Wells Fargo Reports Record Quarterly Net Income of $4.1 Billion

SAN FRANCISCO—(ENEWSPF)—October 17, 2011.  Wells Fargo & Company (NYSE: WFC) reported record net income of $4.1 billion, or $0.72 per diluted common share, for third quarter 2011, up from $3.3 billion, or $0.60 per share, for third quarter 2010, and up from $3.9 billion, or $0.70 per share, for second quarter 2011.

“The economic recovery has been more sluggish and uneven than anyone anticipated,” said Chairman and CEO John Stumpf. “We can’t change the economic environment, yet we have worked hard to control the variables we can – making our products and services more relevant to individuals and businesses, focusing on the customer, making as many loans as possible and growing new relationships – as well as fostering longtime ones. We see the results of this focus in growing cross-sell, deposits, and loans. Customers need a trusted financial partner, especially in challenging economic times. Wells Fargo has proven to be that partner over and over again.

“We are nearing the completion of our three-year Wachovia integration process. To date, Regional Banking has now completed its store conversions and our retail stores are Wells Fargo coast-to-coast on a single platform. Thank you to every single team member who has been involved in this remarkable effort.”

“This was a strong quarter for Wells Fargo, with solid growth in loans, deposits, investment securities and capital, along with improved credit quality and lower expenses,” said Chief Financial Officer Tim Sloan. “While our industry continued to face challenges due to economic conditions during this quarter, Wells Fargo’s diversified model was again able to produce solid results for our shareholders.”


Revenue was $19.6 billion, compared with $20.4 billion in second quarter 2011. “While certain market-sensitive revenues were down from the second quarter, many of our businesses grew revenue,” said Sloan. Businesses generating linked-quarter revenue growth included asset management, asset-backed finance, auto dealer services, capital finance, commercial banking, commercial mortgage servicing, commercial real estate, corporate trust, credit card, equipment finance, equity funds group, global remittance, government and institutional banking, international, mortgage, personal credit management, real estate capital markets, retail sales finance, and student lending.

Net Interest Income

Net interest income was $10.5 billion, down from $10.7 billion in second quarter 2011. The continued negative impact of higher-yielding loan and security runoff was partially offset by growth in commercial loans, investment portfolio purchases, lower deposit and debt costs, and the benefit of one additional business day in the quarter. Net interest income was also lower due to items that vary from quarter to quarter such as loan prepayments and resolutions. Approximately 12 basis points of the 17 basis point decline in the net interest margin – slightly over 70 percent – from 4.01 percent in second quarter to 3.84 percent in third quarter was due to the exceptional deposit growth of $42 billion from June 30, 2011. These deposits were invested in short-term assets which had the effect of diluting the net interest margin. Noninterest Income

Noninterest income was $9.1 billion, compared with $9.7 billion in second quarter 2011. The $622 million decline was driven by an $808 million decline in trading, debt and equity gains primarily related to reduced equity gains compared with the prior quarter’s elevated levels, losses on deferred compensation plan investments and market volatility. Commissions and all other fees declined 8 percent linked quarter due to lower bond and equity originations, lower commissions, and lower asset-based fees associated with the 14 percent decline in the S&P 500 Index in the quarter. Insurance fees were down 26 percent linked quarter almost entirely due to seasonality in crop insurance. Deposit service charges increased 3 percent linked quarter primarily due to account and volume growth. Operating lease income was up on early termination gains.

Mortgage banking noninterest income was $1.8 billion, up $214 million from second quarter 2011, on $89 billion of originations compared with $64 billion of originations in second quarter. Mortgage banking noninterest income in third quarter included a $390 million provision for mortgage loan repurchase losses compared with $242 million in second quarter (included in net gains from mortgage loan origination/sales activities). Net mortgage servicing rights (MSRs) results were a $607 million gain compared with a $374 million gain in second quarter 2011. The ratio of MSRs to related loans serviced for others was 74 basis points and the average note rate on the servicing portfolio was 5.21 percent. The unclosed pipeline at September 30, 2011, was $84 billion compared with $51 billion at June 30, 2011.

The Company had net unrealized securities gains of $6.8 billion at September 30, 2011, down $2.4 billion from second quarter 2011, primarily due to widening credit spreads. Period-end securities available for sale balances were up $20.9 billion, reflecting increased investment activity.

