Wells Fargo Reports Record Quarterly Net Income of $4.1 Billion

Increased Loans and Deposits, Lower Expenses from Second Quarter

SAN FRANCISCO--()--Wells Fargo & Company (NYSE:WFC):

  • Solid financial results:
    • Record Wells Fargo net income of $4.1 billion, up 21 percent from prior year, up 3 percent from prior quarter
    • Record diluted earnings per common share of $0.72, up 20 percent from prior year, up 3 percent from prior quarter
    • Pre-tax pre-provision profit (PTPP)1 of $8.0 billion, up slightly from prior quarter
    • Return on average assets of 1.26 percent
    • Revenue of $19.6 billion, compared with $20.4 billion in prior quarter
    • Noninterest expense down $798 million from prior quarter
  • Strong loan and deposit growth:
    • Total loans of $760.1 billion at September 30, 2011, up $8.2 billion from June 30, 2011; core loan portfolios up $13.4 billion from June 30, 20112
    • Total average core checking and savings deposits up $33.8 billion from prior quarter
  • Improved capital position:
    • Tier 1 common equity increased $3.1 billion to $91.9 billion, with Tier 1 common equity ratio of 9.35 percent under Basel I at September 30, 2011. Under current Basel III capital proposals, Tier 1 common equity ratio estimated at 7.41 percent3
    • Called $5.8 billion of trust preferred securities with an average coupon of 8.45 percent
    • Purchased 22 million shares of common stock in third quarter 2011 and an additional estimated 6 million shares through a forward repurchase transaction that will settle in fourth quarter 2011
  • Improved credit quality:
    • Net loan charge-offs declined to $2.6 billion, down $227 million from prior quarter; down $1.5 billion from prior year
    • Nonperforming assets declined to $26.8 billion, down $1.1 billion from prior quarter; down $7.6 billion from prior year
    • Reserve release4 of $800 million (pre-tax) reflected improved portfolio performance
  • Wachovia integration nearing successful completion
    • Retail bank store conversions finished with the North Carolina conversion the weekend of October 15-16, 2011
    • Over 38 million accounts converted, including mortgage, deposit, trust, brokerage and credit card
    • On track for completion in first quarter 2012
  • Committed to helping homeowners remain in their homes
    • As of August 31, 2011, 716,945 active trial or completed loan modifications had been initiated since the beginning of 2009; of this total, 85 percent were through Wells Fargo’s own modification programs and the remainder were through the federal government’s Home Affordable Modification Program (HAMP)
    • Since September 2009, Wells Fargo hosted 40 Home Preservation Workshops where specialists met individually with more than 26,000 customers

1 See footnote (2) in SUMMARY FINANCIAL DATA table for more information on pre-tax pre-provision profit.

2 See table in "Loans" section for more information on core and non-strategic/liquidating loan portfolios.

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

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

Selected Financial Information
 
   
Quarter ended
Sept. 30, June 30, Sept. 30,
  2011     2011   2010
Earnings
Diluted earnings per common share $ 0.72 0.70 0.60
Wells Fargo net income (in billions) 4.06 3.95 3.34
 
Asset Quality
Net charge-offs as a % of avg. total loans (annualized) 1.37 % 1.52 2.14
Allowance as a % of total loans 2.68 2.83 3.23
Allowance as a % of annualized net charge-offs 197 187 150
 
Other
Revenue (in billions) $ 19.63 20.39 20.87
Average loans (in billions) 754.5 751.3 759.5
Average core deposits (in billions) 836.8 807.5 772.0
Net interest margin 3.84 % 4.01 4.25
             
 

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

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.

                         
  September 30, 2011   June 30, 2011
(in millions)   Core   Liquidating (1)   Total   Core   Liquidating (1)   Total
Commercial $ 333,513   6,321   339,834 323,673   7,016   330,689
Consumer     310,084   110,188     420,272   306,495   114,737     421,232
Total loans   $ 643,597   116,509     760,106   630,168   121,753     751,921
 
Change from prior quarter:   $ 13,429   (5,244 )   8,185   5,834   (5,068 )   766
 

(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

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

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.

             
  Sept. 30,   June 30,   Sept. 30,
(as a percent of total risk-weighted assets)   2011   2011   2010
Ratios under Basel I (1):
Tier 1 common equity (2) 9.35 % 9.15 8.01
Tier 1 capital 11.28 11.69 10.90
Tier 1 leverage 8.97 9.43 9.01
               
 

(1) September 30, 2011, ratios are preliminary.

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

Credit Quality

“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.”

Net Loan Charge-Offs
 
  Quarter ended
    Sept. 30, 2011     June 30, 2011   Mar. 31, 2011
($ in millions)   As a    

As a

    As a
Net loan

% of

Net loan % of Net loan % of
charge-

 

average

charge-

 

average

charge-

 

average

  offs   loans (1)     offs   loans (1)   offs   loans (1)
 
Commercial:
Commercial and industrial $ 261 0.65 % $ 254 0.66 % $ 354 0.96 %
Real estate mortgage 96 0.37 128 0.50 152 0.62
Real estate construction 55 1.06 72 1.32 83 1.38
Lease financing 3 0.11 1 0.01 6 0.18
Foreign     8 0.08   47 0.52   28 0.34
Total commercial     423 0.50   502 0.62   623 0.79
 
Consumer:
Real estate 1-4 family first mortgage 821 1.46 909 1.62 904 1.60
Real estate 1-4 family junior lien mortgage 842 3.75 909 3.97 994 4.25
Credit card 266 4.90 294 5.63 382 7.21
Other revolving credit and installment     259 1.19   224 1.03   307 1.42
Total consumer     2,188 2.06   2,336 2.21   2,587 2.42
Total   $ 2,611 1.37 % $ 2,838 1.52 % $ 3,210 1.73 %
                             
 

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

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.

Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
                             
    Sept. 30, 2011     June 30, 2011     Mar. 31, 2011
($ in millions)     As a     As a     As a
% of % of % of
Total total Total total Total total
  balances   loans     balances   loans     balances   loans
 
Commercial:
Commercial and industrial $ 2,128 1.29 % $ 2,393 1.52 % $ 2,653 1.76 %
Real estate mortgage 4,429 4.24 4,691 4.62 5,239 5.18
Real estate construction 1,915 9.71 2,043 9.56 2,239 9.79
Lease financing 71 0.55 79 0.61 95 0.73
Foreign     68   0.18   59   0.16   86   0.24
Total commercial     8,611   2.53   9,265   2.80   10,312   3.19
 
Consumer:
Real estate 1-4 family first mortgage 11,024 4.93 11,427 5.13 12,143 5.36
Real estate 1-4 family junior lien mortgage 2,035 2.31 2,098 2.33 2,235 2.40
Other revolving credit and installment     230   0.27   255   0.29   275   0.31
Total consumer     13,289   3.16   13,780   3.27   14,653   3.42
Total nonaccrual loans     21,900   2.88   23,045   3.06   24,965   3.32
 
Foreclosed assets:
GNMA 1,336 1,320 1,457
Non GNMA     3,608     3,541     4,055  
Total foreclosed assets     4,944     4,861     5,512  
Total nonperforming assets   $ 26,844   3.53 % $ 27,906   3.71 % $ 30,477   4.06 %
 
Change from prior quarter:
Total nonaccrual loans $ (1,145 ) $ (1,920 ) $ (1,277 )
Total nonperforming assets (1,062 ) (2,571 ) (1,774 )
                             
 

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 www.wellsfargo.com/invest_relations/investor_relations/

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)   2011   2011   2010
Community Banking $ 2,315 2,087 1,935
Wholesale Banking 1,813 1,931 1,512
Wealth, Brokerage and Retirement     291   333   256
 

More financial information about the business segments is in the OPERATING SEGMENT RESULTS tables.

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including 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 Mortgage business units.

