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Wells Fargo Reports Third Quarter 2019 Net Income of $4.6 Billion

SAN FRANCISCO--(BUSINESS WIRE)--

Diluted EPS of $0.92 included the impact of a discrete litigation accrual of $(0.35) per share and a gain on the sale of our Institutional Retirement and Trust business of $0.20 per share

Wells Fargo & Company (WFC):

  • Financial results:
    • Net income of $4.6 billion, compared with $6.0 billion in third quarter 2018
    • Diluted earnings per share (EPS) of $0.92, compared with $1.13
      • Third quarter 2019 included a $1.6 billion, or $(0.35) per share, discrete litigation accrual (not tax-deductible) for previously disclosed retail sales practices matters, and a $1.1 billion, or $0.20 per share, gain from the previously announced sale of our Institutional Retirement and Trust (IRT) business
    • Revenue of $22.0 billion, up from $21.9 billion
      • Net interest income of $11.6 billion, down $947 million
      • Noninterest income of $10.4 billion, up $1.0 billion
    • Noninterest expense of $15.2 billion, up $1.4 billion
    • Average deposits of $1.3 trillion, up $25.0 billion
    • Average loans of $949.8 billion, up $10.3 billion
  • Credit quality:
    • Provision expense of $695 million, up $115 million from third quarter 2018
      • Net charge-offs of $645 million, down $35 million
        • Net charge-offs of 0.27% of average loans (annualized), down from 0.29%
      • Reserve build1 of $50 million, compared with a $100 million reserve release1 in third quarter 2018
    • Nonaccrual loans of $5.5 billion, down $1.2 billion, or 17%
  • Strong capital position while returning more capital to shareholders:
    • Common Equity Tier 1 ratio (fully phased-in) of 11.6%2
    • Returned $9.0 billion to shareholders through common stock dividends and net share repurchases, up 2% from $8.9 billion in third quarter 2018
      • Quarterly common stock dividend of $0.51 per share, up 19% from $0.43 per share
      • Period-end common shares outstanding down 442.4 million shares, or 9%
      • Third quarter 2019 included the partial redemption of our Series K Preferred Stock, which reduced diluted EPS by $0.05 per share, while third quarter 2018 included the redemption of our Series J Preferred Stock, which reduced diluted EPS by $0.03 per share

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, and may differ materially from the results and disclosures in this document due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information.

Selected Financial Information

 

 

 

Quarter ended

 

Sep 30,
2019

 

Jun 30,
2019

 

Sep 30,
2018

Earnings

 

 

 

 

 

Diluted earnings per common share

$

0.92

 

 

1.30

 

 

1.13

 

Wells Fargo net income (in billions)

4.61

 

 

6.21

 

 

6.01

 

Return on assets (ROA)

0.95

%

 

1.31

 

 

1.27

 

Return on equity (ROE)

9.00

 

 

13.26

 

 

12.04

 

Return on average tangible common equity (ROTCE) (a)

10.70

 

 

15.78

 

 

14.33

 

Asset Quality

 

 

 

 

 

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

0.27

%

 

0.28

 

 

0.29

 

Allowance for credit losses as a % of total loans

1.11

 

 

1.12

 

 

1.16

 

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

415

 

 

405

 

 

406

 

Other

 

 

 

 

 

Revenue (in billions)

$

22.0

 

 

21.6

 

 

21.9

 

Efficiency ratio (b)

69.1

%

 

62.3

 

 

62.7

 

Average loans (in billions)

$

949.8

 

 

947.5

 

 

939.5

 

Average deposits (in billions)

1,291.4

 

 

1,269.0

 

 

1,266.4

 

Net interest margin

2.66

%

 

2.82

 

 

2.94

 

(a) Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, and goodwill and certain identifiable intangible assets (including goodwill and intangible assets associated with certain of our nonmarketable equity securities but excluding mortgage servicing rights), net of applicable deferred taxes. The methodology of determining tangible common equity may differ among companies. Management believes that return on average tangible common equity, which utilizes tangible common equity, is a useful financial measure because it enables investors and others to assess the Company's use of equity. For additional information, including a corresponding reconciliation to GAAP financial measures, see the “Tangible Common Equity” tables on page 36.

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

Wells Fargo & Company (WFC) reported net income of $4.6 billion, or $0.92 per diluted common share, for third quarter 2019, compared with $6.0 billion, or $1.13 per share, for third quarter 2018, and $6.2 billion, or $1.30 per share, for second quarter 2019.

Interim Chief Executive Officer Allen Parker said, “We continued to make progress on our top priorities during the third quarter, and we're all looking forward to Charlie Scharf's joining Wells Fargo on October 21 as the company’s Chief Executive Officer and President. It’s been an honor for me to serve as the interim Chief Executive Officer over the past six months, and I want to thank both our management team and all our team members for their hard work during this period of transition. Our continued efforts to transform Wells Fargo and our unwavering commitment to serve our customers resulted during the third quarter in higher branch customer experience survey scores, growth in primary consumer checking customers, and increased loan and deposit balances. We have more work ahead, but I’m confident that our focused efforts and the fundamental strengths of Wells Fargo will continue to enable us to achieve success.”

