• January 15, 2016
• views
• Print

Wells Fargo reports $5.7 billion in Q4 net income; revenue of $86.1 billion for 2015

Full year 2015:

• Net income of $23.0 billion, consistent with 2014
• Diluted earnings per share (EPS) of $4.15, up 1 percent
• Revenue of $86.1 billion, up 2 percent
• Pre-tax pre-provision profit of $36.3 billion, up 3 percent
• Return on assets (ROA) of 1.32 percent and return on equity (ROE) of 12.68 percent
• Returned $12.6 billion to shareholders through dividends and net share repurchases

 Fourth quarter 2015:

• Net income of $5.7 billion, stable compared with fourth quarter 2014
• Diluted EPS of $1.03, up 1 percent
• Revenue of $21.6 billion, up 1 percent
• Pre-tax pre-provision profit1 of $9.2 billion, up 4 percent
• ROA of 1.27 percent and ROE of 12.23 percent
• Total average loans of $912.3 billion, up $62.9 billion, or 7 percent
• Total average deposits of $1.2 trillion, up $67.0 billion, or 6 percent
• Net charge-off rate of 0.36 percent (annualized), up from 0.34 percent
• Nonaccrual loans down $1.5 billion, or 11 percent
• No reserve build or release, compared with a $250 million release in fourth quarter 2014
• Common Equity Tier 1 ratio (fully phased-in) of 10.7 percent
• Period-end common shares outstanding down 16.3 million from third quarter 2015

San Francisco -- Wells Fargo & Company reported diluted earnings per common share of $4.15 for 2015, compared with $4.10 in 2014. Full year net income was $23.0 billion, compared with $23.1 billion in 2014. For fourth quarter 2015, net income was $5.7 billion, or $1.03 per share, compared with $5.7 billion, or $1.02 per share, for fourth quarter 2014, and $5.8 billion, or $1.05 per share, for third quarter 2015.

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

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

Net Interest Income

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

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

Noninterest Income

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

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

Noninterest Expense

Noninterest expense in the fourth quarter was $12.4 billion, stable compared with third quarter 2015. Fourth quarter expenses included typically higher equipment, outside professional services and advertising, as well as an increase in deferred compensation expense (included in employee benefits expense and largely offset in revenue). These higher expenses were offset by lower operating losses, commissions and incentive compensation, as well as lower charitable donations, which were elevated in the third quarter due to a $126 million contribution to the Wells Fargo Foundation. Foreclosed asset expense also declined in the quarter, driven primarily by commercial real estate recoveries. The efficiency ratio was 57.4 percent in fourth quarter 2015, compared with 56.7 percent in the prior quarter. The Company expects to operate at the higher end of its targeted efficiency ratio range of 55 to 59 percent for full year 2016.

Loans

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

Investment Securities

Investment securities were $347.6 billion at December 31, 2015, up $2.5 billion from third quarter. The Company purchased approximately $25 billion of securities (mostly federal agency mortgage-backed securities and U.S. Treasury securities), which were offset by maturities, amortization and sales.
Net unrealized available-for-sale securities gains of $3.0 billion at December 31, 2015, declined from $4.9 billion at September 30, 2015, primarily due to rising rates and realized gains on debt and equity securities.

Deposits

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

Capital

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

Credit Quality

“The trend of strong credit results continued in the fourth quarter," said Chief Risk Officer Mike Loughlin. "The quarterly loss rate (annualized) remained low at 0.36 percent and nonperforming assets declined by $497 million, or 15 percent (annualized), from the prior quarter. The allowance for credit losses in the fourth quarter was stable (no reserve build or release) as continued credit quality improvements in the residential real estate portfolio were offset by higher commercial reserves reflecting continued deterioration within the energy sector. Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions.”

Net Loan Charge-offs

The quarterly loss rate (annualized) of 0.36 percent reflected commercial losses of 0.16 percent and consumer losses of 0.56 percent. Credit losses were $831 million in fourth quarter 2015, compared with $703 million in the third quarter, mainly due to $90 million in higher oil and gas portfolio losses, as well as seasonal increases in the non-real estate consumer portfolios.