Selected Financial Information

     
  Quarter ended
Sept. 30,   June 30,   Sept. 30,
(in millions)   2011   2011   2010
Total revenue $12,496 12,567 13,447
Provision for credit losses 1,978 1,927 3,155
Noninterest expense 6,901 7,418 7,333
Segment net income 2,315 2,087 1,935
 
(in billions)
Average loans 491.0 498.2 522.2
Average assets 754.4 752.5 770.0
Average core deposits   556.3   552.0   537.1
 

Community Banking reported net income of $2.3 billion, up $228 million, or 11 percent, from prior quarter and up $380 million, or 20 percent, from third quarter 2010. Revenue decreased $71 million from second quarter 2011 driven primarily by a decline in equity gains primarily related to market conditions in the quarter, losses on deferred compensation plan investments (offset in employee benefits expense and therefore neutral to the income statement), continued expected reductions in the home equity and Pick-A-Pay loan portfolios, and lower yielding investment security purchases, partially offset by an increase in mortgage banking income and lower deposit costs. Revenue decreased $951 million, or 7 percent, from third quarter 2010 largely due to lower mortgage banking income, as well as expected reductions in the liquidating loan portfolios and lower yielding investment security purchases, partially offset by long-term debt runoff, lower deposit costs, equity gains and debit card customer growth. Noninterest expense decreased $517 million, or 7 percent, from second quarter 2011, reflecting lower personnel costs (including active, full-time equivalent reductions and lower deferred compensation benefits expense), litigation accruals, and credit related costs. Noninterest expense decreased $432 million, or 6 percent, from third quarter 2010 due to reduced expenses across most categories, led by personnel costs. The provision for credit losses increased $51 million from second quarter 2011 and decreased $1.2 billion from third quarter 2010. Charge-offs decreased $199 million from second quarter 2011 and $1.1 billion from third quarter 2010. The reserve release was $450 million in third quarter 2011, compared with releases of $700 million and $400 million in second quarter 2011 and third quarter 2010, respectively.

Regional Banking Highlights

  • Strong growth in checking accounts from September 30, 2010 (combined Regional Banking)
    • Consumer checking accounts up a net 5.6 percent
    • Business checking accounts up a net 3.8 percent
    • Consumer checking accounts up a net 7.1 percent in California, 8.3 percent in New Jersey, 9.8 percent in North Carolina and 7.7 percent in Florida
  • Strong solutions in third quarter 2011
    • West
      • Core product solutions (sales) of 8.80 million, up 15 percent from prior year
      • Core sales per platform banker FTE (active, full-time equivalent) of 6.90 per day, up from 5.89 in prior year
      • Sales of Wells Fargo Packages® (a checking account and three other products) up 18 percent from prior year, purchased by 86 percent of new checking account customers
    • East
      • Eastern core product solutions grew by double-digits from prior year
      • For eastern states on Wells Fargo systems the entire quarter, 83 percent of new checking account customers purchased Wells Fargo Packages
      • Platform banker FTE grew by over 1,000, or 10 percent, from prior year
  • Retail bank household cross-sell ratio for combined company of 5.91 products per household, up from 5.68 in third quarter 2010; cross-sell in the West of 6.28, compared with 5.39 in the East, represents the opportunity to earn more business from customers in the East
  • Small Business/Business Banking
    • In August, Wells Fargo, America’s leading SBA lender in dollars, became the nation’s first lender to extend $1 billion in SBA 7(a) loan dollars to small businesses in a year
    • Store-based business solutions up 8 percent from prior year (West)
    • Sales of Wells Fargo Business Services Packages (business checking account and at least three other business products) up 32 percent from prior year, purchased by 73 percent of new business checking account customers (West)
    • Business Banking household cross-sell of 4.21 products per household (West)
    • Wells Fargo, America’s #1 small business lender, made $10.3 billion in new loan commitments to its small business customers in the first three quarters of 2011, an 8 percent increase in new dollars lent from same period last year
  • Online and Mobile Banking
    • 19.7 million combined active online customers
    • 6.7 million combined active mobile customers
    • Global Finance magazine ranked Wells Fargo Best Consumer Internet Bank in the U.S. (July 2011)

Wells Fargo Home Mortgage (Home Mortgage)

  • Home Mortgage applications of $169 billion, compared with $109 billion in prior quarter
  • Home Mortgage application pipeline of $84 billion at quarter end, compared with $51 billion at June 30, 2011
  • Home Mortgage originations of $89 billion, up from $64 billion in prior quarter
  • Residential mortgage servicing portfolio of $1.8 trillion

Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $20 million. Products & business segments include Middle Market Commercial Banking, Government & 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, Investment Banking & Capital Markets, Securities Investment Portfolio, Asset Backed Finance, and Asset Management.

Selected Financial Information

             
  Quarter ended
Sept. 30,   June 30,   Sept. 30,
(in millions)   2011   2011   2010
Total revenue $ 5,150 5,631 5,388
Provision (reversal of provision) for credit losses (178 ) (97 ) 280
Noninterest expense 2,689 2,766 2,719
Segment net income 1,813 1,931 1,512
 
(in billions)
Average loans 253.4 243.1 227.3
Average assets 438.0 415.7 371.8
Average core deposits     209.3     190.6     170.8
 

Wholesale Banking reported net income of $1.8 billion, up $301 million, or 20 percent, from third quarter 2010 and decreased $118 million, or 6 percent, from the prior quarter. Revenue decreased $238 million, or 4 percent, from prior year as broad-based growth among many businesses, including strong loan and deposit growth, was offset by lower PCI resolutions and weakness in fixed income sales and trading and investment banking. Many businesses had revenue growth from the prior quarter, including asset-backed finance, capital finance, commercial banking, government banking, and international. However, overall revenue decreased $481 million, or 9 percent, from the prior quarter due to lower PCI resolutions, weakness in fixed income sales and trading and investment banking and seasonally lower insurance fees. Noninterest expense decreased $30 million, or 1 percent, from prior year related to lower personnel expenses and decreased $77 million, or 3 percent, from prior quarter related to seasonally lower insurance expense and lower operating losses. The provision for credit losses was a net recovery of $178 million and declined $458 million from third quarter 2010. The decrease included a $350 million reserve release in the current quarter versus a $250 million reserve release a year ago along with a $358 million improvement in credit losses.

  • Weaker sales and trading results as consistent negative economic data, sovereign debt concerns and the U.S. debt downgrade pressured credit spreads and reduced prices on all financial assets, significantly curtailing new issue origination and trading opportunities
  • Year-over-year and linked-quarter average loan growth in almost all portfolios, including asset-backed finance, capital finance, commercial banking, commercial real estate, corporate banking, government banking, and international, from both new and existing customer activity
  • Continued improvement in net charge-offs and nonperforming assets
  • Average core deposits up 23 percent from prior year
  • U.S. investment banking market share year to date of 4.8 percent, up from 4.2 percent for full year 2010 (source: Dealogic fee-based league tables)
  • Wells Fargo selected Best Trade Outsourcing Bank in Asia Pacific by Global Trade Review

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. Family Wealth meets the unique needs of ultra high net worth customers. 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)   2011   2011   2010
Total revenue $ 2,887 3,086 2,912
Provision for credit losses 48 61 77
Noninterest expense 2,368 2,487 2,420
Segment net income 291 333 256
 
(in billions)
Average loans 43.1 43.5 42.6
Average assets 155.1 147.7 138.2
Average core deposits     133.4   126.0   120.7
 

Wealth, Brokerage and Retirement reported net income of $291 million, down $42 million from second quarter 2011 and up $35 million from third quarter 2010. Revenue was $2.9 billion, down 6 percent from second quarter 2011 primarily due to losses on deferred compensation plan investments (offset in expense), as well as lower securities gains in the brokerage business and reduced brokerage transaction revenue. Revenue was down 1 percent from third quarter 2010 due to losses on deferred compensation plan investments (offset in expense) and lower brokerage transaction revenue, partially offset by higher asset-based revenues. Total provision for credit losses decreased $13 million from second quarter 2011 and $29 million from third quarter 2010. Noninterest expense declined 5 percent from second quarter on reduced personnel costs (primarily due to lower deferred compensation) and reduced broker commissions. Noninterest expense was down 2 percent from third quarter 2010 due to lower deferred compensation, partially offset by growth in personnel costs largely due to increased broker commissions, driven by higher production levels, and increased non-personnel costs. Average core deposits increased $7.4 billion from second quarter 2011 and $12.7 billion from third quarter 2010.

Retail Brokerage

  • Strong deposit growth, with average balances up $11 billion, or 14 percent, from prior year
  • Client assets of $1.1 trillion, down 3 percent from prior year
  • Managed account assets increased $20 billion, or 9 percent, from prior year driven by strong net flows
  • Completed sale of H.D. Vest Financial Services business on October 3, 2011

Wealth Management

  • Average deposit balances up 3 percent from prior year
  • Investment and Fiduciary Services asset-based revenue up 9 percent from prior year

Retirement

  • Institutional Retirement plan assets of $228 billion, up $7 billion, or 3 percent, from prior year
  • IRA assets of $261 billion, down $5 billion, or 2 percent, from prior year

Conference Call

The Company will host a live conference call on Monday, October 17, at 6:30 a.m. PDT (9:30 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_101711.

