with the merger with Wachovia, clearly, we have multiples of each. We now have two deposit systems, but through the conversion, and part of the reason why we are so thoughtful in terms of how we do this conversion is that we're going to be, at the end of this conversion, at this architecture again. And in the Legacy Wells Fargo we are at this architecture right now.

 So what these single systems of record allow us is one of simplicity -- a lack of complexity in our environment. But very importantly, let me take the deposit system as an example. All of our deposit accounts are in the same system. So whether you're in a California customer or whether you're a Colorado customer. Now, as a customer if you're moving from California to Colorado, you don't have to close your accounts and open a new one. That account moves with you. And post conversion, when you --hopefully, you're all Wells Fargo customers or Wachovia customers today, when you move from New York to San Francisco, you don't have to close your accounts and open up another one with Wells Fargo.

 When you travel, you get the full scope of servicing capabilities and consistency across all of our channels, whether it's the ATMs, the Internet and our stores, wherever you are, whether you're in the East Coast or whether you're in the West Coast post the conversion. And also again, this is a lot more cost-effective. So we don't have multiple systems that we have to retain.

 Our channels access the systems of record through what we call the services layer -- the business services. These services is where the majority of our logic, business logic, sits and could be reused by all of our channels. So it's a lot more cost-effective. It takes time and it improves our deployment cost time because we could bring the same functionality across channels multiple times. And it's the combination of the single systems of record, and this middleware layer that enables us to bring consistent information in a very timely manner across all of our channels and in a way that enables the integration and the kinds of examples that you saw.

 And our front-end systems are mostly presentation layers that could be very easily customized. And by customizing those presentation layers, we could also do that fairly quickly because we're not building a lot of business logic in the presentation layers.

 Now, we bring all of this together through our data infrastructure and our data architecture where we provide a single view of the customer relationship to all of our product groups and all of our various channels. And within the technology group, we are very focused on the accuracy of this information. So just as an example, we cross-check information we have about our customers across multiple applications. If we see inconsistencies, we go to the customer or we go to third-party sources to confer what is the single version of truth, what is the full scope of that customer relationship?

 And this environment, by the way, is also complemented by data marks across our businesses and various channels which are unique to what they need, whether it's for analytical purposes, fraud management purposes, risk management purposes, marketing purposes or whatever they need.

 This architecture was built over time. As I'm sure you know, much of financial services is riding on tracks that are 20, 30 years old, those systems of record, and not very flexible. So starting in the Legacy Wells Fargo, starting in the 1980s, we actually started migrating to this architecture and built the flexibility and the capability where we could do innovation using technology at a rapid pace and cost effectively. And it's not again easily replicable. It [probably] takes years to do this.

 The other thing I also wanted to emphasize is that we've been extremely disciplined as we've been going through many mergers to stay true to this architecture. So you go through a merger, the easy thing, frankly, is keep those redundancy [stumps], build bridges, facilitate transactions, and move on. So the merger and "the conversion" even though there's really not that much conversion because it's more connectivity than conversion, is complete. But it's extremely -- what you're going to be left with -- is an extremely complex environment, multiple systems. You're going to have a lot more complexity and also a lot of rigidity and lack of flexibility to bring capabilities to market quickly. And that really compromises the customer experience.

 So we've been, again, keeping true to this architecture and doing the hard work throughout integrations so that we stay close to this architecture. And that's what we are also doing through the Wachovia and Wells Fargo merger.

 So, again, not easy to replicate and one that we've been extremely proud with a track record of innovations over the last couple of decades.

 So I talked about what we do with technology, which is about serving our customers. But I also wanted to spend a few minutes to talk about how we manage technology because that's also extremely important. It's a big investment for our Company, one that clearly we -- Howard and John and others expect us to manage it in a very disciplined way, watching our expenses very closely.

 And we have a series of initiatives that the technology and operations group drive to make sure that we are managing this environment cost effectively and as efficiently as possible. So I wanted to share some of these streams with you.

 So one is about optimizing our infrastructure. We want and we strive at buying only what we need. We don't want to buy any less. We don't want to buy any more. And what we buy we want to make sure that we are using it. So we want to have high levels of utilization of our storage, server, network and other environment.

 We also use technology within the technology and operations group to streamline our processes, to automate what we do. And one example here is how we deploy servers in our data centers. We are now doing just-in-time lean provisioning which gives us a lot of cost benefits. But as importantly if not more importantly is the fact that we could deploy servers in our data centers very quickly.

