1. 1 World Bank Access to Finance Conference May 31, 2006 World Bank Access to Finance Conference May 31, 2006 Wells Fargo’s Model for Financial Outreach Bing Xiao, Senior Vice President Wells Fargo Bank

2. 2 About Wells Fargo Founded 1852 5th largest bank in the U.S. Only U.S. bank rated AAA by Moody’s Bank operates primarily in 23 Western and Midwestern states Strategic focus on customer cross-sell 20 year compound stockholder annual return of 21% -- versus the S&P 500 of 12% 2

3. 3 Wells Fargo Small Business Lending Prior to 1990, Wells Fargo was not a significant small business lender. Focus on small business started in early 1990’s. Began direct lending in 1995 - streamlined loans of up to $100,000 largely to firms with less than $2 million in sales. By 2004 Wells Fargo was #1 for the third year in a row in loans under $100,000 to small businesses in the U.S., with 15% market share nationally. In the past 10 years, Wells Fargo loaned more that $26 billion to small businesses owned by African-Americans, Asian-Americans, Latinos and women. 3

4. 4 Reaching Out to Small Businesses Opportunities: Small loans to small businesses is a big and growing business  In the U.S., small businesses represent over 40% of the GDP, employ more than half the private workforce, and create three of every four new jobs.  Loans under $100,000 and business credit card volume have both grown at double digit rates in recent years. Traditionally an under-served market Significant cross-sale opportunities Challenges: High degree of complexity Lack of reliable information High perceived risks 4 High transaction costs and low profitability

5. 5 Tax Returns, Financial Statements Required Application Reviewed in Detail by Lender Annual Review Required Collateral often Required Booked on Commercial Loan System Focus on Very Low Losses No Tax Return or Financials Needed Most Decisions Made Automatically Based on Scorecard No Review – Line is “Evergreen”UnsecuredBooked on Consumer Loan System Higher Losses Acceptable with Risk-Based Pricing Applications by Mail, Phone, or Branch New Process Application in Branch or with Loan Officer Traditional Process Dramatic Changes Have Made Small Business Lending Highly Profitable Dramatic Changes Have Made Small Business Lending Highly Profitable 5

6. 6 Underwriting & Credit Scoring Marketing & New Product Development Account & Portfolio Management Attract low risk small business borrowers –Data-driven targeted marketing –Attractive offers –Constant testing Develop new and innovative products and services –Think out of the box –Cross-sale –Achieve higher growth rate and maintain the leadership position Use consumer credit techniques and develop small business specific rules and models –Leverage information between businesses and their owners –More complex data and segmentation Constantly analyze, evaluate, and modify existing u/w policies and models Conduct on-going assessment of the risk of each account –Take action if needed Analyze and monitor performance by customer segments Maximize profitability at the total portfolio level –Create a balanced portfolio with diversified risks Building a Lending Operation Focused on Small Businesses 6

7. 7 Adverse and Positive Selection Marketing & New Product Development Making good, solid borrowers want to apply and use credit is critically important to credit quality and to portfolio profitability. Examples of Adverse Selection: – Long and involved application – Uninteresting offer: very small credit limit, very high interest rates or fees – Internet Carefully designed processes, such as simple loan application, can achieve two important objectives at the same time – lower losses by reducing adverse selection and increase product attractiveness. – In small businesses, owners are the primary financial decision-makers. Business Direct greatly reduces owners’ transaction costs. Saving time and keeping it simple are very important to them. 7

8. 8 Marketing Test and Product Innovation Constant testing, measuring, and learning is key to effective small business marketing. – List sources – Product offers – Direct mail creative – Telemarketing scripts – Channels – branch, direct mail, telemarketing, internet, partnership – Disciplined analysis of test results required to succeed - What kind of customers are we attracting? What’s working? What’s not working? Continue to explore new ways to better serve small businesses. – Ask “why not?” - challenge conventional thinking in our industry. – Small experiments accelerate learning and obtain quick customer feedback. – Nurture entrepreneurial talent and encourage initiative ownership – we established a separate group five years ago to manage new initiatives. Marketing & New Product Development 8

9. 9 The Business Direct Loan Decisioning Process Targeting We target offers to long- established small businesses with good trade credit Business Loan Applications Data Input Integrity Controls Input errors can cause decision errors Verification and Pre-Screening Finds inconsistent/possibly fraudulent applications Statistical Scorecard One or more statistical models rank applicant risk Out-sorted for Lender Review Rules identify applications requiring a lender review Setting Price and Credit Amount Price and loan size set according to relative risk Underwriting & Credit Scoring Millions of applications processed. 2/3 rd of decisions made automatically, 1/3 rd reviewed by lenders. Our processing cost of small business loans is among the lowest in the industry. Key Facts 9

10. 10 Business Direct Today – A Profitable and Growing Lender That Helps Small Businesses Succeed Underwriting & Credit Scoring Marketing & New Product Development Account & Portfolio Management 450,000 customers in 50 states and Canada Median sales: $ 325,000 70% have 5 or fewer employees Average line/loan balance: $ 15,000 Median business deposits: $ 7,000 Average time in business: 13 years Average time as Business Direct customer: 6 years $ 20 Billion in loan commitments $ 8 Billion in loans outstanding - 91% unsecured 10

11. 11 Creating a Winning Small Business Lending Organization and a Culture for Success Organizational and strategic focus on small business lending – a separate line organization supported by top management. Create a conservative risk culture and at the same time encourage prudent risk-taking. – Disciplined monitoring and analysis to catch poorly performing groups early. Focus on building and improving key capabilities: – Data, more data, and data analysis. – Emphasis on excellent execution. – Innovation is valued and rewarded. Attract and reward top talent. It can really make a difference! 11

12. 12 RESOUCE Capital investment (Smart capital) Organizational alignment and support Can the Lessons Be Applied Somewhere Else? A SUCCESSFUL SMALL BUSINESS LENDING BUSINESS INFRASTRUCTURE Stable & balanced legal and political environment (e.g., property right, contract/collection laws, etc. ) Healthy and active small business segment Sound payment & banking system (e.g., interest rate flexibility for risk-based pricing) Reliable communication and postal systems INFORMATION Good consumer bureaus (positive & negative) Available business information sources Robust customer information system PEOPLE A skilled, talented and committed internal team. A culture of learning, innovation and calculated risk- taking. 12

13. 13 Thank You Questions? Thank You Questions?