A replay of the conference call will be available beginning at approximately noon PDT (3 p.m. EDT) on October 17 through Monday, October 24. Please dial 800-642-1687 (U.S. and Canada) or 706-645-9291 (international) and enter Conference ID #95565644. The replay will also be available online at wellsfargo.com/invest_relations/earnings.

Cautionary Statement about Forward-Looking Information

In accordance with the Private Securities Litigation Reform Act of 1995, we caution you that this news release contains forward-looking statements about our future financial performance and business. We make forward-looking statements when we use words such as “believe,” “expect,” “anticipate,” “estimate,” “target,” “should,” “may,” “can,” “will,” “outlook,” “project,” “appears” or similar expressions. Forward-looking statements in this news release include, among others, statements about: (i) future credit quality and expected or estimated future loan losses in our loan portfolios, and the adequacy of the allowance for loan losses, including our current expectation of future reductions in the allowance for loan losses; (ii) our targeted noninterest expense for fourth quarter 2012 as part of our expense management initiatives; (iii) our estimates regarding our Tier 1 common equity ratio under proposed Basel III capital regulations; and (iv) the timing of expected integration activities related to the Wachovia merger.

Do not unduly rely on forward-looking statements as actual results could differ materially from expectations. Forward-looking statements speak only as of the date made, and we do not undertake to update them to reflect changes or events that occur after that date. Several factors could cause actual results to differ materially from expectations including: current and future economic and market conditions, including the effects of further declines in housing prices, high unemployment rates, U.S. fiscal debt and budget matters and the sovereign debt crisis in Europe; our capital requirements (including under regulatory capital standards as determined and interpreted by applicable regulatory authorities such as the proposed Basel III capital regulations) 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 Wall Street Reform and Consumer Protection Act); the extent of success in our loan modification efforts, including the effects of regulatory requirements, or changes in regulatory requirements, relating to 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; negative effects relating to mortgage foreclosures, including changes in our procedures or practices and/or 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 noninterest expense target as part of our expense management initiatives when and in the amount targeted, 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; our ability to successfully and timely integrate the Wachovia merger and realize the expected cost savings and other benefits, including delays or disruptions in system conversions; recognition of other-than-temporary impairment on securities held in our available-for-sale portfolio; the effect of changes in interest rates on our net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale; hedging gains or losses; disruptions in the capital markets and reduced investor demand for mortgage loans; our ability to sell more products to our customers; the effect of the economic recession on the demand for our products and services; the effect of fluctuations in stock market prices on fee income from our brokerage, asset and wealth management businesses; our election to provide support to our mutual funds for structured credit products they may hold; changes in the value of our venture capital investments; changes in our accounting policies or in accounting standards or in how accounting standards are to be applied; changes in our credit ratings and changes in the credit ratings of our customers or counterparties; mergers and acquisitions; federal and state regulations; reputational damage from negative publicity, fines, penalties and other negative consequences from regulatory violations; the loss of checking and saving account deposits to other investments such as the stock market; and fiscal and monetary policies of the Federal Reserve Board. There is no assurance that our allowance for credit losses will be adequate to cover future credit losses, especially if housing prices and unemployment do not improve. Increases in loan charge-offs or in the allowance for credit losses and related provision expense could materially adversely affect our financial results and condition. 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 Quarterly Report on Form 10-Q for the quarter ended June 30,2011, as filed with the SEC and available on the SEC’s website at www.sec.gov. Any factor described above or in our SEC reports could, by itself or together with one or more other factors, adversely affect our financial results and condition.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.3 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, the Internet (wellsfargo.com and wachovia.com), and other distribution channels across North America and internationally. With more than 270,000 team members, Wells Fargo serves one in three households in America. Wells Fargo & Company was ranked No. 23 on Fortune’s 2011 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 16-17
 

Income

Consolidated Statement of Income 18-19
Average Balances, Yields and Rates Paid 20-21
Noninterest Income and Noninterest Expense 22-23
 

Balance Sheet

Consolidated Balance Sheet 24-25
Average Balances 26
 

Loans

Loans 27
Nonaccrual Loans and Foreclosed Assets 27
Loans 90 Days or More Past Due and Still Accruing 28
Purchased Credit-Impaired Loans 29-31
Pick-A-Pay Portfolio 32
Non-Strategic and Liquidating Loan Portfolios 33
Home Equity Portfolios 33
Allowance for Credit Losses 34-35
 

Equity

Condensed Consolidated Statement of Changes in Total Equity 36
Tier 1 Common Equity 37
 

Operating Segments

Operating Segment Results 38-39
 

Other

Mortgage Servicing and other related data

  40-42
 
Wells Fargo & Company and Subsidiaries
SUMMARY FINANCIAL DATA
           
($ in millions, except per share amounts)   Quarter ended Sept. 30, %   Nine months ended Sept. 30, %
    2011     2010   Change       2011   2010   Change  
For the Period
Wells Fargo net income $ 4,055 3,339 21 % $ 11,762 8,948 31 %
Wells Fargo net income applicable to common stock 3,839 3,150 22 11,137 8,400 33
Diluted earnings per common share 0.72 0.60 20 2.09 1.60 31
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 1.26 % 1.09 15 1.25 0.98 28

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

11.86 10.90 9 11.92 10.11 18
Efficiency ratio (1) 59.5 58.7 1 61.1 58.3 5
Total revenue $ 19,628 20,874 (6 ) $ 60,343 63,716 (5 )
Pre-tax pre-provision profit (PTPP) (2) 7,951 8,621 (8 ) 23,458 26,600 (12 )
Dividends declared per common share 0.12 0.05 140 0.36 0.15 140
Average common shares outstanding 5,275.5 5,240.1 1 5,280.2 5,216.9 1
Diluted average common shares outstanding 5,319.2 5,273.2 1 5,325.6 5,252.9 1
Average loans $ 754,544 759,483 (1 ) $ 753,293 776,305 (3 )
Average assets 1,281,369 1,220,368 5 1,257,977 1,223,535 3
Average core deposits (3) 836,845 771,957 8 813,865 764,345 6
Average retail core deposits (4) 599,227 571,062 5 592,156 572,567 3
Net interest margin 3.84 % 4.25 (10 ) 3.96 4.30 (8 )
At Period End
Securities available for sale $ 207,176 176,875 17 $ 207,176 176,875 17
Loans 760,106 753,664 1 760,106 753,664 1
Allowance for loan losses 20,039 23,939 (16 ) 20,039 23,939 (16 )
Goodwill 25,038 24,831 1 25,038 24,831 1
Assets 1,304,945 1,220,784 7 1,304,945 1,220,784 7
Core deposits (3) 849,632 771,792 10 849,632 771,792 10
Wells Fargo stockholders' equity 137,768 123,658 11 137,768 123,658 11
Total equity 139,244 125,165 11 139,244 125,165 11
Capital ratios:
Total equity to assets 10.67 % 10.25 4 10.67 10.25 4
Risk-based capital (5):
Tier 1 capital 11.28 10.90 3 11.28 10.90 3
Total capital 14.88 14.88 - 14.88 14.88 -
Tier 1 leverage (5) 8.97 9.01 - 8.97 9.01 -
Tier 1 common equity (6) 9.35 8.01 17 9.35 8.01 17
Common shares outstanding 5,272.2 5,244.4 1 5,272.2 5,244.4 1
Book value per common share $ 24.13 22.04 9 $ 24.13 22.04 9
Common stock price:
High 29.63 28.77 3 34.25 34.25 -
Low 22.58 23.02 (2 ) 22.58 23.02 (2 )
Period end 24.12 25.12 (4 ) 24.12 25.12 (4 )
Team members (active, full-time equivalent) 263,800 266,900 (1 ) 263,800 266,900 (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, 2011, 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
         
($ in millions, except per share amounts)   Quarter ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
    2011     2011   2011   2010   2010
For the Quarter
Wells Fargo net income $ 4,055 3,948 3,759 3,414 3,339
Wells Fargo net income applicable to common stock 3,839 3,728 3,570 3,232 3,150
Diluted earnings per common share 0.72 0.70 0.67 0.61 0.60
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 1.26 % 1.27 1.23 1.09 1.09

