Wells Fargo Reports Record Quarterly Net Income

Q3 Net Income of $5.6 Billion; EPS of $0.99, Up 13 Percent from Prior Year

Business Wire

SAN FRANCISCO--(BUSINESS WIRE)--

Wells Fargo & Company (WFC):

  • Continued strong financial results:
    • Record Wells Fargo net income of $5.6 billion, up 13 percent from third quarter 2012
    • Record diluted earnings per share of $0.99, up 13 percent
    • Revenue of $20.5 billion, compared with $21.2 billion
    • Noninterest expense of $12.1 billion, down $10 million
    • Return on average assets (ROA) of 1.53 percent, up 8 basis points
    • Return on equity (ROE) of 14.07 percent, up 69 basis points
  • Strong loan and deposit growth:
    • Total average loans of $804.8 billion, up $28.0 billion from third quarter 2012
    • Quarter-end loans of $812.3 billion, up $29.7 billion
      • Quarter-end core loans1 of $728.2 billion, up $44.2 billion
      • Added $5.2 billion from U.K. and U.S. commercial real estate (CRE) acquisitions
    • Total average core deposits of $940.3 billion, up $44.9 billion
      • Quarter-end core deposits of $947.8 billion, up $46.7 billion
  • Continued improvement in credit quality:
    • Net charge-offs of $975 million, down $1.4 billion from third quarter 2012
      • Net charge-off rate of 0.48 percent (annualized), compared with 1.21 percent
    • Nonperforming assets of $20.7 billion, down $4.6 billion
    • $900 million reserve release2 due to continued strong credit performance and improved housing market
  • Strengthened capital levels:
    • Tier 1 common equity3 under Basel I increased $14.5 billion from third quarter 2012 to $120.3 billion, with Tier 1 common equity ratio of 10.64 percent under Basel I at September 30, 2013
    • Estimated Tier 1 common equity ratio of 9.54 percent under Basel III capital rules4
    • Period end common stock share count declined 28.4 million from second quarter 2013 reflecting 50.9 million of purchases in the quarter
    • Purchased an additional estimated 9.8 million shares through a forward repurchase transaction expected to settle in fourth quarter 2013
1     See table in Loans section for more information on core and non-strategic/liquidating loan portfolios.
2 Reserve release represents the amount by which net charge-offs exceed the provision for credit losses.
3

See tables on TIER 1 COMMON EQUITY for more information on Tier 1 common equity.

4 Estimated based on management’s interpretation of final rules adopted July 2, 2013, by the Federal Reserve Board establishing a new comprehensive capital framework for U.S. banking organizations that would implement the Basel III capital framework and certain provisions of the Dodd-Frank Act.
       
Selected Financial Information
                 
 
Quarter ended
Sept. 30,

June 30,

Sept. 30,
      2013     2013   2012
Earnings
Diluted earnings per common share $ 0.99 0.98 0.88
Wells Fargo net income (in billions) 5.58 5.52 4.94
Return on assets (ROA) 1.53 % 1.55 1.45
Return on equity (ROE) 14.07 14.02 13.38
 
Asset Quality
Net charge-offs (annualized) as a % of avg. total loans 0.48 0.58 1.21
Allowance for credit losses as a % of total loans 1.93 2.07 2.27
Allowance for credit losses as a % of annualized net charge-offs 405 360 190
 
Other
Revenue (in billions) $ 20.5 21.4 21.2
Efficiency ratio 59.1 % 57.3 57.1
Average loans (in billions) $ 804.8 800.2 776.7
Average core deposits (in billions) 940.3 936.1 895.4
Net interest margin 3.38 % 3.46 3.66
                   
 

Wells Fargo & Company (WFC) reported record net income of $5.6 billion, or $0.99 per diluted common share, for third quarter 2013, up from $4.9 billion, or $0.88 per share, for third quarter 2012, and up from $5.5 billion, or $0.98 per share, for second quarter 2013. For the first nine months of 2013, net income was a record $16.3 billion, or $2.89 per share, compared with $13.8 billion, or $2.45 per share, for the same period in 2012.

“Wells Fargo continued to demonstrate strong and consistent financial performance in the third quarter,” said Chairman and CEO John Stumpf. “As our economy continues to transition to higher interest rates, our diversified business model and strong risk discipline contributed to record earnings per share along with continued strength in return on assets, return on equity and capital. The improvement in the housing market has been beneficial to our customers and significantly contributed to our broad-based credit improvement in the quarter. We also deepened relationships, resulting in increases in cross-sell across the Company. As we look forward, we remain well positioned to meet the needs of our customers and to perform for our shareholders.”

Chief Financial Officer Tim Sloan said, “This was a solid quarter for Wells Fargo. As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses. Year-over-year, we had strong loan growth, double-digit increases in noninterest income across many of our businesses and continued to build capital and return more to shareholders through dividends and share buybacks.”

Revenue

Revenue was $20.5 billion, compared with $21.4 billion in second quarter 2013. With net interest income stable, revenue declined primarily from lower mortgage banking revenue and trust and investment fees, partially offset by higher market sensitive revenue5 and other income. Businesses generating year-over-year double-digit revenue growth included credit card, personal credit management, retail sales finance and retirement services.

5     Consists of net gains from trading activities, net gains (losses) on debt securities available for sale and net gains from equity investments.

Net Interest Income

Net interest income remained strong in third quarter 2013 at $10.7 billion, essentially unchanged from second quarter 2013. Net interest income benefitted from available-for-sale (AFS) securities portfolio purchases, which consisted largely of agency mortgage-backed securities (MBS), lower funding costs, organic growth in commercial and consumer loans, commercial real estate loan acquisitions, and one additional business day in the quarter. These benefits were offset by lower interest income from mortgages held for sale and reduced income from variable sources, such as purchased credit-impaired (PCI) loan resolutions and periodic dividends.

The Company’s net interest margin declined 8 basis points from the prior quarter to 3.38 percent. Deposit and long-term debt growth and a decline in mortgages held for sale caused cash and short term investments to increase despite growth in other earning asset categories including loans and AFS securities. Although deposit growth has little impact on net interest income, it is dilutive to net interest margin and customer driven deposit growth accounted for 3 basis points of compression. Liquidity-related issuances in the quarter, both term deposits and long-term debt, diluted the margin by approximately 3 basis points. Separately, the net impact of balance sheet repricing and growth also diluted the net interest margin by 1 basis point, while lower income from variable sources, including PCI loan resolutions and periodic dividends, led to another 1 basis point of compression.

Noninterest Income

Noninterest income was $9.7 billion, compared with $10.6 billion in second quarter 2013, driven primarily by lower mortgage refinance volume and reduced gain on sale margins. Trust and investment fees declined in the quarter due to reduced investment banking revenue and seasonally lower retail brokerage commissions. These declines were partially offset by increases in debt and equity gains, mortgage banking servicing income and trading revenue.

Mortgage banking noninterest income was $1.6 billion, down from $2.8 billion in second quarter 2013. During the third quarter, residential mortgage originations were $80 billion, down from $112 billion in second quarter 2013. The Company provided $28 million for mortgage loan repurchase losses, compared with $65 million in second quarter 2013 (included in net gains from mortgage loan origination/sales activities). As previously announced, the Company reached an agreement with the Federal Home Loan Mortgage Corporation (Freddie Mac) on September 27, 2013, that resolved substantially all repurchase liabilities related to loans sold to Freddie Mac prior to January 1, 2009. The agreement was covered through mortgage loan repurchase accruals established in prior periods. Net mortgage servicing rights (MSRs) results were $26 million, compared with $68 million in second quarter 2013.

The Company had net unrealized securities gains of $5.8 billion at September 30, 2013, up from $5.1 billion at June 30, 2013.

Noninterest Expense

Noninterest expense declined $153 million from the prior quarter to $12.1 billion, as higher mortgage-related severance expense and deferred compensation costs (offset in revenue) were more than offset by lower incentive compensation (including mortgage-related), reduced litigation accruals and seasonally lower crop insurance commissions. The efficiency ratio was 59.1 percent in third quarter 2013, compared with 57.3 percent in second quarter 2013. The Company expects to operate within its targeted efficiency ratio range of 55 to 59 percent in fourth quarter 2013.

Income Taxes

The Company’s effective tax rate was 31.9 percent and 33.4 percent for third quarter 2013 and 2012, respectively. The lower effective tax rate in third quarter 2013 reflected a net reduction in the reserve for uncertain tax positions primarily due to settlements with tax authorities regarding certain cross border transactions.

Loans

Total loans were $812.3 billion at September 30, 2013, up $10.4 billion from June 30, 2013. Third quarter loan growth included $5.2 billion of CRE portfolio acquisitions consisting of $4.0 billion of U.K. CRE loans classified within foreign loans and $1.2 billion within commercial real estate mortgage. Growth in the commercial and industrial, real estate 1-4 family first mortgage, credit card, and auto portfolios more than offset the reduction in the non-strategic/liquidating portfolios. Total average loans were $804.8 billion, up $4.5 billion from the prior quarter. The asset-backed finance, corporate banking, credit card, equipment finance, government and institutional banking, mortgage portfolios, personal credit management, retail brokerage, and retail sales finance portfolios all experienced year-over-year double-digit growth.

 
 
    September 30, 2013     June 30, 2013
(in millions)     Core   Liquidating (1)     Total     Core   Liquidating (1)     Total
Commercial $ 369,703   2,342   372,045 360,940   2,532   363,472
Consumer       358,484   81,796     440,280     353,470   85,032     438,502
Total loans     $ 728,187   84,138     812,325     714,410   87,564     801,974
 
Change from prior quarter:     $ 13,777   (3,426 )   10,351     5,335   (3,327 )   2,008
 

(1) See NON-STRATEGIC AND LIQUIDATING LOAN PORTFOLIOS table 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.

 

Deposits

Total average deposits were $1.0 trillion, up 8 percent from a year ago and up 6 percent (annualized) from second quarter 2013. Average core deposits were $940.3 billion, up 5 percent from a year ago and up 2 percent (annualized) from second quarter 2013. Average core checking and savings deposits were $892.9 billion, up 7 percent from a year ago and up 4 percent (annualized) from second quarter 2013. Average mortgage escrow deposits decreased to $34.7 billion, compared with $40.0 billion a year ago and $39.6 billion in second quarter 2013. Average core checking and savings deposits were 95 percent of average core deposits. The average deposit cost for third quarter 2013 improved to 12 basis points, compared with 14 basis points in the prior quarter and 18 basis points a year ago. Average core deposits were 117 percent of average loans, unchanged from second quarter 2013.

Capital

Capital remained strong in the third quarter, with Tier 1 common equity of $120.3 billion under Basel I, or 10.64 percent of risk-weighted assets, compared with 9.92 percent in third quarter 2012 and 10.71 percent in second quarter 2013. Under Basel III capital rules, the Tier 1 common equity ratio was an estimated 9.54 percent.6 In third quarter 2013, the Company purchased 50.9 million shares of its common stock and an additional estimated 9.8 million shares through a forward repurchase transaction expected to settle in fourth quarter 2013. The Company also paid a quarterly common stock dividend of $0.30 per share, up from $0.22 a year ago.

6     Estimated based on management’s interpretation of final rules adopted July 2, 2013, by the Federal Reserve Board establishing a new comprehensive capital framework for U.S. banking organizations that would implement the Basel III capital framework and certain provisions of the Dodd-Frank Act.
 
 
   

Sept. 30,

    June 30,     Sept. 30,
(as a percent of total risk-weighted assets)     2013       2013     2012
Ratios under Basel I (1):
Tier 1 common equity (2) 10.64 % 10.71 9.92
Tier 1 capital 12.15 12.12 11.50
Tier 1 leverage 9.76 9.63 9.40
 
 

(1) September 30, 2013, ratios are preliminary.

