Wells Fargo Reports Record Quarterly Net Income

Q2 Net Income of $5.5 Billion; EPS of $0.98, Up 20 Percent from Prior Year

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

  • Continued strong financial results:
    • Record Wells Fargo net income of $5.5 billion, up 19 percent from second quarter 2012
    • Record diluted earnings per share of $0.98, up 20 percent
    • Revenue of $21.4 billion, up $89 million
    • Noninterest expense of $12.3 billion, down $142 million
      • 57.3 percent efficiency ratio, improved from 58.2 percent
    • Pre-tax pre-provision profit (PTPP)1 of $9.1 billion, up 3 percent
    • Return on average assets (ROA) of 1.55 percent, up 14 basis points
    • Return on equity (ROE) of 14.02 percent, up 116 basis points
  • Continued loan and deposit growth:
    • Total average loans of $800.2 billion, up $32.0 billion from second quarter 2012
      • Quarter-end loans of $802.0 billion, up $26.8 billion
      • Quarter-end core loans2 of $714.4 billion, up $42.3 billion
    • Total average core deposits of $936.1 billion, up $55.5 billion from second quarter 2012
      • Quarter-end core deposits of $941.2 billion, up $59.0 billion
  • Significant improvement in credit quality:
    • Net charge-offs of $1.2 billion, down $1.0 billion from second quarter 2012
      • Net charge-off rate of 0.58 percent (annualized), lowest since second quarter 20063
    • Non-performing assets of $21.1 billion, down $3.8 billion from second quarter 2012
    • $500 million (pre-tax) reserve release4 due to continued strong credit performance
  • Strengthened capital levels; increased dividends and continued share repurchases:
    • Tier 1 common equity5 under Basel I increased $15.9 billion from second quarter 2012 to $117.6 billion, with Tier 1 common equity ratio of 10.73 percent under Basel I at June 30, 2013
    • Estimated Tier 1 common equity ratio of 8.54 percent under Basel III capital rules6
    • Increased quarterly common stock dividend to $0.30 per share in second quarter 2013
    • Purchased 26.7 million shares of common stock in second quarter 2013 and an additional estimated 13 million shares through a forward repurchase transaction expected to settle in third quarter 2013
 
1 See footnote (2) on table Summary Financial Data 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 As a result of the accounting for purchased credit-impaired (PCI) loans, substantially all related to the Wachovia merger, certain credit-related metrics may not be directly comparable with periods prior to the merger.
4 Reserve release represents the amount by which net charge-offs exceed the provision for credit losses.
5 See tables on TIER 1 COMMON EQUITY for more information on Tier 1 common equity.
6 Estimated based on management’s interpretation of final rules adopted July 2, 2013, by the Federal Reserve Board establishing a new comprehensive capital framework for U.S. banking organizations that would implement the Basel III capital framework and certain provisions of the Dodd-Frank Act.
 
 
Selected Financial Information
 
 
 

Quarter ended

June 30,   Mar. 31,   June 30,
    2013     2013   2012
Earnings
Diluted earnings per common share $ 0.98 0.92 0.82
Wells Fargo net income (in billions) 5.52 5.17 4.62
Return on assets (ROA) 1.55 % 1.49 1.41
Return on equity (ROE) 14.02 13.59 12.86
 
Asset Quality
Net charge-offs (annualized) as a % of avg. total loans 0.58 0.72 1.15
Allowance as a % of total loans 2.07 2.15 2.41
Allowance as a % of annualized net charge-offs 360 299 211
 
Other
Revenue (in billions) $ 21.4 21.3 21.3
Efficiency ratio 57.3 % 58.3 58.2
Average loans (in billions) $ 800.2 798.1 768.2
Average core deposits (in billions) 936.1 925.9 880.6
Net interest margin 3.46 % 3.48 3.91
 
 

Wells Fargo & Company (NYSE:WFC) reported record net income of $5.5 billion, or $0.98 per diluted common share, for second quarter 2013, up from $4.6 billion, or $0.82 per share, for second quarter 2012, and up from $5.2 billion, or $0.92 per share, for first quarter 2013. For the first six months of 2013, net income was a record $10.7 billion, or $1.90 per share, compared with $8.9 billion, or $1.57 per share, for the same period in 2012.

“Wells Fargo achieved outstanding results for the second quarter, with our diluted EPS growing for the 14th consecutive quarter and our returns on assets and equity increasing from second quarter 2012 and first quarter 2013,” said Chairman and CEO John Stumpf. “Our results reflected the strength of our diversified business model. Compared with the prior quarter, we grew loans, deposits, and net interest income, and both our efficiency ratio and credit quality improved. Wells Fargo again demonstrated an ability to grow during a dynamic economic and interest rate environment, and we feel very well positioned to continue to perform for our shareholders over the long term.”

Chief Financial Officer Tim Sloan said, “Solid performance in the quarter reflected the strength of our broad and diverse franchise. Linked quarter we grew revenue, with higher net interest income as we grew loans and invested in securities. In addition, expenses and net charge-offs were lower in the quarter and we continued to grow capital. Our estimated Tier 1 common equity ratio under the Basel III capital rules adopted July 2, 2013, increased to 8.54 percent this quarter, despite the increase in market interest rates late in the quarter which reduced unrealized security gains and negatively impacted the ratio by 24 basis points. That’s a testament to the earnings power of Wells Fargo.”

Revenue

Revenue was $21.4 billion, up from $21.3 billion in first quarter 2013. Total revenue increased due to growth in net interest income, while growth in noninterest income fee categories, driven by trust and investment fees, was offset by lower market sensitive revenue7 and other income. Businesses generating year-over-year double-digit revenue growth included asset-backed finance, capital markets, corporate banking, credit card, personal credit management, real estate capital markets, retail brokerage, retail sales finance, retirement services, and small business administration loans.

7 Includes net gains from trading activities, net gains (losses) on debt securities available for sale and net gains from equity investments.

Net Interest Income

Net interest income in second quarter 2013 increased $251 million on a linked-quarter basis to $10.8 billion largely due to higher interest income from the available-for-sale (AFS) securities portfolio as we purchased $21.1 billion in securities, largely consisting of agency mortgage-backed securities (MBS), during the quarter. The portfolio yield improved as prepayments of existing MBS slowed. In addition, we benefitted modestly from organic growth in consumer and commercial loans and income from purchased credit-impaired (PCI) loan resolutions which mitigated the impact of loan portfolio repricing. Net interest income also improved as deposit and long term funding interest expense declined $74 million, and we benefitted from an additional day in the quarter.

On a linked-quarter basis, the Company’s net interest margin declined 2 basis points to 3.46 percent. Linked-quarter deposit growth caused cash and short term investments to grow despite growth in other earning asset categories including loans and AFS securities. Although deposit growth has little impact on net interest income, it is dilutive to net interest margin and accounted for 6 basis points of compression. Approximately 2 basis points of the decline was offset by higher income from variable sources, including PCI loan resolutions and periodic dividends. The net impact of repricing and growth of the balance sheet this quarter also improved net interest margin approximately 2 basis points compared with the first quarter largely due to the benefit of higher AFS securities portfolio income and reduced funding costs.

Noninterest Income

Noninterest income was $10.6 billion, down slightly from first quarter 2013. Fee income was up in many of the Company’s core businesses, including solid increases in trust and investment fees, lease income, equity gains, card and other fees, service charges on deposit accounts, and insurance. These increases were more than offset by lower trading income, including lower deferred compensation gains (offset in employee benefits expense), and lower other income, primarily lower income from investments accounted for under the equity method and a first quarter gain on sale of PCI loans.

Mortgage banking noninterest income was $2.8 billion, in line with first quarter 2013. During the second quarter, residential mortgage originations were $112 billion, up slightly from $109 billion in first quarter 2013, however gain on sale margins declined as expected. The Company provided $65 million for mortgage loan repurchase losses, compared with $309 million in first quarter 2013 (included in net gains from mortgage loan origination/sales activities). Net mortgage servicing rights (MSRs) results were $68 million, compared with $129 million in first quarter 2013.