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

11.86 11.92 11.98 10.95 10.90
Efficiency ratio (1) 59.5 61.2 62.6 62.1 58.7
Total revenue $ 19,628 20,386 20,329 21,494 20,874
Pre-tax pre-provision profit (PTPP) (2) 7,951 7,911 7,596 8,154 8,621
Dividends declared per common share 0.12 0.12 0.12 0.05 0.05
Average common shares outstanding 5,275.5 5,286.5 5,278.8 5,256.2 5,240.1
Diluted average common shares outstanding 5,319.2 5,331.7 5,333.1 5,293.8 5,273.2
Average loans $ 754,544 751,253 754,077 753,675 759,483
Average assets 1,281,369 1,250,945 1,241,176 1,237,037 1,220,368
Average core deposits (3) 836,845 807,483 796,826 794,799 771,957
Average retail core deposits (4) 599,227 592,974 584,100 573,843 571,062
Net interest margin 3.84 % 4.01 4.05 4.16 4.25
At Quarter End
Securities available for sale $ 207,176 186,298 167,906 172,654 176,875
Loans 760,106 751,921 751,155 757,267 753,664
Allowance for loan losses 20,039 20,893 21,983 23,022 23,939
Goodwill 25,038 24,776 24,777 24,770 24,831
Assets 1,304,945 1,259,734 1,244,666 1,258,128 1,220,784
Core deposits (3) 849,632 808,970 795,038 798,192 771,792
Wells Fargo stockholders' equity 137,768 136,401 133,471 126,408 123,658
Total equity 139,244 137,916 134,943 127,889 125,165
Capital ratios:
Total equity to assets 10.67 % 10.95 10.84 10.16 10.25
Risk-based capital (5):
Tier 1 capital 11.28 11.69 11.50 11.16 10.90
Total capital 14.88 15.41 15.30 15.01 14.88
Tier 1 leverage (5) 8.97 9.43 9.27 9.19 9.01
Tier 1 common equity (6) 9.35 9.15 8.93 8.30 8.01
Common shares outstanding 5,272.2 5,278.2 5,300.9 5,262.3 5,244.4
Book value per common share $ 24.13 23.84 23.18 22.49 22.04
Common stock price:
High 29.63 32.63 34.25 31.61 28.77
Low 22.58 25.26 29.82 23.37 23.02
Period end 24.12 28.06 31.71 30.99 25.12
Team members (active, full-time equivalent) 263,800 266,600 270,200 272,200 266,900
                         
 

(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, 2011, 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
           
(in millions, except per share amounts) Quarter ended Sept. 30, %

Nine months ended Sept. 30,

%
    2011     2010     Change       2011   2010     Change
Interest income
Trading assets $ 343 270 27 % $ 1,040 803 30 %
Securities available for sale 2,053 2,492 (18 ) 6,383 7,292 (12 )
Mortgages held for sale 389 449 (13 ) 1,188 1,241 (4 )
Loans held for sale 13 22 (41 ) 42 86 (51 )
Loans 9,224 9,779 (6 ) 27,972 30,094 (7 )
Other interest income     156     118   32   409   311   32
Total interest income     12,178     13,130   (7 )   37,034   39,827   (7 )
Interest expense
Deposits 559 721 (22 ) 1,768 2,170 (19 )
Short-term borrowings 20 27 (26 ) 66 66 -
Long-term debt 980 1,226 (20 ) 3,093 3,735 (17 )
Other interest expense     77     58   33   236   162   46
Total interest expense     1,636     2,032   (19 )   5,163   6,133   (16 )
Net interest income 10,542 11,098 (5 ) 31,871 33,694 (5 )
Provision for credit losses     1,811     3,445   (47 )   5,859   12,764   (54 )
Net interest income after provision for credit losses     8,731     7,653   14   26,012   20,930   24
Noninterest income
Service charges on deposit accounts 1,103 1,132 (3 ) 3,189 3,881 (18 )
Trust and investment fees 2,786 2,564 9 8,646 7,976 8
Card fees 1,013 935 8 2,973 2,711 10
Other fees 1,085 1,004 8 3,097 2,927 6
Mortgage banking 1,833 2,499 (27 ) 5,468 6,980 (22 )
Insurance 423 397 7 1,494 1,562 (4 )
Net gains (losses) from trading activities (442 ) 470 NM 584 1,116 (48 )
Net gains (losses) on debt securities available for sale 300 (114 ) NM 6 (56 ) NM
Net gains from equity investments 344 131 163 1,421 462 208
Operating leases 284 222 28 464 736 (37 )
Other     357     536   (33 )   1,130   1,727   (35 )
Total noninterest income     9,086     9,776   (7 )   28,472   30,022   (5 )
Noninterest expense
Salaries 3,718 3,478 7 10,756 10,356 4
Commission and incentive compensation 2,088 2,280 (8 ) 6,606 6,497 2
Employee benefits 780 1,074 (27 ) 3,336 3,459 (4 )
Equipment 516 557 (7 ) 1,676 1,823 (8 )
Net occupancy 751 742 1 2,252 2,280 (1 )
Core deposit and other intangibles 466 548 (15 ) 1,413 1,650 (14 )
FDIC and other deposit assessments 332 300 11 952 896 6
Other     3,026     3,274   (8 )   9,894   10,155   (3 )
Total noninterest expense     11,677     12,253   (5 )   36,885   37,116   (1 )
Income before income tax expense 6,140 5,176 19 17,599 13,836 27
Income tax expense     1,998     1,751   14   5,571   4,666   19
Net income before noncontrolling interests 4,142 3,425 21 12,028 9,170 31
Less: Net income from noncontrolling interests     87     86   1   266   222   20
Wells Fargo net income   $ 4,055     3,339   21 $ 11,762   8,948   31
Less: Preferred stock dividends and other     216     189   14   625   548   14
Wells Fargo net income applicable to common stock   $ 3,839     3,150   22 $ 11,137   8,400   33
Per share information
Earnings per common share $ 0.73 0.60 22 $ 2.11 1.61 31
Diluted earnings per common share 0.72 0.60 20 2.09 1.60 31
Dividends declared per common share 0.12 0.05 140 0.36 0.15 140
Average common shares outstanding 5,275.5 5,240.1 1 5,280.2 5,216.9 1
Diluted average common shares outstanding 5,319.2 5,273.2 1 5,325.6 5,252.9 1
                               
 
NM - Not meaningful
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED STATEMENT OF INCOME
         
(in millions, except per share amounts)   Quarter ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
    2011   2011   2011   2010   2010
Interest income
Trading assets $ 343 347 350 295 270
Securities available for sale 2,053 2,166 2,164 2,374 2,492
Mortgages held for sale 389 362 437 495 449
Loans held for sale 13 17 12 15 22
Loans 9,224 9,361 9,387 9,666 9,779
Other interest income     156     131     122     124     118  
Total interest income     12,178     12,384     12,472     12,969     13,130  
Interest expense
Deposits 559 594 615 662 721
Short-term borrowings 20 20 26 26 27
Long-term debt 980 1,009 1,104 1,153 1,226
Other interest expense     77     83     76     65     58  
Total interest expense     1,636     1,706     1,821     1,906     2,032  
Net interest income 10,542 10,678 10,651 11,063 11,098
Provision for credit losses     1,811     1,838     2,210     2,989     3,445  
Net interest income after provision for credit losses     8,731     8,840     8,441     8,074     7,653  
Noninterest income
Service charges on deposit accounts 1,103 1,074 1,012 1,035 1,132
Trust and investment fees 2,786 2,944 2,916 2,958 2,564
Card fees 1,013 1,003 957 941 935
Other fees 1,085 1,023 989 1,063 1,004
Mortgage banking 1,833 1,619 2,016 2,757 2,499
Insurance 423 568 503 564 397
Net gains (losses) from trading activities (442 ) 414 612 532 470
Net gains (losses) on debt securities available for sale 300 (128 ) (166 ) (268 ) (114 )
Net gains from equity investments 344 724 353 317 131
Operating leases 284 103 77 79 222
Other     357     364     409     453     536  
Total noninterest income     9,086     9,708     9,678     10,431     9,776  
Noninterest expense
Salaries 3,718 3,584 3,454 3,513 3,478
Commission and incentive compensation 2,088 2,171 2,347 2,195 2,280
Employee benefits 780 1,164 1,392 1,192 1,074
Equipment 516 528 632 813 557
Net occupancy 751 749 752 750 742
Core deposit and other intangibles 466 464 483 549 548
FDIC and other deposit assessments 332 315 305 301 300
Other     3,026     3,500     3,368     4,027     3,274  
Total noninterest expense     11,677     12,475     12,733     13,340     12,253  
Income before income tax expense 6,140 6,073 5,386 5,165 5,176
Income tax expense     1,998     2,001     1,572     1,672     1,751  
Net income before noncontrolling interests 4,142 4,072 3,814 3,493 3,425
Less: Net income from noncontrolling interests     87     124     55     79     86  
Wells Fargo net income   $ 4,055     3,948     3,759     3,414     3,339  
Less: Preferred stock dividends and other     216     220     189     182     189  
Wells Fargo net income applicable to common stock   $ 3,839     3,728     3,570     3,232     3,150  
Per share information
Earnings per common share $ 0.73 0.70 0.68 0.62 0.60
Diluted earnings per common share 0.72 0.70 0.67 0.61 0.60
Dividends declared per common share 0.12 0.12 0.12 0.05 0.05
Average common shares outstanding 5,275.5 5,286.5 5,278.8 5,256.2 5,240.1
Diluted average common shares outstanding 5,319.2 5,331.7 5,333.1 5,293.8 5,273.2
                                 