(2) See table on TIER 1 COMMON EQUITY for more information on Tier 1 common equity.

 

Credit Quality

“Credit performance continued to be very strong in the third quarter. Loss levels improved from the second quarter and were at historically low levels,” said Chief Risk Officer Mike Loughlin. “Credit losses were $975 million in third quarter 2013, compared with $2.4 billion in third quarter 2012, representing a 59 percent year-over-year improvement. The quarterly loss rate fell to 0.48 percent with commercial losses of only 2 basis points and consumer losses of 0.86 percent. The consumer loss levels continued to benefit from the improvement in the residential real estate market, with home prices and market fundamentals improving faster and in more markets than forecasted. Nonperforming assets declined by $360 million, or 7 percent (annualized) from last quarter. We released $900 million from the allowance for credit losses in the third quarter, reflecting improvement in home prices and credit performance. Given these favorable conditions, we continue to expect future reserve releases absent a significant deterioration in the economic environment.”

Net Loan Charge-offs

Net loan charge-offs improved to $975 million in third quarter 2013, or 48 basis points of average loans, compared with $1.2 billion in second quarter 2013, or 58 basis points of average loans.

 
Net Loan Charge-Offs
 
    Quarter ended
      Sept. 30, 2013     June 30, 2013     Mar. 31, 2013
  As a       As a       As a
Net loan % of Net loan % of Net loan % of
charge-

 

average

charge-

 

average

charge-

 

average

($ in millions)     offs   loans (1)     offs     loans (1)     offs     loans (1)
 
Commercial:
Commercial and industrial $ 58 0.12 % $ 77 0.17 % $ 93 0.20 %
Real estate mortgage (20 ) (0.08 ) (5 ) (0.02 ) 29 0.11
Real estate construction (17 ) (0.41 )

 

(45 ) (1.10 ) (34 ) (0.83 )
Lease financing - - 18 0.57 (1 ) (0.02 )
Foreign       (2 ) (0.02 )   (1 ) (0.01 )   3   0.03
Total commercial       19   0.02   44   0.05   90   0.10
 
Consumer:
Real estate 1-4 family first mortgage 242 0.38 328 0.52 429 0.69
Real estate 1-4 family junior lien mortgage 275 1.58 359 2.02 449 2.46
Credit card 207 3.28 234 3.90 235 3.96
Automobile 78 0.63 42 0.35 76 0.66
Other revolving credit and installment       154   1.46   145   1.38   140   1.37
Total consumer       956   0.86   1,108   1.01   1,329   1.23
Total     $ 975   0.48 % $ 1,152   0.58 % $ 1,419   0.72 %
                                   
 

(1) Quarterly net charge-offs as a percentage of average loans are annualized. See explanation in PURCHASED CREDIT-IMPAIRED (PCI) LOANS section of the accounting for purchased credit-impaired (PCI) loans and the impact on selected financial ratios.

 

Nonperforming Assets

Nonperforming assets decreased by $360 million in the quarter to $20.7 billion, from $21.1 billion in second quarter 2013. Nonaccrual loans decreased to $16.9 billion from $17.9 billion in second quarter 2013. Foreclosed assets were $3.8 billion, up from $3.1 billion in second quarter 2013, reflecting an increase in foreclosed assets insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA). This increase was primarily driven by enhancements to loan modification programs, slowing foreclosures in prior quarters.

         
Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
                                     
      Sept. 30, 2013     June 30, 2013     Mar. 31, 2013
        As a   As a As a
% of % of % of
Total total Total total Total total
($ in millions)     balances     loans     balances     loans     balances     loans
 
Commercial:
Commercial and industrial $ 809 0.42 % $ 1,022 0.54 % $ 1,193 0.64 %
Real estate mortgage 2,496 2.36 2,708 2.59 3,098 2.92
Real estate construction 517 3.15 665 4.04 870 5.23
Lease financing 17 0.15 20 0.17 25 0.20
Foreign       47   0.10   40   0.10   56   0.14
Total commercial       3,886   1.04   4,455   1.23   5,242   1.45
 
Consumer:
Real estate 1-4 family first mortgage 10,450 4.10 10,705 4.23 11,320 4.49
Real estate 1-4 family junior lien mortgage 2,333 3.45 2,522 3.60 2,712 3.74
Automobile 188 0.38 200 0.41 220 0.47
Other revolving credit and installment       36   0.08   33   0.08   32   0.08
Total consumer       13,007   2.95   13,460   3.07   14,284   3.26
Total nonaccrual loans       16,893   2.08   17,915   2.23   19,526   2.44
 
Foreclosed assets:
Government insured/guaranteed 1,781 1,026 969
Non-government insured/guaranteed       2,021     2,114     2,381  
Total foreclosed assets       3,802     3,140     3,350  
Total nonperforming assets     $ 20,695   2.55 % $ 21,055   2.63 % $ 22,876   2.86 %
 
Change from prior quarter:
Total nonaccrual loans $ (1,022 ) $ (1,611 ) $ (960 )
Total nonperforming assets (360 ) (1,821 ) (1,633 )
                                                 
 

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 $1.1 billion at September 30, 2013, compared with $1.2 billion at June 30, 2013. 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 $21.1 billion at September 30, 2013, up slightly from $21.0 billion at June 30, 2013.

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled $15.6 billion at September 30, 2013, down from $16.6 billion at June 30, 2013. The allowance coverage to total loans was 1.93 percent, compared with 2.07 percent in second quarter 2013. The allowance covered 4.0 times annualized third quarter net charge-offs, compared with 3.6 times in the prior quarter. The allowance coverage to nonaccrual loans was 93 percent at both September 30, 2013 and June 30, 2013. “We believe the allowance was appropriate for losses inherent in the loan portfolio at September 30, 2013,” 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
Sept. 30,  

June 30,

  Sept. 30,
(in millions)     2013   2013   2012
Community Banking

$

3,341

3,245 2,740
Wholesale Banking 1,973 2,004 1,993
Wealth, Brokerage and Retirement     450   434   338
 

More financial information about the business segments is in FIVE QUARTER OPERATING SEGMENT RESULTS table.

Community Banking 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.

 

Selected Financial Information

    Quarter ended
Sept. 30,     June 30,     Sept. 30,
(in millions)       2013     2013     2012
Total revenue $ 12,244 12,942 13,110
Provision for credit losses 240 763 1,627
Noninterest expense 7,060 7,213 7,402
Segment net income 3,341 3,245 2,740
 
(in billions)
Average loans 497.7 498.2 485.3
Average assets 836.6 820.9 765.1
Average core deposits       618.2     623.0     594.5
 

Community Banking reported net income of $3.3 billion, up $96 million, or 3 percent, from second quarter 2013. Revenue of $12.2 billion decreased $698 million, or 5 percent, from the prior quarter primarily due to lower mortgage banking revenue, partially offset by higher gains on equity investments and higher deferred compensation plan investment gains (offset in employee benefits expense). Noninterest expense decreased $153 million, or 2 percent, from the prior quarter largely due to lower operating losses and mortgage volume-related expenses, partially offset by higher deferred compensation expense (offset in revenue). The provision for credit losses decreased $523 million from the prior quarter as net charge-offs declined $201 million and portfolio credit performance improved, particularly in residential real estate.

Net income was up $601 million, or 22 percent, from third quarter 2012. Revenue decreased $866 million, or 7 percent, from a year ago due to lower mortgage banking revenue, partially offset by higher net interest income, growth in deposit service charges, higher trust and investment fees, higher debit, credit and merchant card volumes, and higher gains on equity investments. Noninterest expense declined $342 million, or 5 percent, from a year ago largely driven by the elimination of costs related to the OCC’s Independent Foreclosure Review programs, lower operating losses, and lower FDIC deposit insurance assessments. The provision for credit losses decreased $1.4 billion from a year ago as net-charge offs declined $1.3 billion and portfolio credit performance improved, particularly in residential real estate portfolios.

Regional Banking

  • Retail banking
    • Retail Bank household cross-sell ratio of 6.15 products per household, up from 6.04 year-over-year7
    • Primary consumer checking customers8 up a net 3.9 percent year-over-year7
    • Customers rated their experience with Wells Fargo stores at an all-time high based on third quarter survey results
  • Small Business/Business Banking
    • Primary business checking customers8 up a net 3.6 percent year-over-year7
    • $14.2 billion in new loan commitments to small business customers (primarily with annual revenues less than $20 million) in the first three quarters of 2013, up 24 percent from the prior year
    • For the 11th consecutive year, America’s #1 small business lender (in both loans under $100,000 and under $1,000,000) and #1 lender to small businesses in low- and moderate-income areas (2012 CRA data, released August 2013)
    • For the third consecutive year, Wells Fargo has approved more than $1 billion in SBA 7(a) loan dollars for small businesses
  • Online and Mobile Banking
    • 22.9 million active online customers, up 7 percent year-over-year7
    • 11.5 million active mobile customers, up 29 percent year-over-year7
    • “Best Consumer Internet Bank” in the U.S. for the 4th consecutive year (Global Finance Magazine, July 2013)

Consumer Lending Group

  • Home Lending
    • Originations of $80 billion, compared with $112 billion in prior quarter
    • Applications of $87 billion, compared with $146 billion in prior quarter
    • Application pipeline of $35 billion at quarter end, compared with $63 billion at June 30, 2013
    • Residential mortgage servicing portfolio of $1.8 trillion; ratio of MSRs to related loans serviced for others was 82 basis points, compared with 81 basis points in prior quarter
    • Average note rate on the servicing portfolio was 4.54 percent, compared with 4.59 percent in prior quarter
  • Consumer Credit
    • Credit card penetration in retail banking households rose to 36.0 percent7, up from 32.1 percent in prior year
    • Auto originations of $6.9 billion, down 3 percent from prior quarter and up 9 percent from prior year

7

    Data as of August 2013, comparisons with August 2012.

8

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

Wholesale Banking 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, Asset Backed Finance, and Asset Management.

 

Selected Financial Information

    Quarter ended
Sept. 30,     June 30,     Sept. 30,
(in millions)       2013       2013       2012  
Total revenue $ 5,871 6,135 5,949
Reversal of provision for credit losses (144 ) (118 ) (57 )
Noninterest expense 3,084 3,183 2,908
Segment net income 1,973 2,004 1,993
 
(in billions)
Average loans 290.4 286.9 277.1
Average assets 500.7 499.9 490.7
Average core deposits       235.3       230.5       225.4  

 

Wholesale Banking reported net income of $2.0 billion, down $31 million, or 2 percent, from second quarter 2013. Revenue of $5.9 billion decreased $264 million, or 4 percent, from prior quarter on lower sales and trading and investment banking results as well as seasonally lower crop insurance fees. Noninterest expense decreased $99 million, or 3 percent, from prior quarter primarily from lower variable personnel expense and seasonal crop insurance commissions.

Net income was down $20 million, or 1 percent, from third quarter 2012. Revenue decreased $78 million, or 1 percent, from a year ago as business growth and strong loan and deposit growth was more than offset by lower sales and trading, PCI resolution income and other income. Noninterest expense increased $176 million, or 6 percent, from a year ago due to higher personnel expenses and support costs. The provision for credit losses decreased $87 million from a year ago due to a $117 million reduction in credit losses. The third quarter 2013 provision included an $80 million reserve release, compared with $110 million a year ago.