Chief Financial Officer John Shrewsberry said, “Wells Fargo reported $4.6 billion of net income in the third quarter and diluted earnings per share of $0.92, which included the impact of a $1.6 billion, or $(0.35) per share, discrete litigation accrual for previously disclosed retail sales practices matters, as well as a $1.1 billion, or $0.20 per share, gain from the sale of our Institutional Retirement and Trust business. Business fundamentals were strong as both loans and deposits grew from the second quarter and from a year ago. Our net charge-off rate remained near historic lows, and we had strong capital returns, including increasing our quarterly common stock dividend by 19% and reducing our common shares outstanding by 9% compared with a year ago, while maintaining a strong capital position.”

Net Interest Income

Net interest income in the third quarter was $11.6 billion, down $470 million from second quarter 2019, primarily due to balance sheet repricing driven by the impact of the lower interest rate environment, as well as higher mortgage-backed securities (MBS) premium amortization, partially offset by the benefit of one additional day in the quarter and favorable balance sheet growth and mix.

The net interest margin was 2.66%, down 16 basis points from the prior quarter primarily due to balance sheet repricing driven by the impact of the lower interest rate environment, as well as higher MBS premium amortization.

Noninterest Income

Noninterest income in the third quarter was $10.4 billion, up $896 million from second quarter 2019. Third quarter noninterest income included higher other income and market sensitive revenue3, partially offset by lower mortgage banking income.

  • Trust and investment fees were $3.6 billion, flat compared with second quarter 2019. Higher asset-based fees in retail brokerage advisory and asset management, reflecting higher market valuations, and higher investment banking income on increased advisory fees, were offset by lower trust and investment management fees due to the sale of our IRT business on July 1, 2019.
  • Mortgage banking income was $466 million, down from $758 million in second quarter 2019. Net mortgage servicing income was a loss of $142 million, down from a gain of $277 million in the second quarter, driven by the impact of higher prepayment rate estimates on the valuation of our residential mortgage servicing rights asset. Net gains on mortgage loan originations and sales activities were $608 million, up from $481 million in the second quarter. Residential held-for-sale mortgage loan originations increased in the third quarter to $38 billion from $33 billion in the second quarter, primarily due to lower mortgage loan interest rates. The production margin on residential held-for-sale mortgage loan originations4 increased to 1.21% from 0.98% in the second quarter.
  • Market sensitive revenue3 was $1.2 billion, up from $871 million in second quarter 2019, predominantly due to higher net gains from equity securities, driven by gains from our affiliated venture capital and private equity partnerships, partially offset by a $91 million decrease in deferred compensation plan investment results in the third quarter (largely offset by lower employee benefits expense).
  • Other income was $1.5 billion and included a $1.1 billion gain from the previously announced sale of our IRT business and $302 million of gains from the sales of $510 million of Pick-a-Pay purchased credit-impaired (PCI) and other PCI residential mortgage loans.

Noninterest Expense

Noninterest expense in the third quarter was $15.2 billion, up $1.8 billion from the prior quarter. Third quarter expenses included operating losses of $1.9 billion, predominantly reflecting litigation accruals for a variety of matters, including a $1.6 billion discrete litigation accrual (not tax-deductible) for previously disclosed retail sales practices matters. Additionally, salaries, and commissions and incentive compensation expense increased in the third quarter. These increases were partially offset by lower employee benefits expense driven by a $109 million decrease in deferred compensation expense (largely offset by lower net gains from equity securities). The efficiency ratio was 69.1% in third quarter 2019, compared with 62.3% in the second quarter.

Income Taxes

The Company’s effective income tax rate was 22.1% for third quarter 2019 and included net discrete income tax expense of $443 million predominantly related to the non-tax deductible treatment of a $1.6 billion discrete litigation accrual. The effective income tax rate in second quarter 2019 was 17.3%. The Company currently expects the effective income tax rate in fourth quarter 2019 to be approximately 17.5%, excluding the impact of any unanticipated discrete items.

Loans

Average loans were $949.8 billion in the third quarter, up $2.3 billion from the second quarter. Period-end loan balances were $954.9 billion at September 30, 2019, up $5.0 billion from June 30, 2019. Commercial loans were flat compared with June 30, 2019. Consumer loans increased $5.0 billion from the prior quarter, reflecting the following:

  • Real estate 1-4 family first mortgage loans increased $4.2 billion, as $19.3 billion of held-for-investment mortgage loan originations and the purchase of $1.0 billion of loans as a result of exercising servicer cleanup calls to terminate over 20 pre-2008 securitizations were partially offset by paydowns, as well as the sale of $510 million of PCI loans
  • Real estate 1-4 family junior lien mortgage loans decreased $1.2 billion, as paydowns continued to exceed originations
  • Credit card loans increased $809 million, primarily due to seasonality
  • Automobile loans increased $1.1 billion, driven by $6.9 billion of originations, which were up 9% from the prior quarter