 Standardizing and consolidation is again another big opportunity that's a big area of focus for us. So by standardizing, not only we get the benefit of our scale and get a lot of cost benefits, but as importantly, it reduces complexity from the environment and makes it much, much simpler to manage the environment.

 And paper to electronic, a big, big area of focus for us, especially in the operations space, as I'm sure you all know. NHS truly revolutionized the financial services industry and how we do business. I shared some of the examples of customer-facing places where we used image to deliver great experiences for our customers. But we also use image within technology and operations to take costs out of our processes, to automate our workflows, to eliminate paper, to eliminate postage, to eliminate transportation. So a lot of opportunities on that front. And then, so then again, a lot of initiatives around making us more efficient.

 But these efforts, they are not just cut expenses, initiatives. These are investments that make us even more important than being efficient, effective at managing the complex environments that we manage.

 Now what the other benefit of all these efforts is the fact that they are good for the environment, every single one of these. And technology is a very big part of how Wells Fargo is going to be delivering on our commitment and our goal of a 20% reduction in our carbon footprint by year 2018.

 So again, the examples of the things that I talked about, combined with the merger synergies, have given us the opportunity to not only reduce our expenses in absolute terms in technology and operations, but as importantly, one of the other metrics that we watch very closely is our unit cost. So, as you could see from this chart, across many parts of the technology and operations environment, we have been effectively reducing our unit costs significantly just over the last two years, and have the opportunities to do so as we move forward.

 Just one example in the storage area, by right-tiering storage, so deploying the right tier of storage for the right level of application, by increasing our utilization by about 30% over the last two years, as well as by standardizing our environment, we been able to achieve a 28% reduction in our unit costs. And similar stories across all these other places as well.

 So in summary, integration again, big priority for my team. Very large, tremendous effort, on track.

 Technology, what we do with technology at Wells Fargo is really all about executing where it counts for our customers. And what we do is really a track record of innovation and what counts and how we execute on our business model. It's not easy easily replicable.

 And again, we are very focused on managing technology and operations as efficiently and effectively as possible and in the most green manner as possible. Thank you.

Questions and Answers

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [1]

 Well, thank you, Avid. I'd like to invite up the retail group heads again. And along with Avid, we will try to answer as many questions as you can throw at us in the next half an hour, 40 minutes or so. And we will have another two or three sessions tomorrow on Q&amp;A as well, so if we don't get to all of your questions today we will be happy to do that in the next sessions tomorrow morning.

 I would like to remind you there's a lot of different ways you can ask questions. You can raise your hand here. We'll try to get to you. You can fill out cards. We've got people walking around the room for that. You can get to us by e-mail. Bob mentioned before it's a LiveEventQ&amp;A@WellsFargo.com.

 Those of you who are listening in or watching can do the same thing by e-mail. Or if you are watching on the webcast, you can simply type in a question just below the video screen and click submit.

 So I'm going to actually ask the first question here. Somebody just sent in a question.

 I note that one of your presenters today was Franklin Codel, and we note that he has in his last name, initials CDO and CLO. Is that some secret da Vinci code for what Wells Fargo does not do? And the answer is yes.

 Okay, some questions. We've got Nancy. Why don't you ask the first question? Nancy Bush?

 Nancy Bush, NAB Research - Analyst [2]

 Yes, I have a question for Kevin. One of the few credit metrics where you do not compare favorably to the industry is in credit card losses. And I was just wondering if you could give us some background on that, particularly since that's a homegrown portfolio. Have there been underwriting issues? Is it a geographic issue? What's behind that? And do you expect it to -- how do you expect it to improve?

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [3]

 Sure. It's actually pretty comparable. I think it was 10.6 versus 10.2. Probably our near-term biggest challenge was the geographic concentration of our portfolio. A disproportionate amount of our receivables were in California, Arizona, Nevada. And, obviously, everybody knows that have been kind of Ground Zero relative to real estate losses and just problems overall. The good news is, again, we feel as though the losses have stabilized, are getting better. Quarterly losses we think are looking good on that portfolio, and we feel pretty good about it overall.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [4]

 I would add one other thing. There's probably a little bit of a mix issue for us within the credit card portfolio because as we said before, our total credit card portfolio was nowhere near the size of the other big players, but within our portfolio, there's a little bit less prime card in that mix relative to near prime in that mix, and that skews the loss rate a little bit higher for us.