  • Five percent average loan growth in third quarter 2013 compared with third quarter 2012. The growth came from nearly all portfolios, including asset-backed finance, capital finance, commercial banking, commercial real estate, corporate banking, equipment finance and government and institutional banking
  • Added $5.2 billion of loans from U.S. and U.K. CRE acquisitions
  • Investment Banking year-to-date 2013 revenue from commercial and corporate customers increased 33 percent from year-to-date 2012 due to attractive capital markets conditions and continued momentum in cross selling
  • Cross-sell of 7.0 products per relationship up from 6.9 in prior quarter
  • Third quarter 2013 treasury management revenue up 10 percent from third quarter 2012
  • Third quarter assets under management up $21 billion from prior quarter to $475 billion, reflecting net client inflows and increased market valuation

Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients using a planning approach to meet each client's needs. Wealth Management provides affluent and high net worth clients with a complete range of wealth management solutions, including financial planning, private banking, credit, investment management and trust. Abbot Downing, a Wells Fargo business, provides comprehensive wealth management services to ultra high net worth families and individuals as well as their endowments and foundations. Brokerage serves customers' advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses, retail retirement solutions for individuals, and reinsurance services for the life insurance industry.

 

Selected Financial Information

    Quarter ended
Sept. 30,     June 30,     Sept. 30,
(in millions)       2013       2013     2012
Total revenue $ 3,307 3,261 3,033
Provision (reversal of provision) for credit losses (38 ) 19 30
Noninterest expense 2,619 2,542 2,457
Segment net income 450 434 338
 
(in billions)
Average loans 46.7 45.4 42.5
Average assets 180.8 177.1 163.8
Average core deposits       150.6       146.4     136.7
 

Wealth, Brokerage and Retirement reported net income of $450 million, up $16 million, or 4 percent, from second quarter 2013. Revenue of $3.3 billion increased $46 million, or 1 percent, from the prior quarter. Excluding higher gains on deferred compensation plan investments (offset in compensation expense), revenue was in line with prior quarter as increased net interest income was mostly offset by lower brokerage transaction revenue. Noninterest expense increased $77 million, or 3 percent, from prior quarter. Apart from higher deferred compensation expense (offset in trading income), noninterest expense increased $17 million, or 1 percent, due to higher non-personnel expenses, partially offset by a decrease in broker commissions. The provision for credit losses decreased $57 million from second quarter 2013. The provision in third and second quarter 2013 included a $38 million and $5 million reserve release, respectively.

Net income was up $112 million, or 33 percent, from third quarter 2012. Revenue increased $274 million, or 9 percent, from a year ago driven by strong growth in asset-based fees and higher net interest income, partly offset by decreased brokerage transaction revenue. Noninterest expense increased $162 million, or 7 percent, from a year ago largely due to higher personnel expenses, including an increase in broker commissions. The provision for credit losses decreased $68 million from a year ago; the provision in third quarter 2012 included a $10 million reserve release.

Retail Brokerage

  • Client assets of $1.3 trillion, up 8 percent from prior year
  • Managed account assets increased $53 billion, or 18 percent, from prior year driven by strong market performance and net flows
  • Strong deposit growth, with average balances up 14 percent from prior year

Wealth Management

  • Client assets of $209 billion, up 5 percent from prior year

Retirement

  • IRA assets of $326 billion, up 10 percent from prior year
  • Institutional Retirement plan assets of $288 billion, up 11 percent from prior year

WBR cross-sell ratio of 10.41 products per household, up from 10.27 a year ago

Conference Call

The Company will host a live conference call on Friday, October 11, at 7 a.m. PDT (10 a.m. EDT). To access the call, please dial 866-872-5161 (U.S. and Canada) or 706-643-1962 (International). No password is required. The call is also available online at wellsfargo.com/invest_relations/earnings and http://us.meeting-stream.com/wellsfargocompany_101113.

A replay of the conference call will be available beginning at approximately noon PDT (3 p.m. EDT) on October 11 through Friday, October 18. Please dial 855-859-2056 (U.S. and Canada) or 404-537-3406 (International) and enter Conference ID #12658199. The replay will also be available online at wellsfargo.com/invest_relations/earnings.

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make forward-looking statements in our other documents filed or furnished with the SEC, and our management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. In particular, forward-looking statements include, but are not limited to, statements we make about: (i) the future operating or financial performance of the Company, including our outlook for future growth; (ii) our noninterest expense and efficiency ratio; (iii) future credit quality and performance, including our expectations regarding future loan losses and allowance releases; (iv) the appropriateness of the allowance for credit losses; (v) our expectations regarding net interest income and net interest margin; (vi) loan growth or the reduction or mitigation of risk in our loan portfolios; (vii) future capital levels and our estimated Tier 1 common equity ratio under Basel III capital standards; (viii) the performance of our mortgage business and any related exposures; (ix) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (x) future common stock dividends, common share repurchases and other uses of capital; (xi) our targeted range for return on assets and return on equity; (xii) the outcome of contingencies, such as legal proceedings; and (xiii) the Company’s plans, objectives and strategies.

Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

  • current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, the sovereign debt crisis and economic difficulties in Europe, and the overall slowdown in global economic growth;
  • our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;
  • financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;
  • the extent of our success in our loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications;
  • the amount of mortgage loan repurchase demands that we receive and our ability to satisfy any such demands without having to repurchase loans related thereto or otherwise indemnify or reimburse third parties, and the credit quality of or losses on such repurchased mortgage loans;
  • negative effects relating to our mortgage servicing and foreclosure practices, including our obligations under the settlement with the Department of Justice and other federal and state government entities, as well as changes in industry standards or practices, regulatory or judicial requirements, penalties or fines, increased servicing and other costs or obligations, including loan modification requirements, or delays or moratoriums on foreclosures;
  • our ability to realize our efficiency ratio target as part of our expense management initiatives, including as a result of business and economic cyclicality, seasonality, changes in our business composition and operating environment, growth in our businesses and/or acquisitions, and unexpected expenses relating to, among other things, litigation and regulatory matters;
  • the effect of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;
  • a recurrence of significant turbulence or disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for mortgage loans, a reduction in the availability of funding or increased funding costs, and declines in asset values and/or recognition of other-than-temporary impairment on securities held in our available-for-sale portfolio;
  • the effect of a fall in stock market prices on our investment banking business and our fee income from our brokerage, asset and wealth management businesses;
  • reputational damage from negative publicity, protests, fines, penalties and other negative consequences from regulatory violations and legal actions;
  • a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber attacks;
  • the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
  • fiscal and monetary policies of the Federal Reserve Board; and
  • the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.

In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements (including under Basel capital standards), common stock issuance requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company’s Board of Directors, and may be subject to regulatory approval or conditions.

For more information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.

Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

About Wells Fargo

Wells Fargo & Company (WFC) is a nationwide, diversified, community-based financial services company with $1.5 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, and the Internet (wellsfargo.com), and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With more than 270,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 25 on Fortune’s 2013 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.

 
Wells Fargo & Company and Subsidiaries
QUARTERLY FINANCIAL DATA
TABLE OF CONTENTS
   
Pages
 

Summary Information

Summary Financial Data 17-18
 

Income

Consolidated Statement of Income 19
Consolidated Statement of Comprehensive Income 20
Condensed Consolidated Statement of Changes in Total Equity 20
Five Quarter Consolidated Statement of Income 21
Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) 22-23
Five Quarter Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) 24
Noninterest Income and Noninterest Expense 25-26
 

Balance Sheet

Consolidated Balance Sheet 27-28
Securities Available for Sale 29
 

Loans

Loans 29
Nonperforming Assets 30
Loans 90 Days or More Past Due and Still Accruing 31
Purchased Credit-Impaired Loans 32-34
Pick-A-Pay Portfolio 35
Non-Strategic and Liquidating Loan Portfolios 35
Changes in Allowance for Credit Losses 36-37
 

Equity

Tier 1 Common Equity 38
 

Operating Segments

Operating Segment Results 39-40
 

Other

Mortgage Servicing and other related data 41-43
 
 
Wells Fargo & Company and Subsidiaries
SUMMARY FINANCIAL DATA

 

 
      % Change    
  Quarter ended

Sept. 30, 2013 from

  Nine months ended
Sept. 30,   June 30,     Sept. 30, June 30,   Sept. 30, Sept. 30,     Sept. 30, %
($ in millions, except per share amounts)     2013     2013     2012     2013       2012       2013     2012   Change
For the Period
Wells Fargo net income $ 5,578 5,519 4,937 1 % 13 $ 16,268 13,807 18 %

Wells Fargo net income applicable to common stock

5,317 5,272 4,717 1 13 15,520 13,142 18
Diluted earnings per common share 0.99 0.98 0.88 1 13 2.89 2.45 18
Profitability ratios (annualized):

Wells Fargo net income to average assets (ROA)

1.53 % 1.55 1.45 (1 ) 6 1.52 1.39 9

Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)

14.07 14.02 13.38 - 5 13.92 12.81 9
Efficiency ratio (1) 59.1 57.3 57.1 3 4 58.2 58.5 (1 )
Total revenue $ 20,478 21,378 21,213 (4 ) (3 ) $ 63,115 64,138 (2 )
Pre-tax pre-provision profit (PTPP) (2) 8,376 9,123 9,101 (8 ) (8 ) 26,358 26,636 (1 )
Dividends declared per common share 0.30 0.30 0.22 - 36 0.85 0.66 29
Average common shares outstanding 5,295.3 5,304.7 5,288.1 - - 5,293.0 5,292.7 -
Diluted average common shares outstanding 5,381.7 5,384.6 5,355.6 - - 5,374.7 5,355.7 -
Average loans $ 804,779 800,241 776,734 1 4 $ 801,056 771,200 4
Average assets 1,449,610 1,429,005 1,354,340 1 7 1,427,812 1,326,384 8
Average core deposits (3) 940,279 936,090 895,374 - 5 934,131 882,224 6
Average retail core deposits (4) 670,335 666,043 630,053 1 6 666,393 623,671 7
Net interest margin 3.38 % 3.46 3.66 (2 ) (8 ) 3.44 3.82 (10 )
At Period End
Securities available for sale $ 259,399 249,439 229,350 4 13 $ 259,399 229,350 13
Loans 812,325 801,974 782,630 1 4 812,325 782,630 4
Allowance for loan losses 15,159 16,144 17,385 (6 ) (13 ) 15,159 17,385 (13 )
Goodwill 25,637 25,637 25,637 - - 25,637 25,637 -
Assets 1,488,055 1,440,563 1,374,715 3 8 1,488,055 1,374,715 8
Core deposits (3) 947,805 941,158 901,075 1 5 947,805 901,075 5
Wells Fargo stockholders' equity 167,165 162,421 154,679 3 8 167,165 154,679 8
Total equity 168,813 163,777 156,059 3 8 168,813 156,059 8
Capital ratios:
Total equity to assets 11.34 % 11.37 11.35 - - 11.34 11.35 -
Risk-based capital (5):
Tier 1 capital 12.15 12.12 11.50 - 6 12.15 11.50 6
Total capital 15.14 15.03 14.51 1 4 15.14 14.51 4
Tier 1 leverage (5) 9.76 9.63 9.40 1 4 9.76 9.40 4
Tier 1 common equity (5)(6) 10.64 10.71 9.92 (1 ) 7 10.64 9.92 7
Common shares outstanding 5,273.7 5,302.2 5,289.6 (1 ) - 5,273.7 5,289.6 -
Book value per common share $ 28.98 28.26 27.10 3 7 $ 28.98 27.10 7
Common stock price:
High 44.79 41.74 36.60 7 22 44.79 36.60 22
Low 40.79 36.19 32.62 13 25 34.43 27.94 23
Period end 41.32 41.27 34.53 - 20 41.32 34.53 20
Team members (active, full-time equivalent) 270,600 274,300 267,000 (1 ) 1 270,600 267,000 1
                                                   
 

(1) The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

(2) 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.