The Company had net unrealized securities gains of $5.1 billion at June 30, 2013, down from $11.2 billion at March 31, 2013, as market interest rates increased late in the quarter.

Noninterest Expense

Noninterest expense declined $145 million from the prior quarter primarily due to lower employee benefits which were seasonally elevated in first quarter 2013. This decline was partially offset by higher salaries, revenue-based incentive compensation, outside professional services, operating losses, and seasonally higher advertising and promotion expense. The efficiency ratio improved to 57.3 percent in second quarter 2013, compared with 58.3 percent in first quarter 2013. The Company expects to continue to operate within its targeted efficiency ratio range of 55 to 59 percent in third quarter 2013.

Loans

Total loans were $802.0 billion at June 30, 2013, up $2.0 billion from March 31, 2013, driven by growth in commercial and industrial, auto, foreign, credit card, and non-conforming first mortgage, partially offset by decreases in junior lien mortgage and commercial real estate mortgage, and a decline of $3.3 billion due to the continued runoff in the liquidating/non-strategic portfolio. Total average loans were $800.2 billion, up $2.2 billion from the prior quarter. The asset-backed finance, commercial banking, corporate banking, credit card, government and institutional banking, mortgage, personal credit management, real estate capital markets, retail brokerage, and retail sales finance portfolios all experienced year-over-year, double-digit growth.

           
                         
June 30, 2013 March 31, 2013
(in millions)   Core   Liquidating (1)   Total   Core   Liquidating (1)   Total
Commercial $ 360,940 2,532 363,472 358,944 2,770 361,714
Consumer     353,470   85,032     438,502   350,131   88,121     438,252
Total loans   $ 714,410   87,564     801,974   709,075   90,891     799,966
 
Change from prior quarter:   $ 5,335   (3,327 )   2,008   4,063   (3,671 )   392
 

(1) See NON-STRATEGIC AND LIQUIDATING LOAN PORTFOLIOS table for additional information on non-strategic/liquidating loan portfolios. Management believes that the above information provides useful disclosure regarding the Company’s ongoing loan portfolios.

Deposits

Total average deposits were $1.0 trillion, up 9 percent from a year ago and up 10 percent (annualized) from first quarter 2013. Average core deposits were $936.1 billion, up 6 percent from a year ago and up 4 percent (annualized) from first quarter 2013. Average core checking and savings deposits were $883.5 billion, up 8 percent from a year ago and up 6 percent (annualized) from first quarter 2013. Average mortgage escrow deposits increased to $39.6 billion, compared with $35.4 billion a year ago and $38.8 billion in first quarter 2013. Average core checking and savings deposits were 94 percent of average core deposits. The average deposit cost for second quarter 2013 improved to 14 basis points, compared with 15 basis points in the prior quarter and 19 basis points a year ago. Average core deposits were 117 percent of average loans, up slightly from first quarter 2013.

Capital

Capital increased in the second quarter, with Tier 1 common equity of $117.6 billion under Basel I, or 10.73 percent of risk-weighted assets, compared with 10.08 percent in second quarter 2012 and 10.39 percent in first quarter 2013. Under the Basel III capital rules adopted July 2, 2013, the Tier 1 common equity ratio was an estimated 8.54 percent.8 In second quarter 2013, the Company purchased 26.7 million shares of its common stock and an additional estimated 13 million shares through a forward repurchase transaction expected to settle in third quarter 2013. The Company also increased its quarterly common stock dividend to $0.30 per share, up from $0.22 a year ago.

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

 
  June 30,   Mar. 31,   June 30,
(as a percent of total risk-weighted assets)   2013     2013   2012
Ratios under Basel I (1):
Tier 1 common equity (2) 10.73 % 10.39 10.08
Tier 1 capital 12.14 11.80 11.69
Tier 1 leverage 9.63 9.53 9.25
               
 
(1) June 30, 2013, ratios are preliminary.

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

 

Credit Quality

“Credit performance was very strong in the second quarter with improvement in all key metrics,” said Chief Risk Officer Mike Loughlin. “Credit losses were $1.2 billion in second quarter 2013, compared with $2.2 billion in second quarter 2012, representing a 48 percent year-over-year improvement. The quarterly loss rate fell to 0.58 percent with commercial losses of only 5 basis points and consumer losses of 1.01 percent. The consumer loss levels have improved rapidly due primarily to the positive momentum in the residential real estate market, with home prices improving faster and in more markets than expected. Nonperforming assets declined by $1.8 billion, or 8 percent from last quarter. We released $500 million from the allowance for credit losses in the second quarter, reflecting improvement in home prices and credit performance. We continue to expect future reserve releases absent a significant deterioration in the economic environment,” said Loughlin.

Net Loan Charge-offs

Net loan charge-offs improved to $1.2 billion in second quarter 2013, or 58 basis points of average loans, compared with $1.4 billion in first quarter 2013, or 72 basis points of average loans.

         
Net Loan Charge-Offs
 
  Quarter ended  
    June 30, 2013     Mar. 31, 2013     Dec. 31, 2012  
As a As a As a
Net loan % of Net loan % of Net loan % of
charge-

 

average

charge-

 

average

charge-

 

average

($ in millions)   offs     loans (1)     offs     loans (1)     offs     loans (1)  
 
Commercial:
Commercial and industrial $ 77 0.17 % $ 93 0.20 % $ 209 0.46

%

Real estate mortgage (5 ) (0.02 ) 29 0.11 38 0.14
Real estate construction (45 ) (1.10 ) (34 ) (0.83 ) (18 ) (0.43 )
Lease financing 18 0.57 (1 ) (0.02 ) 2 0.04
Foreign     (1 ) (0.01 )   3   0.03   24   0.25
Total commercial     44   0.05   90   0.10   255   0.29
 
Consumer:
Real estate 1-4 family first mortgage 328 0.52 429 0.69 649 1.05
Real estate 1-4 family junior lien mortgage 359 2.02 449 2.46 690 3.57
Credit card 234 3.90 235 3.96 222 3.71
Automobile 42 0.35 76 0.66 112 0.97
Other revolving credit and installment     145   1.38   140   1.37   153   1.46
Total consumer     1,108   1.01   1,329   1.23   1,826   1.68
Total   $ 1,152   0.58 % $ 1,419   0.72 % $ 2,081   1.05

%

                                         
 

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

 

Nonperforming Assets

Nonperforming assets decreased by $1.8 billion in the quarter to $21.1 billion, compared with $22.9 billion in first quarter 2013. Nonaccrual loans decreased to $17.9 billion from $19.5 billion in first quarter 2013. Foreclosed assets were $3.1 billion, down from $3.4 billion in first quarter 2013.

 
Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
 
    June 30, 2013       Mar. 31, 2013       Dec. 31, 2012  
    As a       As a       As a  
% of % of % of
Total total Total total Total total
($ in millions)   balances   loans       balances   loans       balances   loans  
 
Commercial:
Commercial and industrial $ 1,022 0.54 % $ 1,193 0.64 % $ 1,422 0.76 %
Real estate mortgage 2,708 2.59 3,098 2.92 3,322 3.12
Real estate construction 665 4.04 870 5.23 1,003 5.93
Lease financing 20 0.17 25 0.20 27 0.22
Foreign     40   0.10   56   0.14   50   0.13
Total commercial     4,455   1.23   5,242   1.45   5,824   1.61
 
Consumer:
Real estate 1-4 family first mortgage 10,705 4.23 11,320 4.49 11,455 4.58
Real estate 1-4 family junior lien mortgage 2,522 3.60 2,712 3.74 2,922 3.87
Automobile 200 0.41 220 0.47 245 0.53
Other revolving credit and installment     33   0.08   32   0.08   40   0.09
Total consumer     13,460   3.07   14,284   3.26   14,662   3.34
Total nonaccrual loans     17,915   2.23   19,526   2.44   20,486   2.56
 
Foreclosed assets:
GNMA 1,026 969 1,509
Non GNMA     2,114     2,381     2,514  
Total foreclosed assets     3,140     3,350     4,023  
Total nonperforming assets   $ 21,055   2.63 % $ 22,876   2.86 % $ 24,509   3.07 %
 
Change from prior quarter:
Total nonaccrual loans $ (1,611 ) $ (960 ) $ (558 )
Total nonperforming assets (1,821 ) (1,633 ) (744 )

 

     
 

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 $1.2 billion at June 30, 2013, compared with $1.4 billion at March 31, 2013. Loans 90 days or more past due and still accruing with repayments insured by the Federal Housing Administration (FHA) or predominantly guaranteed by the Department of Veterans Affairs (VA) for mortgages and the U.S. Department of Education for student loans under the Federal Family Education Loan Program were $21.0 billion at June 30, 2013, down slightly from $21.7 billion at March 31, 2013.