 Nancy Bush, NAB Research - Analyst [5]

 (inaudible question - microphone inaccessible)

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [6]

 Wells Fargo Financial, yes.

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [7]

 Yes, there would be one other thing, and that is, we recognize bankruptcy losses immediately. And not all of our competitors do that. Some of them will recognize a bankruptcy loss lagged on as much as a 60-day basis, where as soon as we know, we recognize the loss. So you might see over time that those rates could change for our competitors.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [8]

 Okay, we've got two questions coming in by e-mail each for Mark. How would rising interest rates impact the accretable yield?

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [9]

 In terms of the accretable yield, again, we're talking about the pick-a-pay portfolio and the credit impaired side of that. And the accretable yield, there's a number of factors that are involved there, as Franklin's slides showed, in terms of cash flows, which includes many things.

 So if interest rates rise, actually, to the degree that the accounts are still adjustable rates and over time, you would see interest rates go up, payments be a little bit more, you'd have a little bit more cash flow, and everything else being even, you would see the accretable yield move up. But, again, it's really looking at total cash flows, which includes credit and everything besides interest rates.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [10]

 Okay. Second question is for Mark. How high has share of retail mortgage originations been? And how should we think about it going forward?

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [11]

 Well, I think we've showed that the 12.9% market share that we talked about today, that's our share of the entire mortgage origination market. Some people, when they talk share of retail, they're looking at again some retailers. We're looking at the entire market. And 12.9% that we achieved in 2009 was our all-time record.

 And as you heard, we have a number of strategies to continue to hopefully increase that in the future, but I'm not going to project future growth at this point in time.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [12]

 Okay. Mike?

Unidentified Audience Member [13]

 A question for each one of you would be how do you think about potential structural changes? In other words, you talked about the cycle and how things seem to be improving. But what about a secular shift? And maybe we can end with you, Howard. I got you in the hallway, but you still have a 10% revenue growth target. But might the world be changed with consumer deleveraging and maybe slower [PDP] growth for the next decade?

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [14]

 Deleveraging is certainly occurring. I guess what I would point to is if we can build the right value proposition, go back to the payment strategy, there still is an awful lot of our customers' payments that we're not getting. And frankly, I'm most interested in I want to get the transaction. Whether the customer chooses to revolve or whether they choose to be paid in full, we still make reasonable revenue off the transactor. So what's most important to us is capturing our customer's initial spend. And we do that through the value propositions we create.

 Carrie Tolstedt, Wells Fargo &amp; Company - Senior EVP, Community Banking [15]

 One of the things I look at is that when I look at a customer, we have over 100 products. And certainly if customers aren't borrowing, we do bank both sides of the balance sheet. So there's going to be plenty of opportunity for us in all the products that we serve, as long as we execute against our cross-sell methodology well.

 Second of all, there continues to be loan opportunities out there. Customers buy new homes, need cars, and there are life events along the way. And so for whatever opportunity is there and presents us, we have to execute well against it. And we will take what's there.

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [16]

 Well I would just say that I think we're well positioned, as we talked about at length today, in order to compete in the future. And if you remember that market share chart that showed how we've grown market share over many years, it really ramped up in 2008 and 2009 in the early years of deleveraging. And the mortgage business was an easy business for a lot of people in years when the wind was at their backs. It's always been a tougher business when the wind is at your face, and that's when we tend to excel.

 So, we will have to deal with the environment that we have at any point in time, but we feel that we are well positioned to compete. And frankly with the competitive advantages we have, brand and distribution, et cetera, that we feel we are well positioned.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [17]

 I think, Mike, I would just add that -- a couple things. First, as John said in his discussion, we all do better in a stronger growth scenario, right? Number one. Number two, it's not easy to get 10% revenue growth. I mean that's a really hard thing to do, and we're not always going to get 10% revenue growth quarter in and quarter out. So that's really sort of a long-term goal for us.