 
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
           
(in millions) Quarter ended September 30,
              2011             2010
Interest Interest
Average Yields/ income/ Average Yields/ income/
    balance   rates       expense   balance   rates       expense
Earning assets

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

$ 98,909 0.42 % $ 105 70,839 0.38 % $ 67
Trading assets 37,939 3.67 348 29,080 3.77 275
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 9,635 1.02 24 1,673 2.79 11
Securities of U.S. states and political subdivisions 25,827 4.93 315 17,220 5.89 249
Mortgage-backed securities:
Federal agencies 77,309 4.41 804 70,486 5.35 885
Residential and commercial     34,242   7.46   609 33,425   12.53   987
Total mortgage-backed securities 111,551 5.36 1,413 103,911 7.67 1,872
Other debt and equity securities     40,720   4.69   457 35,533   6.02   503
Total securities available for sale 187,733 4.92 2,209 158,337 7.05 2,635
Mortgages held for sale (4) 34,634 4.49 389 38,073 4.72 449
Loans held for sale (4) 968 5.21 13 3,223 2.71 22
Loans:
Commercial:
Commercial and industrial 159,625 4.22 1,697 146,139 4.57 1,679
Real estate mortgage 102,428 3.93 1,015 99,082 4.15 1,036
Real estate construction 20,537 6.12 317 29,469 3.31 246
Lease financing 12,964 7.21 234 13,156 9.07 298
Foreign     38,175   2.42 233 30,276   3.15   240
Total commercial     333,729   4.16 3,496 318,122   4.37   3,499
Consumer:
Real estate 1-4 family first mortgage 223,765 4.83 2,704 231,172 5.16 2,987
Real estate 1-4 family junior lien mortgage 89,065 4.37 980 100,257 4.41 1,114
Credit card 21,452 12.96 695 22,048 13.57 748
Other revolving credit and installment     86,533   6.25   1,364 87,884   6.50   1,441
Total consumer     420,815   5.44   5,743 441,361   5.68   6,290
Total loans (4) 754,544 4.87 9,239 759,483 5.13 9,789
Other     4,831   4.18   50 5,912   3.53   53
Total earning assets   $ 1,119,558   4.43 % $ 12,353 1,064,947   5.01 % $ 13,290
Funding sources
Deposits:
Interest-bearing checking $ 43,986 0.07 % $ 8 59,677 0.10 % $ 15
Market rate and other savings 473,409 0.17 198 419,996 0.25 269
Savings certificates 67,633 1.47 251 85,044 1.50 322
Other time deposits 12,809 2.02 65 14,400 2.33 83
Deposits in foreign offices     63,548   0.23   37 52,061   0.24   32
Total interest-bearing deposits 661,385 0.34 559 631,178 0.45 721
Short-term borrowings 50,373 0.18 23 46,468 0.26 31
Long-term debt 139,542 2.81 980 177,077 2.76 1,226
Other liabilities     11,170   2.75   77 6,764   3.39   58
Total interest-bearing liabilities 862,470 0.76 1,639 861,487 0.94 2,036
Portion of noninterest-bearing funding sources     257,088   -   - 203,460   -   -
Total funding sources   $ 1,119,558     0.59   1,639 1,064,947     0.76   2,036

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

3.84 %   $ 10,714 4.25 %   $ 11,254
Noninterest-earning assets
Cash and due from banks $ 17,101 17,000
Goodwill 25,008 24,829
Other     119,702   113,592  
Total noninterest-earning assets   $ 161,811   155,421  
Noninterest-bearing funding sources
Deposits $ 221,182 184,837
Other liabilities 57,464 50,013
Total equity 140,253 124,031
Noninterest-bearing funding sources used to fund earning assets     (257,088 ) (203,460 )
Net noninterest-bearing funding sources   $ 161,811   155,421  
Total assets   $ 1,281,369   1,220,368  
                                       

(1) Our average prime rate was 3.25% for the quarters ended September 30, 2011 and 2010. The average three-month London Interbank Offered Rate (LIBOR) was 0.30% and 0.39% 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 include the effects of any unrealized gain or loss marks but those marks carried in other comprehensive income are not included in yield determination of affected earning assets. Thus yields are based on amortized cost balances computed on a settlement date basis.

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

(5) Includes taxable-equivalent adjustments of $172 million and $156 million for September 30, 2011 and 2010, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized 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,
              2011             2010
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

$ 93,661 0.37 % $ 257 59,905 0.35 % $ 156
Trading assets 37,788 3.73 1,056 28,588 3.82 819
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 4,463 1.43 47 2,013 3.36 49
Securities of U.S. states and political subdivisions 22,692 5.21 887 15,716 6.29 725
Mortgage-backed securities:
Federal agencies 75,073 4.63 2,480 74,330 5.38 2,838
Residential and commercial     33,242   8.64   2,005 33,133   10.58   2,546
Total mortgage-backed securities 108,315 5.84 4,485 107,463 7.01 5,384
Other debt and equity securities     37,910   5.32   1,423 33,727   6.56   1,557
Total securities available for sale 173,380 5.52 6,842 158,919 6.80 7,715
Mortgages held for sale (4) 34,668 4.57 1,188 33,903 4.88 1,241
Loans held for sale (4) 1,100 5.05 42 4,660 2.46 86
Loans:
Commercial:
Commercial and industrial 154,469 4.48 5,181 150,153 4.83 5,431
Real estate mortgage 101,230 4.00 3,033 98,264 3.91 2,875
Real estate construction 22,255 4.96 826 32,770 3.27 801
Lease financing 12,961 7.59 737 13,592 9.28 946
Foreign     36,103   2.62   708 29,302   3.46   758
Total commercial     327,018   4.28   10,485 324,081   4.46   10,811
Consumer:
Real estate 1-4 family first mortgage 226,048 4.93 8,363 237,848 5.22 9,305
Real estate 1-4 family junior lien mortgage 91,881 4.32 2,973 102,839 4.47 3,444
Credit card 21,305 13.04 2,084 22,539 13.32 2,251
Other revolving credit and installment     87,041   6.31   4,107 88,998   6.49   4,320
Total consumer     426,275   5.49   17,527 452,224   5.70   19,320
Total loans (4) 753,293 4.97 28,012 776,305 5.18 30,131
Other     5,017   4.06   153 6,021   3.45   156
Total earning assets   $ 1,098,907   4.59 % $ 37,550 1,068,301   5.07 % $ 40,304
Funding sources
Deposits:
Interest-bearing checking $ 51,891 0.09 % $ 34 60,961 0.13 % $ 57
Market rate and other savings 457,483 0.19 661 412,060 0.27 822
Savings certificates 71,343 1.43 762 89,824 1.43 962
Other time deposits 13,212 2.10 208 15,066 2.08 235
Deposits in foreign offices     59,662   0.23   103 54,973   0.23   94
Total interest-bearing deposits 653,591 0.36 1,768 632,884 0.46 2,170
Short-term borrowings 52,805 0.19 77 45,549 0.22 75
Long-term debt 145,000 2.85 3,093 193,724 2.57 3,735
Other liabilities     10,547   2.99   236 6,393   3.38   162
Total interest-bearing liabilities 861,943 0.80 5,174 878,550 0.93 6,142
Portion of noninterest-bearing funding sources     236,964   -   - 189,751   -   -
Total funding sources   $ 1,098,907     0.63   5,174 1,068,301     0.77   6,142

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

3.96 %   $ 32,376 4.30 %   $ 34,162
Noninterest-earning assets
Cash and due from banks $ 17,277 17,484
Goodwill 24,853 24,822
Other     116,940   112,928  
Total noninterest-earning assets   $ 159,070   155,234  
Noninterest-bearing funding sources
Deposits $ 204,643 177,975
Other liabilities 55,324 46,174
Total equity 136,067 120,836
Noninterest-bearing funding sources used to fund earning assets     (236,964 ) (189,751 )
Net noninterest-bearing funding sources   $ 159,070   155,234  
Total assets   $ 1,257,977   1,223,535  
                                   
 

(1) Our average prime rate was 3.25% for the nine months ended September 30, 2011 and 2010. The average three-month London Interbank Offered Rate (LIBOR) was 0.29% and 0.36% for the same periods, respectively.