Period-End Loan Balances

(in millions)

Sep 30,
2019

 

Jun 30,
2019

 

Mar 31,
2019

 

Dec 31,
2018

 

Sep 30,
2018

Commercial

$

512,332

 

 

512,245

 

 

512,226

 

 

513,405

 

 

501,886

 

Consumer

442,583

 

 

437,633

 

 

436,023

 

 

439,705

 

 

440,414

 

Total loans

$

954,915

 

 

949,878

 

 

948,249

 

 

953,110

 

 

942,300

 

Change from prior quarter

$

5,037

 

 

1,629

 

 

(4,861

)

 

10,810

 

 

(1,965

)

Debt and Equity Securities

Debt securities include available-for-sale and held-to-maturity debt securities, as well as debt securities held for trading. Period-end debt securities were $503.5 billion at September 30, 2019, up $21.5 billion from the second quarter. Debt securities available-for-sale and held-to-maturity increased $12.6 billion as purchases of approximately $29.6 billion, predominantly federal agency MBS in the available-for-sale portfolio, were partially offset by runoff and sales. Debt securities held for trading increased $8.9 billion predominantly due to a higher inventory of U.S. Treasuries.

Net unrealized gains on available-for-sale debt securities were $3.1 billion at September 30, 2019, compared with $2.5 billion at June 30, 2019, primarily due to lower long-term interest rates in the third quarter, partially offset by wider credit spreads.

Equity securities include marketable and non-marketable equity securities, as well as equity securities held for trading. Period-end equity securities were $63.9 billion at September 30, 2019, up $2.3 billion from the second quarter.

Deposits

Total average deposits for third quarter 2019 were $1.3 trillion, up $22.4 billion from the prior quarter primarily due to higher commercial deposits, as well as higher retail banking deposits reflecting continued promotional rates and offers. The average deposit cost for third quarter 2019 was 71 basis points, up 1 basis point from the prior quarter and 24 basis points from a year ago.

Capital

The Company's Common Equity Tier 1 ratio (fully phased-in) was 11.6%2 and continued to exceed both the regulatory minimum of 9% and our current internal target of 10%. In third quarter 2019, the Company repurchased 159.1 million shares of its common stock, which, net of issuances, reduced period-end common shares outstanding by 150.4 million. The Company paid a quarterly common stock dividend of $0.51 per share.

The Company redeemed 1,550,000 shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series K, on September 16, 2019, which reduced diluted earnings per common share in third quarter 2019 by $0.05 per share as a result of eliminating the purchase accounting discount recorded on these shares at the time of the Wachovia acquisition. Following the partial redemption, 1,802,000 shares of the Series K Preferred Stock remain outstanding.

As of September 30, 2019, our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 23.3%5, compared with the required minimum of 22.0%.

Credit Quality

Net Loan Charge-offs

The quarterly loss rate in the third quarter was 0.27% (annualized), down from 0.28% in the prior quarter and from 0.29% a year ago. Commercial and consumer losses were 0.11% and 0.46%, respectively. Total credit losses were $645 million in third quarter 2019, down $8 million from second quarter 2019. Commercial losses decreased $26 million primarily driven by higher recoveries, while consumer losses increased $18 million primarily due to lower recoveries.

Net Loan Charge-Offs

 

Quarter ended

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

($ in millions)

Net loan

charge-

offs

 

As a % of

average

loans (a)

 

Net loan

charge-

offs

 

As a % of

average

loans (a)

 

Net loan

charge-

offs

 

As a % of

average

loans (a)

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$

147

 

 

0.17

%

 

$

159

 

 

0.18

%

 

$

148

 

 

0.18

%

Real estate mortgage

(8

)

 

(0.02

)

 

4

 

 

0.01

 

 

(1

)

 

 

Real estate construction

(8

)

 

(0.14

)

 

(2

)

 

(0.04

)

 

(2

)

 

(0.04

)

Lease financing

8

 

 

0.17

 

 

4

 

 

0.09

 

 

7

 

 

0.14

 

Total commercial

139

 

 

0.11

 

 

165

 

 

0.13

 

 

152

 

 

0.12

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Real estate 1-4 family first mortgage

(5

)

 

(0.01

)

 

(30

)

 

(0.04

)

 

(25

)

 

(0.04

)

Real estate 1-4 family junior lien mortgage

(22

)

 

(0.28

)

 

(19

)

 

(0.24

)

 

(9

)

 

(0.10

)

Credit card

319

 

 

3.22

 

 

349

 

 

3.68

 

 

299

 

 

3.22

 

Automobile

76

 

 

0.65

 

 

52

 

 

0.46

 

 

130

 

 

1.10

 

Other revolving credit and installment

138

 

 

1.60

 

 

136

 

 

1.56

 

 

133

 

 

1.44

 

Total consumer

506

 

 

0.46

 

 

488

 

 

0.45

 

 

528

 

 

0.47

 

Total

$

645

 

 

0.27

%

 

$

653

 

 

0.28

%

 

$

680

 

 

0.29

%

 

 

 

 

 

 

 

 

 

 

 

 

(a) Quarterly net charge-offs (recoveries) as a percentage of average loans are annualized.