 Now having said that, about the economy and about the degree of difficulty of this, when we think about it, I also showed you all those market share numbers. And we still think, just given the sheer size of the financial services industry, maybe industries that we operate in, that our opportunity for growth is much better, getting our market shares from those kind of 10% numbers up to 12%, 13%, 14%, than whether the economy is growing at a 3% average rate in the next 10 years or a 2% average rate in the next ten years. So that's really what we're going for.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [18]

 If I can add something to that, if you liked us in the past, you should love us in the future. From a -- whatever happened structurally, we can't manage that. That's going to happen. But, we are a much more diverse company today from a revenue perspective. About half of our revenues come from the margin. Half come from fees. We're much more balanced between consumer and commercial. That's because of Wachovia. And we have much more diversity with respect to geography.

 So what will happen structurally will happen structurally. But I sure like our chances for the future with our new platform and with Wachovia being our partner than without them.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [19]

 Okay, Ron?

Unidentified Audience Member [20]

 Hi, Howard. On your chart on non-accretable difference and accretable yield, I'm not sure I'm understanding this, but the way I'm looking at it, you had PCI loans, 180 days past due of $14 billion or so. And you had a non-accretable difference of $14 billion. So, it seems like you're like 100% reserved against the PCI loans that are nonperforming so to speak. And where I'm going with this is there's $38 billion that's performing or mostly performing. So, I know it seems like a lot more of the non-accretable difference can go into accretable yield; is the gist of my question given all the numbers that you showed there.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [21]

 Good conclusion. Franklin, do you want to jump in?

 Franklin Codel, Wells Fargo &amp; Company - CFO, Home Mortgage [22]


 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [23]

 I think when we set up the non-accretable yield, of course, that's a life of loan reserve in effect to absorb losses on that portfolio. So, what we're really trying to talk about there is kind of tier that portfolio in a couple of pieces. And we're really saying of the -- typically of the 180-day plus delinquent loans, we're going to write those down to net realizable value. And on these, we've, at a loan by loan basis, determined what we think the amount that we'll require is, and that's I think the $6 billion number. Okay? Then what's --

Unidentified Company Representative [24]

 (Inaudible question - microphone inaccessible)

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [25]

 Right. So then what we have is the $14.5 billion against the remaining $38 billion. And that's where we will see how that performs over time. And if that portfolio continues to perform very well and exceed our expectations and we get greater confidence, you might see some of that $14.5 billion move then to accretable yield. But that will just happen over time.

Unidentified Audience Member [26]

 Yes, it seems like $5 billion to $10 billion of it could move into accretable yield, given that you only have $8 billion of the $38 billion that's nonperforming right now. So there's a lot of room --

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [27]

 From your lips to God's ears.

Unidentified Audience Member [28]

 I hope we are all so lucky.

Unidentified Company Representative [29]

 Unlike some of our peers who have similar portfolios, we're feeling very comfortable (inaudible).

Unidentified Audience Member [30]

 You talk about your value proposition. What do you do in terms of pricing given when you are cross-selling all these products. Are you giving a price break to your customers? Can you talk about -- is there any being done? And primarily which products? And how do you come up with that decision?

 Carrie Tolstedt, Wells Fargo &amp; Company - Senior EVP, Community Banking [31]

 So if I understand, the question was regarding how we price for cross-sell. I talked about --today about our cross-sell strategy of packages. And we have several different packages. And with each package becomes linked discounts and other advantages for our customers. So yes, there are discounts, depending on the package that you get that allows the customer to get real savings. And we work with each product group, Kevin's product group, home equity, our deposit teams, to come up with a package where the customer does get an advantage in order to choose a package.

 80% of our new accounts are in a package. And that provides -- that shows you the value to the customer because they are choosing one of those packages.

Unidentified Audience Member [32]

 A question for Kevin. Kevin, what's the -- what would we say is the ROA on the card business as you look at it, both pre the Card Act going through and post?

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [33]

 I'm not sure that that's information we put out there. Suffice it to say, it's been a profitable portfolio last year [and] first quarter, but I don't believe we disclose ROA specifically on the portfolio.

Unidentified Company Representative [34]

 Or the impact on our portfolio of ROA.

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [35]

 Yes, I think we did put out $75 million to $100 million net of some of the offsets from the current Card Act provisions. What we don't know yet is the Card Act is still evolving. The regulations are still being written around some additional features. We don't know the impact of that yet.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [36]

 But the important part is our card portfolio has been profitable throughout this whole series of events. Other providers that presumably think scale helps have said their business has been unprofitable.

Unidentified Audience Member [37]

 Thanks, Howard. Can you circle back to your long-term goals and maybe help us understand how you come up with the ROA goal of 1.5%?