(2) Yields/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 include the effects of any unrealized gain or loss marks but those marks carried in other comprehensive income are not included in yield determination of affected earning assets. Thus yields are based on amortized cost balances computed on a settlement date basis.

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

(5) Includes taxable-equivalent adjustments of $505 million and $468 million for September 30, 2011 and 2010, 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
NONINTEREST INCOME
           
(in millions) Quarter ended Sept. 30, %  

Nine months ended Sept. 30,

%
    2011     2010     Change       2011   2010     Change
Service charges on deposit accounts $ 1,103 1,132 (3 ) % $ 3,189 3,881 (18 ) %
Trust and investment fees:
Trust, investment and IRA fees 1,019 924 10 3,099 3,008 3
Commissions and all other fees     1,767     1,640   8   5,547   4,968   12
Total trust and investment fees     2,786     2,564   9   8,646   7,976   8
Card fees 1,013 935 8 2,973 2,711 10
Other fees:
Cash network fees 105 73 44 280 186 51
Charges and fees on loans 438 424 3 1,239 1,244 -
Processing and all other fees     542     507   7   1,578   1,497   5
Total other fees     1,085     1,004   8   3,097   2,927   6
Mortgage banking:
Servicing income, net 1,030 516 100 2,773 3,100 (11 )
Net gains on mortgage loan origination/sales activities     803     1,983   (60 )   2,695   3,880   (31 )
Total mortgage banking     1,833     2,499   (27 )   5,468   6,980   (22 )
Insurance 423 397 7 1,494 1,562 (4 )
Net gains (losses) from trading activities (442 ) 470 NM 584 1,116 (48 )
Net gains (losses) on debt securities available for sale 300 (114 ) NM 6 (56 ) NM
Net gains from equity investments 344 131 163 1,421 462 208
Operating leases 284 222 28 464 736 (37 )
All other     357     536   (33 )   1,130   1,727   (35 )
Total   $ 9,086     9,776     (7 )     $ 28,472   30,022     (5 )
 
NM - Not meaningful
 
NONINTEREST EXPENSE                              
 
(in millions)   Quarter ended Sept. 30, %  

Nine months ended Sept. 30,

%
    2011     2010     Change       2011   2010     Change
Salaries $ 3,718 3,478 7 % $ 10,756 10,356 4 %
Commission and incentive compensation 2,088 2,280 (8 ) 6,606 6,497 2
Employee benefits 780 1,074 (27 ) 3,336 3,459 (4 )
Equipment 516 557 (7 ) 1,676 1,823 (8 )
Net occupancy 751 742 1 2,252 2,280 (1 )
Core deposit and other intangibles 466 548 (15 ) 1,413 1,650 (14 )
FDIC and other deposit assessments 332 300 11 952 896 6
Outside professional services 640 533 20 1,879 1,589 18
Contract services 341 430 (21 ) 1,051 1,161 (9 )
Foreclosed assets 271 366 (26 ) 984 1,085 (9 )
Operating losses 198 230 (14 ) 1,098 1,065 3
Outside data processing 226 263 (14 ) 678 811 (16 )
Postage, stationery and supplies 240 233 3 711 705 1
Travel and entertainment 198 195 2 609 562 8
Advertising and promotion 159 170 (6 ) 441 438 1
Telecommunications 128 146 (12 ) 394 445 (11 )
Insurance 94 62 52 428 374 14
Operating leases 29 21 38 84 85 (1 )
All other  

 

502     625   (20 )   1,537   1,835   (16 )
Total   $ 11,677     12,253     (5 )     $ 36,885   37,116     (1 )
 
Wells Fargo & Company and Subsidiaries          
FIVE QUARTER NONINTEREST INCOME                      
 
(in millions)   Quarter ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
    2011   2011   2011   2010   2010
Service charges on deposit accounts $ 1,103 1,074 1,012 1,035 1,132
Trust and investment fees:
Trust, investment and IRA fees 1,019 1,020 1,060 1,030 924
Commissions and all other fees     1,767     1,924     1,856     1,928     1,640  
Total trust and investment fees     2,786     2,944     2,916     2,958     2,564  
Card fees 1,013 1,003 957 941 935
Other fees:
Cash network fees 105 94 81 74 73
Charges and fees on loans 438 404 397 446 424
Processing and all other fees     542     525     511     543     507  
Total other fees     1,085     1,023     989     1,063     1,004  
Mortgage banking:
Servicing income, net 1,030 877 866 240 516
Net gains on mortgage loan origination/sales activities     803     742     1,150     2,517     1,983  
Total mortgage banking     1,833     1,619     2,016     2,757     2,499  
Insurance 423 568 503 564 397
Net gains (losses) from trading activities (442 ) 414 612 532 470
Net gains (losses) on debt securities available for sale 300 (128 ) (166 ) (268 ) (114 )
Net gains from equity investments 344 724 353 317 131
Operating leases 284 103 77 79 222
All other     357     364     409     453     536  
Total   $ 9,086     9,708     9,678     10,431     9,776  
 
FIVE QUARTER NONINTEREST EXPENSE                      
 
  Quarter ended
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(in millions)     2011   2011   2011   2010   2010
Salaries $ 3,718 3,584 3,454 3,513 3,478
Commission and incentive compensation 2,088 2,171 2,347 2,195 2,280
Employee benefits 780 1,164 1,392 1,192 1,074
Equipment 516 528 632 813 557
Net occupancy 751 749 752 750 742
Core deposit and other intangibles 466 464 483 549 548
FDIC and other deposit assessments 332 315 305 301 300
Outside professional services 640 659 580 781 533
Contract services 341 341 369 481 430
Foreclosed assets 271 305 408 452 366
Operating losses 198 428 472 193 230
Outside data processing 226 232 220 235 263
Postage, stationery and supplies 240 236 235 239 233
Travel and entertainment 198 205 206 221 195
Advertising and promotion 159 166 116 192 170
Telecommunications 128 132 134 151 146
Insurance 94 201 133 90 62
Operating leases 29 31 24 24 21
All other     502     564     471     968     625  
Total   $ 11,677     12,475     12,733     13,340     12,253  
 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
     
(in millions, except shares) Sept. 30, Dec. 31, %
    2011   2010   Change
Assets
Cash and due from banks $ 18,314 16,044 14 %
Federal funds sold, securities purchased under resale agreements and other short-term investments 89,804 80,637 11
Trading assets 57,786 51,414 12
Securities available for sale 207,176 172,654 20
Mortgages held for sale (includes $38,845 and $47,531 carried at fair value) 42,704 51,763 (18 )
Loans held for sale (includes $495 and $873 carried at fair value) 743 1,290 (42 )
 
Loans (includes $0 and $309 carried at fair value) 760,106 757,267 -
Allowance for loan losses     (20,039 )   (23,022 ) (13 )
Net loans     740,067     734,245   1
Mortgage servicing rights:
Measured at fair value 12,372 14,467 (14 )
Amortized 1,397 1,419 (2 )
Premises and equipment, net 9,607 9,644 -
Goodwill 25,038 24,770 1
Other assets     99,937     99,781   -
Total assets   $ 1,304,945     1,258,128   4
Liabilities
Noninterest-bearing deposits $ 229,863 191,256 20
Interest-bearing deposits     665,565     656,686   1
Total deposits 895,428 847,942 6
Short-term borrowings 50,775 55,401 (8 )
Accrued expenses and other liabilities 86,284 69,913 23
Long-term debt (includes $0 and $306 carried at fair value)     133,214     156,983   (15 )
Total liabilities     1,165,701     1,130,239   3
Equity
Wells Fargo stockholders' equity:
Preferred stock 11,566 8,689 33

Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,341,553,681 and 5,272,414,622 shares

8,902 8,787 1
Additional paid-in capital 55,495 53,426 4
Retained earnings 61,135 51,918 18
Cumulative other comprehensive income 3,828 4,738 (19 )
Treasury stock – 69,333,156 shares and 10,131,394 shares (2,087 ) (487 ) 329
Unearned ESOP shares     (1,071 )   (663 ) 62
Total Wells Fargo stockholders' equity 137,768 126,408 9
Noncontrolling interests     1,476     1,481   -
Total equity     139,244     127,889   9
Total liabilities and equity   $ 1,304,945     1,258,128     4  
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED BALANCE SHEET
         