Noninterest Expense

Noninterest expense was $11.7 billion, down $798 million from second quarter 2011 and down $576 million from a year ago. The linked-quarter decline in noninterest expense was driven by lower total personnel expense ($6.6 billion, down from $6.9 billion in second quarter 2011), lower merger costs ($376 million, down from $484 million prior quarter) and lower operating losses ($198 million, down from $428 million prior quarter). Included in personnel expense was a $384 million linked-quarter decline in employee benefits due primarily to lower deferred compensation expense which was offset entirely in trading gains and losses. “We are pleased with our positive operating leverage and the progress we’ve made on our Compass expense management initiative. Future quarterly expenses are expected to fluctuate as our Compass initiative proceeds toward our stated target of $11 billion of noninterest expense for fourth quarter 2012,” said Sloan. The Company’s efficiency ratio improved to 59.5 percent from 61.2 percent in second quarter. Loans

Total loans were $760.1 billion at September 30, 2011, up $8.2 billion from $751.9 billion at June 30, 2011. Increased balances in many loan portfolios more than offset the continued planned reduction in the non-strategic/liquidating portfolios, which declined $5.2 billion in the quarter. Many portfolios had linked-quarter growth in average loan balances, including asset-backed finance, auto (excluding liquidating), capital finance, commercial banking, commercial real estate, corporate banking, credit card, government and institutional banking, international, mortgage, private student lending and retail sales finance. Deposits

Average core deposits were $836.8 billion, up 8 percent from a year ago and up 14 percent (annualized) from second quarter 2011. Consumer checking accounts grew a net 5.6 percent from September 30, 2010. Average core checking and savings deposits were $769.2 billion, up 12 percent from a year ago and up 18 percent (annualized) from second quarter 2011. Average mortgage escrow deposits were $28.3 billion compared with $30.2 billion a year ago and $23.9 billion in second quarter 2011. Average core checking and savings deposits were 92 percent of average core deposits, up from 89 percent a year ago. The average deposit cost for third quarter 2011 was 25 basis points compared with 28 basis points in second quarter 2011. Average core deposits were 111 percent of average loans, up from 107 percent in second quarter 2011.


Capital increased with Tier 1 common equity reaching $91.9 billion under Basel I, or 9.35 percent of risk-weighted assets. Under current Basel III proposals, the Tier 1 common equity ratio was an estimated 7.41 percent. The Company called for redemption $5.8 billion of trust preferred securities in the quarter, repurchased 22 million shares of its common stock and an additional estimated 6 million shares through a forward repurchase transaction that will settle in fourth quarter 2011, and paid a quarterly common stock dividend of $0.12 per share. Credit


“Credit quality continued to improve in the third quarter, our seventh consecutive quarter of declining loan losses and the fourth consecutive quarter of lower nonperforming assets,” said Chief Risk Officer Mike Loughlin. Third quarter net charge-offs were $2.6 billion, or 1.37 percent (annualized) of average loans, down $227 million from second quarter net charge-offs of $2.8 billion (1.52 percent). The decline in net charge-offs was driven by lower losses in nearly all loan categories and delinquency trends were stable. Reflecting the improved overall portfolio performance, the provision for credit losses was $800 million less than net charge-offs, compared with $1.0 billion in prior quarter. “While we continued to see positive trends in credit performance, the rate of improvement moderated in some portfolios in the quarter, as one would expect at this point in the credit cycle,” said Loughlin. “Absent significant deterioration in the economy, we continue to expect future reserve releases.”

Nonperforming Assets

Nonperforming assets ended the quarter at $26.8 billion, down 4 percent from $27.9 billion in the second quarter. Nonaccrual loans declined to $21.9 billion from $23.0 billion in the second quarter, with reductions across all major loan portfolios, resulting from reduced inflow of new nonaccrual loans and stable outflows to foreclosed assets. Foreclosed assets increased slightly to $4.9 billion.

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 $1.9 billion at September 30, 2011, compared with $1.8 billion at June 30, 2011. Loans 90 days or more past due and still accruing whose repayments are insured by the Federal Housing Administration or predominantly guaranteed by the Department of Veterans Affairs for mortgages and the U.S. Department of Education for student loans under the Federal Family Education Loan Program were $17.7 billion at September 30, 2011, compared with $15.5 billion at June 30, 2011.

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled $20.4 billion at September 30, 2011, down from $21.3 billion at June 30, 2011. The allowance coverage to total loans was 2.68 percent compared with 2.83 percent in the prior quarter. The allowance covered 1.97 times annualized third quarter net charge-offs compared with 1.87 times in the prior quarter. The allowance coverage to nonaccrual loans was 93 percent at September 30, 2011, compared with 92 percent at June 30, 2011. “We believe the allowance was adequate for losses inherent in the loan portfolio at September 30, 2011,” said Loughlin.

Additional detail on credit quality is included in the quarterly supplement, available on the Investor Relations page at