October 17, 2011 08:00 AM Eastern Daylight Time
Wells Fargo Reports Record Quarterly Net Income of $4.1 Billion
Increased Loans and Deposits, Lower Expenses from Second Quarter
SAN FRANCISCO--(BUSINESS WIRE)--Wells Fargo & Company (NYSE:WFC):
“The economic recovery has been more sluggish and uneven than anyone anticipated”
- Solid financial results:
- Record Wells Fargo net income of $4.1 billion, up 21 percent from prior year, up 3 percent from prior quarter
- Record diluted earnings per common share of $0.72, up 20 percent from prior year, up 3 percent from prior quarter
- Pre-tax pre-provision profit (PTPP)1 of $8.0 billion, up slightly from prior quarter
- Return on average assets of 1.26 percent
- Revenue of $19.6 billion, compared with $20.4 billion in prior quarter
- Noninterest expense down $798 million from prior quarter
- Strong loan and deposit growth:
- Total loans of $760.1 billion at September 30, 2011, up $8.2 billion from June 30, 2011; core loan portfolios up $13.4 billion from June 30, 20112
- Total average core checking and savings deposits up $33.8 billion from prior quarter
- Improved capital position:
- Tier 1 common equity increased $3.1 billion to $91.9 billion, with Tier 1 common equity ratio of 9.35 percent under Basel I at September 30, 2011. Under current Basel III capital proposals, Tier 1 common equity ratio estimated at 7.41 percent3
- Called $5.8 billion of trust preferred securities with an average coupon of 8.45 percent
- Purchased 22 million shares of common stock in third quarter 2011 and an additional estimated 6 million shares through a forward repurchase transaction that will settle in fourth quarter 2011
- Improved credit quality:
- Net loan charge-offs declined to $2.6 billion, down $227 million from prior quarter; down $1.5 billion from prior year
- Nonperforming assets declined to $26.8 billion, down $1.1 billion from prior quarter; down $7.6 billion from prior year
- Reserve release4 of $800 million (pre-tax) reflected improved portfolio performance
- Wachovia integration nearing successful completion
- Retail bank store conversions finished with the North Carolina conversion the weekend of October 15-16, 2011
- Over 38 million accounts converted, including mortgage, deposit, trust, brokerage and credit card
- On track for completion in first quarter 2012
- Committed to helping homeowners remain in their homes
- As of August 31, 2011, 716,945 active trial or completed loan modifications had been initiated since the beginning of 2009; of this total, 85 percent were through Wells Fargo’s own modification programs and the remainder were through the federal government’s Home Affordable Modification Program (HAMP)
- Since September 2009, Wells Fargo hosted 40 Home Preservation Workshops where specialists met individually with more than 26,000 customers
1 See footnote (2) in SUMMARY FINANCIAL DATA table for more information on pre-tax pre-provision profit.
2 See table in "Loans" section for more information on core and non-strategic/liquidating loan portfolios.
3 See TIER 1 COMMON EQUITY tables for more information on Tier 1 common equity.
4 Reserve release represents the amount by which net charge-offs exceed the provision for credit losses.
| Selected Financial Information | |||||||
| Quarter ended | |||||||
| Sept. 30, | June 30, | Sept. 30, | |||||
| 2011 | 2011 | 2010 | |||||
| Earnings | |||||||
| Diluted earnings per common share | $ | 0.72 | 0.70 | 0.60 | |||
| Wells Fargo net income (in billions) | 4.06 | 3.95 | 3.34 | ||||
| Asset Quality | |||||||
| Net charge-offs as a % of avg. total loans (annualized) | 1.37 | % | 1.52 | 2.14 | |||
| Allowance as a % of total loans | 2.68 | 2.83 | 3.23 | ||||
| Allowance as a % of annualized net charge-offs | 197 | 187 | 150 | ||||
| Other | |||||||
| Revenue (in billions) | $ | 19.63 | 20.39 | 20.87 | |||
| Average loans (in billions) | 754.5 | 751.3 | 759.5 | ||||
| Average core deposits (in billions) | 836.8 | 807.5 | 772.0 | ||||
| Net interest margin | 3.84 | % | 4.01 | 4.25 | |||
Wells Fargo & Company (NYSE: WFC) reported record net income of $4.1 billion, or $0.72 per diluted common share, for third quarter 2011, up from $3.3 billion, or $0.60 per share, for third quarter 2010, and up from $3.9 billion, or $0.70 per share, for second quarter 2011.
“The economic recovery has been more sluggish and uneven than anyone anticipated,” said Chairman and CEO John Stumpf. “We can’t change the economic environment, yet we have worked hard to control the variables we can – making our products and services more relevant to individuals and businesses, focusing on the customer, making as many loans as possible and growing new relationships – as well as fostering longtime ones. We see the results of this focus in growing cross-sell, deposits, and loans. Customers need a trusted financial partner, especially in challenging economic times. Wells Fargo has proven to be that partner over and over again.