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled $16.6 billion at June 30, 2013, down from $17.2 billion at March 31, 2013. The allowance coverage to total loans was 2.07 percent, compared with 2.15 percent in first quarter 2013. The allowance covered 3.6 times annualized second quarter net charge-offs, compared with 3.0 times in the prior quarter. The allowance coverage to nonaccrual loans was 93 percent at June 30, 2013, compared with 88 percent at March 31, 2013. “We believe the allowance was appropriate for losses inherent in the loan portfolio at June 30, 2013,” said Loughlin.

Business Segment Performance

Wells Fargo defines its operating segments by product type and customer segment. Segment net income for each of the three business segments was:

 
  Quarter ended
June 30,   Mar. 31,   June 30,
(in millions)     2013   2013   2012
Community Banking $ 3,245 2,924 2,535
Wholesale Banking 2,004 2,045 1,881
Wealth, Brokerage and Retirement     434   337   343
 

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

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including checking and savings accounts, credit and debit cards, and auto, student, and small business lending. Community Banking also offers investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Lending business units.

     

Selected Financial Information

Quarter ended
June 30, Mar. 31, June 30,
(in millions)     2013   2013   2012
Total revenue $ 12,942 12,899 13,092
Provision for credit losses 763 1,262 1,573
Noninterest expense 7,213 7,377 7,580
Segment net income 3,245 2,924 2,535
 
(in billions)
Average loans 498.2 498.9 483.9
Average assets 820.9 799.6 746.6
Average core deposits     623.0   619.2   586.1
 

Community Banking reported net income of $3.2 billion, up $321 million, or 11 percent, from first quarter 2013. Revenue increased $43 million, or 0.3 percent, primarily due to higher net interest income and mortgage banking revenue, growth in deposit service charges, and higher debit, credit and merchant card volumes, partially offset by lower deferred compensation plan investment gains (offset in employee benefits expense). Noninterest expense declined $164 million, or 2 percent, largely due to lower deferred compensation expense (offset in revenue) and seasonally lower employee benefit costs, partially offset by higher operating losses. The provision for credit losses was $499 million lower than first quarter 2013 as net-charge offs declined $183 million and portfolio credit performance improved, particularly in residential real estate.

Net income was up $710 million, or 28 percent, from second quarter 2012. Revenue decreased $150 million, or 1 percent, from second quarter 2012, due to lower net interest income, mortgage banking revenue and other noninterest income, mostly offset by growth in deposit service charges, higher trust and investment fees, and higher debit, credit and merchant card volumes. Noninterest expense declined $367 million, or 5 percent, largely driven by lower operating losses and FDIC deposit insurance assessments. The provision for credit losses decreased $810 million from a year ago as net-charge offs declined $765 million and portfolio credit performance improved, largely in the residential real estate portfolios.

Regional Banking

  • Retail banking
    • Retail Bank household cross-sell ratio of 6.14 products per household, up from 6.00 year-over-year9
    • Primary consumer checking customers10 up a net 3.5 percent year-over-year9
    • Consumer credit card, lines of credit and loan product solutions (sales) in the retail banking stores in second quarter were up 17 percent from the prior year
    • Customers rated their experience with Wells Fargo stores at an all-time high based on second quarter survey results
    • Platform banker FTE (active, full-time equivalent) grew by approximately 1,900 from the prior year
  • Small Business/Business Banking
    • Business checking accounts up a net 2.7 percent year-over-year9
    • Business Direct credit card, lines of credit and loan product solutions (primarily under $100,000 sold through our retail banking stores) in second quarter were up 55 percent from the prior year
    • $9.3 billion in new loan commitments to small business customers (primarily with annual revenues less than $20 million) in first half of 2013, up 25 percent from the prior year
    • Named U.S. Small business Administration’s 2013 SBA 7(a) Large Lender of the Year
  • Online and Mobile Banking
    • 22.7 million active online customers, up 8 percent year-over-year9
    • 10.7 million active mobile customers, up 29 percent year-over-year9

Consumer Lending Group

  • Home Lending
    • Originations of $112 billion, compared with $109 billion in prior quarter
    • Applications of $146 billion, compared with $140 billion in prior quarter
    • Application pipeline of $63 billion at quarter end, compared with $74 billion at March 31, 2013
    • Residential mortgage servicing portfolio of $1.9 trillion; ratio of MSRs to related loans serviced for others was 81 basis points, compared with 70 basis points in prior quarter
    • Average note rate on the servicing portfolio was 4.59 percent, compared with 4.69 percent in prior quarter
  • Consumer Credit Solutions
    • Credit card penetration in retail banking households rose to 34.9 percent9, up from 31.0 percent in prior year
    • Record auto originations of $7.1 billion, up 4 percent from prior quarter and up 9 percent from prior year
 
9 Data as of May 2013, comparisons with May 2012.
10 Customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit.
 

Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $20 million. Products and business segments include Middle Market Commercial Banking, Government and Institutional Banking, Corporate Banking, Commercial Real Estate, Treasury Management, Wells Fargo Capital Finance, Insurance, International, Real Estate Capital Markets, Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, Asset Backed Finance, and Asset Management.

     

Selected Financial Information

Quarter ended
June 30, Mar. 31, June 30,
(in millions)     2013     2013     2012
Total revenue $ 6,135 6,086 6,117
Provision (reversal of provision) for credit losses (118 ) (58 ) 188
Noninterest expense 3,183 3,091 3,113
Segment net income 2,004 2,045 1,881
 
(in billions)
Average loans 286.9 284.5 270.2
Average assets 499.9 496.1 478.4
Average core deposits     230.5     224.1     220.9

 

Wholesale Banking reported net income of $2.0 billion, down $41 million, or 2 percent, from first quarter 2013. Revenue of $6.1 billion increased $49 million, or 1 percent, from first quarter 2013 as strong growth across many businesses, including commercial banking, corporate banking, investment banking and international were partially offset by lower equity gains as well as lower sales and trading results. Noninterest expense increased $92 million, or 3 percent, from first quarter 2013 primarily from higher variable personnel expense.

Net income was up $123 million, or 7 percent, from second quarter 2012. Revenue increased $18 million, or 0.3 percent, from second quarter 2012 driven by business growth and strong loan and deposit growth, partially offset by a decline in PCI resolution income. Noninterest expense increased $70 million, or 2 percent, from second quarter 2012 due to higher personnel expenses related to revenue growth partially offset by lower foreclosed asset expenses. The provision for credit losses decreased $306 million from second quarter 2012 due to a $246 million reduction in credit losses and $60 million of additional reserve release. The second quarter 2013 provision included a $35 million reserve release, compared with a $25 million reserve build a year ago.