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [38]

 The question is how do we come up with the ROA goal of 1.5%? And it's --? (multiple speakers).

 The question is, how did we come up with 1.5% ROA?

 1.5% ROA is a tough goal to get to. Even though historically Wells has been there, there has been any number of changes in the composition of the Company's assets and liabilities over time. Some of the structural things have changed in the industry, but we still think that it's a good, solid goal to achieve.

 And maybe more importantly, it's something that we think the Company and all banks should be focused on. And we're kind of surprised how few banks actually do focus on ROA. So we think it's the right kind of metric, whether it's 1.4% or 1.5%, 1.6%, that's a key metric that we're focusing on throughout the Company.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [39]

 I'd also add this. That this isn't just made up. We look at the businesses from bottom up and we think we try to understand and anticipate what's going to happen each business over time, what they've done, what they can do, and look at the balance of the Company. And so, it's still a work in process, but I still believe 150 sounds like a reasonable place to be.

Unidentified Audience Member [40]

 I guess as a follow-up, why wouldn't it be better than what it had been historically? You said before, John, if you liked us now, you should love us even more in the new mix. Shouldn't that kind of imply the difference business mix, the greater fee composition, David Carroll's group now being a bigger contribution; shouldn't it be actually better?

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [41]

 It's a legitimate question, but you also have to understand that there is a deleveraging going on. Consumer lending might not play as big a role. We don't know. There's been regulatory reform. Already a couple of things -- Reg E, the Card Act, who knows what else is going to come. So I think it's -- we aren't pinning this down to the third decimal point here. But we think that aspirationally, that's a handsome return.

Unidentified Audience Member [42]

 I'm getting a new pacemaker or something. You were quick to point out that you didn't have much Greece exposure, which is thankful to many of us. You're also quick to point out how many municipalities that you deal with across the United States or MSAs. We're going to go through a process like Greece in some of our states and municipalities; I think 11 states have worse numbers increased. What does that do? What is your exposure if California has a problem, does that slow down deposit growth? How do you look at that writ large for yourself and other banks?

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [43]

 We'll probably answer that a little bit better with Dave Hoyt tomorrow; I don't know, John, if you may want to say something. But we do a lot of business with municipalities. The ones that we do business with are municipalities that -- the ones that we have investments in are municipalities that we know very well. And so far, it really hasn't impacted our business. It's still good business for us. And I don't see any reason why it wouldn't be going forward, to be honest about it.

Unidentified Audience Member [44]

 Just wanted to follow up on, John, your comments early on about preemption. What do you think the probability that the bill passes with the preemption language as is? And if it does pass, what kind of economic impact does that have on your business?

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [45]

 I've long stopped predicting what's going to happen when I get into Washington. And who knows. I know what the -- there's not even a -- there's a House bill that speaks to it, and then there is, of course, a Senate bill that is working its way through. And there's a amendment by Carper that's cosigned by a lot of others. So who knows? I really can't predict that.

 The issue here, and we all know, is Americans enjoy freedom and freedom of doing business in a variety of places. And you can't even think about loans alone. Just think about what if one state said there won't be ATM fees or a usury rate that would be unusually punitive and wouldn't allow -- so it's hard for me to predict that.

 But I'm hopeful that the nationwide banking system that was -- the dual banking system was created in the Abe Lincoln era --survives this and we can continue to provide convenience to our customers. But who knows how that turns out. We'll know in a couple weeks, probably.

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [46]

 We've got a question for Avid online here. What steps do we take to secure data from malicious attack or from data theft?

 Avid Modjtabai, Wells Fargo &amp; Company - EVP, Technology and Operations [47]

 There is really no one step. There are many, many, many different steps that we use information security and the security of the Wells Fargo Enterprises absolutely extremely high priority and critical for us. We have very experienced, talented teams in that front. We use multiple tools and capabilities. We have multiple layers of defense in our architecture, and it's both detective measures as well as preventative measures on a continuous basis. So there's really no one tool. But I can assure you that we have a lot of very different tools that have been very effective to date.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [48]

 Another e-mail question, for Carrie this time. What is our strategy for the half a dozen or so states mostly in the Midwest where we have trivial market shares? So we're going to acquire to fill out, so swap, de novo, do something else. I just want to know who is here from Oklahoma that asked this question. Carrie?

