Wells Fargo : Reports $5.7 Billion in Net Income (PDF)

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Media	Investors
Ancel Martinez	Jim Rowe
415-222-3858	415-396-8216

Friday, January 15, 2016

WELLS FARGO REPORTS $5.7 BILLION IN QUARTERLY NET INCOME; DILUTED EPS OF $1.03 2015 Net Income of $23.0 Billion; Diluted EPS of $4.15

• Full year 2015:

  • Net income of $23.0 billion, consistent with 2014

    • Diluted earnings per share (EPS) of $4.15, up 1 percent

    • Revenue of $86.1 billion, up 2 percent

    • Pre-tax pre-provision profit1 of $36.3 billion, up 3 percent

    • Return on assets (ROA) of 1.32 percent and return on equity (ROE) of 12.68 percent

    • Returned $12.6 billion to shareholders through dividends and net share repurchases

• Fourth quarter 2015:

  • Net income of $5.7 billion, stable compared with fourth quarter 2014

• Diluted EPS of $1.03, up 1 percent

• Revenue of $21.6 billion, up 1 percent

• Pre-tax pre-provision profit1 of $9.2 billion, up 4 percent

• ROA of 1.27 percent and ROE of 12.23 percent

• Total average loans of $912.3 billion, up $62.9 billion, or 7 percent

• Total average deposits of $1.2 trillion, up $67.0 billion, or 6 percent

• Net charge-off rate of 0.36 percent (annualized), up from 0.34 percent

• Nonaccrual loans down $1.5 billion, or 11 percent

• No reserve build or release2, compared with a $250 million release in fourth quarter 2014

• Common Equity Tier 1 ratio (fully phased-in) of 10.7 percent3

  
  

  1 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.

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

  3 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.

• Period-end common shares outstanding down 16.3 million from third quarter 2015

Selected Financial Information

Quarter ended	Year ended Dec. 31,
Dec 31, 2015		Sep 30, 2015	Dec 31, 2014	2015	2014
Earnings
Diluted earnings per common share	1.03	1.05	1.02	4.15	4.10
Wells Fargo net income (in billions)	5.71	5.80	5.71	23.03	23.06
Return on assets (ROA)	1.27	%	1.32	1.36	1.32	1.45
Return on equity (ROE)	12.23	12.62	12.84	12.68	13.41
Asset Quality
Net charge-offs (annualized) as a % of average total loans	0.36	%	0.31	0.34	0.33	0.35
Allowance for credit losses as a % of total loans	1.37	1.39	1.53	1.37	1.53
Allowance for credit losses as a % of annualized net charge-offs	380	450	452	433	447
Other
Revenue (in billions)	21.6	21.9	21.4	86.1	84.3
Efficiency ratio	57.4	%	56.7	59.0	57.8	58.1
Average loans (in billions)	912.3	895.1	849.4	885.4	834.4
Average deposits (in billions)	1,216.8	1,198.9	1,149.8	1,194.1	1,114.1
Net interest margin	2.92	%	2.96	3.04	2.95	3.11

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SAN FRANCISCO - Wells Fargo & Company (NYSE:WFC) reported diluted earnings per common share of $4.15 for 2015, compared with $4.10 in 2014. Full year net income was $23.0 billion, compared with $23.1 billion in 2014.

For fourth quarter 2015, net income was $5.7 billion, or $1.03 per share, compared with $5.7 billion, or $1.02 per share, for fourth quarter 2014, and $5.8 billion, or $1.05 per share, for third quarter 2015.

Chairman and CEO John Stumpf said, "Full year and fourth quarter 2015 results demonstrated the benefit of our diversified business model as we again generated strong financial results, maintained our risk discipline and continued to invest across the company for future growth. We remained focused on the building blocks of long-term shareholder value, with continued growth in loans, deposits and capital. For the 5th consecutive year, we returned more capital to shareholders than the prior year. I am proud of the dedication of our team members and their focus on helping our customers succeed financially."

Chief Financial Officer John Shrewsberry added, "Our performance in the fourth quarter reflected a continuation of the solid results we generated all year and the ability of our diversified business model to perform consistently across cycles. Compared with the prior quarter, we increased deposits and grew both commercial and consumer loans, while maintaining our credit and pricing discipline. Net interest income increased as we benefited from broad-based earning asset growth, and fee income remained diversified. We continued to have strong liquidity and capital levels, and our net payout ratio4 was stable at 59 percent."

