Actionable news
All posts from Actionable news
Actionable news in WFC: WELLS FARGO & CO.,

Wells Fargo &: Billion In Net Income

The following excerpt is from the company's SEC filing.

Diluted EPS of

, Revenue of

$21.9 Billion

Continued strong financial results:

Net income of

$5.8 billion

percent from third quarter 2014

Diluted earnings per share (EPS) of

$21.9 billion

Pre-tax pre-provision profit

$9.5 billion

Return on assets (ROA) of

percent and return on equity (ROE) of

Strong growth in loans and deposits:

Total average loans of

$895.1 billion

$61.9 billion

percent, from third quarter 2014

Quarter-end loans of


billion, up

$64.4 bi llion

Quarter-end core loans

$849.2 billion

billion, or

Total average deposits of

trillion, up

Continued strength in credit quality:

Net charge-offs of

$703 million

$35 million

Net charge-off rate of

percent (annualized), down from

Nonaccrual loans down

$1.8 billion

No reserve release

, compared with a

$300 million

release in third quarter 2014

Maintained strong capital levels

and continued share repurchases:

Common Equity Tier 1 ratio under Basel III (fully phased-in) of

Period-end common shares outstanding down 36.8 million from second quarter 2015

Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

See table on page 4 for more information on core and non-strategic/liquidating loan portfolios.

Reserve release represents the amount by which net charge-offs exceed the provision for credit losses.

See table on page 35 for more information on Common Equity Tier 1. Common Equity Tier 1 (fully phased-in) is a preliminary estimate and is calculated assuming the full phase-in of the Basel III capital rules.

Selected Financial Information

Quarter ended

Sep 30,

Jun 30,


Diluted earnings per common share

Wells Fargo net income (in billions)

Return on equity (ROE)

Asset Quality

Net charge-offs (annualized) as a % of average total loans

Allowance for credit losses as a % of total loans

Allowance for credit losses as a % of annualized net charge-offs

Revenue (in billions)

Efficiency ratio

Average loans (in billions)

Average deposits (in billions)




Net interest margin

SAN FRANCISCO – Wells Fargo & Company (NYSE:WFC) reported net income of

$5.8 billion

per diluted common share, for third quarter 2015, compared with

$5.7 billion

per share, for third quarter 2014, and

per share, for second quarter 2015.

"Wells Fargo's strong third quarter results reflected the ability of our diversified business model to generate consistent financial performance in an uneven economic environment while continuing to meet our customers' financial needs," said Chairman and CEO John Stumpf. "Compared with a year ago, we grew loans, deposits and capital, and returned more capital to shareholders through dividends and share buybacks. Our balance sheet and credit results remained strong and our 265,000 team members continue to focus on helping our customers succeed financially."

Chief Financial Officer John Shrewsberry said, "Wells Fargo reported a solid

of net income for the third quarter. Revenue increased on both a linked quarter and year over year basis, on growth in both net interest income and noninterest income. We generated positive operating leverage in the quarter, as our expenses declined, and we remained within our targeted efficiency ratio range. Our return on equity and return on assets also remained within our targeted ranges, and we increased our net payout ratio

to shareholders to 60 percent from 54 percent in second quarter."

Net payout ratio means the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock.

Net Interest Income

Net interest income increased

$187 million

from second quarter 2015 to

$11.5 billion

, primarily driven by growth in investment securities and loans, including the full quarter benefit of the GE Capital loan purchase and related financing transaction that settled late in the second quarter. The third quarter also included one additional day, accounting for approximately one third of the increase in net interest income relative to the second quarter. These benefits were partially offset by reduced income from variable sources including purchased credit-impaired (PCI) loan recoveries, periodic dividends, and loan fees included in interest income.

Net interest margin was

percent, down

basis point from second quarter 2015. Balance sheet growth and repricing, driven by securities purchases and higher loan balances, improved the net interest margin by approximately 5 basis points linked-quarter. These benefits were offset by growth in customer deposits, which had a minimal impact to net interest income, but was dilutive to the net interest margin by 3 basis points, and by lower income from variable sources, which reduced the margin by 3 basis points.

