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Actionable news in WFC: WELLS FARGO & CO.,

Wells Fargo &: Billion In Quarterly Net Income;

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

Diluted EPS of $

; Revenue Up

Percent from Prior Year

Continued strong financial results:

Net income of

$5.5 billion

, compared with

$5.8 billion

in first quarter 2015

Diluted earnings per share (EPS) of

First quarter 2015 results included discrete tax benefit of $359 million, or $0.07 per share

Revenue of

$22.2 billion

percent

Pre-tax pre-provision profit

$9.2 billion

Return on assets (ROA) of

percent and return on equity (ROE) of

Added $30.8 billion of loans and leases from GE C apital acquisitions

$4.1 billion from rail car portfolio (1/1/16 close)

$26.7 billion from commercial and industrial loans and leases (3/1/16 close)

Strong growth in loans and deposits:

Total average loans of

$927.2 billion

$64.0 billion

percent, from first quarter 2015

Quarter-end loans of $

947.3 billion

, up $

86.0 billion

Total average deposits of

trillion, up

billion, or

percent, with an average deposit cost of 10 basis points

Solid overall credit quality:

Net charge-offs of

$886 million

178 million

Net charge-offs were

percent of average loans (annualized), up from

Nonaccrual loans down $

276 million

Reserve build

$200 million

, driven by deterioration in the oil and gas portfolio, compared with a

$100 million

reserve release

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.

Reserve build represents the amount by which the provision for credit losses exceeds net charge-offs, while reserve release represents the amount by which net charge-offs exceed the provision for credit losses.

Maintained strong capital levels and continued share repurchases:

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

Period-end common shares outstanding down 16.2 million from fourth quarter 2015

Selected Financial Information

Quarter ended

Mar 31,

Dec 31,

Earnings

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)

1,219.4

1,216.8

1,174.8

Net interest margin

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

net income of

$5.5 billion

per diluted common share, for first quarter 2016, compared with

$5.8 billion

per share, for first quarter 2015, and

$5.6 billion

per share, for fourth quarter 2015.

Chairman and CEO John Stumpf said, “Wells Fargo's first quarter results reflected the benefit of our diversified business model as we managed challenges presented by a volatile operating environment for our industry. We again generated solid growth in the fundamental drivers of long-term value creation: loans, deposits and capital. We also completed two important acquisitions from GE Capital, which are great additions to our company and demonstrate the benefit of our strong financial position. We remain focused on meeting the financial needs of our consumer and business customers, and I believe we are well positioned for the future.”

Chief Financial Officer John Shrewsberry added, “Our first quarter results demonstrated an ability to produce consistent revenue and net income across economic and interest rate cycles. While challenges in the energy industry and persistent low rates impacted our bottom line, our diversified business model was again beneficial to our results. We were disciplined in deploying liquidity into investment securities in the quarter, with gross purchases well below recent quarters. This was partially responsible for the $30 billion increase in our federal funds and short-term investment balances compared with the prior quarter. Our capital remained very strong with Common Equity Tier 1 (fully phased-in) of

$142.7 billion

. Our net payout ratio

was 60% in the quarter, as we returned $3.0 billion to shareholders through common stock dividends and net share repurchases."

See table on page 33 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.

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 in first quarter 2016 increased

$79 million

from fourth quarter 2015 to

$11.7 billion

. This increase was driven largely by earning asset growth, including a partial quarter impact from the assets acquired from GE Capital, the benefit of the fourth quarter increase in the federal funds rate and disciplined deposit pricing. These increases to net interest income were partially offset by reduced income from variable sources, including periodic dividends and loans fees, and one less day in the quarter.

Net interest margin was

percent, down

basis points from fourth quarter 2015. Income from variable sources reduced the net interest margin by approximately 2 basis points linked-quarter. All other growth, mix and repricing was essentially neutral to net interest margin.

Noninterest Income

Noninterest income in the first quarter was

$10.5 billion

, up from $

10.0 billion

in fourth quarter 2015, primarily due to a $381 million gain from the previously announced sale of our crop insurance business (included in other noninterest income) and the impact of lower interest rates and currency movements on hedging results (hedge ineffectiveness) of $379 million, driven by long-term debt. Noninterest income also reflected increases in lease income, which includes operating leases acquired in the GE Capital transactions, and trading gains, reflecting higher customer accommodation trading results in all market businesses. These increases were partially offset by lower gains from equity investments and debt securities, and declines in trust and investment fees, mortgage banking fee income, and commercial real estate brokerage commissions.

Trust and investment fees were

$3.4 billion

$126 million

from the prior quarter, primarily due to lower investment banking fees and lower retail brokerage transaction activity and asset-based fees reflecting lower market valuations.