  • Six percent year-over-year average loan and 4 percent average asset growth in second quarter 2013. Growth came from nearly all portfolios, including asset backed finance, capital finance, commercial banking, commercial real estate, corporate banking and government and institutional banking
  • Second quarter 2013 average core deposits up 4 percent from second quarter 2012
  • Investment banking year-to-date 2013 revenue from commercial and corporate customers increased 34 percent from year-to-date 2012 due to attractive capital markets conditions and continued momentum in cross selling
  • Cross-sell of 6.9 products per relationship improved from 6.8 in prior quarter
  • Second quarter 2013 treasury management revenue up 12 percent from second quarter 2012

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

     

Selected Financial Information

Quarter ended
June 30, Mar. 31, June 30,
(in millions)     2013   2013   2012
Total revenue $ 3,261 3,197 2,971
Provision for credit losses 19 14 37
Noninterest expense 2,542 2,639 2,376
Segment net income 434 337 343
 
(in billions)
Average loans 45.4 43.8 42.5
Average assets 177.1 180.3 160.9
Average core deposits     146.4   149.4   134.2
 

Wealth, Brokerage and Retirement reported net income of $434 million, up 29 percent from first quarter 2013. Total revenue of $3.3 billion was up 2 percent from first quarter 2013 predominantly due to higher asset-based fees and net interest income, partially offset by lower gains on deferred compensation plan investments (offset in compensation expense). Total provision for credit losses increased $5 million from first quarter 2013. The provision in second and first quarter 2013 included a $5 million and $6 million credit reserve release, respectively. Noninterest expense decreased 4 percent from first quarter 2013. The decrease was primarily due to the seasonal impact of the first quarter 2013 personnel expenses and a decrease in deferred compensation plan expense (offset in trading income), partially offset by increased broker commissions.

Net income was up 27 percent from second quarter 2012. Total revenue was up 10 percent from second quarter 2012 driven by strong growth in asset-based fees and increased brokerage transaction revenue, partially offset by reduced securities gains in the brokerage business. Total provision for credit losses decreased $18 million from second quarter 2012; the provision in second quarter 2012 included a $10 million credit reserve release. Noninterest expense increased 7 percent from second quarter 2012 largely due to higher personnel expenses, primarily broker commissions.

Retail Brokerage

  • Client assets of $1.3 trillion, up 9 percent from prior year
  • Managed account assets increased $52 billion, or 19 percent, from prior year driven by strong net flows and market performance
  • Strong deposit growth, with average balances up 13 percent from prior year

Wealth Management

  • Client assets of $203 billion, up 3 percent from prior year

Retirement

  • IRA assets of $315 billion, up 12 percent from prior year
  • Institutional Retirement plan assets of $277 billion, up 11 percent from prior year

Conference Call

The Company will host a live conference call on Friday, July 12, at 7 a.m. PDT (10 a.m. EDT). To access the call, please dial 866-872-5161 (U.S. and Canada) or 706-643-1962 (International). No password is required. The call is also available online at wellsfargo.com/invest_relations/earnings and http://us.meeting-stream.com/wellsfargocompany_071213.

A replay of the conference call will be available beginning at approximately noon PDT (3 p.m. EDT) on July 12 through Friday, July 19. Please dial 855-859-2056 (U.S. and Canada) or 404-537-3406 (International) and enter Conference ID #12657627. The replay will also be available online at wellsfargo.com/invest_relations/earnings.

Cautionary Statement about Forward-Looking Information

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

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

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

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

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

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

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.4 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, and the Internet (wellsfargo.com), and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With more than 275,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 26 on Fortune’s 2012 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.

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

Summary Information

Summary Financial Data 17-18
 

Income

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

Balance Sheet

Consolidated Balance Sheet 26-27
Five Quarter Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) 28
Securities Available for Sale 29
 

Loans

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

 

Equity

Tier 1 Common Equity 38
 

Operating Segments

Operating Segment Results 39-40
 

Other

Mortgage Servicing and other related data 41-43
     
 
 
Wells Fargo & Company and Subsidiaries
SUMMARY FINANCIAL DATA      
 
          % Change      
  Quarter ended June 30, 2013 from     Six months ended
June 30, March 31, June 30, March 31,   June 30, June 30, June 30, %
($ in millions, except per share amounts)     2013       2013   2012   2013       2012       2013   2012   Change  
For the Period
Wells Fargo net income $ 5,519 5,171 4,622 7 % 19 $ 10,690 8,870 21 %

Wells Fargo net income applicable to common stock

5,272 4,931 4,403 7 20 10,203 8,425 21
Diluted earnings per common share 0.98 0.92 0.82 7 20 1.90 1.57 21
Profitability ratios (annualized):

Wells Fargo net income to average assets (ROA)

1.55 % 1.49 1.41 4 10 1.52 1.36 12

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

14.02 13.59 12.86 3 9 13.81 12.51 10
Efficiency ratio (1) 57.3 58.3 58.2 (2 ) (2 ) 57.8 59.1 (2 )
Total revenue $ 21,378 21,259 21,289 1 - $ 42,637 42,925 (1 )
Pre-tax pre-provision profit (PTPP) (2) 9,123 8,859 8,892 3 3 17,982 17,535 3
Dividends declared per common share 0.30 0.25 0.22 20 36 0.55 0.44 25
Average common shares outstanding 5,304.7 5,279.0 5,306.9 - - 5,291.9 5,294.9 -
Diluted average common shares outstanding 5,384.6 5,353.5 5,369.9 1 - 5,369.9 5,354.3 -
Average loans $ 800,241 798,074 768,223 - 4 $ 799,164 768,403 4
Average assets 1,429,005 1,404,334 1,321,584 2 8 1,416,741 1,312,252 8
Average core deposits (3) 936,090 925,866 880,636 1 6 931,006 875,576 6
Average retail core deposits (4) 666,043 662,913 624,329 - 7 664,487 620,445 7
Net interest margin 3.46 % 3.48 3.91 (1 ) (12 ) 3.47 3.91 (11 )
At Period End
Securities available for sale $ 249,439 248,160 226,846 1 10 $ 249,439 226,846 10
Loans 801,974 799,966 775,199 - 3 801,974 775,199 3
Allowance for loan losses 16,144 16,711 18,320 (3 ) (12 ) 16,144 18,320 (12 )
Goodwill 25,637 25,637 25,406 - 1 25,637 25,406 1
Assets 1,440,563 1,436,634 1,336,204 - 8 1,440,563 1,336,204 8
Core deposits (3) 941,158 939,934 882,137 - 7 941,158 882,137 7
Wells Fargo stockholders' equity 162,421 162,086 148,070 - 10 162,421 148,070 10
Total equity 163,777 163,395 149,437 - 10 163,777 149,437 10
Capital ratios:
Total equity to assets 11.37 % 11.37 11.18 - 2 11.37 11.18 2
Risk-based capital (5):
Tier 1 capital 12.14 11.80 11.69 3 4 12.14 11.69 4
Total capital 15.06 14.76 14.85 2 1 15.06 14.85 1
Tier 1 leverage (5) 9.63 9.53 9.25 1 4 9.63 9.25 4
Tier 1 common equity (5)(6) 10.73 10.39 10.08 3 6 10.73 10.08 6
Common shares outstanding 5,302.2 5,288.8 5,275.7 - 1 5,302.2 5,275.7 1
Book value per common share $ 28.26 28.27 26.06 - 8 $ 28.26 26.06 8
Common stock price:
High 41.74 38.20 34.59 9 21 41.74 34.59 21
Low 36.19 34.43 29.80 5 21 34.43 27.94 23
Period end 41.27 36.99 33.44 12 23 41.27 33.44 23
Team members (active, full-time equivalent) 274,300 274,300 264,400 - 4 274,300 264,400 4
                                                 
 
(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 June 30, 2013, ratios are preliminary.
(6) See the "Five Quarter Tier 1 Common Equity Under Basel I" table for additional information.
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER SUMMARY FINANCIAL DATA
 