(in millions) Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
    2011   2011   2010   2010   2010
Assets
Cash and due from banks $ 18,314 24,059 16,978 16,044 16,001

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

89,804 88,406 93,041 80,637 56,549
Trading assets 57,786 54,770 57,890 51,414 49,271
Securities available for sale 207,176 186,298 167,906 172,654 176,875
Mortgages held for sale 42,704 31,254 33,121 51,763 46,001
Loans held for sale 743 1,512 1,428 1,290 1,188
 
Loans 760,106 751,921 751,155 757,267 753,664
Allowance for loan losses     (20,039 )   (20,893 )   (21,983 )   (23,022 )   (23,939 )
Net loans     740,067     731,028     729,172     734,245     729,725  
Mortgage servicing rights:
Measured at fair value 12,372 14,778 15,648 14,467 12,486
Amortized 1,397 1,422 1,423 1,419 1,013
Premises and equipment, net 9,607 9,613 9,545 9,644 9,636
Goodwill 25,038 24,776 24,777 24,770 24,831
Other assets     99,937     91,818     93,737     99,781     97,208  
Total assets   $ 1,304,945     1,259,734     1,244,666     1,258,128     1,220,784  
Liabilities
Noninterest-bearing deposits $ 229,863 202,143 190,959 191,256 184,451
Interest-bearing deposits     665,565     651,492     646,703     656,686     630,061  
Total deposits 895,428 853,635 837,662 847,942 814,512
Short-term borrowings 50,775 53,881 54,737 55,401 50,715
Accrued expenses and other liabilities 86,284 71,430 68,721 69,913 67,249
Long-term debt     133,214     142,872     148,603     156,983     163,143  
Total liabilities     1,165,701     1,121,818     1,109,723     1,130,239     1,095,619  
Equity
Wells Fargo stockholders' equity:
Preferred stock 11,566 11,730 11,897 8,689 8,840
Common stock 8,902 8,876 8,854 8,787 8,756
Additional paid-in capital 55,495 55,226 54,815 53,426 52,899
Retained earnings 61,135 57,942 54,855 51,918 48,953
Cumulative other comprehensive income 3,828 5,422 5,021 4,738 5,502
Treasury stock (2,087 ) (1,546 ) (541 ) (487 ) (466 )
Unearned ESOP shares     (1,071 )   (1,249 )   (1,430 )   (663 )   (826 )
Total Wells Fargo stockholders' equity 137,768 136,401 133,471 126,408 123,658
Noncontrolling interests     1,476     1,515     1,472     1,481     1,507  
Total equity     139,244     137,916     134,943     127,889     125,165  
Total liabilities and equity   $ 1,304,945     1,259,734     1,244,666     1,258,128     1,220,784  
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)
                   
  Quarter ended
($ in billions) Sept. 30, 2011     June 30, 2011     Mar. 31, 2011     Dec. 31, 2010     Sept. 30, 2010
Average Yields/ Average Yields/ Average Yields/ Average Yields/ Average Yields/
  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

$ 98.9 0.42 % $ 98.5 0.32 % $ 83.4 0.35 % $ 72.0 0.40 % $ 70.8 0.38 %
Trading assets 37.9 3.67 38.0 3.71 37.4 3.81 33.9 3.56 29.0 3.77
Securities available for sale:
Securities of U.S. Treasury and federal agencies 9.6 1.02 2.1 2.33 1.6 2.87 1.7 2.80 1.7 2.79
Securities of U.S. states and political subdivisions 25.8 4.93 22.6 5.35 19.6 5.45 18.4 5.58 17.2 5.89
Mortgage-backed securities:
Federal agencies 77.3 4.41 74.4 4.76 73.5 4.72 80.4 4.48 70.5 5.35
Residential and commercial     34.3   7.46   32.5   8.86   32.9   9.68   33.4   10.95   33.4   12.53
Total mortgage-backed securities 111.6 5.36 106.9 5.98 106.4 6.21 113.8 6.35 103.9 7.67
Other debt and equity securities     40.7   4.69   37.0   5.81   35.9   5.55   37.8   6.15   35.5   6.02
Total securities available for sale 187.7 4.92 168.6 5.81 163.5 5.94 171.7 6.18 158.3 7.05
Mortgages held for sale 34.6 4.49 30.7 4.73 38.7 4.51 45.1 4.39 38.1 4.72
Loans held for sale 1.0 5.21 1.4 5.05 1.0 4.88 1.1 5.15 3.2 2.71
Loans:
Commercial:
Commercial and industrial 159.6 4.22 153.6 4.60 150.0 4.65 147.9 4.71 146.1 4.57
Real estate mortgage 102.4 3.93 101.5 4.16 99.9 3.92 99.2 3.85 99.0 4.15
Real estate construction 20.5 6.12 22.0 4.64 24.3 4.26 26.9 3.68 29.5 3.31
Lease financing 13.0 7.21 12.9 7.72 13.0 7.83 13.0 9.00 13.2 9.07
Foreign     38.2   2.42   36.4   2.65   33.6   2.83   31.0   3.57   30.3   3.15
Total commercial     333.7   4.16   326.4   4.37   320.8   4.33   318.0   4.42   318.1   4.37
Consumer:
Real estate 1-4 family first mortgage 223.8 4.83 224.9 4.97 229.6 5.01 228.8 5.06 231.2 5.16
Real estate 1-4 family junior lien mortgage 89.1 4.37 91.9 4.25 94.7 4.35 97.7 4.37 100.3 4.41
Credit card 21.5 12.96 21.0 12.97 21.5 13.18 21.9 13.44 22.0 13.57
Other revolving credit and installment     86.5   6.25   87.1   6.32   87.5   6.36   87.3   6.48   87.9   6.50
Total consumer     420.9   5.44   424.9   5.48   433.3   5.54   435.7   5.61   441.4   5.68
Total loans 754.6 4.87 751.3 5.00 754.1 5.03 753.7 5.11 759.5 5.13
Other     4.8   4.18   5.0   4.10   5.2   3.90   5.3   3.93   6.0   3.53
Total earning assets   $ 1,119.5   4.43 % $ 1,093.5   4.64 % $ 1,083.3   4.73 % $ 1,082.8   4.87 % $ 1,064.9   5.01 %
Funding sources
Deposits:
Interest-bearing checking $ 44.0 0.07 % $ 53.3 0.09 % $ 58.5 0.10 % $ 60.9 0.09 % $ 59.7 0.10 %
Market rate and other savings 473.4 0.17 455.1 0.20 443.6 0.22 431.2 0.25 420.0 0.25
Savings certificates 67.6 1.47 72.1 1.42 74.4 1.39 79.1 1.43 85.0 1.50
Other time deposits 12.8 2.02 13.0 2.03 13.8 2.24 13.4 2.00 14.4 2.33
Deposits in foreign offices     63.5   0.23   57.9   0.23   57.5   0.23   55.5   0.21   52.1   0.24
Total interest-bearing deposits 661.3 0.34 651.4 0.37 647.8 0.38 640.1 0.41 631.2 0.45
Short-term borrowings 50.4 0.18 53.3 0.18 54.8 0.22 50.6 0.24 46.5 0.26
Long-term debt 139.5 2.81 145.5 2.78 150.1 2.95 160.8 2.86 177.1 2.76
Other liabilities     11.2   2.75   11.0   3.03   9.5   3.24   8.3   3.13   6.7   3.39
Total interest-bearing liabilities 862.4 0.76 861.2 0.80 862.2 0.85 859.8 0.89 861.5 0.94
Portion of noninterest-bearing funding sources     257.1   -   232.3   -   221.1   -   223.0   -   203.4   -
Total funding sources   $ 1,119.5     0.59 $ 1,093.5     0.63 $ 1,083.3     0.68 $ 1,082.8     0.71 $ 1,064.9     0.76

Net interest margin on a taxable-equivalent basis

3.84 % 4.01 % 4.05 % 4.16 % 4.25 %
Noninterest-earning assets
Cash and due from banks $ 17.1 17.4 17.4 18.0 17.0
Goodwill 25.0 24.8 24.8 24.8 24.8
Other     119.7     115.2     115.7     111.4     113.7  
Total noninterest-earnings assets   $ 161.8     157.4     157.9     154.2     155.5  
Noninterest-bearing funding sources
Deposits $ 221.2 199.3 193.1 197.9 184.8
Other liabilities 57.5 53.2 55.3 52.9 50.1
Total equity 140.2 137.2 130.6 126.4 124.0

Noninterest-bearing funding sources used to fund earning assets

    (257.1 )   (232.3 )   (221.1 )   (223.0 )   (203.4 )

Net noninterest-bearing funding sources

  $ 161.8     157.4     157.9     154.2     155.5  
Total assets   $ 1,281.3     1,250.9     1,241.2     1,237.0     1,220.4  
                                                           
 

(1) Our average prime rate was 3.25% for quarters ended September 30, June 30 and March 31, 2011, and December 31 and September 30, 2010. The average three-month London Interbank Offered Rate (LIBOR) was 0.30%, 0.26%, 0.31%, 0.29% and 0.39% for the same quarters, respectively.

