November 10, 2005

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Presentation to Red McCombs School of Business,
at The University of Texas at Austin

• November 10, 2005

Frank W. Schageman, 97 Senior Vice President,
Regional Manager Houston Commercial
Banking
Robert A. Chereck, 70 72 Executive Vice
President, Division Manager Texas
Commercial Banking
Developing RELATIONSHIPS. Providing SOLUTIONS
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Agenda

• Introduction to Wells Fargo Commercial
  Banking
• Comments regarding banking and the financial
  services industry
• Case study Flotek Industries, Inc.
• Q A

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First a quiz.

• Wells Fargos ticker symbol is?
• WFC
• Wells Fargos market cap. is? (within 5B)
• 101.2 B /- (as of 11/1/05)
• Wells Fargos debt rating?
• Aaa (only commercial bank, first since 1997)
• Amount lost in Enron debacle?
• 0

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Random Factoids

• 22 million Texans produce more goods and services
  (s) than 1.2 billion people in India.
• Inflation has behaved well since 1997, thanks, in
  part, to competition that comes with
  globalization (think clothing, cars, computers)
• However, what about those products and services
  not subject to foreign competition?
• Satellite television,Cable tv
• Pharmaceuticals, medical supplies
• Higher education (up 67 since 97)

Per Richard Fisher, chair, Dallas Fed, speech
to Association For Corporate Growth, Houston,
October 19, 2005
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Our Rich History

• Established in 1852 by Henry Wells and William
  Fargo
• Financed the first cross-country stagecoach line
  in 1858
• Purchased First Interstate in 1996
• Merged with Norwest Bank in 1998
• Voted Most Admired Bank by Fortune magazine
• Only Aaa rated bank
• CEO, Dick Kovacevich, American Bankers Banker of
  the Year in 2003.

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Wells Fargo Key Facts (9/30/05)

• Assets ... 453 billion
• Team Members ... 153,000
• Customer Households 23 million
• Stores . 6,250
• ATMs .. 6,363
• Market Capitalization . 100 billion
• Fortune 500 rank (profit) 17 (29th in revenue)
• Only Aaa rated bank in U.S.

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Reputation

• Among top 20 Fortune 500 companies in revenues,
  profit and market cap Fortune
• Best Commercial Internet Bank Global Finance
• Among Top 100 places to work for working mothers
  Working Mother Magazine
• Among top 50 companies in all industries for
  diversity Diversity Inc.
• Best managed company in banking - Forbes
• 2 full service investment broker SmartMoney
• Only Aaa rated U.S. bank Moodys

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Market Performance
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20-Yr Market Performance
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Diverse Business Model
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Meeting All Wells Fargos Customers Needs
SmallBusinesses(0-10MMSales)
HighNet WorthConsumers
Consumers
LargeBusinesses(500MMSales)
Middle MarketBusinesses(10-500MMSales)
BusinessBanking
PrivateClientServices
RetailBanking
U.S.CorporateBanking
CommercialBanking
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Commercial Banking Key Statistics

• Delivery model RCBOs (Regional Commercial
  Banking Offices) and LPOs (Loan Production
  Offices).
• Approximately 1,900 full-time employees.
• More than 12,000 customer relationships.
• 65 physical office locations throughout the U.S.
• High level of service through relationship
  banking approach.
• Fast, local decision making on credit requests.
• An impressive array of treasury management
  solutions tailored to the needs of each business.
  
• Commercial Electronic Office (CEO)
  Internet-based portal for Commercial clients to
  access all services

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Commercial Banking Footprint
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Primary Delivery ChannelRegional Commercial
Banking Office (RCBO)
Key RVP Regional Vice President LTM Loan Team
Manager CSM Customer Service Manager RM
Relationship Manager RA Relationship
Associate BDO Business Development Officer TMSC
Treasury Management Sales Consultant
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Typical Customer ProfileWho is our Target
Market?

• Texas, Louisiana, and Oklahoma companies with
  annual sales of 20 million to 1 billion
• Generally asset-intensive industries
  manufacturers, distributors, investor real estate
  we like stuff!
• Established long, profitable track records
• Relatively low leverage
• Attractive risk/return
• Cross Sell opportunities

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Profitability MetricsHow do we manage our
business?

• What we measure.
• PTPP Pre-Tax Pre-Provision
• NIACC Net Income After Capital Charge
• How we measure it
• ProfitMax
• Gives decision-makers the ability to quickly
  determine the value (force-rank) any
  relationship by profitability
• Outlines PTPP and NIACC of each relationship
• Automatic feeds from source systems
• Easily accessible by line staff enabling
  real-time decisions

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Multi-product RelationshipsKey to Our Success

• Key partners include..
• Wholesale Banking
• U.S. Corporate
• Capital Markets
• Equipment Finance and Asset based Lending
• International
• Foreign Exchange
• Investments
• Institutional Trust
• Wells Capital Management
• Private Client Services
• Other Units as Appropriate
• Retail, Business Banking, etc.