      Quarter ended
June 30,   Mar. 31,   Dec. 31,   Sep. 30,   June 30,
($ in millions, except per share amounts)     2013     2013   2012   2012   2012
For the Quarter
Wells Fargo net income $ 5,519 5,171 5,090 4,937 4,622
Wells Fargo net income applicable to common stock 5,272 4,931 4,857 4,717 4,403
Diluted earnings per common share 0.98 0.92 0.91 0.88 0.82
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA) 1.55 % 1.49 1.46 1.45 1.41
Wells Fargo net income applicable to common stock to average
Wells Fargo common stockholders' equity (ROE) 14.02 13.59 13.35 13.38 12.86
Efficiency ratio (1) 57.3 58.3 58.8 57.1 58.2
Total revenue $ 21,378 21,259 21,948 21,213 21,289
Pre-tax pre-provision profit (PTPP) (2) 9,123 8,859 9,052 9,101 8,892
Dividends declared per common share 0.30 0.25 0.22 0.22 0.22
Average common shares outstanding 5,304.7 5,279.0 5,272.4 5,288.1 5,306.9
Diluted average common shares outstanding 5,384.6 5,353.5 5,338.7 5,355.6 5,369.9
Average loans $ 800,241 798,074 787,210 776,734 768,223
Average assets 1,429,005 1,404,334 1,387,056 1,354,340 1,321,584
Average core deposits (3) 936,090 925,866 928,824 895,374 880,636
Average retail core deposits (4) 666,043 662,913 646,145 630,053 624,329
Net interest margin 3.46 % 3.48 3.56 3.66 3.91
At Quarter End
Securities available for sale $ 249,439 248,160 235,199 229,350 226,846
Loans 801,974 799,966 799,574 782,630 775,199
Allowance for loan losses 16,144 16,711 17,060 17,385 18,320
Goodwill 25,637 25,637 25,637 25,637 25,406
Assets 1,440,563 1,436,634 1,422,968 1,374,715 1,336,204
Core deposits (3) 941,158 939,934 945,749 901,075 882,137
Wells Fargo stockholders' equity 162,421 162,086 157,554 154,679 148,070
Total equity 163,777 163,395 158,911 156,059 149,437
Capital ratios:
Total equity to assets 11.37 % 11.37 11.17 11.35 11.18
Risk-based capital (5):
Tier 1 capital 12.14 11.80 11.75 11.50 11.69
Total capital 15.06 14.76 14.63 14.51 14.85
Tier 1 leverage (5) 9.63 9.53 9.47 9.40 9.25
Tier 1 common equity (5)(6) 10.73 10.39 10.12 9.92 10.08
Common shares outstanding 5,302.2 5,288.8 5,266.3 5,289.6 5,275.7
Book value per common share $ 28.26 28.27 27.64 27.10 26.06
Common stock price:
High 41.74 38.20 36.34 36.60 34.59
Low 36.19 34.43 31.25 32.62 29.80
Period end 41.27 36.99 34.18 34.53 33.44
Team members (active, full-time equivalent) 274,300 274,300 269,200 267,000 264,400
 
 
(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 June 30, 2013, ratios are preliminary.
(6) See the "Five Quarter Tier 1 Common Equity under Basel I" table for additional information.
 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
 
          Six months  
Quarter ended June 30, % ended June 30, %
(in millions, except per share amounts)     2013     2012     Change       2013     2012     Change  
Interest income  
Trading assets $ 340 343 (1 )% $ 667 720 (7 )%
Securities available for sale 2,034 2,147 (5 ) 3,959 4,235 (7 )
Mortgages held for sale 378 477 (21 ) 749 936 (20 )
Loans held for sale 4 12 (67 ) 7 21 (67 )
Loans 8,902 9,242 (4 ) 17,763 18,439 (4 )
Other interest income     169     133   27   332     258   29
  Total interest income     11,827     12,354   (4 )   23,477     24,609   (5 )
Interest expense
Deposits 353 443 (20 ) 722 900 (20 )
Short-term borrowings 17 20 (15 ) 37 36 3
Long-term debt 632 789 (20 ) 1,329 1,619 (18 )
Other interest expense     75     65   15   140     129   9
  Total interest expense     1,077     1,317   (18 )   2,228     2,684   (17 )
Net interest income 10,750 11,037 (3 ) 21,249 21,925 (3 )

Provision for credit losses

   

652

   

1,800

 

(64

)

1,871

   

3,795

 

(51

)

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses     10,098     9,237   9   19,378     18,130   7
Noninterest income
Service charges on deposit accounts 1,248 1,139 10 2,462 2,223 11
Trust and investment fees 3,494 2,898 21 6,696 5,737 17
Card fees 813 704 15 1,551 1,358 14
Other fees 1,089 1,134 (4 ) 2,123 2,229 (5 )
Mortgage banking 2,802 2,893 (3 ) 5,596 5,763 (3 )
Insurance 485 522 (7 ) 948 1,041 (9 )
Net gains from trading activities 331 263 26 901 903 -
Net losses on debt securities available for sale (54 ) (61 ) (11 ) (9 ) (68 ) (87 )
Net gains from equity investments 203 242 (16 ) 316 606 (48 )
Lease income 225 120 88 355 179 98
Other     (8 )   398   NM   449     1,029   (56 )
  Total noninterest income     10,628     10,252   4   21,388     21,000   2
Noninterest expense
Salaries 3,768 3,705 2 7,431 7,306 2
Commission and incentive compensation 2,626 2,354 12 5,203 4,771 9
Employee benefits 1,118 1,049 7 2,701 2,657 2
Equipment 418 459 (9 ) 946 1,016 (7 )
Net occupancy 716 698 3 1,435 1,402 2
Core deposit and other intangibles 377 418 (10 ) 754 837 (10 )
FDIC and other deposit assessments 259 333 (22 ) 551 690 (20 )
Other     2,973     3,381   (12 )   5,634     6,711   (16 )
  Total noninterest expense     12,255     12,397   (1 )   24,655     25,390   (3 )
Income before income tax expense 8,471 7,092 19 16,111 13,740 17
Income tax expense     2,863     2,371   21   5,283     4,699   12
Net income before noncontrolling interests 5,608 4,721 19 10,828 9,041 20
Less: Net income from noncontrolling interests     89     99   (10 )   138     171   (19 )
Wells Fargo net income   $ 5,519     4,622   19 $ 10,690     8,870   21
Less: Preferred stock dividends and other     247     219   13   487     445   9
Wells Fargo net income applicable to common stock   $ 5,272     4,403   20 $ 10,203     8,425   21
Per share information
Earnings per common share $ 1.00 0.83 20 $ 1.93 1.59 21
Diluted earnings per common share 0.98 0.82 20 1.90 1.57 21
Dividends declared per common share 0.30 0.22 36 0.55 0.44 25
Average common shares outstanding 5,304.7 5,306.9 - 5,291.9 5,294.9 -
Diluted average common shares outstanding 5,384.6 5,369.9 - 5,369.9 5,354.3 -
                                   
 
NM - Not meaningful
 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
            Six months  
Quarter ended June 30, % ended June 30, %
(in millions)     2013     2012     Change     2013     2012     Change
Wells Fargo net income   $ 5,519     4,622   19 % $ 10,690     8,870   21 %
Other comprehensive income, before tax:  
Foreign currency translation adjustments:
Net unrealized losses arising during the period (21 ) (56 ) (63 ) (39 ) (46 ) (15 )
Reclassification of net gains to net income (15 ) (10 ) 50 (15 ) (10 ) 50
Securities available for sale:
Net unrealized gains (losses) arising during the period (6,130 ) 831 NM (6,764 ) 2,705 NM
Reclassification of net losses (gains) to net income 30 (23 ) NM (83 ) (249 ) (67 )
Derivatives and hedging activities:
Net unrealized gains (losses) arising during the period (10 ) (3 ) 233 (3 ) 39 NM

Reclassification of net gains on cash flow hedges to net income

(69 ) (99 ) (30 ) (156 ) (206 ) (24 )
Defined benefit plans adjustments:
Net actuarial gains (losses) arising during the period 772 (12 ) NM 778 (17 ) NM
   