4 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 the fourth quarter increased $131 million from third quarter 2015 to $11.6 billion, largely driven by growth in earning assets. Income from variable sources, including periodic dividends, loan recoveries and fees included in interest income, also increased in the quarter. Net interest income also benefited modestly from the increase in short-term interest rates late in the quarter. These benefits to net interest income were partially offset by reduced income from seasonally lower balances of mortgages held-for-sale and increased interest expense from higher debt balances.

Net interest margin was 2.92 percent, down 4 basis points from third quarter 2015. Income from variable sources improved the net interest margin by approximately 2 basis points linked-quarter, but was more than offset by customer-driven deposit growth, which had a minimal impact to net interest income but was dilutive to the net interest margin by 3 basis points. All other growth, mix and repricing reduced the margin by 3 basis points, largely driven by increased debt balances, including funding raised in anticipation of closing the previously announced acquisitions of certain commercial lending businesses and assets from GE Capital.

Noninterest Income

Noninterest income in the fourth quarter was $10.0 billion, compared with $10.4 billion in third quarter 2015, down due to lower equity investment gains, which were elevated in the third quarter. Noninterest income benefited from higher debt securities gains, trading income (reflecting higher deferred compensation plan investment results which were largely offset in employee benefits expense), commercial real estate brokerage fees, mortgage banking, investment banking, card fees and insurance fees.

Mortgage banking noninterest income was $1.7 billion, up $71 million from third quarter, primarily driven by higher net servicing income. During the fourth quarter, residential mortgage loan originations were $47 billion, down $8 billion linked quarter on seasonality. The production margin on residential held-for-sale mortgage loan originations5 was 1.83 percent, compared with 1.88 percent in third quarter. Net mortgage servicing rights (MSRs) results were $417 million, compared with $253 million in third quarter 2015.

Noninterest Expense

Noninterest expense in the fourth quarter was $12.4 billion, stable compared with third quarter 2015. Fourth quarter expenses included typically higher equipment, outside professional services and advertising, as well as an increase in deferred compensation expense (included in employee benefits expense and largely offset in revenue). These higher expenses were offset by lower operating losses, commissions and incentive compensation, as well as lower charitable donations, which were elevated in the third quarter due to a $126 million contribution to the Wells Fargo Foundation. Foreclosed asset expense also declined in the quarter, driven primarily by commercial real estate recoveries. The efficiency ratio was 57.4 percent in fourth quarter 2015, compared with 56.7 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 2016.

5 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.

Loans

Total loans were $916.6 billion at December 31, 2015, up $13.3 billion from September 30, 2015. Fourth quarter loan growth was broad-based across all portfolios (other than real estate 1-4 family junior lien mortgages) and did not include any loan portfolio acquisitions. Core loan growth was $15.4 billion, or 2 percent, as non- strategic/liquidating portfolios declined $2.1 billion in the quarter. Total average loans were $912.3 billion in the fourth quarter, up $17.2 billion from the prior quarter.

December 31, 2015			September 30, 2015
(in millions)	Core	Non-strategic and liquidating (a)	Total	Core	Non-strategic and liquidating	Total
Commercial	456,115	468	456,583	446,832	506	447,338
Consumer	408,489	51,487	459,976	402,363	53,532	455,895
Total loans	864,604	51,955	916,559	849,195	54,038	903,233
Change from prior quarter:	15,409	(2,083	)	13,326	17,095	(2,321	)	14,774

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(a) 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 $347.6 billion at December 31, 2015, up $2.5 billion from third quarter. The Company purchased approximately $25 billion of securities (mostly federal agency mortgage-backed securities and U.S. Treasury securities), which were offset by maturities, amortization and sales.

Net unrealized available-for-sale securities gains of $3.0 billion at December 31, 2015, declined from $4.9 billion at September 30, 2015, primarily due to rising rates and realized gains on debt and equity securities.

Deposits

Total average deposits for fourth quarter 2015 were $1.2 trillion, up 6 percent from a year ago, driven by both commercial and consumer growth. The average deposit cost for fourth quarter 2015 was 8 basis points, which was down 1 basis point from a year ago and unchanged from the prior quarter. The increase in deposits reflected strong account growth as the number of primary consumer checking customers6 increased 5.6 percent year-over-year7 and primary small business and business banking checking customers6 increased 4.8 percent year-over-year7.

Capital

Capital levels remained strong in the fourth quarter, with Common Equity Tier 1 (fully phased-in) of $142.5 billion, or 10.7 percent3. In fourth quarter 2015, the Company purchased 27.0 million shares of its common stock and entered into a $500 million forward repurchase transaction for an additional 9.2 million shares which settled early in first quarter 2016. The Company paid a quarterly common stock dividend of $0.375 per share, up from $0.35 per share a year ago.

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

7 Data as of November 2015, comparisons with November 2014.