Mortgage banking noninterest income was

$1.6 billion

$62 million

from fourth quarter 2015, primarily driven by a decrease in mortgage originations and production margins in the first quarter, partially offset by higher servicing income. Residential mortgage loan originations were

$44 billion

in the first quarter, down

$3 billion

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

percent, compared with

percent in fourth quarter. Net servicing income was

$850 million

$730 million

Noninterest Expense

Noninterest expense in the first quarter was

$13.0 billion

, compared with $

12.6 billion

in fourth quarter 2015. First quarter expenses included seasonally higher employee benefits and incentive compensation, as well as an increase in operating lease expense due to the leases acquired in the GE Capital transactions. These higher expenses were offset by lower outside professional services, equipment and advertising, which typically decline in first quarter, and lower operating losses. The efficiency ratio was

percent in first quarter 2016, compared with

percent in the

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 38 for more information.

prior quarter. The Company currently expects to operate at the higher end of its targeted efficiency ratio range of 55 to 59 percent for full year 2016.

Total loans were

$947.3 billion

March 31, 2016

$30.7 billion

December 31, 2015

, including $24.9 billion from the GE Capital acquisitions. First quarter organic loan growth included commercial and industrial, real estate mortgage, real estate construction, lease financing, real estate 1-4 family first mortgage and automobile. Total average loans were

in the first quarter, up

$14.9 billion

from the prior quarter, and included an $8.8 billion impact from the GE Capital acquisitions.

(in millions)

Mar 31,

Dec 31,

Sep 30,

Jun 30,

Commercial

488,205

456,583

447,338

438,022

415,299

Consumer

459,053

459,976

455,895

450,437

445,932

947,258

916,559

903,233

888,459

861,231

Change from prior quarter

30,699

13,326

14,774

27,228

(1,320

Investment Securities

Investment securities were

$334.9 billion

$12.7 billion

from fourth quarter, as a result of securities sales, runoff and modest securities purchases.

Net unrealized available-for-sale securities gains of $3.5 billion at

, increased from $3.0 billion at

, primarily due to a decline in interest rates.

Deposits

Total average deposits for first quarter 2016 were

percent from a year ago, driven by both commercial and consumer growth. The average deposit cost for first quarter 2016 was 10 basis points, up 1 basis point from a year ago and up 2 basis points from the prior quarter. The increase in deposits reflected strong consumer and small business growth, in part due to seasonally higher balances.

Capital levels remained strong in the first quarter, with Common Equity Tier 1 (fully phased-in) (CET1) of

$142.7 billion

percent in the prior quarter. The decline in the CET1 ratio was primarily driven by the deployment of capital to support the growth in assets from the GE Capital acquisitions in the quarter. In first quarter 2016, the Company repurchased 51.7 million shares of its common stock, which reduced period-end common shares outstanding by 16.2 million shares after taking into account seasonal common stock issuances to employee benefit plans. The Company paid a quarterly common stock dividend of $0.375 per share, up from $0.35 per share a year ago.

Credit Quality

“Solid overall credit results continued in the first quarter," said Chief Risk Officer Mike Loughlin. "The quarterly loss rate remained low at

percent (annualized). While substantially all of the loan portfolio continues to perform well, the oil and gas portfolio remains under significant stress due to low prices and excess leverage in this industry. The increases in losses and nonperforming loans in the first quarter were primarily due to continued challenges in this portfolio. The allowance for credit losses in the first quarter reflected a reserve build of

as higher commercial reserves reflecting continued deterioration within the oil and gas portfolio were partially offset by continued credit quality improvements in the residential real estate portfolio. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions.”

Net Loan Charge-offs

The quarterly loss rate of

percent (annualized) reflected commercial losses of

percent and consumer losses of

percent. Credit losses were

$831 million

in fourth quarter 2015, due to higher oil and gas portfolio losses.

Net Loan Charge-Offs

September 30, 2015

($ in millions)

Net loan

charge-

As a % of

average

loans (a)

Net loan

Commercial:

Commercial and industrial

Real estate mortgage

Real estate construction

Lease financing

Total commercial

Consumer:

Real estate 1-4 family first mortgage

Real estate 1-4 family junior lien mortgage

Credit card

Automobile

Other revolving credit and installment

Total consumer

Quarterly net charge-offs as a percentage of average loans are annualized. See explanation on page 30 of the accounting for purchased credit-impaired (PCI) loans and the impact on selected financial ratios.