 Carrie Tolstedt, Wells Fargo &amp; Company - Senior EVP, Community Banking [49]

 It's a good question. As I mentioned in my presentation, we take a very close look at the S curve and try to determine what the best investment is to have density of distribution so that we get more than our fair share for the investment that we make.

 On the lower end of the curve, we tend not to invest heavily until we have a holistic view of how we can have the right density. At the upper end of the curve, we tend to look at is there consolidation moves to ensure we don't have enough expense? While I don't talk about any state in particular, I will give one example because it was on our slide. And that's Seattle.

 Seattle's right at the point where it really makes sense for us to continue to look at ways to build out from a de novo perspective in order to gain more of the share. And so, it demonstrates that we are constantly looking at our distribution, but distribution takes capital. And we do it in a wise and shareholder-friendly way to ensure that we only build stores we believe that over the long term we can get the -- well short-term -- two-year break-even on. So that's our strategy and that's how we deploy it.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [50]

 I've got a question again online. What is the projected impact from regulatory changes to NSF fees? We I think have publicly disclosed that that's roughly $500 million or so after tax.

Unidentified Audience Member [51]

 We had a question earlier about consumer deleveraging. And I'm curious about your opinion on that. Is the bigger impact that we've just taken 5% or 6% or 7% of the population that's the subprime borrowers out of the mix and they're not going to get credit for a while? Or are we seeing real visible changes? And the 90% of the population that is still employed and still credit-worthy, are they behaving differently in this recession than they did in prior recessions?

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [52]

 Mark or Kevin?

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [53]

 Well I would say a couple of things. First off, I think there's been some shifting of spending from credit card to debit card. Debit cards tend to be more necessity spending so I think as the consumer has had some challenges, you start to see a little bit more of the shift into that area. And in many ways, that's really great for our strategy overall. What we've really said is we want to be able to capture all of our customers' spend and let them decide is it debit, is it credit? Is it going to revolve? Is it not going to revolve?

 Clearly, The Card Act and some of the changes in revenue pieces to the credit card business have caused us to tighten credit standards. So, there will certainly be a population of customers that may have gotten credit before, are not going to get credit in the future. And that really is one of the unintended consequences that we kept trying to emphasize to the legislators, we're trying to offer credit to as many customers as possible. And if you start to take away some of the revenue drivers, an account that might have been marginally profitable before, and is now unprofitable, we're not going to make that credit any more.

 So, it's yet to see how all that is going to start to play out. But I still think our relationship strategy, the fact that we can sometimes supplement maybe the credit card profitability for profitability somewhere else in Wells Fargo is the magic of how we try to approach the customer overall.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [54]

 If you're asking has the DNA of the consumer changed; yes, I think it's too early to tell. I don't think we know yet. We just don't know.

 Secondly, we couldn't sustain, as a country, as families, as states, what we've been through the last 10 years. We can't overspend our means. More saving than what we had the last 10 years is good.

 Unfortunately, we went from spending to saving all over one weekend. And the 90% who have a job know someone who's in the 10% pile. But I think it's still too early to know. I often say my parents are in their 80's. My dad is 88. He's a child of the Great Depression. And what he went through never left him. Even though he had no money, if he had it, he would not have spent it anyhow. So will this affect some of the psyche? I just don't know. But it wouldn't surprise me. But some of that's not bad.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [55]

 I'm personally a little bit more optimistic on this. I think we've gone through this period where unemployment just kept on going up for a period of time. And obviously people who are unemployed are not spending as much as they were previously.

 But one of the interesting observations I think we have had in the last six months is that the 90% of the people who are employed in the country did start behaving more positively in the last six months as they started seeing the unemployment rate come down. So I think we're just -- maybe it's again a little bit too early to claim victory there, but I think behavior may not have changed as much as people think for the long term.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [56]

 That's true. In fact, restaurants are kind of full now, much more so than six months ago. You've seen the same-store sales at retailers. That's getting a little better. So, but, again, I think it's early.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [57]

 Okay. Nancy?

 Nancy Bush, NAB Research - Analyst [58]

 Yes, I have a question for Mark. Mark, I think you said there were 16,000 or maybe Howard said this -- 16,000 people who were devoted to mortgage --

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [59]

 Loan preservation.

 Nancy Bush, NAB Research - Analyst [60]

 Yes, resolution. Assuming that foreclosures and modifications and everything begin to go down in the next decade, what happens to those 16,000 people? Or in my lifetime, whichever comes first.