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Impact of Cross-Selling
Average Pre-Tax Profit Per Customer (000)
Number of Products Per Customer
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Cross-Sell SuccessForeign Exchange
Revenue MM
Where is the Impact of the ?
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Changing Revenue Stream
Source Wells Fargo Annual Report
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Case Study
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Case Study

• Situation Analysis
• Background Details
• Wells Fargos Role
• Loan/Credit Analysis
• Key Risk Factors
• Strengths Weaknesses
• Financial Statements Ratios
• Sources of Repayment
• Collateral Analysis
• Credit Analysis
• Result

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Flotek - Situation Analysis

• Flotek is a 22 million revenue company with an
  eclectic mix of businesses directed toward the
  oilfield (specialty chemicals, downhole drilling
  equipment, downhole production valves).
• Publicly traded as FLTK.ob on OTC bulletin board
  pink sheets
• Lamar Hunt family has significant ownership
  interest in the company
• Poor historical operating performance,
  over-leveraged, strained liquidity resulted in
  boot strapped capital structure.
• New management (2003) making substantial progress.

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Situation Analysis

• Company wants to make an acquisition of a
  privately-held oilfield equipment rental company
  in Vernal, UT, (Spidle Sales Service)
• Flotek asks Wells Fargo to recapitalize the
  balance sheet and provide financing to buy
  Spidle.
• Nice opportunity for the Bank, but is it too soon?

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Background Details

• Flotek formed in 1985 through acquisition of
  various chemical blending and oilfield
  manufacturing businesses
• Business model designed to take advantage of
  outsourcing trend amongst largest oilfield
  service players (Schlumberger, Halliburton, BJ,
  Baker Hughes)
• Highly dependent upon oilfield (drilling)
  activity

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Acquisition Rationale

• Improved utilization of Spidles rental
  equipment, previously limited to Rocky Mountain
  drilling basins
• Price - 8.75 million purchase price is lt 3x
  EBITDA (publicly-traded firms in space are more
  than twice the multiple
• With few leverage-able fixed assets, Flotek
  needs Spidles asset base to execute a
  recapitalization to improve liquidity.

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Wells Fargos Role

• Asked by the Board and Management to consider a
  debt recapitalization secured by all assets of
  the company
• Recommend a strategy to improve liquidity through
  improved cash management practices
• Underwrite recapitalization acquisition
  financing.

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Key Risk Factors

• Acquisition/Integration Risk
• Cyclicality of industry
• Negative net worth

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Flotek - Strengths Weaknesses

• Strengths
• New management has improved financial performance
• Strong, high-profile board relative to companys
  size
• Robust oilfield activity supports managements
  bullish forecast for continued improvement in
  financial performance
• Wells Fargo knows board members, strong
  visibility into management through informal
  network of references
• Apparent strong collateralization of proposed
  loan
• Weaknesses
• Poor historical financial performance, lack of
  liquidity, leveraged
• Cyclical business
• Acquisitions are tough, even more difficult if
  purchase price is borrowed (no room for error)
• Spidles business is a people-business. How
  does Flotek keep founder/seller (Agee Spidle) and
  employees engaged after a payday?

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Sources of Repayment

• Cash Flow from Operations
• Liquidation of Collateral

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Flotek - Financials Ratios
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Flotek Segment Analysis
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Spidle - Financials Ratios


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Flotek/Spidle Combined Financials Ratios


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Collateral Analysis
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Loan Description

• 5 million secured, revolving line of credit with
  availability governed by a formula of accounts
  receivable and inventory adjusted monthly
  (borrowing base)
• 7 million term loan secured by fixed assets with
  appraised value of 7 million. Repayment in
  quarterly installments over 5 years with a cash
  flow recapture
• 850,000 real estate loan with longer repayment
  terms

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Result

• 13 million loan package closed 2/15/05
• Wells Fargo will receive additional income based
  on FLTKs stock price performance (warrants)
• 8.75 million purchase price for Spidle comprised
  of 1.275 million seller note, 700,000 in FLTK
  stock and 6.8 million in cash
• Seller and key managers sign 4 year employment
  agreements and agreements not to compete for a
  period thereafter

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Result (contd)

• Stock price increased 73 the day the acquisition
  and refinancing announced
• 20 million secondary offering of common equity
  completed 9/05, begins trading on American Stock
  Exchange 9/05 under symbol FTK

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Today
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Today
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• QA