Nonperforming Assets

Nonperforming assets declined by $497 million from third quarter 2015 to $12.8 billion. Nonaccrual loans decreased $155 million to $11.4 billion driven by improvements in commercial and consumer real estate portfolios, partially offset by an increase in commercial and industrial nonaccrual loans, primarily related to deterioration in the oil and gas portfolio. Foreclosed assets were $1.4 billion, down from $1.8 billion in third quarter 2015.

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 $981 million at December 31, 2015, up from $872 million at September 30, 2015. 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 mortgage loans and the U.S. Department of Education for student loans
under the Federal Family Education Loan Program were $13.4 billion at December 31, 2015, down from $13.5 billion at September 30, 2015.

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled $12.5 billion at December 31, 2015, compared with $12.6 billion at September 30, 2015. The allowance coverage for total loans was 1.37 percent, compared with 1.39 percent in third quarter 2015. The allowance covered 3.8 times annualized fourth quarter net charge-offs, compared with 4.5 times in the prior quarter. The allowance coverage for nonaccrual loans was 110 percent at December 31, 2015, compared with 109 percent at September 30, 2015. “We believe the allowance was appropriate for losses inherent in the loan portfolio at December 31, 2015,” said Loughlin.

Business Segment Performance

Wells Fargo defines its operating segments by product type and customer segment. Effective fourth quarter 2015, we realigned our business banking and merchant payment services businesses from Community Banking to Wholesale Banking. Results for these operating segments were revised for prior periods to reflect the impact of this realignment.

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.

Community Banking reported net income of $3.3 billion, down $257 million, or 7 percent, from third quarter 2015. Revenue of $12.3 billion decreased $603 million, or 5 percent, from third quarter 2015 due to lower equity investment gains and lower other income, partially offset by gains on deferred compensation plan investments (offset in employee benefits expense) and higher gains on sales of debt securities. Noninterest expense decreased $85 million, or 1 percent, due to a donation to the Wells Fargo Foundation in the prior quarter, as well as lower operating losses, partially offset by higher deferred compensation plan expense (offset in trading revenue), projectrelated expense, and advertising costs. The provision for credit losses increased $36 million from the prior quarter primarily due to higher net charge-offs.

Net income was down $30 million, or 1 percent, from fourth quarter 2014. Revenue was up $172 million, or 1 percent, compared with a year ago due to higher net interest income, market sensitive revenue, primarily equity investment gains and gains on sale of debt securities, mortgage banking fees, deposit service charges, debit and credit card fees, and trust and investment fees, partially offset by a gain on sale of government guaranteed student loans in the prior year. Noninterest expense decreased $134 million, or 2 percent, from a year ago driven by lower foreclosed assets expense, partially offset by higher equipment expenses and operating losses. The provision for credit losses increased $198 million from a year ago as the $48 million improvement in net charge-offs was more than offset by the absence of a reserve release in fourth quarter 2015.

Regional Banking

• Retail Banking

• Primary consumer checking customers6 up 5.6 percent year-over-year
• Debit card purchase volume of $73 billion in fourth quarter, up 8 percent year-over-year
• Retail Bank household cross-sell ratio of 6.11 products per household, compared with 6.17 year-over-year
• Customers rated their overall experience, satisfaction with visit, and loyalty with Wells Fargo stores at alltime
• highs based on fourth quarter 2015 survey results

• Online and Mobile Banking

• 26.4 million active online customers, up 7 percent year-over-year
• 16.2 million active mobile customers, up 14 percent year-over-year

Consumer Lending Group

• Home Lending

• Originations of $47 billion, down from $55 billion in prior quarter
• Applications of $64 billion, down from $73 billion in prior quarter
• Application pipeline of $29 billion at quarter end, down from $34 billion at September 30, 2015

• Consumer Credit

• Credit card purchase volume of $19 billion in fourth quarter, up 12 percent year-over-year
• Credit card penetration in retail banking households rose to 43.4 percent, up from 41.5 percent in prior year
• Highest ranking (A- grade) in Corporate Insight assessment of credit card issuer rewards redemption options (December 2015)
• Auto originations of $7.6 billion in fourth quarter, down 9 percent from prior quarter and up 13 percent from prior year

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 Business Banking, 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 and Asset Backed Finance.