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [61]

 I think that one, that 16,000 is across both our mortgage company, home equity and other real estate entities, but that's up about I think 10,000 or so in the last couple years.

 And so, obviously those folks are well-trained. Some of those folks have come out of our production units that as production comes down we shift them over. To the degree that we continue to grow our servicing portfolio, some of those -- well hopefully that population shrinks. And certainly as we work through this process, that population will shrink. And it's a wonderful group of people that we would try to find other roles for in Wells Fargo, whether it's in the production side, growth in servicing or other business units. But we would like to see, obviously, that population shrink once the real estate issues work through.

 Nancy Bush, NAB Research - Analyst [62]

 What I'm trying to get to is will there be -- and Howard, you're probably the one who would answer this. Would there be this -- so don't expect some dramatic drop-off in personnel expenses some day, as we get to the bottom of the mortgage pile?

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [63]

 Well --

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [64]

 Well, I think it is going to drop off. It may not fall off a cliff, but as I said earlier, we're going to be really diligent about -- having ramped this up, at some point we will have worked through the problems. And it's obviously going to trail -- charge-offs will come down and the rest will trail. But we do expect some pretty decent cost savings coming out of this over time.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [65]

 And actually, one of the toughest things about integrations and acquisitions -- and I'll get to the credit thing -- is not changing all the systems. It's decommissioning the ones that are left over and getting those costs out. And the same thing is true on all this modification expense and collection expense we had. To be very diligent and very thoughtful about taking those costs out. Otherwise you kind of get creeped into or lulled into that this is normal. And the same thing is true on the compliance side. We want to have enough compliance to do the job right, but not more than what we need.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [66]

 Okay. Let's take a couple more questions here, and then we've got to wrap it up.

Unidentified Audience Member [67]

 Looking at the servicing portfolio alone, as it grows over the next couple of years from $1.6 trillion to $2 trillion, servicing costs are obviously going to come down as delinquencies and credit costs diminish in the portfolio.

 How do we think about -- and I would assume that the spreads on new loans being put into the portfolio -- into the servicing portfolio are also strengthening as well.

 The question is, how do you think about, in your ROA targets, the delta with respect to the servicing portfolio profitability in the overall ROA outlook over the next several years?

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [68]

 Again, it's another cost element that can be taken out of the Company. I don't know if there's anything you want to say about how that plays out, Mark.

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [69]

 We feel good about the return that we have on servicing, and the servicing asset has a strong return, but then you have to think about within the overall context of Wells Fargo, it's -- right now it's less than 2% of our assets. So, it's not going to be a huge driver in terms of moving the consolidated ROA, but we feel good about that return.

Unidentified Audience Member [70]

 I was just wondering if you could talk a bit about how you are thinking the future of the Wells Fargo financial business. Given the conversation and your thoughts on the sub-prime and near-prime consumer, how do you think about the strategy for that business going forward?

 Kevin Rhein, Wells Fargo &amp; Company - EVP, Card Services and Consumer Lending [71]

 The strategy really is, we want to be as full spectrum lending as we possibly can. And I think I mentioned in '09 what we started to do is -- we're not doing portfolio loan origination. We've actually shifted the business model to where we are doing the FHA loans. That's why the loans were starting to drop off there.

 So to the extent that we can qualify customers for credit products, we want to try to originate those. We've got some point-of-sale pilots that are working in Carrie's stores, where we are putting Wells Fargo financial people into the community banking stores, so that when they are in the store, if they tend to be more of a near-prime or sub-prime customer, can we service them that way? So, the goal is full-spectrum lending. The operational question is what's the best way to do that?

 And we continue to try to look at ways to trim distribution costs and take advantage of customer contacts in the different channels.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [72]

 Question for Avid, are you spending at the best pace to integrate your technology platform? Should we spend faster to gain the integration benefits sooner?

 Avid Modjtabai, Wells Fargo &amp; Company - EVP, Technology and Operations [73]

 Well what I would say is that we didn't start coming out with a conversion calendar by saying how much do we want to spend or how much can we afford to spend. We started by saying what is the right pace, and what's the right sequence given what are the application decisions; product gaps that we need to complete; business processes that our businesses want; the business models that they have. How much time do we need between each conversion event so that our team members could be prepared and so on and so forth.