Noninterest Income

Noninterest income was

$10.4 billion

, up from $

10.0 billion

in second quarter 2015, driven by higher equity investment gains, deposit service charges, lease income and card fees. Other noninterest income was also higher in the quarter, primarily due to the impact of lower interest rates on our debt hedging results. Offsetting this growth were lower gains from trading activities, driven by lower deferred compensation plan investment results (largely offset in employee benefits expense), debt securities gains, trust and investment fees, and seasonally lower crop insurance fees.

Mortgage banking noninterest income was

$1.6 billion

$116 million

from second quarter. During the third quarter, residential mortgage originations were

$55 billion

$7 billion

linked quarter. The production margin on residential held-for-sale mortgage originations

percent, compared with

percent in second quarter. Net mortgage servicing rights (MSRs) results were

$253 million

$107 million

in second quarter 2015.

Noninterest Expense

Noninterest expense declined

$70 million

from the prior quarter to

$12.4 billion

, primarily due to lower deferred compensation expense in employee benefits. This decline was partially offset by a $126 million contribution to the Wells Fargo Foundation, higher salaries expense, and increased project-related outside professional services expense. The efficiency ratio improved to

percent in third quarter 2015, compared with

percent in the prior quarter. The Company expects to operate at the higher end of its targeted efficiency ratio range of 55 to 59 percent for full year 2015.

Production margin represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage originations. See the Selected Five Quarter Residential Mortgage Production Data table on page 40 for more information.

Total loans were

$903.2 billion

September 30, 2015

$14.8 billion

June 30, 2015

. Growth was broad-based and was driven by commercial and industrial, and 1-4 family first mortgage loans. Core loan growth was

$17.1 billion

, as non-strategic/liquidating portfolios declined

$2.3 billion

in the quarter. Total average loans were

in the third quarter, up

$24.6 billion

from the prior quarter, and included the benefit of the GE Capital loan purchase and related financing transaction that settled late in the second quarter.

(in millions)


and liquidating (a)




















Change from prior quarter:







See table on page 32 for additional information on non-strategic/liquidating loan portfolios. Management believes that the above information provides useful disclosure regarding the Company’s ongoing loan portfolios.

Investment Securities

Investment securities were

$345.1 billion

$4.3 billion

from second quarter. Purchases of approximately $19 billion (primarily federal agency mortgage-backed securities and U.S. Treasury securities), were partially offset by maturities, amortization and sales.

Net unrealized available-for-sale securities gains of $4.9 billion at

, declined from $5.7 billion at

, as the benefit of lower interest rates was offset by reductions arising from realized gains (both debt and equity), and widening credit spreads.


Total average deposits for third quarter 2015 were

percent from a year ago and up

percent (annualized) from second quarter 2015, driven by both commercial and consumer growth. The average deposit cost for third quarter 2015 was 8 basis points, which was down 2 basis points from a year ago and flat compared with the prior quarter.

Capital levels remained strong in the third quarter, with Common Equity Tier 1 under Basel III (fully phased-in) of

$141.9 billion

. The Common Equity Tier 1 ratio under Basel III (fully phased-in) was

. In third quarter 2015, the Company purchased 51.7 million shares of its common stock. The Company also paid a quarterly common stock dividend of $0.375 per share, up from $0.35 per share a year ago.

Credit Quality

“Credit performance remained strong during the quarter," said Chief Risk Officer Mike Loughlin. "The quarterly loss rate (annualized) remained low at

percent and nonperforming assets declined by

billion, or

percent (annualized), from the prior quarter driven by lower nonaccrual loans. The allowance for credit losses in the third quarter remained flat (no reserve release) as continued credit quality improvements in the residential real estate portfolio were offset by higher commercial reserves reflecting deterioration in the energy sector. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions.”

Net Loan Charge-offs

The quarterly loss rate (annualized) of

percent included commercial losses of

percent and consumer losses of

percent. Credit losses were

$650 million

in the second quarter, an

percent increase, primarily driven by a seasonal increase in the auto portfolio.