Nonperforming Assets

Nonperforming assets decreased $317 million, or 5%, from second quarter 2019 to $6.0 billion. Nonaccrual loans decreased $377 million from second quarter 2019 to $5.5 billion. Commercial nonaccrual loans decreased $158 million predominantly driven by the commercial and industrial, and the real estate mortgage portfolios. Consumer nonaccrual loans decreased $219 million largely driven by lower nonaccruals in the real estate 1-4 family first mortgage portfolio.

Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

($ in millions)

Total

balances

 

As a

% of

total

loans

 

Total balances

 

As a

% of

total

loans

 

Total

balances

 

As a

% of

total

loans

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$

1,539

 

 

0.44

%

 

$

1,634

 

 

0.47

%

 

$

1,555

 

 

0.46

%

Real estate mortgage

669

 

 

0.55

 

 

737

 

 

0.60

 

 

603

 

 

0.50

 

Real estate construction

32

 

 

0.16

 

 

36

 

 

0.17

 

 

44

 

 

0.19

 

Lease financing

72

 

 

0.37

 

 

63

 

 

0.33

 

 

96

 

 

0.49

 

Total commercial

2,312

 

 

0.45

 

 

2,470

 

 

0.48

 

 

2,298

 

 

0.46

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Real estate 1-4 family first mortgage

2,261

 

 

0.78

 

 

2,425

 

 

0.85

 

 

3,267

 

 

1.15

 

Real estate 1-4 family junior lien mortgage

819

 

 

2.66

 

 

868

 

 

2.71

 

 

983

 

 

2.78

 

Automobile

110

 

 

0.24

 

 

115

 

 

0.25

 

 

118

 

 

0.26

 

Other revolving credit and installment

43

 

 

0.12

 

 

44

 

 

0.13

 

 

48

 

 

0.13

 

Total consumer

3,233

 

 

0.73

 

 

3,452

 

 

0.79

 

 

4,416

 

 

1.00

 

Total nonaccrual loans (a)

5,545

 

 

0.58

 

 

5,922

 

 

0.62

 

 

6,714

 

 

0.71

 

Foreclosed assets:

 

 

 

 

 

 

 

 

 

 

 

Government insured/guaranteed

59

 

 

 

 

68

 

 

 

 

87

 

 

 

Non-government insured/guaranteed

378

 

 

 

 

309

 

 

 

 

435

 

 

 

Total foreclosed assets

437

 

 

 

 

377

 

 

 

 

522

 

 

 

Total nonperforming assets

$

5,982

 

 

0.63

%

 

$

6,299

 

 

0.66

%

 

$

7,236

 

 

0.77

%

Change from prior quarter:

 

 

 

 

 

 

 

 

 

 

 

Total nonaccrual loans (a)

$

(377

)

 

 

 

$

(983

)

 

 

 

$

(412

)

 

 

Total nonperforming assets

(317

)

 

 

 

(1,042

)

 

 

 

(389

)

 

 

(a) Financial information for periods prior to December 31, 2018, has been revised to exclude mortgage loans held for sale (MLHFS), loans held for sale (LHFS) and loans held at fair value. For additional information, see the “Five Quarter Nonperforming Assets” table on page 33.

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled $10.6 billion at September 30, 2019, up $10 million from June 30, 2019, and included a $50 million reserve build1 in third quarter 2019. The allowance coverage for total loans was 1.11%, compared with 1.12% in second quarter 2019. The allowance covered 4.1 times annualized third quarter net charge-offs, compared with 4.0 times in the prior quarter. The allowance coverage for nonaccrual loans was 191% at September 30, 2019, compared with 179% at June 30, 2019.

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

(in millions)

Sep 30,
2019

 

Jun 30,
2019

 

Sep 30,
2018

Community Banking

$

999

 

 

3,147

 

 

2,816

 

Wholesale Banking

2,644

 

 

2,789

 

 

2,851

 

Wealth and Investment Management

1,280

 

 

602

 

 

732

 

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 automobile, student, mortgage, home equity and small business lending, as well as referrals to Wholesale Banking and Wealth and Investment Management business partners. The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations (including funds transfer pricing, capital, liquidity and certain corporate expenses) in support of the other operating segments and results of investments in our affiliated venture capital and private equity partnerships.