Nonperforming Assets

Nonperforming assets increased by

$706 million

$13.5 billion

. Nonaccrual loans increased

$852 million

from fourth quarter to

$12.2 billion

driven by a $1.1 billion increase in the oil and gas portfolio and the addition of $343 million of nonaccrual loans from the GE Capital acquisitions. The increase in nonaccrual loans was partially offset by a

$684 million

decline in consumer real estate nonaccrual loans, partly due to a sale, as well as a

$76 million

decline in commercial real estate nonaccrual loans. Foreclosed assets were

$1.3 billion

, down from

$1.4 billion

Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

Total

balances

As a % of

total

Total balances

Total nonaccrual loans

12,234

11,382

11,537

Foreclosed assets:

Government insured/guaranteed

Non-government insured/guaranteed

Total foreclosed assets

Total nonperforming assets

13,513

12,807

13,304

Change from prior quarter:

(1,097

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

$803 million

$981 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 mortgage loans and the U.S. Department of Education for student loans under the Federal Family Education Loan Program were

$12.3 billion

$13.4 billion

Allowance for Credit Losses

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

$12.5 billion

. The allowance coverage for total loans was

percent in fourth quarter 2015, as loans and leases acquired from GE Capital were recorded at fair value under the purchase method of accounting which fully reflects life-of-loan expected credit losses. The allowance covered

times annualized first quarter net charge-offs, compared with

times in the prior quarter. The allowance coverage for 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. Segment net income for each of the three business segments was:

Quarter ended

Community Banking

Wholesale Banking

Wealth and Investment Management

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

12,614

12,330

12,111

Provision for credit losses

Average assets

Community Banking reported net income of

$3.3 billion

$127 million

percent, from fourth quarter 2015. Revenue of

$12.6 billion

$284 million

percent, from fourth quarter 2015 due to higher net interest income and other income (hedging ineffectiveness, driven by long-term debt hedging results), partially offset by lower equity investment gains, and lower gains on deferred compensation plan investments (offset in employee benefits expense). Noninterest expense was down

percent, compared with fourth quarter 2015, due to lower project-related expense, equipment expense, operating losses, and deferred compensation plan expense (offset in trading revenue), partially offset by seasonally higher personnel expense. The provision for credit losses increased

$16 million

Net income was down

$251 million

7 percent

, from first quarter 2015. First quarter 2015 results included a discrete tax benefit of $359 million. Revenue was up

$503 million

percent, compared with a year ago due to higher net interest income, mortgage banking fees, deposit service charges, and debit and credit card fees, partially offset by lower market sensitive revenue, primarily gains on equity investments and trading activities, and lower trust and investment fees. Noninterest expense increased

$245 million

percent, from a year ago driven by higher operating losses and personnel expenses, partially offset by lower foreclosed assets expense. The provision for credit losses increased

$62 million

from a year ago primarily due to an allowance build compared with a reserve release in first quarter 2015.

Retail Banking

Primary consumer checking customers

up 5.0 percent year-over-year

Debit card purchase volume

of $72 billion in first quarter, up 9 percent year-over-year

Retail Bank household cross-sell ratio of 6.09 products per household, compared with 6.13 year-over-year

Digital Banking

27.2 million digital (online and mobile) active customers, up 6 percent year-over-year

17.7 million mobile active customers, with continued double digit growth in mobile adoption

#1 overall performance in Keynote Mobile Banking Scorecard; also best in “Functionality,” “Ease of Use,” and “Quality & Availability” (March 2016)

Consumer Lending Group

Originations of

$47 billion

in prior quarter

Applications of

$77 billion

$64 billion

Application pipeline of

$39 billion

at quarter end, up from

$29 billion

Consumer Credit

Credit card purchase volume of $17.5 billion in first quarter, up 13 percent year-over-year

Credit card penetration in retail banking households rose to 43.3 percent, up from 41.8 percent in prior year

Auto originations of $7.7 billion in first quarter, up 2 percent from prior quarter and up 9 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 February 2016, comparisons with February 2015.

Combined consumer and business debit card purchase volume dollars.

Primarily includes retail banking, consumer lending, small business and business banking customers.

provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $5 million. Products and businesses include Business Banking, 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

$1.9 billion

$183 million

$7.0 billion

$399 million

percent, from prior quarter and included the acquisitions of GE Railcar Services (closed 1/1/16) and GE Capital’s North American Commercial Distribution Finance and Vendor Finance businesses (closed 3/1/16). Net interest income increased

$37 million

percent, as broad-based loan growth, including the GE Capital acquisitions, and increased trading-related revenue was partially offset by lower deposits. Noninterest income increased

$362 million

percent, as the gain on sale of the crop insurance business, strong customer accommodation trading results and the GE Capital acquisitions were partially offset by lower results in commercial real estate businesses...


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