(3) Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).

(4) Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.

(5) The September 30, 2013, ratios are preliminary.

(6) See the "Five Quarter Tier 1 Common Equity Under Basel I" table for additional information.

 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER SUMMARY FINANCIAL DATA
         
  Quarter ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
($ in millions, except per share amounts)     2013     2013   2013   2012   2012
For the Quarter
Wells Fargo net income $ 5,578 5,519 5,171 5,090 4,937
Wells Fargo net income applicable to common stock 5,317 5,272 4,931 4,857 4,717
Diluted earnings per common share 0.99 0.98 0.92 0.91 0.88
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 1.53 % 1.55 1.49 1.46 1.45
Wells Fargo net income applicable to common stock to average
Wells Fargo common stockholders' equity (ROE) 14.07 14.02 13.59 13.35 13.38
Efficiency ratio (1) 59.1 57.3 58.3 58.8 57.1
Total revenue $ 20,478 21,378 21,259 21,948 21,213
Pre-tax pre-provision profit (PTPP) (2) 8,376 9,123 8,859 9,052 9,101
Dividends declared per common share 0.30 0.30 0.25 0.22 0.22
Average common shares outstanding 5,295.3 5,304.7 5,279.0 5,272.4 5,288.1
Diluted average common shares outstanding 5,381.7 5,384.6 5,353.5 5,338.7 5,355.6
Average loans $ 804,779 800,241 798,074 787,210 776,734
Average assets 1,449,610 1,429,005 1,404,334 1,387,056 1,354,340
Average core deposits (3) 940,279 936,090 925,866 928,824 895,374
Average retail core deposits (4) 670,335 666,043 662,913 646,145 630,053
Net interest margin 3.38 % 3.46 3.48 3.56 3.66
At Quarter End
Securities available for sale $ 259,399 249,439 248,160 235,199 229,350
Loans 812,325 801,974 799,966 799,574 782,630
Allowance for loan losses 15,159 16,144 16,711 17,060 17,385
Goodwill 25,637 25,637 25,637 25,637 25,637
Assets 1,488,055 1,440,563 1,436,634 1,422,968 1,374,715
Core deposits (3) 947,805 941,158 939,934 945,749 901,075
Wells Fargo stockholders' equity 167,165 162,421 162,086 157,554 154,679
Total equity 168,813 163,777 163,395 158,911 156,059
Capital ratios:
Total equity to assets 11.34 % 11.37 11.37 11.17 11.35
Risk-based capital (5):
Tier 1 capital 12.15 12.12 11.80 11.75 11.50
Total capital 15.14 15.03 14.76 14.63 14.51
Tier 1 leverage (5) 9.76 9.63 9.53 9.47 9.40
Tier 1 common equity (5)(6) 10.64 10.71 10.39 10.12 9.92
Common shares outstanding 5,273.7 5,302.2 5,288.8 5,266.3 5,289.6
Book value per common share $ 28.98 28.26 28.27 27.64 27.10
Common stock price:
High 44.79 41.74 38.20 36.34 36.60
Low 40.79 36.19 34.43 31.25 32.62
Period end 41.32 41.27 36.99 34.18 34.53
Team members (active, full-time equivalent) 270,600 274,300 274,300 269,200 267,000
                         
 

(1) The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

(2) 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.

(3) Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).

(4) Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.

(5) The September 30, 2013, ratios are preliminary.

(6) See the "Five Quarter Tier 1 Common Equity under Basel I" table for additional information.

 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
           
Nine months
Quarter ended Sept. 30, % ended Sept. 30, %
(in millions, except per share amounts)     2013     2012   Change       2013     2012     Change
Interest income
Trading assets $ 331 299 11

%

 

$ 998 1,019 (2 ) %
Securities available for sale 2,038 1,966 4 5,997 6,201 (3 )
Mortgages held for sale 320 476 (33 ) 1,069 1,412 (24 )
Loans held for sale 3 17 (82 ) 10 38 (74 )
Loans 8,901 9,016 (1 ) 26,664 27,455 (3 )
Other interest income     183     151 21   515     409   26
Total interest income     11,776     11,925 (1 )   35,253     36,534   (4 )
Interest expense
Deposits 318 428 (26 ) 1,040 1,328 (22 )
Short-term borrowings 9 19 (53 ) 46 55 (16 )
Long-term debt 621 756 (18 ) 1,950 2,375 (18 )
Other interest expense     80     60 33   220     189   16
Total interest expense     1,028     1,263 (19 )   3,256     3,947   (18 )
Net interest income 10,748 10,662 1 31,997 32,587 (2 )

Provision for credit losses

    75     1,591 (95 )   1,946     5,386   (64 )

Net interest income after provision for credit losses

  10,673     9,071 18   30,051     27,201   10
Noninterest income
Service charges on deposit accounts 1,278 1,210 6 3,740 3,433 9
Trust and investment fees 3,276 2,954 11 9,972 8,691 15
Card fees 813 744 9 2,364 2,102 12
Other fees 1,098 1,097 - 3,221 3,326 (3 )
Mortgage banking 1,608 2,807 (43 ) 7,204 8,570 (16 )
Insurance 413 414 - 1,361 1,455 (6 )
Net gains from trading activities 397 529 (25 ) 1,298 1,432 (9 )
Net gains (losses) on debt securities available for sale (6 ) 3 NM (15 ) (65 ) (77 )
Net gains from equity investments 502 164 206 818 770 6
Lease income 160 218 (27 ) 515 397 30
Other     191     411 (54 )   640     1,440   (56 )
Total noninterest income     9,730     10,551 (8 )   31,118     31,551   (1 )
Noninterest expense
Salaries 3,910 3,648 7 11,341 10,954 4
Commission and incentive compensation 2,401 2,368 1 7,604 7,139 7
Employee benefits 1,172 1,063 10 3,873 3,720 4
Equipment 471 510 (8 ) 1,417 1,526 (7 )
Net occupancy 728 727 - 2,163 2,129 2
Core deposit and other intangibles 375 419 (11 ) 1,129 1,256 (10 )
FDIC and other deposit assessments 214 359 (40 ) 765 1,049 (27 )
Other     2,831     3,018 (6 )   8,465     9,729   (13 )
Total noninterest expense     12,102     12,112 -   36,757     37,502   (2 )
Income before income tax expense 8,301 7,510 11 24,412 21,250 15
Income tax expense     2,618     2,480 6   7,901     7,179   10
Net income before noncontrolling interests 5,683 5,030 13 16,511 14,071 17
Less: Net income from noncontrolling interests     105     93 13   243     264   (8 )
Wells Fargo net income   $ 5,578     4,937 13 $ 16,268     13,807   18
Less: Preferred stock dividends and other     261     220 19   748     665   12
Wells Fargo net income applicable to common stock   $ 5,317     4,717 13 $ 15,520     13,142   18
Per share information
Earnings per common share $ 1.00 0.89 12 $ 2.93 2.48 18
Diluted earnings per common share 0.99 0.88 13 2.89 2.45 18
Dividends declared per common share 0.30 0.22 36 0.85 0.66 29
Average common shares outstanding 5,295.3 5,288.1 - 5,293.0 5,292.7 -
Diluted average common shares outstanding 5,381.7 5,355.6 - 5,374.7 5,355.7 -
                               
 
NM - Not meaningful
 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
            Nine months  
Quarter ended Sept. 30,   % ended Sept. 30,   %
(in millions)     2013       2012     Change     2013       2012     Change
Wells Fargo net income     $ 5,578       4,937   13

%

 

$ 16,268       13,807   18 %
Other comprehensive income (loss), before tax:    

Securities available for sale:

Net unrealized gains (losses) arising during the period 842 2,892 (71 )

(5,922

) 5,597 NM
Reclassification of net gains to net income (114 ) (41 ) 178 (197 ) (290 ) (32 )
Derivatives and hedging activities:
Net unre...alized gains (losses) arising during the period (7 ) 24 NM (10 ) 63 NM
Reclassification of net gains on cash flow hedges
to net income
(69 ) (89 ) (22 ) (225 ) (295 ) (24 )
Defined benefit plans adjustments:
Net actuarial gains (losses) arising during the period 297 (1 ) NM 1,075 (18 ) NM
Amortization of net actuarial loss, settlements and
other costs to net income
59 35 69 221 111 99
Foreign currency translation adjustments:
Net unrealized gains (losses) arising during the period 12 45 (73 ) (27 ) (1 ) NM
Reclassification of net (gains) losses to net income       3       -   NM   (12 )     (10 ) 20
Other comprehensive income (loss), before tax 1,023 2,865 (64 ) (5,097 ) 5,157 NM
Income tax (expense) benefit related to other comprehensive income       (265 )     (1,057 ) (75 )   2,002       (1,923 ) NM
Other comprehensive income (loss), net of tax 758 1,808 (58 ) (3,095 ) 3,234 NM
Less: Other comprehensive income from noncontrolling interests       266       2   NM   266       6   NM
Wells Fargo other comprehensive income (loss), net of tax       492       1,806   (73 )   (3,361 )     3,228   NM
 
Wells Fargo comprehensive income 6,070 6,743 (10 ) 12,907 17,035 (24 )
Comprehensive income from noncontrolling interests       371       95   291   509       270   89
Total comprehensive income     $ 6,441       6,838     (6 )     $ 13,416       17,305     (22 )
 
NM - Not meaningful
 
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY  
 

 

Nine months ended Sept. 30,

 
(in millions)     2013     2012  
 
Balance, beginning of period $ 158,911 141,687

Cumulative effect of fair value election for certain residential mortgage servicing rights

    -     2  
 
Balance, beginning of period - adjusted 158,911 141,689
Wells Fargo net income 16,268 13,807
Wells Fargo other comprehensive income (loss), net of tax (3,361 ) 3,228
Common stock issued 2,380 2,000
Common stock repurchased (1) (3,978 ) (2,597 )
Preferred stock released by ESOP 884 838
Preferred stock issued 2,317 742
Common stock dividends (4,504 ) (3,500 )
Preferred stock dividends and other (748 ) (665 )
Noncontrolling interests and other, net     644     517  
Balance, end of period   $ 168,813     156,059  
 

(1) For the nine months ended September 30, 2013, includes $400 million related to a private forward repurchase transaction entered into in third quarter 2013 that is expected to settle in fourth quarter 2013 for an estimated 9.8 million shares of common stock.