Selected Financial Information

 

Quarter ended

(in millions)

Sep 30,
2019

 

Jun 30,
2019

 

Sep 30,
2018

Total revenue

$

11,239

 

 

11,805

 

 

11,816

 

Provision for credit losses

608

 

 

479

 

 

547

 

Noninterest expense

8,766

 

 

7,212

 

 

7,467

 

Segment net income

999

 

 

3,147

 

 

2,816

 

(in billions)

 

 

 

 

 

Average loans

459.0

 

 

457.7

 

 

460.9

 

Average assets

1,033.9

 

 

1,024.8

 

 

1,024.9

 

Average deposits

789.7

 

 

777.6

 

 

760.9

 

Third Quarter 2019 vs. Second Quarter 2019

  • Net income of $999 million, down $2.1 billion, or 68%
  • Revenue was $11.2 billion, down $566 million, or 5%, driven by lower net interest income, mortgage banking income, and gains from the sale of PCI mortgage loans, partially offset by higher net gains from equity securities
  • Noninterest expense of $8.8 billion increased $1.6 billion, or 22%, predominantly due to higher operating losses reflecting litigation accruals for a variety of matters, including a $1.6 billion discrete litigation accrual (not tax-deductible)
  • Provision for credit losses increased $129 million, reflecting a reserve build1 in third quarter 2019, compared with a reserve release1 in second quarter 2019

Third Quarter 2019 vs. Third Quarter 2018

  • Net income was down $1.8 billion, or 65%
  • Revenue was down $577 million, or 5%, driven by lower net interest income, mortgage banking income, and other income, partially offset by higher net gains from equity securities
  • Noninterest expense increased $1.3 billion, or 17%, predominantly due to higher operating losses reflecting litigation accruals for a variety of matters, including a $1.6 billion discrete litigation accrual (not tax-deductible), as well as higher personnel expense, partially offset by lower FDIC expense and core deposit and other intangibles amortization expense
  • Provision for credit losses increased $61 million, reflecting a reserve build1 in third quarter 2019, compared with a reserve release1 in third quarter 2018

Business Metrics and Highlights

  • Primary consumer checking customers6,7of 24.3 million, up 1.5% from a year ago. The sale of 52 branches and $1.8 billion of deposits which closed in fourth quarter 2018 reduced the growth rate by 0.4%
  • Branch customer experience surveys completed during third quarter 2019 reflected higher scores from the previous quarter, with both ‘Customer Loyalty’ and ‘Overall Satisfaction with Most Recent Visit’ scores reaching new three year highs
  • Debit card point-of-sale purchase volume8 of $92.6 billion in the third quarter, up 6% year-over-year
  • General purpose credit card point-of-sale purchase volume of $20.4 billion in the third quarter, up 5% year-over-year
  • 30.2 million digital (online and mobile) active customers, including 24.2 million mobile active customers7,9
  • 5,393 retail bank branches as of the end of third quarter 2019, reflecting 130 branch consolidations in the first nine months of 2019
  • Home Lending
    • Originations of $58 billion, up from $53 billion in the prior quarter, primarily due to lower mortgage loan interest rates
      • Originations of loans held-for-sale and loans held-for-investment were $38 billion and $20 billion, respectively
    • Production margin on residential held-for-sale mortgage loan originations4 of 1.21%, up from 0.98% in the prior quarter
    • Applications of $85 billion, down from $90 billion in the prior quarter, driven primarily by seasonality
    • Unclosed application pipeline of $44 billion at quarter end, flat compared with the prior quarter
  • Automobile originations of $6.9 billion in the third quarter, up 45% from the prior year, reflecting our renewed emphasis on growing auto loans following the restructuring of the business
  • Small Business Lending10 originations of $646 million, up 3% from the prior year
  • Wells Fargo tied for #1 in overall performance in the Dynatrace Mobile Banking Scorecard (September 2019)
  • Wells Fargo named #1 overall in the Dynatrace Mortgage-Home Equity Scorecard (August 2019)
  • Wells Fargo named #1 overall in the Dynatrace Small Business Banker Scorecard (July 2019)

Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $5 million. Products and businesses include Commercial Banking, Commercial Real Estate, Corporate and Investment Banking, Credit Investment Portfolio, Treasury Management, and Commercial Capital.

Selected Financial Information

 

Quarter ended

(in millions)

Sep 30,
2019

 

Jun 30,
2019

 

Sep 30,
2018

Total revenue

$

6,942

 

 

7,065

 

 

7,304

 

Provision for credit losses

92

 

 

28

 

 

26

 

Noninterest expense

3,889

 

 

3,882

 

 

3,935

 

Segment net income

2,644

 

 

2,789

 

 

2,851

 

(in billions)

 

 

 

 

 

Average loans

474.3

 

 

474.0

 

 

462.8

 

Average assets

869.2

 

 

852.2

 

 

827.2

 

Average deposits

422.0

 

 

410.4

 

 

413.6

 

Third Quarter 2019 vs. Second Quarter 2019

  • Net income of $2.6 billion, down $145 million, or 5%
  • Revenue of $6.9 billion decreased $123 million, or 2%, driven by lower net interest income primarily related to the impact of lower interest rates, lower other income, and lower treasury management fees, partially offset by higher commercial real estate brokerage commissions, market sensitive revenue3, investment banking fees, and mortgage banking income
  • Noninterest expense of $3.9 billion, flat compared with the prior quarter, as higher personnel expense was offset by lower lease expense