 And then the outcome was what do we need to spend to execute on that strategy? So we really didn't start with spending as a constraint. Based on what is the right way of doing this conversion, we came up with what's the necessary investment to make it happen.

 John Stumpf, Wells Fargo &amp; Company - Chairman, President and CEO [74]

 I would make one other addition to that. With respect to technology, since three-fourths of our checking customers are actively online, there's so much real-time information right now, there's two areas that we absolutely are so disciplined about. We want full redundancy where we can get it to make sure that if systems go down -- because if you are down in the store, you can fake it for a while. If you are down online you can't fake it. You are out of business. So that's one critical element.

 And secondly, Avid talked about it utilizing technology in a way where we get more utilization of the assets we already own. There was a time when we had servers from anybody that built a server, we bought one. And I think there was 15% or 20% utilization. Now, many of those servers are in these tier 4 sites; they're blades. And when our business leaders come to us now and look for adding whatever, they will come to us and ask I need so much server time as opposed to I want this Sun server here. And that was yesterday's thinking.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [75]

 Okay. John McDonald has got a question.

Unidentified Audience Member [76]

 Howard, another question on the accretable yield. Franklin talked about the increase -- the $600 million that came from the transfer from non-accretable. The other source has been the modifications and that's been a bigger source of increase so far. Can you just explain again why the modification leads to an increase in the accretable yield and what would make that continue to happen?

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [77]

 Well, if the modifications improve, the cash flow is on the portfolio, so that's really the driving factor, but --

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [78]

 That's the answer.

Unidentified Audience Member [79]

 Could you elaborate on that a little bit? Do you modify them? Did they last for a longer time and you just accrete more into it?

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [80]

 What we're really trying to do is make sure that the home is affordable and the payments are affordable for the customer. And, if we can keep a customer in their ham and they're making payments on that home, one, we're going to get more payments on the house; and two, we're going to do better than if we ended up taking that loan through foreclosure.

 So, the all-in is we're looking at these loans and how they're performing and the cash flows, it helps our accretable yield. So it's kind of you win on both sides.

 Now we're not assuming every modification avoids foreclosure. Okay? We've modeled that in and again, we're going to see how that performs. But we are very encouraged that the performance of the modifications on the pick-a-pay portfolio so far have been much better than the performance of modifications on similar portfolios. And so, that's all factored in, and as we model it out, it helps cash flows.

 Howard Atkins, Wells Fargo &amp; Company - Senior EVP and CFO [81]

 Okay. We're to have time for one more question, and I know we haven't exhausted all of your questions today so maybe while we're taking the last question, if any of you have questions that you really want to have answered, if you can just see Bob or Jim or someone from IR, write them down. We'll look at them overnight tonight and we'll try to group the questions and maybe spend five or 10 minutes tomorrow morning before the sessions begin, to finish off the questions in this session. But one more question over here.

Unidentified Audience Member [82]

 Back to sort of the big picture structural questions and specifically on the mortgage market, obviously, there's a lot of question about the GSE model and where it goes from here. And yet, of course, you're not originating a lot for portfolio. You've been using the various government enterprises a lot. What's your thought process about the model for the mortgages in the future? What do you think the product set would look like? And what might that do to your ROAs?

 Mark Oman, Wells Fargo &amp; Company - Senior EVP, Home and Consumer Finance [83]

 I think in terms of the overall industry structure, obviously, that's something that is going to play out over some period of time here. I think the reality is, as I see it, and jump in here Mike Heid -- the United States was a 30-year fixed-rate mortgage. And we're very -- pretty unique that way, and certainly unique in terms of the size of our overall mortgage market, where your $9 trillion to $10 trillion outstanding over how [many] 30-year fixed-rate mortgages, which you need a securitization market to distribute that product effectively. It's not a depository product.

 So, I think you're going to need some government involvement. I think you will still see FHA, VA. I would expect to see some type of GSE involvement. I'm not going to speculate on exactly how that works. It may be something more like a Ginnie Mae type structure, where you have a combination of private capital and ultimately maybe some government guarantee or some back-end disaster guarantee that is paid for. I don't know.

 But it's very important that we keep the TVA market out there for forward delivery. That's a liquid market and it has standards that everybody can agree with. And I think that's going to be very important for any type of housing market going forward.

 Obviously, we portfolio our jumbo originations today, and we are comfortable doing that. But, long term, we would expect to see a securitization market revive as people get greater confidence in terms of home values.