Amortization of net actuarial loss, settlements and other costs to net income

    113     40   183   162     76   113
Other comprehensive income (loss), before tax (5,330 ) 668 NM (6,120 ) 2,292 NM
Income tax (expense) benefit related to other comprehensive income     1,979     (255 ) NM   2,267     (866 ) NM
Other comprehensive income (loss), net of tax (3,351 ) 413 NM (3,853 ) 1,426 NM
Less: Other comprehensive income (loss) from noncontrolling interests     (3 )   -   NM   -     4   (100 )
Wells Fargo other comprehensive income (loss), net of tax     (3,348 )   413   NM   (3,853 )   1,422   NM
 
Wells Fargo comprehensive income 2,171 5,035 (57 ) 6,837 10,292 (34 )
Comprehensive income from noncontrolling interests     86     99   (13 )   138     175   (21 )
Total comprehensive income   $ 2,257     5,134     (56 )   $ 6,975     10,467     (33 )
 
NM - Not meaningful
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
 
  Six months ended June 30,
(in millions)     2013     2012  
Balance, beginning of period $ 158,911   141,687
Cumulative effect of fair value election for certain residential mortgage servicing rights     -     2  
Balance, beginning of period - adjusted 158,911 141,689
Wells Fargo net income 10,690 8,870
Wells Fargo other comprehensive income (loss), net of tax (3,853 ) 1,422
Common stock issued 1,799 1,311
Common stock repurchased (1,936 ) (2,101 )
Preferred stock released by ESOP 720 677
Preferred stock issued 610 -
Common stock dividends (2,911 ) (2,336 )
Preferred stock dividends and other (487 ) (445 )
Noncontrolling interests and other, net     234     350  
Balance, end of period   $ 163,777     149,437  
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED STATEMENT OF INCOME  
 
          Quarter ended  
June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
(in millions, except per share amounts)     2013     2013   2012     2012   2012  
Interest income
Trading assets $ 340 327 339 299 343
Securities available for sale 2,034 1,925 1,897 1,966 2,147
Mortgages held for sale 378 371 413 476 477
Loans held for sale 4 3 3 17 12
Loans 8,902 8,861 9,027 9,016 9,242
Other interest income     169     163   178     151   133  
  Total interest income     11,827     11,650   11,857     11,925   12,354  
Interest expense
Deposits 353 369 399 428 443
Short-term borrowings 17 20 24 19 20
Long-term debt 632 697 735 756 789
Other interest expense     75     65   56     60   65  
  Total interest expense     1,077     1,151   1,214     1,263   1,317  
Net interest income 10,750 10,499 10,643 10,662 11,037
Provision for credit losses     652     1,219   1,831     1,591   1,800  
Net interest income after provision for credit losses     10,098     9,280   8,812     9,071   9,237  
Noninterest income
Service charges on deposit accounts 1,248 1,214 1,250 1,210 1,139
Trust and investment fees 3,494 3,202 3,199 2,954 2,898
Card fees 813 738 736 744 704
Other fees 1,089 1,034 1,193 1,097 1,134
Mortgage banking 2,802 2,794 3,068 2,807 2,893
Insurance 485 463 395 414 522
Net gains from trading activities 331 570 275 529 263
Net gains (losses) on debt securities available for sale (54 ) 45 (63 ) 3 (61 )
Net gains from equity investments 203 113 715 164 242
Lease income 225 130 170 218 120
Other     (8 )   457   367     411   398  
  Total noninterest income     10,628     10,760   11,305     10,551   10,252  
Noninterest expense
Salaries 3,768 3,663 3,735 3,648 3,705
Commission and incentive compensation 2,626 2,577 2,365 2,368 2,354
Employee benefits 1,118 1,583 891 1,063 1,049
Equipment 418 528 542 510 459
Net occupancy 716 719 728 727 698
Core deposit and other intangibles 377 377 418 419 418
FDIC and other deposit assessments 259 292 307 359 333
Other     2,973     2,661   3,910     3,018   3,381  
  Total noninterest expense     12,255     12,400   12,896     12,112   12,397  
Income before income tax expense 8,471 7,640 7,221 7,510 7,092
Income tax expense     2,863     2,420   1,924     2,480   2,371  
Net income before noncontrolling interests 5,608 5,220 5,297 5,030 4,721
Less: Net income from noncontrolling interests     89     49   207     93   99  
Wells Fargo net income   $ 5,519     5,171   5,090     4,937   4,622  
Less: Preferred stock dividends and other     247     240   233     220   219  
Wells Fargo net income applicable to common stock   $ 5,272     4,931   4,857     4,717   4,403  
Per share information
Earnings per common share $ 1.00 0.93 0.92 0.89 0.83
Diluted earnings per common share 0.98 0.92 0.91 0.88 0.82
Dividends declared per common share 0.30 0.25 0.22 0.22 0.22
Average common shares outstanding 5,304.7 5,279.0 5,272.4 5,288.1 5,306.9
Diluted average common shares outstanding 5,384.6 5,353.5 5,338.7 5,355.6 5,369.9
                             
 
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)

 

 

 

Quarter ended June 30,

2013

 

2012

   

Interest

   

Interest

Average

Yields/

income/

Average

Yields/

income/

(in millions)

   

balance

   

rates

     

expense

 

balance

   

rates

     

expense

Earning assets

 

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

$ 136,484 0.33 % $ 113 71,250 0.47 % $ 83
Trading assets 46,622 2.98 347 42,614 3.27 348
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 6,684 1.73 29 1,954 1.60 8
Securities of U.S. states and political subdivisions 39,267 4.42 434 34,560 4.39 379
Mortgage-backed securities:
  Federal agencies 102,007 2.79 711 95,031 3.37 800
    Residential and commercial     31,315   6.50   509 33,870   6.97   591
  Total mortgage-backed securities 133,322 3.66 1,220 128,901 4.32 1,391
  Other debt and equity securities     55,533   3.84   531 48,915   4.39   535
  Total securities available for sale 234,806 3.77 2,214 214,330 4.32 2,313
Mortgages held for sale (4) 43,422 3.48 378 49,528 3.86 477
Loans held for sale (4) 177 7.85 4 833 5.48 12
Loans:
Commercial:
Commercial and industrial 186,130 3.69 1,714 171,776 4.21 1,801
Real estate mortgage 105,261 3.92 1,029 105,509 4.60 1,208
Real estate construction 16,458 5.02 206 17,943 4.96 221
Lease financing 12,338 6.66 206 12,890 6.86 221
    Foreign     42,273   2.23 235 38,917   2.57   249
      Total commercial     362,460   3.75 3,390 347,035   4.28   3,700
Consumer:
Real estate 1-4 family first mortgage 252,558 4.23 2,671 230,065 4.62 2,658
Real estate 1-4 family junior lien mortgage 71,376 4.29 764 82,076 4.30 878
Credit card 24,023 12.55 752 22,065 12.70 697
Automobile 47,942 7.05 842 44,625 7.59 842
    Other revolving credit and installment     41,882   4.74   495 42,357   4.51   475
      Total consumer     437,781   5.05   5,524 421,188   5.29   5,550
Total loans (4) 800,241 4.46 8,914 768,223 4.83 9,250
Other     4,151   5.55   57 4,486   4.56   51
          Total earning assets   $ 1,265,903   3.80 % $ 12,027 1,151,264   4.37 % $ 12,534
Funding sources
Deposits:
Interest-bearing checking $ 40,422 0.06 % $ 6 30,440 0.07 % $ 5
Market rate and other savings 541,843 0.08 111 500,327 0.12 152
Savings certificates 52,552 1.23 161 60,341 1.34 200
Other time deposits 26,045 0.76 50 12,803 1.83 59
  Deposits in foreign offices     68,871   0.15   25 65,587   0.17   27
Total interest-bearing deposits 729,733 0.19 353 669,498 0.27 443
Short-term borrowings 57,812 0.14 21 51,698 0.19 24
Long-term debt 125,496 2.02 632 127,660 2.48 789
Other liabilities     13,315   2.25   75 10,408   2.48   65
Total interest-bearing liabilities 926,356 0.47 1,081 859,264 0.62 1,321
Portion of noninterest-bearing funding sources     339,547   -   - 292,000   -   -
          Total funding sources   $ 1,265,903     0.34     1,081 1,151,264     0.46     1,321