“We are nearing the completion of our three-year Wachovia integration process. To date, Regional Banking has now completed its store conversions and our retail stores are Wells Fargo coast-to-coast on a single platform. Thank you to every single team member who has been involved in this remarkable effort.”
“This was a strong quarter for Wells Fargo, with solid growth in loans, deposits, investment securities and capital, along with improved credit quality and lower expenses,” said Chief Financial Officer Tim Sloan. “While our industry continued to face challenges due to economic conditions during this quarter, Wells Fargo’s diversified model was again able to produce solid results for our shareholders.”
Revenue
Revenue was $19.6 billion, compared with $20.4 billion in second quarter 2011. “While certain market-sensitive revenues were down from the second quarter, many of our businesses grew revenue,” said Sloan. Businesses generating linked-quarter revenue growth included asset management, asset-backed finance, auto dealer services, capital finance, commercial banking, commercial mortgage servicing, commercial real estate, corporate trust, credit card, equipment finance, equity funds group, global remittance, government and institutional banking, international, mortgage, personal credit management, real estate capital markets, retail sales finance, and student lending.
Net Interest Income
Net interest income was $10.5 billion, down from $10.7 billion in second quarter 2011. The continued negative impact of higher-yielding loan and security runoff was partially offset by growth in commercial loans, investment portfolio purchases, lower deposit and debt costs, and the benefit of one additional business day in the quarter. Net interest income was also lower due to items that vary from quarter to quarter such as loan prepayments and resolutions. Approximately 12 basis points of the 17 basis point decline in the net interest margin – slightly over 70 percent – from 4.01 percent in second quarter to 3.84 percent in third quarter was due to the exceptional deposit growth of $42 billion from June 30, 2011. These deposits were invested in short-term assets which had the effect of diluting the net interest margin.
Noninterest Income
Noninterest income was $9.1 billion, compared with $9.7 billion in second quarter 2011. The $622 million decline was driven by an $808 million decline in trading, debt and equity gains primarily related to reduced equity gains compared with the prior quarter’s elevated levels, losses on deferred compensation plan investments and market volatility. Commissions and all other fees declined 8 percent linked quarter due to lower bond and equity originations, lower commissions, and lower asset-based fees associated with the 14 percent decline in the S&P 500 Index in the quarter. Insurance fees were down 26 percent linked quarter almost entirely due to seasonality in crop insurance. Deposit service charges increased 3 percent linked quarter primarily due to account and volume growth. Operating lease income was up on early termination gains.
Mortgage banking noninterest income was $1.8 billion, up $214 million from second quarter 2011, on $89 billion of originations compared with $64 billion of originations in second quarter. Mortgage banking noninterest income in third quarter included a $390 million provision for mortgage loan repurchase losses compared with $242 million in second quarter (included in net gains from mortgage loan origination/sales activities). Net mortgage servicing rights (MSRs) results were a $607 million gain compared with a $374 million gain in second quarter 2011. The ratio of MSRs to related loans serviced for others was 74 basis points and the average note rate on the servicing portfolio was 5.21 percent. The unclosed pipeline at September 30, 2011, was $84 billion compared with $51 billion at June 30, 2011.
The Company had net unrealized securities gains of $6.8 billion at September 30, 2011, down $2.4 billion from second quarter 2011, primarily due to widening credit spreads. Period-end securities available for sale balances were up $20.9 billion, reflecting increased investment activity.
Noninterest Expense
Noninterest expense was $11.7 billion, down $798 million from second quarter 2011 and down $576 million from a year ago. The linked-quarter decline in noninterest expense was driven by lower total personnel expense ($6.6 billion, down from $6.9 billion in second quarter 2011), lower merger costs ($376 million, down from $484 million prior quarter) and lower operating losses ($198 million, down from $428 million prior quarter). Included in personnel expense was a $384 million linked-quarter decline in employee benefits due primarily to lower deferred compensation expense which was offset entirely in trading gains and losses. “We are pleased with our positive operating leverage and the progress we've made on our Compass expense management initiative. Future quarterly expenses are expected to fluctuate as our Compass initiative proceeds toward our stated target of $11 billion of noninterest expense for fourth quarter 2012,” said Sloan. The Company’s efficiency ratio improved to 59.5 percent from 61.2 percent in second quarter.
Loans
Total loans were $760.1 billion at September 30, 2011, up $8.2 billion from $751.9 billion at June 30, 2011. Increased balances in many loan portfolios more than offset the continued planned reduction in the non-strategic/liquidating portfolios, which declined $5.2 billion in the quarter. Many portfolios had linked-quarter growth in average loan balances, including asset-backed finance, auto (excluding liquidating), capital finance, commercial banking, commercial real estate, corporate banking, credit card, government and institutional banking, international, mortgage, private student lending and retail sales finance.