 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER LOANS
         
(in millions) Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
    2011   2011   2011   2010   2010
Commercial:
Commercial and industrial $ 164,510 157,095 150,857 151,284 147,321
Real estate mortgage 104,363 101,458 101,084 99,435 98,755
Real estate construction 19,719 21,374 22,868 25,333 27,911
Lease financing 12,852 12,907 12,937 13,094 12,993
Foreign (1)     38,390   37,855   35,476   32,912   29,691
Total commercial     339,834   330,689   323,222   322,058   316,671
Consumer:
Real estate 1-4 family first mortgage 223,758 222,874 226,509 230,235 228,081
Real estate 1-4 family junior lien mortgage 88,264 89,947 93,041 96,149 99,060
Credit card 21,650 21,191 20,996 22,260 21,890
Other revolving credit and installment     86,600   87,220   87,387   86,565   87,962
Total consumer     420,272   421,232   427,933   435,209   436,993
Total loans (net of unearned income) (2)   $ 760,106   751,921   751,155   757,267   753,664
 

(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 $37.2 billion, $38.7 billion, $40.0 billion, $41.4 billion and $43.8 billion of purchased credit-impaired (PCI) loans at September 30, June 30 and March 31, 2011, and December 31 and September 30, 2010, respectively. See PURCHASED CREDIT-IMPAIRED (PCI) LOANS table for detail of PCI loans.

 
FIVE QUARTER NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)
         
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
(in millions)     2011     2011   2011   2010   2010
Nonaccrual loans:
Commercial:
Commercial and industrial $ 2,128 2,393 2,653 3,213 4,103
Real estate mortgage 4,429 4,691 5,239 5,227 5,079
Real estate construction 1,915 2,043 2,239 2,676 3,198
Lease financing 71 79 95 108 138
Foreign     68     59   86   127   126
Total commercial     8,611     9,265   10,312   11,351   12,644
Consumer:
Real estate 1-4 family first mortgage 11,024 11,427 12,143 12,289 12,969
Real estate 1-4 family junior lien mortgage 2,035 2,098 2,235 2,302 2,380
Other revolving credit and installment     230     255   275   300   312
Total consumer     13,289     13,780   14,653   14,891   15,661
Total nonaccrual loans (1)(2)(3)     21,900     23,045   24,965   26,242   28,305
As a percentage of total loans 2.88 % 3.06 3.32 3.47 3.76
Foreclosed assets:
GNMA (4) $ 1,336 1,320 1,457 1,479 1,492
Non-GNMA     3,608     3,541   4,055   4,530   4,635
Total foreclosed assets     4,944     4,861   5,512   6,009   6,127
Total nonperforming assets   $ 26,844     27,906   30,477   32,251   34,432
As a percentage of total loans 3.53 % 3.71 4.06 4.26 4.57
 
 

(1) Also includes nonaccrual mortgages held for sale and loans held for sale in their respective loan categories.

(2) Excludes loans acquired from Wachovia that are accounted for as 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 insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) and student loans primarily 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 since they are insured or guaranteed.

(4) Consistent with regulatory reporting requirements, foreclosed real estate securing Government National Mortgage Association (GNMA) loans is classified as nonperforming. Both principal and interest for GNMA loans secured by the foreclosed real estate are collectible because the GNMA loans are insured by the FHA or guaranteed by the VA.

 
Wells Fargo & Company and Subsidiaries
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
         
(in millions) Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
  2011   2011   2011   2010   2010
 
Total (excluding PCI)(1): $ 19,639 17,318 17,901 18,488 18,815
Less: FHA insured/guaranteed by the VA (2) 16,498 14,474 14,353 14,733 14,529
Less: Student loans guaranteed under the FFELP (3)     1,212   1,014   1,120   1,106   1,113
Total, not government insured/guaranteed   $ 1,929   1,830   2,428   2,649   3,173
 
By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial $ 108 110 338 308 222
Real estate mortgage 207 137 177 104 463
Real estate construction 57 86 156 193 332
Foreign     11   12   16   22   27
Total commercial     383   345   687   627   1,044
Consumer:
Real estate 1-4 family first mortgage (4) 819 728 858 941 1,016
Real estate 1-4 family junior lien mortgage (4) 255 286 325 366 361
Credit card 328 334 413 516 560
Other revolving credit and installment     144   137   145   199   192
Total consumer     1,546   1,485   1,741   2,022   2,129
Total, not government insured/guaranteed   $ 1,929   1,830   2,428   2,649   3,173
 

(1) The carrying value of purchased credit-impaired (PCI) loans contractually 90 days or more past due was $8.9 billion, $9.8 billion, $10.8 billion, $11.6 billion and $13.0 billion at September 30, June 30 and March 31, 2011, and December 31 and September 30, 2010, 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 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 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 a decrease in rate indices), 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)     2011   2010   2009   2008
Commercial:
Commercial and industrial $ 483 718 1,911 4,580
Real estate mortgage 2,808 2,855 4,137 5,803
Real estate construction 1,842 2,949 5,207 6,462
Foreign     1,418   1,413   1,733   1,859
Total commercial     6,551   7,935   12,988   18,704
Consumer:
Real estate 1-4 family first mortgage 30,446 33,245 38,386 39,214
Real estate 1-4 family junior lien mortgage 216 250 331 728
Other revolving credit and installment     -   -   -   151
Total consumer     30,662   33,495   38,717   40,093
Total PCI loans (carrying value)   $ 37,213   41,430   51,705   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 was 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.

                   
       
(in millions) Other
    Commercial   Pick-a-Pay   consumer   Total
Balance at December 31, 2008 $ 10,410 26,485 4,069 40,964
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (330 ) - - (330 )
Loans resolved by sales to third parties (2) (86 ) - (85 ) (171 )

Reclassification to accretable yield for loans with improving credit-related cash flows (3)

(138 ) (27 ) (276 ) (441 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (4,853 )   (10,218 )   (2,086 )   (17,157 )
Balance at December 31, 2009 5,003 16,240 1,622 22,865
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (817 ) - - (817 )
Loans resolved by sales to third parties (2) (172 ) - - (172 )

Reclassification to accretable yield for loans with improving credit-related cash flows (3)

(726 ) (2,356 ) (317 ) (3,399 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (1,698 )   (2,959 )   (391 )   (5,048 )
Balance at December 31, 2010 1,590 10,925 914 13,429
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (154 ) - - (154 )
Loans resolved by sales to third parties (2) (30 ) - - (30 )

Reclassification to accretable yield for loans with improving credit-related cash flows (3)

(297 ) - (21 ) (318 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (151 )   (1,282 )   (207 )   (1,640 )
Balance at September 30, 2011   $ 958     9,643     686     11,287  
                   

Balance at June 30, 2011

$ 1,192 10,136 733 12,061
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (65 ) - - (65 )
Loans resolved by sales to third parties (2) (5 ) - - (5 )

Reclassification to accretable yield for loans with improving credit-related cash flows (3)

(108 ) - - (108 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (56 )   (493 )   (47 )   (596 )
Balance at September 30, 2011   $ 958     9,643     686     11,287  
 

(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 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.

 
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 recognized in interest income using an effective yield method over the remaining life of the loan, or pool of loans. 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 regular evaluations of cash flows expected to be collected;
  • 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 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) Nine
Quarter months
ended ended
Sept. 30, Sept. 30, Year ended Dec. 31,
    2011   2011   2010   2009
Total, beginning of period $ 14,871 16,714 14,559 10,447
Accretion into interest income (1) (553 ) (1,655 ) (2,392 ) (2,601 )
Accretion into noninterest income due to sales (2) (3 ) (189 ) (43 ) (5 )

Reclassification from nonaccretable difference for loans with improving credit-related cash flows

108 318 3,399 441
Changes in expected cash flows that do not affect nonaccretable difference (3)     2,473     1,708     1,191     6,277  
Total, end of period   $ 16,896     16,896