Net Loan Charge-Offs

March 31, 2015

($ in millions)

Net loan


As a % of


loans (a)

Net loan


Commercial and industrial

Real estate mortgage

Real estate construction

Lease financing

Total commercial


Real estate 1-4 family first mortgage

Real estate 1-4 family junior lien mortgage

Credit card


Other revolving credit and installment

Total consumer

Quarterly net charge-offs as a percentage of average loans are annualized. See explanation on page 31 of the accounting for purchased credit-impaired (PCI) loans and the impact on selected financial ratios.

Nonperforming Assets

Nonperforming assets declined by

$1.1 billion

$13.3 billion

. Nonaccrual loans decreased

$906 million

on improvements in several loan categories, including a

$718 million

decline in consumer real estate. Foreclosed assets were

$2.0 billion

Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)


As a % of


Total balances


Total nonaccrual loans




Foreclosed assets:

Government insured/guaranteed

Non-government insured/guaranteed

Total foreclosed assets

Total nonperforming assets





Loans 90 Days or More Past Due and Still Accruing

Loans 90 days or more past due and still accruing (excluding government insured/guaranteed) totaled

$872 million

$756 million

. Loans 90 days or more past due and still accruing with repayments insured by the Federal Housing Administration (FHA) or predominantly guaranteed by the Department of Veterans Affairs (VA) for mortgages and the U.S. Department of Education for student loans under the Federal Family Education Loan Program were

$13.5 billion

$14.4 billion

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled

$12.6 billion

, unchanged from

. The allowance coverage to total loans was

percent, compared with

percent in second quarter 2015. The allowance covered

times annualized third quarter net charge-offs, compared with

times in the prior quarter. The allowance coverage to nonaccrual loans was

percent at

. “We believe the allowance was appropriate for losses inherent in the loan portfolio at

,” said Loughlin.

Business Segment Performance

Wells Fargo defines its operating segments by product type and customer segment.

ffective third quarter 2015, we realigned our asset management business from Wholesale Banking to Wealth and Investment Management (WIM) (formerly Wealth, Brokerage and Retirement) and realigned our reinsurance business from WIM and our strategic auto investments from Community Banking to Wholesale Banking. Results for these operating segments were revised for prior periods to reflect the impact of these realignments. Segment net income for each of the three business segments was:

Quarter ended

offers a complete line of diversified financial products and services for consumers and small businesses including checking and savings accounts, credit and debit cards, and auto, student, and small business lending. Community Banking also offers investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Lending business units.

Total revenue




Provision for credit losses

Average assets

Average core deposits

Community Banking reported net income of

$3.7 billion

$336 million

percent, from second quarter 2015. Revenue of

$13.6 billion

$973 million

percent, from second quarter 2015 due to gains from sale of equity investments, as well as higher net interest income, deposit service charges, and other income, partially offset by lower mortgage banking fees. Noninterest expense increased

$58 million

percent, primarily due to a donation to the Wells Fargo Foundation, partially offset by lower advertising costs and operating losses. The provision for credit losses increased

$295 million

from the prior quarter primarily due to the absence of a reserve release in the quarter.

Net income was up

$225 million

percent, from third quarter 2014. Revenue was up

$807 million

percent, compared with a year ago due to higher net interest income, market sensitive revenue, primarily gains from sale of equity investments, debit and credit card fees, and trust and investment fees. Noninterest expense increased

$170 million

percent, from a year ago driven by higher personnel costs and a donation to the Wells Fargo Foundation, partially offset by lower foreclosed assets and travel and entertainment expenses. The provision for

$193 million

from a year ago as the $74 million improvement in net charge-offs was more than offset by a $267 million lower reserve release.