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

3.46 %   $ 10,946 3.91 %   $ 11,213
Noninterest-earning assets
Cash and due from banks $ 16,214 16,200
Goodwill 25,637 25,332
Other     121,251   128,788  
          Total noninterest-earning assets   $ 163,102   170,320  
Noninterest-bearing funding sources
Deposits $ 280,029 254,442
Other liabilities 57,959 58,441
Total equity 164,661 149,437
Noninterest-bearing funding sources used to fund earning assets     (339,547 ) (292,000 )
          Net noninterest-bearing funding sources   $ 163,102   170,320  
            Total assets   $ 1,429,005   1,321,584  
 
 
(1) Our average prime rate was 3.25% for the quarters ended June 30, 2013 and 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.28% and 0.47% for the same quarters, respectively.
(2) Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3) Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.
(4) Nonaccrual loans and related income are included in their respective loan categories.
(5) Includes taxable-equivalent adjustments of $196 million and $176 million for the quarters ended June 30, 2013 and 2012, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.
 
Wells Fargo & Company and Subsidiaries
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
 
          Six months ended June 30,
2013   2012
    Interest     Interest
Average Yields/ income/ Average Yields/ income/
(in millions)     balance     rates       expense   balance  

 

rates       expense
Earning assets

 

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

$ 128,797 0.35 % $ 221 63,635 0.49 % $ 156
Trading assets 44,388 3.07 681 43,190 3.39 731
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies 6,880 1.65 56 3,875 1.13 22
Securities of U.S. states and political subdivisions 38,430 4.40 844 33,578 4.45 747
Mortgage-backed securities:
Federal agencies 98,705 2.77 1,365 93,165 3.43 1,597
    Residential and commercial     31,726   6.48   1,028 34,201   6.89   1,178
Total mortgage-backed securities 130,431 3.67 2,393 127,366 4.36 2,775
  Other debt and equity securities     54,634   3.71   1,008 49,658   4.10   1,015
Total securities available for sale 230,375 3.74 4,301 214,477 4.26 4,559
Mortgages held for sale (4) 43,367 3.45 749 48,218 3.88 936
Loans held for sale (4) 159 8.28 7 790 5.29 21
Loans:
Commercial:
Commercial and industrial 185,327 3.71 3,414 169,279 4.20 3,534
Real estate mortgage 105,738 3.88 2,035 105,750 4.33 2,280
Real estate construction 16,508 4.93 404 18,337 4.87 444
Lease financing 12,381 6.72 416 13,009 7.89 513
    Foreign     41,093   2.19   448 40,042   2.54   507
      Total commercial     361,047   3.75   6,717 346,417   4.22   7,278
Consumer:
Real estate 1-4 family first mortgage 252,305 4.26 5,374 229,859 4.66 5,346
Real estate 1-4 family junior lien mortgage 72,715 4.29 1,548 83,397 4.28 1,778
Credit card 24,060 12.58 1,502 22,097 12.81 1,408
Automobile 47,258 7.12 1,668 44,155 7.69 1,688
    Other revolving credit and installment     41,779   4.72   977 42,478   4.54   958
      Total consumer     438,117   5.08   11,069 421,986   5.31   11,178
Total loans (4) 799,164 4.47 17,786 768,403 4.82 18,456
Other     4,203   5.37   112 4,545   4.49   103
          Total earning assets   $ 1,250,453   3.83 % $ 23,857 1,143,258   4.38 % $ 24,962
Funding sources
Deposits:
Interest-bearing checking $ 36,316 0.06 % $ 11 31,299 0.06 % $ 10
Market rate and other savings 539,708 0.09 233 498,177 0.12 305
Savings certificates 53,887 1.23 328 61,515 1.35 413
Other time deposits 21,003 0.95 99 12,727 1.88 119
  Deposits in foreign offices     69,968   0.15   51 65,217   0.16   53
Total interest-bearing deposits 720,882 0.20 722 668,935 0.27 900
Short-term borrowings 56,618 0.16 44 50,040 0.17 43
Long-term debt 126,299 2.11 1,329 127,599 2.54 1,619
Other liabilities     12,467   2.24   140 10,105   2.55   129
Total interest-bearing liabilities 916,266 0.49 2,235 856,679 0.63 2,691
Portion of noninterest-bearing funding sources     334,187   -   - 286,579   -   -
          Total funding sources   $ 1,250,453     0.36   2,235 1,143,258     0.47   2,691

 

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

3.47 %   $ 21,622 3.91 %   $ 22,271
Noninterest-earning assets
Cash and due from banks $ 16,371 16,587
Goodwill 25,638 25,230
Other     124,279   127,177  
          Total noninterest-earning assets   $ 166,288   168,994  
Noninterest-bearing funding sources
Deposits $ 277,141 250,528
Other liabilities 60,784 57,821
Total equity 162,550 147,224
Noninterest-bearing funding sources used to fund earning assets     (334,187 ) (286,579 )
          Net noninterest-bearing funding sources   $ 166,288   168,994  
            Total assets   $ 1,416,741   1,312,252  
                                                   
 
(1) Our average prime rate was 3.25% for the six months ended June 30, 2013 and 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.28% and 0.49% for the same periods, respectively.
(2) Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3) Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.
(4) Nonaccrual loans and related income are included in their respective loan categories.
(5) Includes taxable-equivalent adjustments of $373 million and $346 million for the six months ended June 30, 2013 and 2012, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for the periods presented.
 
Wells Fargo & Company and Subsidiaries
NONINTEREST INCOME
 
          Six months  
Quarter ended June 30, % ended June 30, %
(in millions)   2013     2012     Change     2013     2012     Change
Service charges on deposit accounts $ 1,248 1,139 10 % $ 2,462   2,223 11 %
Trust and investment fees:
Brokerage advisory, commissions and other fees (1) 2,127 1,845 15 4,177 3,675 14
Trust and investment management (1) 829 762 9 1,628 1,514 8
  Investment banking   538     291   85   891     548   63
    Total trust and investment fees   3,494     2,898   21   6,696     5,737   17
Card fees 813 704 15 1,551 1,358 14
Other fees:
Charges and fees on loans 387 427 (9 ) 771 872 (12 )
Merchant processing fees 174 157 11 328 282 16
Cash network fees 125 120 4 242 238 2
Commercial real estate brokerage commissions 73 82 (11 ) 118 132 (11 )
Letters of credit fees 102 108 (6 ) 211 220 (4 )
  All other fees   228     240   (5 )   453     485   (7 )
    Total other fees   1,089     1,134   (4 )   2,123     2,229   (5 )
Mortgage banking:
Servicing income, net 393 679 (42 ) 707 931 (24 )
  Net gains on mortgage loan origination/sales activities   2,409     2,214   9   4,889     4,832   1
    Total mortgage banking   2,802     2,893   (3 )   5,596     5,763   (3 )
Insurance 485 522 (7 ) 948 1,041 (9 )
Net gains from trading activities 331 263 26 901 903 -
Net losses on debt securities available for sale (54 ) (61 ) (11 ) (9 ) (68 ) (87 )
Net gains from equity investments 203 242 (16 ) 316 606 (48 )
Lease income 225 120 88 355 179 98
Life insurance investment income 142 154 (8 ) 287 322 (11 )
All other   (150 )   244   NM   162     707   (77 )
      Total $ 10,628     10,252     4     $ 21,388     21,000     2  
 
NM - Not meaningful
(1) The prior year periods have been revised to reflect all fund distribution fees as brokerage related income.
 