Third Quarter 2019 vs. Third Quarter 2018

  • Net income decreased $207 million, or 7%
  • Revenue decreased $362 million, or 5%, predominantly due to lower net interest income, other income, lease income, and treasury management fees, partially offset by higher market sensitive revenue3, commercial real estate brokerage commissions, investment banking fees, and mortgage banking income
  • Noninterest expense decreased $46 million, or 1%, on lower FDIC expense, core deposit and other intangibles amortization, and lease expense, partially offset by higher personnel expense, and higher regulatory and risk related expense

Business Metrics and Highlights

  • #1 Total business banking and middle market banking market share in the U.S.11
  • #1 Commercial real estate lender in the U.S.12
  • #1 Asset-based lending bookrunner13
  • Commercial card spend volume14 of $8.8 billion, up 6% from the prior year on increased transaction volumes, and up 1% compared with second quarter 2019
  • 1.9 billion of ACH payment transactions originated15, up 14% from the prior year, and up 2% from second quarter 2019
  • U.S. investment banking market share of 3.5% year-to-date 201916, compared with 3.3% year-to-date 201816

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

Selected Financial Information

 

Quarter ended

(in millions)

Sep 30,
2019

 

Jun 30,
2019

 

Sep 30,
2018

Total revenue

$

5,141

 

 

4,050

 

 

4,226

 

Provision (reversal of provision) for credit losses

3

 

 

(1

)

 

6

 

Noninterest expense

3,431

 

 

3,246

 

 

3,243

 

Segment net income

1,280

 

 

602

 

 

732

 

(in billions)

 

 

 

 

 

Average loans

75.9

 

 

75.0

 

 

74.6

 

Average assets

84.7

 

 

83.8

 

 

83.8

 

Average deposits

142.4

 

 

143.5

 

 

159.8

 

Third Quarter 2019 vs. Second Quarter 2019

  • Net income of $1.3 billion, up $678 million, or 113%
  • Revenue of $5.1 billion increased $1.1 billion, or 27%, predominantly due to a $1.1 billion gain from the sale of our IRT business, partially offset by lower net interest income and lower net gains from equity securities on decreased deferred compensation plan investment results (largely offset by lower employee benefits expense)
  • Noninterest expense of $3.4 billion increased $185 million, or 6%, primarily due to higher equipment expense which included a $103 million impairment of capitalized software reflecting a reevaluation of software under development, as well as higher operating losses, partially offset by lower employee benefits expense from decreased deferred compensation plan expense (largely offset by lower net gains from equity securities)

Third Quarter 2019 vs. Third Quarter 2018

  • Net income up $548 million, or 75%
  • Revenue increased $915 million, or 22%, primarily driven by a $1.1 billion gain from the sale of our IRT business, partially offset by lower net interest income and lower net gains from equity securities on decreased deferred compensation plan investment results (largely offset by lower employee benefits expense)
  • Noninterest expense increased $188 million, or 6%, primarily driven by higher equipment expense which included a $103 million impairment of capitalized software, as well as higher personnel expense and operating losses, partially offset by lower core deposit and other intangibles amortization expense, and lower employee benefits expense from decreased deferred compensation plan expense (largely offset by lower net gains from equity securities)

Business Metrics and Highlights

Total WIM Segment

  • WIM total client assets of $1.9 trillion, down 1% from a year ago, primarily driven by net outflows, partially offset by higher market valuations
  • Average loan balances up 2% compared with a year ago
  • Third quarter 2019 closed referred investment assets (referrals resulting from the WIM/Community Banking partnership) up 3% compared with third quarter 2018

Retail Brokerage

  • Client assets of $1.6 trillion, down 1% from the prior year
  • Advisory assets of $569 billion, up 2% from the prior year, primarily driven by higher market valuations, partially offset by net outflows
  • IRA assets of $415 billion, down 1% from the prior year

Wealth Management

  • Client assets of $230 billion, down 4% from the prior year, primarily driven by net outflows

Asset Management

  • Total assets under management of $503 billion, up 4% from the prior year, as money market fund net inflows and higher market valuations were partially offset by equity and fixed income net outflows

Conference Call

The Company will host a live conference call on Tuesday, October 15, at 8:00 a.m. PT (11:00 a.m. ET). You may listen to the call by dialing 866-872-5161 (U.S. and Canada) or 440-424-4922 (International). The call will also be available online at https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/ and https://engage.vevent.com/rt/wells_fargo_ao~9277488.

A replay of the conference call will be available beginning at 12:00 p.m. PT (3:00 p.m. ET) on Tuesday, October 15 through Tuesday, October 29. Please dial 855-859-2056 (U.S. and Canada) or 404-537-3406 (International) and enter Conference ID #9277488. The replay will also be available online at https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/ and https://engage.vevent.com/rt/wells_fargo_ao~9277488.