Wholesale Banking reported net income of $2.1 billion, up $179 million, or 9 percent, from third quarter 2015. Revenue of $6.6 billion increased $233 million, or 4 percent, from prior quarter. Net interest income increased $100 million, or 3 percent, primarily from broad based loan growth. Non interest income increased $133 million, or 5 percent, on strong results in commercial real estate related businesses with growth in commercial real estate brokerage, multi-family capital, structured real estate and community lending, as well as higher investment banking fees, equity fund investments gains and crop insurance underwriting gains, partially offset by lower customer accommodation trading revenue. Noninterest expense decreased $12 million as higher variable compensation expenses were more than offset by lower operating losses and foreclosed assets expense. The provision for credit losses increased $90 million from prior quarter due to increased loan losses primarily related to the oil and gas

portfolio.

Net income was up $9 million from fourth quarter 2014. Revenue increased $27 million from fourth quarter 2014, on $78 million, or 2 percent, growth in net interest income related to strong loan and deposit growth, offset by a $51 million, or 2 percent, decline in noninterest income. Noninterest income declined as higher commercial real estate brokerage, structured real estate, and multi-family capital results as well as increased equity fund investment gains and higher crop insurance underwriting gains were offset by lower customer accommodation trading revenues, energy portfolio write-downs and lower investment banking fees. Noninterest expense increased $42 million, or 1 percent, from a year ago primarily due to higher personnel expenses related to growth initiatives, compliance, and regulatory requirements. The provision for credit losses increased $159 million from a year ago due to increased loan losses primarily related to the oil and gas portfolio.

• Average loans increased 13 percent from fourth quarter 2014, on broad-based growth, including asset-backed finance, commercial banking, commercial real estate, corporate banking, equipment finance, and structured real estate
• Cross-sell of 7.3 products per relationship, up 0.1 from fourth quarter 201410
• • Treasury management revenue up 7 percent from fourth quarter 2014
• Wells Fargo Treasury Management Services' Wholesale Lockbox Network ranked as fastest in the United
• States

Wealth and Investment Management (formerly Wealth, Brokerage and Retirement) 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, Wells Fargo Institutional Retirement and Trust, 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 customers’ brokerage needs, supply retirement and trust services to institutional clients and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds.

Wealth and Investment Management (WIM) reported net income of $595 million, down $11 million, or 2 percent, from third quarter 2015. Revenue of $3.9 billion increased $69 million, or 2 percent, from the prior quarter, primarily from higher gains on deferred compensation plan investments (offset in employee benefits expense) and higher net interest income, partially offset by lower asset-based fees. Noninterest expense increased $89 million, or 3 percent, from the prior quarter, primarily due to higher deferred compensation plan expense, partially offset by lower broker commissions. The provision for credit losses was flat from third quarter 2015.

Net income was up $76 million, or 15 percent, from fourth quarter 2014. Revenue increased $34 million, or 1 percent, from a year ago on growth in net interest income, partially offset by lower asset-based fees. Noninterest expense decreased $68 million, or 2 percent, from a year ago, due to lower broker commissions, as well as lower non-personnel expenses. The provision for credit losses decreased $14 million from a year ago.

Retail Brokerage

• Client assets of $1.4 trillion, down 2 percent from prior year
• Managed account assets of $420 billion, down 1 percent from prior year, as lower market valuations were partially offset by net flows 
• Strong loan growth, with average balances up 24 percent from prior year largely due to continued growth in non-conforming mortgage loans and security-based lending

Wealth Management

• Client assets of $225 billion, flat from prior year
• Average loan balances up 11 percent over prior year primarily driven by continued growth in non-conforming mortgage loans, commercial loans and security-based lending

Retirement

• IRA assets of $354 billion, down 2 percent from prior year
• Institutional Retirement plan assets of $334 billion, down 2 percent from prior year Asset Management
• Total assets under management of $490 billion, down $6 billion from fourth quarter 2014 as equity outflows and lower market valuations were partially offset by fixed income net client inflows Brokerage and Wealth cross-sell ratio of 10.55 products per household, up from 10.49 a year ago

Asset Management

• Total assets under management of $490 billion, down $6 billion from fourth quarter 2014 as equity outflows and lower market valuations were partially offset by fixed income net client inflows.

Brokerage and Wealth cross-sell ratio of 10.55 products per household, up from 10.49 a year ago

Re-disseminated by The Asian Banker