 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED STATEMENT OF INCOME
 
    Quarter ended
Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
(in millions, except per share amounts)     2013   2013   2013   2012   2012
Interest income
Trading assets $ 331 340 327 339 299
Securities available for sale 2,038 2,034 1,925 1,897 1,966
Mortgages held for sale 320 378 371 413 476
Loans held for sale 3 4 3 3 17
Loans 8,901 8,902 8,861 9,027 9,016
Other interest income     183   169   163   178   151
Total interest income     11,776   11,827   11,650   11,857   11,925
Interest expense
Deposits 318 353 369 399 428
Short-term borrowings 9 17 20 24 19
Long-term debt 621 632 697 735 756
Other interest expense     80   75   65   56   60
Total interest expense     1,028   1,077   1,151   1,214   1,263
Net interest income 10,748 10,750 10,499 10,643 10,662
Provision for credit losses     75   652   1,219   1,831   1,591
Net interest income after provision for credit losses     10,673   10,098   9,280   8,812   9,071
Noninterest income
Service charges on deposit accounts 1,278 1,248 1,214 1,250 1,210
Trust and investment fees 3,276 3,494 3,202 3,199 2,954
Card fees 813 813 738 736 744
Other fees 1,098 1,089 1,034 1,193 1,097
Mortgage banking 1,608 2,802 2,794 3,068 2,807
Insurance 413 485 463 395 414
Net gains from trading activities 397 331 570 275 529
Net gains (losses) on debt securities available for sale (6) (54) 45 (63) 3
Net gains from equity investments 502 203 113 715 164
Lease income 160 225 130 170 218
Other     191   (8)   457   367   411
Total noninterest income     9,730   10,628   10,760   11,305   10,551
Noninterest expense
Salaries 3,910 3,768 3,663 3,735 3,648
Commission and incentive compensation 2,401 2,626 2,577 2,365 2,368
Employee benefits 1,172 1,118 1,583 891 1,063
Equipment 471 418 528 542 510
Net occupancy 728 716 719 728 727
Core deposit and other intangibles 375 377 377 418 419
FDIC and other deposit assessments 214 259 292 307 359
Other     2,831   2,973   2,661   3,910   3,018
Total noninterest expense     12,102   12,255   12,400   12,896   12,112
Income before income tax expense 8,301 8,471 7,640 7,221 7,510
Income tax expense     2,618   2,863   2,420   1,924   2,480
Net income before noncontrolling interests 5,683 5,608 5,220 5,297 5,030
Less: Net income from noncontrolling interests     105   89   49   207   93
Wells Fargo net income   $ 5,578   5,519   5,171   5,090   4,937
Less: Preferred stock dividends and other     261   247   240   233   220
Wells Fargo net income applicable to common stock   $ 5,317   5,272   4,931   4,857   4,717
Per share information
Earnings per common share $ 1.00 1.00 0.93 0.92 0.89
Diluted earnings per common share 0.99 0.98 0.92 0.91 0.88
Dividends declared per common share 0.30 0.30 0.25 0.22 0.22
Average common shares outstanding 5,295.3 5,304.7 5,279.0 5,272.4 5,288.1
Diluted average common shares outstanding 5,381.7 5,384.6 5,353.5 5,338.7 5,355.6
                       
 
 
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
 
    Quarter ended September 30,
2013   2012
    Interest     Interest
Average Yields/ income/ Average Yields/ income/

(in millions)

      balance     rates     expense   balance     rates     expense
Earning assets

Federal funds sold, securities purchased under resale agreements and other short-term investments

$ 155,888 0.31 % $ 121 91,561 0.44 % $ 101
Trading assets 44,809 3.02 339 39,441 3.08 304
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 6,633 1.69 28 1,390 1.05 4
Securities of U.S. states and political subdivisions 40,754 4.35 444 35,925 4.36 392
Mortgage-backed securities:
Federal agencies 112,997 2.83 800 94,324 2.88 679
Residential and commercial       30,216   6.56   496 33,124   6.67   553

Total mortgage-backed securities

143,213 3.62 1,296 127,448 3.87 1,232
Other debt and equity securities       55,404   3.27   455 47,647   4.07   486
Total securities available for sale 246,004 3.61 2,223 212,410 3.98 2,114
Mortgages held for sale (4) 33,227 3.86 320 52,128 3.65 476
Loans held for sale (4) 197 7.25 3 932 7.38 17
Loans:
Commercial:
Commercial and industrial 188,410 3.58 1,697 177,500 3.84 1,711
Real estate mortgage 104,637 4.12 1,086 105,148 4.05 1,070
Real estate construction 16,188 4.43 181 17,687 5.21 232
Lease financing 11,700 5.29 155 12,608 6.60 208
Foreign       44,843   2.09 236 39,663   2.46   245
Total commercial       365,778   3.64 3,355 352,606   3.91   3,466

Consumer:

Real estate 1-4 family first mortgage

254,082 4.20 2,670 234,020 4.51 2,638
Real estate 1-4 family junior lien mortgage 68,785 4.30 743 79,718 4.26 854
Credit card 24,989 12.45 784 23,040 12.64 732
Automobile 49,134 6.85 848 45,658 7.44 854
Other revolving credit and installment       42,011   4.83   512 41,692   4.58   480
Total consumer       439,001   5.04   5,557 424,128   5.23   5,558
Total loans (4) 804,779 4.41 8,912 776,734 4.63 9,024
Other       4,279   5.62   61 4,386   4.62   50
Total earning assets     $ 1,289,183   3.70 % $ 11,979 1,177,592   4.09 % $ 12,086
Funding sources
Deposits:
Interest-bearing checking $ 34,499 0.06 % $ 5 28,815 0.06 % $ 4
Market rate and other savings 553,062 0.08 107 506,138 0.12 152
Savings certificates 47,339 1.08 129 58,206 1.29 188
Other time deposits 30,423 0.62 47 14,373 1.49 54
Deposits in foreign offices       81,087   0.15   30 71,791   0.16   30
Total interest-bearing deposits 746,410 0.17 318 679,323 0.25 428
Short-term borrowings 53,403 0.08 11 51,857 0.17 22
Long-term debt 133,397 1.86 621 127,486 2.37 756
Other liabilities       12,128   2.64   80 9,945   2.40   60
Total interest-bearing liabilities 945,338 0.43 1,030 868,611 0.58 1,266
Portion of noninterest-bearing funding sources       343,845   -   - 308,981   -   -
Total funding sources     $ 1,289,183     0.32   1,030 1,177,592     0.43   1,266

Net interest margin and net interest income on a taxable-equivalent basis (5)

3.38 %   $ 10,949 3.66 %   $ 10,820
Noninterest-earning assets
Cash and due from banks $ 16,350 15,682
Goodwill 25,637 25,566
Other       118,440   135,500  
Total noninterest-earning assets     $ 160,427   176,748  
Noninterest-bearing funding sources
Deposits $ 279,156 267,184
Other liabilities 59,969 66,116
Total equity 165,147 152,429
Noninterest-bearing funding sources used to fund earning assets       (343,845 ) (308,981 )
Net noninterest-bearing funding sources     $ 160,427   176,748  
Total assets     $ 1,449,610   1,354,340  
                                         
 

(1) Our average prime rate was 3.25% for the quarters ended September 30, 2013 and 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.26% and 0.43% for the same quarters, respectively.

(2) Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3) Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.

(4) Nonaccrual loans and related income are included in their respective loan categories.

(5) Includes taxable-equivalent adjustments of $202 million and $158 million for the quarters ended September 30, 2013 and 2012, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.

 
 
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
 
   

Nine months ended September 30,

2013     2012
    Interest     Interest
Average Yields/ income/ Average Yields/ income/
(in millions)       balance     rates       expense     balance     rates       expense
Earning assets

Federal funds sold, securities purchased under resale agreements and other short-term investments

$ 137,926 0.33 % $ 342 73,011 0.47 % $ 257
Trading assets 44,530 3.05 1,020 41,931 3.29 1,035
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 6,797 1.66 85 3,041 1.12 25
Securities of U.S. states and political subdivisions 39,213 4.38 1,288 34,366 4.42 1,139
Mortgage-backed securities:
Federal agencies 103,522 2.79 2,164 93,555 3.24 2,277
Residential and commercial       31,217   6.51   1,524 33,839   6.82   1,731
Total mortgage-backed securities 134,739 3.65 3,688 127,394 4.19 4,008
Other debt and equity securities       54,893   3.56   1,463 48,983   4.09   1,501
Total securities available for sale 235,642 3.69 6,524 213,784 4.16 6,673
Mortgages held for sale (4) 39,950 3.57 1,069 49,531 3.80 1,412
Loans held for sale (4) 172 7.88 10 838 6.07 38
Loans:
Commercial:
Commercial and industrial 186,366 3.67 5,113 172,039 4.07 5,245
Real estate mortgage 105,367 3.96 3,121 105,548 4.24 3,350
Real estate construction 16,401 4.76 584 18,118 4.98 676
Lease financing 12,151 6.26 571 12,875 7.47 721
Foreign       42,357   2.16   683 39,915   2.52   753
Total commercial       362,642   3.71   10,072 348,495   4.12   10,745
Consumer:
Real estate 1-4 family first mortgage 252,904 4.24 8,044 231,256 4.60 7,984
Real estate 1-4 family junior lien mortgage 71,390 4.29 2,292 82,161 4.28 2,631
Credit card 24,373 12.54 2,285 22,414 12.75 2,140
Automobile 47,890 7.03 2,516 44,660 7.60 2,542
Other revolving credit and installment       41,857   4.76   1,489 42,214   4.55   1,438
Total consumer       438,414   5.06   16,626 422,705   5.28   16,735
Total loans (4) 801,056 4.45 26,698 771,200 4.76 27,480
Other       4,229   5.45   172 4,492   4.53   153
Total earning assets     $ 1,263,505   3.79 % $ 35,835 1,154,787   4.28 % $ 37,048
Funding sources
Deposits:
Interest-bearing checking $ 35,704 0.06 % $ 16 30,465 0.06 % $ 14
Market rate and other savings 544,208 0.08 341 500,850 0.12 457
Savings certificates 51,681 1.18 457 60,404 1.33 601
Other time deposits 24,177 0.81 146 13,280 1.74 173
Deposits in foreign offices       73,715   0.15   80 67,424   0.16   83
Total interest-bearing deposits 729,485 0.19 1,040 672,423 0.26 1,328
Short-term borrowings 55,535 0.13 55 50,650 0.17 65
Long-term debt 128,691 2.02 1,950 127,561 2.48 2,375
Other liabilities       12,352   2.37   220 10,052   2.50   189
Total interest-bearing liabilities 926,063 0.47 3,265 860,686 0.61 3,957
Portion of noninterest-bearing funding sources       337,442   -   - 294,101   -   -
Total funding sources     $ 1,263,505     0.35   3,265 1,154,787     0.46   3,957

Net interest margin and net interest income on a taxable-equivalent basis (5)

3.44 %   $ 32,570 3.82 %   $ 33,091
Noninterest-earning assets
Cash and due from banks $ 16,364 16,283
Goodwill 25,637 25,343
Other       122,306   129,971  
Total noninterest-earning assets     $ 164,307   171,597  
Noninterest-bearing funding sources
Deposits $ 277,820 256,120
Other liabilities 60,764 60,606
Total equity 163,165 148,972
Noninterest-bearing funding sources used to fund earning assets       (337,442 ) (294,101 )
Net noninterest-bearing funding sources     $ 164,307   171,597  
Total assets     $ 1,427,812   1,326,384  
 
 

(1) Our average prime rate was 3.25% for the nine months ended September 30, 2013 and 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.28% and 0.47% for the same periods, respectively.

(2) Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3) Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.

(4) Nonaccrual loans and related income are included in their respective loan categories.

(5) Includes taxable-equivalent adjustments of $574 million and $504 million for the nine months ended September 30, 2013 and 2012, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.