End Notes

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

2 See table on page 37 for more information on Common Equity Tier 1. Common Equity Tier 1 (fully phased-in) is a preliminary estimate and is calculated assuming the full phase-in of the Basel III capital rules.

3 Market sensitive revenue represents net gains from trading activities, debt securities, and equity securities.

4 Production margin represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage originations. See the “Selected Five Quarter Residential Mortgage Production Data” table on page 42 for more information.

5 The TLAC ratio is a preliminary estimate.

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

7 Data as of August 2019, comparisons with August 2018.

8 Combined consumer and business debit card purchase volume dollars.

9 Digital and mobile active customers is the number of consumer and small business customers who have logged on via a digital or mobile device in the prior 90 days.

10 Small Business Lending includes credit card, lines of credit and loan products (primarily under $100,000 sold through our retail banking branches).

11 Barlow Research, rolling eight quarter data (3Q17-2Q19). Business banking companies defined as companies with $5 million to $25 million in annual sales, and middle market banking companies defined as companies with $25 million to $500 million in annual sales.

12 MBA Commercial Real Estate/Multifamily 2019 Mid-Year Origination Volumes report (July 2019).

13 Thomson Reuters LPC U.S. league tables, year-to-date through September 30, 2019.

14 Includes commercial card volume for the entire company.

15 Includes ACH payment transactions originated by the entire company.

16 Year-to-date through September. Source: Dealogic U.S. investment banking fee market share.

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 levels; (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 or liquidity levels or targets and our estimated Common Equity Tier 1 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, return on equity, and return on tangible common 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, geopolitical matters, and any 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;
  • developments in our mortgage banking business, including the extent of the success of our mortgage loan modification efforts, the amount of mortgage loan repurchase demands that we receive, any negative effects relating to our mortgage servicing, loan modification or foreclosure practices, and the effects of regulatory or judicial requirements or guidance impacting our mortgage banking business and any changes in industry standards;
  • our ability to realize any efficiency ratio or expense 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 interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;
  • significant turbulence or a 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 debt securities and equity securities portfolios;
  • 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;
  • negative effects from the retail banking sales practices matter and from other instances where customers may have experienced financial harm, including on our legal, operational and compliance costs, our ability to engage in certain business activities or offer certain products or services, our ability to keep and attract customers, our ability to attract and retain qualified team members, and our reputation;
  • resolution of regulatory matters, litigation, or other legal actions, which may result in, among other things, additional costs, fines, penalties, restrictions on our business activities, reputational harm, or other adverse consequences;
  • 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, 2018.

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, 2018, 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.

Forward-looking Non-GAAP Financial Measures. From time to time management may discuss forward-looking non-GAAP financial measures, such as forward-looking estimates or targets for return on average tangible common equity. We are unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures because we are unable to provide, without unreasonable effort, a meaningful or accurate calculation or estimation of amounts that would be necessary for the reconciliation due to the complexity and inherent difficulty in forecasting and quantifying future amounts or when they may occur. Such unavailable information could be significant to future results.

About Wells Fargo

Wells Fargo & Company (WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,500 locations, more than 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 32 countries and territories to support customers who conduct business in the global economy. With approximately 261,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2019 rankings of America’s largest corporations.

Wells Fargo & Company and Subsidiaries

QUARTERLY FINANCIAL DATA

TABLE OF CONTENTS

 

 

 

 

Pages

 

 

Summary Information

 

Summary Financial Data

17

 

 

Income

 

Consolidated Statement of Income

19

Consolidated Statement of Comprehensive Income

21

Condensed Consolidated Statement of Changes in Total Equity

21

Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis)

22

Five Quarter Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis)

24

Noninterest Income and Noninterest Expense

25

Five Quarter Deferred Compensation Plan Investment Results

27

 

 

Balance Sheet

 

Consolidated Balance Sheet

28

Trading Activities

30

Debt Securities

30

Equity Securities

31

 

 

Loans

 

Loans

32

Nonperforming Assets

33

Loans 90 Days or More Past Due and Still Accruing

33

Changes in Allowance for Credit Losses

35

 

 

Equity

 

Tangible Common Equity

36

Common Equity Tier 1 Under Basel III

37

 

 

Operating Segments

 

Operating Segment Results

38

 

 

Other

 

Mortgage Servicing and other related data

40

...
Wells Fargo & Company and Subsidiaries

SUMMARY FINANCIAL DATA

 

Quarter ended

 

% Change
Sep 30, 2019 from

 

Nine months ended

 

 

($ in millions, except per share amounts)

Sep 30,
2019

 

Jun 30,
2019

 

Sep 30,
2018

 

Jun 30,
2019

 

Sep 30,
2018

 

Sep 30,
2019

 

Sep 30,
2018

 

%
Change

For the Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo net income

$

4,610

 

 

6,206

 

 

6,007

 

 

(26

)%

 

(23

)

 

$

16,676

 

 

16,329

 

 

2

%

Wells Fargo net income applicable to common stock

4,037

 

 

5,848

 

 