Retail banking

Primary consumer checking customers

up 5.8 percent year-over-year

Retail Bank household cross-sell ratio of 6.13 products per household, compared with 6.15 year-over-year

Small Business/Business Banking

Primary business checking customers

up 5.0 percent year-over-year

Combined Business Direct credit card, lines of credit and loan product solutions (primarily under $100,000 sold through our retail banking stores) were up 6 percent in the first nine months of 2015, compared with the same period in the prior year

For the 13

consecutive year, America’s #1 small business lender (in both loans under $100,000 and under $1 million) and #1 lender to small businesses in low- and moderate-income areas (2014 CRA data, released August 2015)

For seventh consecutive year, Wells Fargo was nation’s #1 SBA 7(a) small business lender in dollars, and #1 in units for the first time in the full-year results

Online and Mobile Banking

26.3 million active online customers, up 8 percent year-over-year

16.0 million active mobile customers, up 17 percent year-over-year

#1 ranking in Keynote’s Small Business Banking Scorecard; best in “Functionality” (August 2015)

Consumer Lending Group

Originations of

$62 billion

in prior quarter

Applications of

$73 billion

$81 billion

Application pipeline of

$34 billion

at quarter end, down from

$38 billion

Consumer Credit

Credit card penetration in retail banking households rose to 42.9 percent

, up from 39.7 percent in prior year

Auto originations of $8.3 billion in third quarter, up 2 percent from prior quarter and 10 percent from prior year

Customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit.

Data as of August 2015, comparisons with August 2014.

August 2015 Retail Bank household cross-sell ratio includes the impact of the sale of government guaranteed student loans in fourth quarter 2014.

U.S. SBA data, federal fiscal years 2009-2015 (year-ending September).

provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $20 million. Products and business segments include Middle Market Commercial Banking, Government and Institutional Banking, Corporate Banking, Commercial Real Estate, Treasury Management, Wells Fargo Capital Finance, Insurance, International, Real Estate Capital Markets, Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, and Asset Backed Finance.

Provision (reversal of provision) for credit losses

Wholesale Banking reported net income of

$1.8 billion

$263 million

$5.6 billion

$292 million

percent, from prior quarter. Net interest income increased

$13 million

, as the benefit of strong broad-based loan growth and higher other earning assets were largely offset by lower loan resolutions. Noninterest income decreased

$305 million

percent, due to lower gains on equity fund investments and debt securities related to higher other-than-temporary impairment on energy sector investments, mortgage banking fees in real estate capital markets, investment banking fees, trading revenues and seasonally lower insurance fees. Noninterest expense increased

$1 million

as lower variable compensation expenses were more than offset by higher operating losses. The provision for credit losses increased

$103 million

from prior quarter due to the absence of a reserve release and increased net charge-offs.

Net income was down

$157 million

percent, from third quarter 2014. Revenue decreased

$97 million

percent, from third quarter 2014 as

$67 million

percent, growth in net interest income related to strong loan and deposit growth was more than offset by lower noninterest income. Noninterest income declined

$164 million

percent, on lower gains on equity investments and lower mortgage banking and commercial real estate brokerage fees. Noninterest expense increased

$39 million

percent, from a year ago primarily due to higher personnel expenses related to growth initiatives, compliance, and regulatory requirements, as well as increased operating losses. The provision for credit losses increased

$130 million

from a year ago.

Average loans increased

percent in third quarter 2015, compared with third quarter 2014, on broad-based growth, including the benefit from loan acquisitions, with growth in asset-backed finance, capital finance, commercial banking, commercial real estate, corporate banking, equipment finance, government and institutional banking, and real estate capital markets

Cross-sell of 7.3 products per relationship, up 0.1 from third quarter 2014

Treasury management revenue up 9 percent from third quarter 2014

Cross-sell reported on a one-quarter lag.

provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S. based businesses including Wells Fargo Advisors, The Private Bank, Abbot Downing, Wells Fargo Institutional Retirement and Trust, and Wells Fargo Asset Management. We deliver financial planning, private banking, credit, investment management and fiduciary services to high-net worth and ultra-high-net worth individuals and families. We also serve customers’ brokerage needs, supply retirement and trust services to institutional clients and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Advantage Funds.

Reversal of provision for credit losses

Wealth and Investment Management (WIM) reported net income of

$606 million