 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)
 
    Quarter ended
  Sept. 30, 2013       June 30, 2013       Mar. 31, 2013       Dec. 31, 2012       Sept. 30, 2012

 

Average

  Yields/

 

Average

  Yields/

 

Average

  Yields/

 

Average

  Yields/

 

Average

  Yields/
($ in billions)  

 

balance

  rates    

 

balance

  rates    

 

balance

  rates    

 

balance

  rates    

 

balance

  rates
Earning assets

 

 

Federal funds sold, securities purchased under resale agreements and other short-term investments

$ 155.9 0.31 % $ 136.5 0.33 % $ 121.0 0.36 % $ 117.1 0.41 % $ 91.6 0.44 %
Trading assets 44.8 3.02 46.6 2.98 42.1 3.17 42.0 3.28 39.5 3.08
Securities available for sale (2):
Securities of U.S. Treasury and federal agencies 6.6 1.69 6.7 1.73 7.1 1.56 5.3 1.64 1.4 1.05
Securities of U.S. states and political subdivisions 40.8 4.35 39.3 4.42 37.6 4.38 36.4 4.64 35.9 4.36
Mortgage-backed securities:
Federal agencies 113.0 2.83 102.0 2.79 95.4 2.74 90.9 2.71 94.3 2.88
Residential and commercial     30.2 6.56   31.3 6.50   32.1 6.46   32.7 6.53   33.1 6.67
Total mortgage-backed securities 143.2 3.62 133.3 3.66 127.5 3.68 123.6 3.72 127.4 3.87
Other debt and equity securities     55.4 3.27   55.5 3.84   53.7 3.58   50.0 3.91   47.7 4.07
Total securities available for sale 246.0 3.61 234.8 3.77 225.9 3.70 215.3 3.87 212.4 3.98
Mortgages held for sale 33.2 3.86 43.4 3.48 43.3 3.42 47.2 3.50 52.1 3.65
Loans held for sale 0.2 7.25 0.2 7.85 0.1 8.83 0.1 9.03 0.9 7.38
Loans:
Commercial:
Commercial and industrial 188.4 3.58 186.1 3.69 184.5 3.73 179.5 3.85 177.5 3.84
Real estate mortgage 104.6 4.12 105.3 3.92 106.2 3.84 105.1 4.02 105.1 4.05
Real estate construction 16.2 4.43 16.4 5.02 16.6 4.84 17.5 4.97 17.7 5.21
Lease financing 11.7 5.29 12.3 6.66 12.4 6.78 12.4 6.43 12.6 6.60
Foreign     44.9 2.09   42.3 2.23   39.9 2.16   39.7 2.32   39.7 2.46
Total commercial     365.8 3.64   362.4 3.75   359.6 3.74   354.2 3.87   352.6 3.91
Consumer:
Real estate 1-4 family first mortgage 254.1 4.20 252.6 4.23 252.0 4.29 244.6 4.39 234.0 4.51
Real estate 1-4 family junior lien mortgage 68.8 4.30 71.4 4.29 74.1 4.28 76.9 4.28 79.7 4.26
Credit card 25.0 12.45 24.0 12.55 24.1 12.62 23.9 12.43 23.0 12.64
Automobile 49.1 6.85 47.9 7.05 46.6 7.20 46.0 7.34 45.7 7.44
Other revolving credit and installment     42.0 4.83   41.9 4.74   41.7 4.70   41.6 4.63   41.7 4.58
Total consumer     439.0 5.04   437.8 5.05   438.5 5.10   433.0 5.15   424.1 5.23
Total loans 804.8 4.41 800.2 4.46 798.1 4.49 787.2 4.58 776.7 4.63
Other     4.3 5.62   4.2 5.55   4.3 5.19   4.3 5.21   4.4 4.62
Total earning assets   $ 1,289.2 3.70 % $ 1,265.9 3.80 % $ 1,234.8 3.86 % $ 1,213.2 3.96 % $ 1,177.6 4.09 %
Funding sources
Deposits:
Interest-bearing checking $ 34.5 0.06 % $ 40.4 0.06 % $ 32.2 0.06 % $ 30.9 0.06 % $ 28.8 0.06 %
Market rate and other savings 553.1 0.08 541.8 0.08 537.5 0.09 518.6 0.10 506.1 0.12
Savings certificates 47.3 1.08 52.6 1.23 55.2 1.22 56.7 1.27 58.2 1.29
Other time deposits 30.4 0.62 26.0 0.76 15.9 1.25 13.6 1.51 14.4 1.49
Deposits in foreign offices     81.1 0.15   68.9 0.15   71.1 0.14   69.4 0.15   71.8 0.16
Total interest-bearing deposits 746.4 0.17 729.7 0.19 711.9 0.21 689.2 0.23 679.3 0.25
Short-term borrowings 53.4 0.08 57.8 0.14 55.4 0.17 52.8 0.21 51.9 0.17
Long-term debt 133.4 1.86 125.5 2.02 127.1 2.20 127.5 2.30 127.5 2.37
Other liabilities     12.1 2.64   13.3 2.25   11.6 2.24   10.0 2.27   9.9 2.40
Total interest-bearing liabilities 945.3 0.43 926.3 0.47 906.0 0.51 879.5 0.55 868.6 0.58
Portion of noninterest-bearing funding sources     343.9 -   339.6 -   328.8 -   333.7 -   309.0 -
Total funding sources   $ 1,289.2   0.32 $ 1,265.9   0.34 $ 1,234.8   0.38 $ 1,213.2   0.40 $ 1,177.6   0.43

 

Net interest margin on a taxable-equivalent basis

3.38 % 3.46 % 3.48 % 3.56 % 3.66 %
Noninterest-earning assets
Cash and due from banks $ 16.4 16.2 16.5 16.4 15.7
Goodwill 25.6 25.6 25.6 25.6 25.5
Other     118.4   121.3   127.4   131.9   135.5
Total noninterest-earnings assets   $ 160.4   163.1   169.5   173.9   176.7
Noninterest-bearing funding sources
Deposits $ 279.2 280.0 274.2 286.9 267.2
Other liabilities 60.0 58.0 63.7 63.1 66.1
Total equity 165.1 164.7 160.4 157.6 152.4

 

Noninterest-bearing funding sources used to fund earning assets

    (343.9)   (339.6)   (328.8)   (333.7)   (309.0)

 

Net noninterest-bearing funding sources

  $ 160.4   163.1   169.5   173.9   176.7
Total assets   $ 1,449.6   1,429.0   1,404.3   1,387.1   1,354.3
                                                           
 

(1) Our average prime rate was 3.25% for quarters ended September 30, June 30 and March 31, 2013, and December 31 and September 30, 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.26%, 0.28%, 0.29%, 0.32% and 0.43% for the same quarters, respectively.

(2) Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.

 
Wells Fargo & Company and Subsidiaries
NONINTEREST INCOME
 
        Nine months  
Quarter ended Sept. 30, % ended Sept. 30, %
(in millions)     2013     2012   Change       2013     2012     Change
Service charges on deposit accounts $ 1,278 1,210 6 % $ 3,740   3,433 9 %
Trust and investment fees:
Brokerage advisory, commissions and other fees (1) 2,068 1,887 10 6,245 5,562 12
Trust and investment management (1) 811 769 5 2,439 2,283 7
Investment banking     397     298 33   1,288     846   52
Total trust and investment fees     3,276     2,954 11   9,972     8,691   15
Card fees 813 744 9 2,364 2,102 12
Other fees:
Charges and fees on loans 390 426 (8 ) 1,161 1,298 (11 )
Merchant processing fees 169 150 13 497 432 15
Cash network fees 129 120 8 371 358 4
Commercial real estate brokerage commissions 91 56 63 209 188 11
Letters of credit fees 100 114 (12 ) 311 334 (7 )
All other fees     219     231 (5 )   672     716   (6 )
Total other fees     1,098     1,097 -   3,221     3,326   (3 )
Mortgage banking:
Servicing income, net 504 197 156 1,211 1,128 7
Net gains on mortgage loan origination/sales activities     1,104     2,610 (58 )   5,993     7,442   (19 )
Total mortgage banking     1,608     2,807 (43 )   7,204     8,570   (16 )
Insurance 413 414 - 1,361 1,455 (6 )
Net gains from trading activities 397 529 (25 ) 1,298 1,432 (9 )
Net gains (losses) on debt securities available for sale (6 ) 3 NM (15 ) (65 ) (77 )
Net gains from equity investments 502 164 206 818 770 6
Lease income 160 218 (27 ) 515 397 30
Life insurance investment income 154 159 (3 ) 441 481 (8 )
All other     37     252 (85 )   199     959   (79 )
Total   $ 9,730     10,551   (8 )     $ 31,118     31,551     (1 )
 
NM - Not meaningful

(1) Prior year periods have been revised to reflect all fund distribution fees as brokerage related income.

 
NONINTEREST EXPENSE
 
        Nine months  
Quarter ended Sept. 30, %   ended Sept. 30, %
(in millions)     2013   2012   Change   2013   2012   Change
Salaries $ 3,910 3,648 7 % $ 11,341   10,954 4 %
Commission and incentive compensation 2,401 2,368 1 7,604 7,139 7
Employee benefits 1,172 1,063 10 3,873 3,720 4
Equipment 471 510 (8 ) 1,417 1,526 (7 )
Net occupancy 728 727 - 2,163 2,129 2
Core deposit and other intangibles 375 419 (11 ) 1,129 1,256 (10 )
FDIC and other deposit assessments 214 359 (40 ) 765 1,049 (27 )
Outside professional services 623 733 (15 ) 1,765 1,985 (11 )
Operating losses 195 281 (31 ) 640 1,282 (50 )
Foreclosed assets 161 247 (35 ) 502 840 (40 )
Contract services 241 237 2 674 776 (13 )
Outside data processing 251 234 7 719 683 5
Travel and entertainment 209 208 - 651 628 4
Postage, stationery and supplies 184 196 (6 ) 567 607 (7 )
Advertising and promotion 157 170 (8 ) 445 436 2
Telecommunications 116 127 (9 ) 364 378 (4 )
Insurance 98 51 92 378 391 (3 )
Operating leases 56 27 107 153 82 87
All other     540   507 7   1,607   1,641 (2 )
Total   $ 12,102   12,112   -       $ 36,757   37,502   (2 )
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER NONINTEREST INCOME
 
    Quarter ended
Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
(in millions)     2013     2013     2013   2012     2012
Service charges on deposit accounts $ 1,278 1,248 1,214 1,250 1,210
Trust and investment fees:
Brokerage advisory, commissions and other fees (1) 2,068 2,127 2,050 1,962 1,887
Trust and investment management (1) 811 829 799 797 769
Investment banking     397     538     353   440     298
Total trust and investment fees     3,276     3,494     3,202   3,199     2,954
Card fees 813 813 738 736 744
Other fees:
Charges and fees on loans 390 387 384 448 426
Merchant processing fees 169 174 154 151 150
Cash network fees 129 125 117 112 120
Commercial real estate brokerage commissions 91 73 45 119 56
Letters of credit fees 100 102 109 107 114
All other fees     219     228     225   256     231
Total other fees     1,098     1,089     1,034   1,193     1,097
Mortgage banking:
Servicing income, net 504 393 314 250 197
Net gains on mortgage loan origination/sales activities     1,104     2,409     2,480   2,818     2,610
Total mortgage banking     1,608     2,802     2,794   3,068     2,807
Insurance 413 485 463 395 414
Net gains from trading activities 397 331 570 275 529
Net gains (losses) on debt securities available for sale (6 ) (54 ) 45 (63 ) 3
Net gains from equity investments 502 203 113 715 164
Lease income 160 225 130 170 218
Life insurance investment income 154 142 145 276 159
All other     37     (150 )   312   91     252
Total   $ 9,730     10,628     10,760   11,305     10,551
 
(1) Prior year periods have been revised to reflect all fund distribution fees as brokerage related income.
 