5,453

 

 

(31

)

 

(26

)

 

15,392

 

 

14,978

 

 

3

 

Diluted earnings per common share

0.92

 

 

1.30

 

 

1.13

 

 

(29

)

 

(19

)

 

3.43

 

 

3.07

 

 

12

 

Profitability ratios (annualized):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo net income to average assets (ROA)

0.95

%

 

1.31

 

 

1.27

 

 

(27

)

 

(25

)

 

1.17

%

 

1.15

 

 

2

 

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

9.00

 

 

13.26

 

 

12.04

 

 

(32

)

 

(25

)

 

11.64

 

 

11.08

 

 

5

 

Return on average tangible common equity (ROTCE)(1)

10.70

 

 

15.78

 

 

14.33

 

 

(32

)

 

(25

)

 

13.85

 

 

13.19

 

 

5

 

Efficiency ratio (2)

69.1

 

 

62.3

 

 

62.7

 

 

11

 

 

10

 

 

65.3

 

 

65.4

 

 

 

Total revenue

$

22,010

 

 

21,584

 

 

21,941

 

 

2

 

 

 

 

$

65,203

 

 

65,428

 

 

 

Pre-tax pre-provision profit (PTPP) (3)

6,811

 

 

8,135

 

 

8,178

 

 

(16

)

 

(17

)

 

22,639

 

 

22,641

 

 

 

Dividends declared per common share

0.51

 

 

0.45

 

 

0.43

 

 

13

 

 

19

 

 

1.41

 

 

1.21

 

 

17

 

Average common shares outstanding

4,358.5

 

 

4,469.4

 

 

4,784.0

 

 

(2

)

 

(9

)

 

4,459.1

 

 

4,844.8

 

 

(8

)

Diluted average common shares outstanding

4,389.6

 

 

4,495.0

 

 

4,823.2

 

 

(2

)

 

(9

)

 

4,489.5

 

 

4,885.0

 

 

(8

)

Average loans

$

949,760

 

 

947,460

 

 

939,462

 

 

 

 

1

 

 

$

949,076

 

 

944,813

 

 

 

Average assets

1,927,415

 

 

1,900,627

 

 

1,876,283

 

 

1

 

 

3

 

 

1,903,873

 

 

1,892,209

 

 

1

 

Average total deposits

1,291,375

 

 

1,268,979

 

 

1,266,378

 

 

2

 

 

2

 

 

1,274,246

 

 

1,278,185

 

 

 

Average consumer and small business banking deposits (4)

749,529

 

 

742,671

 

 

743,503

 

 

1

 

 

1

 

 

745,370

 

 

751,030

 

 

(1

)

Net interest margin

2.66

%

 

2.82

 

 

2.94

 

 

(6

)

 

(10

)

 

2.79

%

 

2.90

 

 

(4

)

At Period End

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

$

503,528

 

 

482,067

 

 

472,283

 

 

4

 

 

7

 

 

$

503,528

 

 

472,283

 

 

7

 

Loans

954,915

 

 

949,878

 

 

942,300

 

 

1

 

 

1

 

 

954,915

 

 

942,300

 

 

1

 

Allowance for loan losses

9,715

 

 

9,692

 

 

10,021

 

 

 

 

(3

)

 

9,715

 

 

10,021

 

 

(3

)

Goodwill

26,388

 

 

26,415

 

 

26,425

 

 

 

 

 

 

26,388

 

 

26,425

 

 

 

Equity securities

63,884

 

 

61,537

 

 

61,755

 

 

4

 

 

3

 

 

63,884

 

 

61,755

 

 

3

 

Assets

1,943,950

 

 

1,923,388

 

 

1,872,981

 

 

1

 

 

4

 

 

1,943,950

 

 

1,872,981

 

 

4

 

Deposits

1,308,495

 

 

1,288,426

 

 

1,266,594

 

 

2

 

 

3

 

 

1,308,495

 

 

1,266,594

 

 

3

 

Common stockholders' equity

172,827

 

 

177,235

 

 

176,934

 

 

(2

)

 

(2

)

 

172,827

 

 

176,934

 

 

(2

)

Wells Fargo stockholders’ equity

193,304

 

 

199,042

 

 

198,741

 

 

(3

)

 

(3

)

 

193,304

 

 

198,741

 

 

(3

)

Total equity

194,416

 

 

200,037

 

 

199,679

 

 

(3

)

 

(3

)

 

194,416

 

 

199,679

 

 

(3

)

Tangible common equity (1)

144,481

 

 

148,864

 

 

148,391

 

 

(3

)

 

(3

)

 

144,481

 

 

148,391

 

 

(3

)

Common shares outstanding

4,269.1

 

 

4,419.6

 

 

4,711.6

 

 

(3

)

 

(9

)

 

4,269.1

 

 

4,711.6

 

 

(9

)

Book value per common share (5)

$

40.48

 

 

40.10

 

 

37.55

 

 

1

 

 

8

 

 

$

40.48

 

 

37.55