FIVE QUARTER NONINTEREST EXPENSE
 
  Quarter ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(in millions)     2013     2013     2013   2012     2012
Salaries $ 3,910 3,768 3,663 3,735 3,648
Commission and incentive compensation 2,401 2,626 2,577 2,365 2,368
Employee benefits 1,172 1,118 1,583 891 1,063
Equipment 471 418 528 542 510
Net occupancy 728 716 719 728 727
Core deposit and other intangibles 375 377 377 418 419
FDIC and other deposit assessments 214 259 292 307 359
Outside professional services 623 607 535 744 733
Operating losses 195 288 157 953 281
Foreclosed assets 161 146 195 221 247
Contract services 241 226 207 235 237
Outside data processing 251 235 233 227 234
Travel and entertainment 209 229 213 211 208
Postage, stationery and supplies 184 184 199 192 196
Advertising and promotion 157 183 105 142 170
Telecommunications 116 125 123 122 127
Insurance 98 143 137 62 51
Operating leases 56 49 48 27 27
All other     540     558     509   774     507
Total   $ 12,102     12,255     12,400   12,896     12,112
 
 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED BALANCE SHEET  
 
Sept. 30, Dec. 31, %
(in millions, except shares)     2013   2012   Change  
Assets
Cash and due from banks $ 18,928 21,860 (13 ) %
Federal funds sold, securities purchased under resale agreements and other short-term investments 182,036 137,313 33
Trading assets 60,203 57,482 5
Securities available for sale 259,399 235,199 10
Mortgages held for sale (includes $23,209 and $42,305 carried at fair value) 25,395 47,149 (46 )
Loans held for sale (includes $2 and $6 carried at fair value) 204 110 85
 
Loans (includes $6,051 and $6,206 carried at fair value) 812,325 799,574 2
Allowance for loan losses     (15,159 ) (17,060 ) (11 )
Net loans     797,166   782,514   2
Mortgage servicing rights:
Measured at fair value 14,501 11,538 26
Amortized 1,204 1,160 4
Premises and equipment, net 9,120 9,428 (3 )
Goodwill 25,637 25,637 -
Other assets (includes $911 and $0 carried at fair value)     94,262   93,578   1
Total assets   $ 1,488,055   1,422,968   5
Liabilities
Noninterest-bearing deposits $ 279,911 288,207 (3 )
Interest-bearing deposits     761,960   714,628   7
Total deposits 1,041,871 1,002,835 4
Short-term borrowings 53,851 57,175 (6 )
Accrued expenses and other liabilities 72,308 76,668 (6 )
Long-term debt (includes $0 and $1 carried at fair value)     151,212   127,379   19
Total liabilities     1,319,242   1,264,057   4
Equity
Wells Fargo stockholders' equity:
Preferred stock 15,549 12,883 21

Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares and 5,481,811,474 shares

9,136 9,136 -
Additional paid-in capital 60,188 59,802 1
Retained earnings 88,625 77,679 14
Cumulative other comprehensive income 2,289 5,650 (59 )
Treasury stock – 208,075,732 shares and 215,497,298 shares (7,290 ) (6,610 ) 10
Unearned ESOP shares     (1,332 ) (986 ) 35
Total Wells Fargo stockholders' equity 167,165 157,554 6
Noncontrolling interests     1,648   1,357   21
Total equity     168,813   158,911   6
Total liabilities and equity   $ 1,488,055   1,422,968   5  
 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED BALANCE SHEET
         
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(in millions)     2013     2013     2013     2012     2012  
Assets
Cash and due from banks $ 18,928 17,939 16,217 21,860 16,986

Federal funds sold, securities purchased under resale agreements and other short-term investments

182,036 148,665 143,804 137,313 100,442
Trading assets 60,203 58,619 62,274 57,482 60,592
Securities available for sale 259,399 249,439 248,160 235,199 229,350
Mortgages held for sale 25,395 38,785 46,702 47,149 50,337
Loans held for sale 204 190 194 110 298
 
Loans 812,325 801,974 799,966 799,574 782,630
Allowance for loan losses     (15,159 )   (16,144 )   (16,711 )   (17,060 )   (17,385 )
Net loans     797,166     785,830     783,255     782,514     765,245  
Mortgage servicing rights:
Measured at fair value 14,501 14,185 12,061 11,538 10,956
Amortized 1,204 1,176 1,181 1,160 1,144
Premises and equipment, net 9,120 9,190 9,263 9,428 9,165
Goodwill 25,637 25,637 25,637 25,637 25,637
Other assets     94,262     90,908     87,886     93,578     104,563  
Total assets   $ 1,488,055     1,440,563     1,436,634     1,422,968     1,374,715  
Liabilities
Noninterest-bearing deposits $ 279,911 277,648 278,909 288,207 268,991
Interest-bearing deposits     761,960     743,937     731,824     714,628     683,248  
Total deposits 1,041,871 1,021,585 1,010,733 1,002,835 952,239
Short-term borrowings 53,851 56,983 60,693 57,175 51,957
Accrued expenses and other liabilities 72,308 74,843 75,622 76,668 83,659
Long-term debt     151,212     123,375     126,191     127,379     130,801  
Total liabilities     1,319,242     1,276,786     1,273,239     1,264,057     1,218,656  
Equity
Wells Fargo stockholders' equity:
Preferred stock 15,549 13,988 14,412 12,883 12,283
Common stock 9,136 9,136 9,136 9,136 9,105
Additional paid-in capital 60,188 59,945 60,136 59,802 59,089
Retained earnings 88,625 84,923 81,264 77,679 73,994
Cumulative other comprehensive income 2,289 1,797 5,145 5,650 6,435
Treasury stock (7,290 ) (5,858 ) (6,036 ) (6,610 ) (5,186 )
Unearned ESOP shares     (1,332 )   (1,510 )   (1,971 )   (986 )   (1,041 )
Total Wells Fargo stockholders' equity 167,165 162,421 162,086 157,554 154,679
Noncontrolling interests     1,648     1,356     1,309     1,357     1,380  
Total equity     168,813     163,777     163,395     158,911     156,059  
Total liabilities and equity   $ 1,488,055     1,440,563     1,436,634     1,422,968     1,374,715  
 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER SECURITIES AVAILABLE FOR SALE
 
  Sept. 30,     June 30,     Mar. 31,     Dec. 31,     Sept. 30,
(in millions)     2013     2013     2013     2012     2012
Securities of U.S. Treasury and federal agencies $ 6,406 6,383 6,884 7,146 1,869
Securities of U.S. states and political subdivisions 42,293 40,890 40,456 38,676 37,925
Mortgage-backed securities:
Federal agencies 118,963 110,561 105,472 97,285 102,713
Residential and commercial     32,329     33,423     35,179     35,899     36,098
Total mortgage-backed securities 151,292 143,984 140,651 133,184 138,811
Other debt securities     55,828     55,425     57,390     53,408     47,993
Total debt securities available for sale 255,819 246,682 245,381 232,414 226,598
Marketable equity securities     3,580     2,757     2,779     2,785     2,752
Total securities available for sale   $ 259,399     249,439     248,160     235,199     229,350
 
 
FIVE QUARTER LOANS
         
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(in millions)     2013   2013   2013   2012   2012
Commercial:
Commercial and industrial $ 191,738 188,758 185,623 187,759 178,191
Real estate mortgage 105,540 104,673 106,119 106,340 104,611
Real estate construction 16,413 16,442 16,650 16,904 17,710
Lease financing 11,688 11,766 12,402 12,424 12,279
Foreign (1)     46,666   41,833   40,920   37,771   39,741
Total commercial     372,045   363,472   361,714   361,198   352,532
Consumer:
Real estate 1-4 family first mortgage 254,924 252,841 252,307 249,900 240,554
Real estate 1-4 family junior lien mortgage 67,675 70,059 72,543 75,465 78,091
Credit card 25,448 24,815 24,120 24,640 23,692
Automobile 49,693 48,648 47,259 45,998 46,044
Other revolving credit and installment     42,540   42,139   42,023   42,373   41,717
Total consumer     440,280   438,502   438,252   438,376   430,098
Total loans (2)   $ 812,325   801,974   799,966   799,574   782,630
 
(1) Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign if the borrower's primary address is outside of the United States.
(2) Includes $27.8 billion, $28.8 billion, $29.7 billion, $31.0 billion and $32.5 billion of purchased credit-impaired (PCI) loans at September 30, June 30 and March 31, 2013, and December 31 and September 30, 2012, respectively. See the PCI loans table for detail of PCI loans.
 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)
       
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(in millions)     2013     2013   2013   2012   2012
Nonaccrual loans:
Commercial:
Commercial and industrial $ 809 1,022 1,193 1,422 1,404
Real estate mortgage 2,496 2,708 3,098 3,322 3,599
Real estate construction 517 665 870 1,003 1,253
Lease financing 17 20 25 27 49
Foreign     47     40   56   50   66
Total commercial     3,886     4,455   5,242   5,824   6,371
Consumer:
Real estate 1-4 family first mortgage 10,450 10,705 11,320 11,455 11,195
Real estate 1-4 family junior lien mortgage 2,333 2,522 2,712 2,922 3,140
Automobile 188 200 220 245 295
Other revolving credit and installment     36     33   32   40   43
Total consumer     13,007     13,460   14,284   14,662   14,673
Total nonaccrual loans (1)(2)(3)     16,893     17,915   19,526   20,486   21,044
As a percentage of total loans 2.08 % 2.23 2.44 2.56 2.69
Foreclosed assets:
Government insured/guaranteed (4) $ 1,781 1,026 969 1,509 1,479
Non-government insured/guaranteed     2,021     2,114   2,381   2,514   2,730
Total foreclosed assets     3,802     3,140   3,350   4,023   4,209
Total nonperforming assets   $ 20,695     21,055   22,876   24,509   25,253
As a percentage of total loans     2.55 %   2.63   2.86   3.07   3.23
 
(1) Includes nonaccrual mortgages held for sale and loans held for sale in their respective loan categories.
(2) Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.
(3) Real estate 1-4 family mortgage loans predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) and student loans predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program are not placed on nonaccrual status because they are insured or guaranteed.
(4) Consistent with regulatory reporting requirements, foreclosed real estate securing government insured/guaranteed loans is classified as nonperforming. Both principal and interest for government insured/guaranteed loans secured by the foreclosed real estate are collectible because the loans are predominantly insured by the FHA or guaranteed by the VA. Increase in balance at September 30, 2013, reflects the impact of enhancements to loan modification programs, slowing foreclosures in prior quarters.
 
 
Wells Fargo & Company and Subsidiaries
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
 
  Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,
(in millions)     2013   2013   2013   2012   2012
Loans 90 days or more past due and still accruing:
Total (excluding PCI)(1): $ 22,181 22,197 23,082 23,245 22,894
Less: FHA insured/VA guaranteed (2)(4) 20,214 20,112 20,745 20,745 20,320
Less: Student loans guaranteed under the FFELP (3)     917   931   977   1,065   1,082
Total, not government insured/guaranteed   $ 1,050   1,154   1,360   1,435   1,492
 
By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial $ 125 37 47 47 49
Real estate mortgage 40 175 164 228 206
Real estate construction 1 4 47 27 41
Foreign     1   -   7   1   2
Total commercial     167   216   265   303   298
Consumer:
Real estate 1-4 family first mortgage (4) 383 476 563 564 627
Real estate 1-4 family junior lien mortgage (4) 89 92 112 133 151
Credit card 285 263 306 310 288
Automobile 48 32 33 40 43
Other revolving credit and installment     78   75   81   85   85
Total consumer     883   938   1,095   1,132   1,194
Total, not government insured/guaranteed   $ 1,050   1,154   1,360   1,435   1,492
 
(1) The carrying value of purchased credit-impaired (PCI) loans contractually 90 days or more past due was $4.9 billion, $5.4 billion, $5.8 billion, $6.0 billion and $6.2 billion, at September 30, June 30 and March 31, 2013, and December 31 and September 30, 2012, respectively. These amounts are excluded from the above table as PCI loan accretable yield interest recognition is independent from the underlying contractual loan delinquency status.
(2) Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(3) Represents loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program (FFELP).
(4) Includes mortgages held for sale 90 days or more past due and still accruing.
 
 
Wells Fargo & Company and Subsidiaries
PURCHASED CREDIT-IMPAIRED (PCI) LOANS
       
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. PCI loans predominantly represent loans acquired from Wachovia that were deemed to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include statistics such as past due and nonaccrual status, recent borrower credit scores and recent LTV percentages. PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is not carried over at the acquisition date.

 

Under the accounting guidance for PCI loans, the excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan, or pool of loans, in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. Accordingly, such loans are not classified as nonaccrual and they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for PCI loans and not to contractual interest payments. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.

 

Subsequent to acquisition, we regularly evaluate our estimates of cash flows expected to be collected. These evaluations, performed quarterly, require the continued usage of key assumptions and estimates, similar to the initial estimate of fair value. If we have probable decreases in the expected cash flows (other than due to decreases in interest rate indices and changes in prepayment assumptions), we charge the provision for credit losses, resulting in an increase to the allowance for loan losses. If we have probable and significant increases in the expected cash flows subsequent to establishing an additional allowance, we first reverse any previously established allowance and then increase interest income over the remaining life of the loan, or pool of loans.

 

As a result of PCI loan accounting, certain credit-related ratios cannot be used to compare a portfolio that includes PCI loans against one that does not, or to compare ratios across quarters or years. The ratios particularly affected include the allowance for loan losses and allowance for credit losses as percentages of loans, of nonaccrual loans and of nonperforming assets; nonaccrual loans and nonperforming assets as a percentage of total loans; and net charge-offs as a percentage of loans.

 
 
Sept. 30, December 31,
(in millions)     2013     2012   2008
Commercial:
Commercial and industrial $ 210 259 4,580
Real estate mortgage 1,419 1,970 5,803
Real estate construction 605 877 6,462
Foreign     743     871   1,859
Total commercial     2,977     3,977   18,704
Consumer:
Real estate 1-4 family first mortgage 24,730 26,839 39,214
Real estate 1-4 family junior lien mortgage 127 152 728
Automobile     -     -   151
Total consumer     24,857     26,991   40,093
Total PCI loans (carrying value)   $ 27,834     30,968   58,797
 
 
Wells Fargo & Company and Subsidiaries
CHANGES IN NONACCRETABLE DIFFERENCE FOR PCI LOANS
 
The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference. A nonaccretable difference is established in purchase accounting for PCI loans to absorb losses expected at that time on those loans. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. Substantially all our commercial and industrial, CRE and foreign PCI loans are accounted for as individual loans. Conversely, Pick-a-Pay and other consumer PCI loans have been aggregated into several pools based on common risk characteristics. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Resolutions of loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. Our policy is to remove an individual loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference. This removal method assumes that the amount received from resolution approximates pool performance expectations. The accretable yield percentage is unaffected by the resolution and any changes in the effective yield for the remaining loans in the pool are addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan. Modified PCI loans are not removed from a pool even if those loans would otherwise be deemed troubled debt restructurings (TDRs). Modified PCI loans that are accounted for individually are considered TDRs, and removed from PCI accounting, if there has been a concession granted in excess of the original nonaccretable difference. The following table provides an analysis of changes in the nonaccretable difference.
   
       
Other
(in millions)   Commercial     Pick-a-Pay     consumer     Total  
Balance, December 31, 2008 $ 10,410 26,485 4,069 40,964
Addition of nonaccretable difference due to acquisitions 195 - - 195
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (1,426 ) - - (1,426 )
Loans resolved by sales to third parties (2) (303 ) - (85 ) (388 )
Reclassification to accretable yield for loans with improving credit-related cash flows (3) (1,531 ) (3,031 ) (792 ) (5,354 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (6,923 )   (17,222 )   (2,882 )   (27,027 )
Balance, December 31, 2012 422 6,232 310 6,964
Addition of nonaccretable difference due to acquisitions 7 - - 7
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (62 ) - - (62 )
Loans resolved by sales to third parties (2) (5 ) - - (5 )
Reclassification to accretable yield for loans with improving credit-related cash flows (3) (50 ) (866 ) - (916 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (12 )   (641 )   (67 )   (720 )
Balance, September 30, 2013   $ 300     4,725     243     5,268  
                           
Balance, June 30, 2013 $ 311 4,880 250 5,441
Addition of nonaccretable difference due to acquisitions 7 - - 7
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (15 ) - - (15 )
Loans resolved by sales to third parties (2) - - - -
Reclassification to accretable yield for loans with improving credit-related cash flows (3) (9 ) - - (9 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     6     (155 )   (7 )   (156 )
Balance, September 30, 2013   $ 300     4,725     243     5,268  
 
(1) Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases for settlements with borrowers due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.
(2) Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.
(3) Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.
(4) Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan. Also includes foreign exchange adjustments related to underlying principal for which the nonaccretable difference was established.
 
 
Wells Fargo & Company and Subsidiaries
CHANGES IN ACCRETABLE YIELD RELATED TO PCI LOANS
 
The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is accreted into interest income over the estimated lives of the PCI loans using the effective yield method. The accretable yield is affected by:
 

• Changes in interest rate indices for variable rate PCI loans – Expected future cash flows are based on the variable rates in effect at the time of the quarterly assessment of expected cash flows;

• Changes in prepayment assumptions – Prepayments affect the estimated life of PCI loans which may change the amount of interest income, and possibly principal, expected to be collected; and

• Changes in the expected principal and interest payments over the estimated life – Updates to changes in expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows from loan modifications are included in the regular evaluations of cash flows expected to be collected.

 
The change in the accretable yield related to PCI loans is presented in the following table.
   
 
(in millions)        
Balance, December 31, 2008   $ 10,447
Addition of accretable yield due to acquisitions 131
Accretion into interest income (1) (9,351 )
Accretion into noninterest income due to sales (2) (242 )
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 5,354
Changes in expected cash flows that do not affect nonaccretable difference (3)     12,209  
Balance, December 31, 2012 18,548
Addition of accretable yield due to acquisitions 1
Accretion into interest income (1) (1,386 )
Accretion into noninterest income due to sales (2) (151 )
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 916
Changes in expected cash flows that do not affect nonaccretable difference (3)     1,588  
Balance, September 30, 2013   $ 19,516  
         
Balance, June 30, 2013 $ 20,021
Addition of accretable yield due to acquisitions 1
Accretion into interest income (1) (481 )
Accretion into noninterest income due to sales (2) -
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 9
Changes in expected cash flows that do not affect nonaccretable difference (3)     (34 )
Balance, September 30, 2013   $ 19,516  
 
(1) Includes accretable yield released as a result of settlements with borrowers, which is included in interest income.
(2) Includes accretable yield released as a result of sales to third parties, which is included in noninterest income.
(3) Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, changes in interest rates on variable rate PCI loans and sales to third parties.
 
 
CHANGES IN ALLOWANCE FOR PCI LOAN LOSSES
 
When it is estimated that the expected cash flows have decreased subsequent to acquisition for a PCI loan or pool of loans, an allowance is established and a provision for additional loss is recorded as a charge to income. The following table summarizes the changes in allowance for PCI loan losses.
 
 
      Other  
(in millions)   Commercial     Pick-a-Pay   consumer     Total  
Balance, December 31, 2008 $ - - - -
Provision for losses due to credit deterioration 1,693 - 123 1,816
Charge-offs     (1,605 )   -   (94 )   (1,699 )
Balance, December 31, 2012 88 - 29 117
Reversal of provision for losses (65 ) - (15 ) (80 )
Charge-offs     (6 )   -   (9 )   (15 )
Balance, September 30, 2013   $ 17     -   5     22  
                         
Balance, June 30, 2013 $ 49 - 22 71
Reversal of provision for losses (31 ) - (16 ) (47 )
Charge-offs     (1 )   -   (1 )   (2 )
Balance, September 30, 2013   $ 17     -   5     22  
 
 
Wells Fargo & Company and Subsidiaries
PICK-A-PAY PORTFOLIO (1)
 
 

 

September 30, 2013

  PCI loans   All other loans
      Ratio of   Ratio of
Adjusted carrying carrying
unpaid Current value to value to
principal LTV Carrying current Carrying current
(in millions)  

 

balance (2)

  ratio (3)     value (4)   value (5)     value (4)   value (5)
California $ 20,128 98 % $ 16,202 78 % $ 13,811 71 %
Florida 2,493 104 1,973 76 2,897 85
New Jersey 1,084 89 1,148 87 1,858 77
New York 633 87 661 84 832 76
Texas 276 74 261 69 1,131 60
Other states     4,831 94   4,206 79   7,825 78
Total Pick-a-Pay loans   $ 29,445 $ 24,451 $ 28,354
 
 
(1) The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2013.
(2) Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.
(3) The current LTV ratio is calculated as the adjusted unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.
(4) Carrying value, which does not reflect the allowance for loan losses, includes remaining purchase accounting adjustments, which, for PCI loans may include the nonaccretable difference and the accretable yield and, for all other loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.
(5) The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.
 
 
NON-STRATEGIC AND LIQUIDATING LOAN PORTFOLIOS
 
 

 

Sept. 30,

  June 30,   Mar. 31,   Dec. 31,   Sept. 30,
(in millions)     2013   2013   2013   2012   2012
Commercial:

Legacy Wachovia commercial and industrial, commercial real estate and foreign PCI loans (1)

$ 2,342 2,532 2,770 3,170 3,836
Total commercial     2,342   2,532   2,770   3,170   3,836
Consumer:
Pick-a-Pay mortgage (1) 52,805 54,755 56,608 58,274 60,080
Liquidating home equity 3,911 4,173 4,421 4,647 4,951
Legacy Wells Fargo Financial indirect auto 299 428 593 830 1,104
Legacy Wells Fargo Financial debt consolidation 13,281 13,707 14,115 14,519 15,002
Education Finance - government guaranteed 11,094 11,534 11,922 12,465 12,951
Legacy Wachovia other PCI loans (1)     406   435   462   657   732
Total consumer     81,796   85,032   88,121   91,392   94,820
Total non-strategic and liquidating loan portfolios   $ 84,138   87,564   90,891   94,562   98,656
 
(1) Net of purchase accounting adjustments related to PCI loans.
 
 
Wells Fargo & Company and Subsidiaries
CHANGES IN ALLOWANCE FOR CREDIT LOSSES  
 
      Nine months
  Quarter ended Sept. 30,   ended Sept. 30,  
(in millions)     2013     2012       2013     2012  
Balance, beginning of period $ 16,618   18,646 17,477   19,668
Provision for credit losses 75 1,591 1,946 5,386
Interest income on certain impaired loans (1) (63 ) (76 ) (209 ) (245 )
Loan charge-offs:
Commercial:
Commercial and industrial (151 ) (285 ) (516 ) (1,004 )
Real estate mortgage (44 ) (100 ) (153 ) (296 )
Real estate construction (6 ) (41 ) (18 ) (181 )
Lease financing (3 ) (5 ) (30 ) (18 )
Foreign     (4 )   (35 )     (23 )   (81 )
Total commercial     (208 )   (466 )     (740 )   (1,580 )
Consumer:
Real estate 1-4 family first mortgage (303 ) (719 ) (1,170 ) (2,319 )
Real estate 1-4 family junior lien mortgage (345 ) (1,095 ) (1,287 ) (2,672 )
Credit card (239 ) (255 ) (771 ) (842 )
Automobile (153 ) (152 ) (443 ) (462 )
Other revolving credit and installment     (191 )   (184 )     (558 )   (565 )
Total consumer     (1,231 )   (2,405 )     (4,229 )   (6,860 )
Total loan charge-offs     (1,439 )   (2,871 )     (4,969 )   (8,440 )
Loan recoveries:
Commercial:
Commercial and industrial 93 154 288 368
Real estate mortgage 64 46 149