NONINTEREST EXPENSE
 
                Six months  
Quarter ended June 30, %   ended June 30, %
(in millions)   2013   2012   Change     2013   2012   Change
Salaries $ 3,768 3,705 2

%

$ 7,431   7,306 2

%

Commission and incentive compensation 2,626 2,354 12 5,203 4,771 9
Employee benefits 1,118 1,049 7 2,701 2,657 2
Equipment 418 459 (9 ) 946 1,016 (7 )
Net occupancy 716 698 3 1,435 1,402 2
Core deposit and other intangibles 377 418 (10 ) 754 837 (10 )
FDIC and other deposit assessments 259 333 (22 ) 551 690 (20 )
Outside professional services 607 658 (8 ) 1,142 1,252 (9 )
Operating losses 288 524 (45 ) 445 1,001 (56 )
Foreclosed assets 146 289 (49 ) 341 593 (42 )
Contract services 226 236 (4 ) 433 539 (20 )
Outside data processing 235 233 1 468 449 4
Travel and entertainment 229 218 5 442 420 5
Postage, stationery and supplies 184 195 (6 ) 383 411 (7 )
Advertising and promotion 183 144 27 288 266 8
Telecommunications 125 127 (2 ) 248 251 (1 )
Insurance 143 183 (22 ) 280 340 (18 )
Operating leases 49 27 81 97 55 76
All other   558   547 2   1,067   1,134 (6 )
  Total $ 12,255   12,397   (1 )   $ 24,655   25,390   (3 )
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER NONINTEREST INCOME
 
      Quarter ended  
June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
(in millions)   2013     2013   2012     2012   2012  
Service charges on deposit accounts $ 1,248 1,214 1,250 1,210 1,139
Trust and investment fees:
Brokerage advisory, commissions and other fees (1) 2,127 2,050 1,962 1,887 1,845
Trust and investment management (1) 829 799 797 769 762
  Investment banking   538     353   440     298   291  
    Total trust and investment fees   3,494     3,202   3,199     2,954   2,898  
Card fees 813 738 736 744 704
Other fees:
Charges and fees on loans 387 384 448 426 427
Merchant processing fees 174 154 151 150 157
Cash network fees 125 117 112 120 120
Commercial real estate brokerage commissions 73 45 119 56 82
Letters of credit fees 102 109 107 114 108
  All other fees   228     225   256     231   240  
    Total other fees   1,089     1,034   1,193     1,097   1,134  
Mortgage banking:
Servicing income, net 393 314 250 197 679
  Net gains on mortgage loan origination/sales activities   2,409     2,480   2,818     2,610   2,214  
    Total mortgage banking   2,802     2,794   3,068     2,807   2,893  
Insurance 485 463 395 414 522
Net gains from trading activities 331 570 275 529 263
Net gains (losses) on debt securities available for sale (54 ) 45 (63 ) 3 (61 )
Net gains from equity investments 203 113 715 164 242
Lease income 225 130 170 218 120
Life insurance investment income 142 145 276 159 154
All other   (150 )   312   91     252   244  
      Total $ 10,628     10,760   11,305     10,551   10,252  
 
(1) Prior year periods have been revised to reflect all fund distribution fees as brokerage related income.
 
FIVE QUARTER NONINTEREST EXPENSE
 
            Quarter ended
June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
(in millions)   2013   2013   2012   2012   2012
Salaries $ 3,768 3,663 3,735 3,648 3,705
Commission and incentive compensation 2,626 2,577 2,365 2,368 2,354
Employee benefits 1,118 1,583 891 1,063 1,049
Equipment 418 528 542 510 459
Net occupancy 716 719 728 727 698
Core deposit and other intangibles 377 377 418 419 418
FDIC and other deposit assessments 259 292 307 359 333
Outside professional services 607 535 744 733 658
Operating losses 288 157 953 281 524
Foreclosed assets 146 195 221 247 289
Contract services 226 207 235 237 236
Outside data processing 235 233 227 234 233
Travel and entertainment 229 213 211 208 218
Postage, stationery and supplies 184 199 192 196 195
Advertising and promotion 183 105 142 170 144
Telecommunications 125 123 122 127 127
Insurance 143 137 62 51 183
Operating leases 49 48 27 27 27
All other   558   509   774   507   547
  Total $ 12,255   12,400   12,896   12,112   12,397
 
Wells Fargo & Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
 
            June 30,   Dec. 31,   %
(in millions, except shares)     2013    

2012

    Change
Assets
Cash and due from banks $ 17,939 21,860 (18 )%
Federal funds sold, securities purchased under resale agreements and other short-term investments 148,665 137,313 8
Trading assets 58,619 57,482 2
Securities available for sale 249,439 235,199 6
Mortgages held for sale (includes $35,402 and $42,305 carried at fair value) 38,785 47,149 (18 )
Loans held for sale (includes $2 and $6 carried at fair value) 190 110 73
 
Loans (includes $6,088 and $6,206 carried at fair value) 801,974 799,574 -
Allowance for loan losses     (16,144 )   (17,060 ) (5 )
  Net loans     785,830     782,514   -
Mortgage servicing rights:
Measured at fair value 14,185 11,538 23
Amortized 1,176 1,160 1
Premises and equipment, net 9,190 9,428 (3 )
Goodwill 25,637 25,637 -
Other assets (includes $556 and $0 carried at fair value)     90,908     93,578   (3 )
        Total assets   $ 1,440,563     1,422,968   1
Liabilities
Noninterest-bearing deposits $ 277,648 288,207 (4 )
Interest-bearing deposits     743,937     714,628   4
Total deposits 1,021,585 1,002,835 2
Short-term borrowings 56,983 57,175 -
Accrued expenses and other liabilities 74,843 76,668 (2 )
Long-term debt (includes $0 and $1 carried at fair value)     123,375     127,379   (3 )
      Total liabilities     1,276,786     1,264,057   1
Equity
Wells Fargo stockholders' equity:
Preferred stock 13,988 12,883 9

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

9,136 9,136 -
Additional paid-in capital 59,945 59,802 -
Retained earnings 84,923 77,679 9
Cumulative other comprehensive income 1,797 5,650 (68 )
Treasury stock – 179,654,752 shares and 215,497,298 shares (5,858 ) (6,610 ) (11 )
  Unearned ESOP shares     (1,510 )   (986 ) 53
Total Wells Fargo stockholders' equity 162,421 157,554 3
Noncontrolling interests     1,356     1,357   -
      Total equity     163,777     158,911   3
        Total liabilities and equity   $ 1,440,563     1,422,968     1  
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CONSOLIDATED BALANCE SHEET
                   
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013     2013     2012     2012     2012  
Assets
Cash and due from banks $ 17,939 16,217 21,860 16,986 16,811

 

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

148,665 143,804 137,313 100,442 74,635
Trading assets 58,619 62,274 57,482 60,592 64,419
Securities available for sale 249,439 248,160 235,199 229,350 226,846
Mortgages held for sale 38,785 46,702 47,149 50,337 50,462
Loans held for sale 190 194 110 298 853
 
Loans 801,974 799,966 799,574 782,630 775,199
Allowance for loan losses     (16,144 )   (16,711 )   (17,060 )   (17,385 )   (18,320 )
  Net loans     785,830     783,255     782,514     765,245     756,879  
Mortgage servicing rights:
Measured at fair value 14,185 12,061 11,538 10,956 12,081
Amortized 1,176 1,181 1,160 1,144 1,130
Premises and equipment, net 9,190 9,263 9,428 9,165 9,317
Goodwill 25,637 25,637 25,637 25,637 25,406
Other assets     90,908     87,886     93,578     104,563     97,365  
        Total assets   $ 1,440,563     1,436,634     1,422,968     1,374,715     1,336,204  
Liabilities
Noninterest-bearing deposits $ 277,648 278,909 288,207 268,991 253,999
Interest-bearing deposits     743,937     731,824     714,628     683,248     674,934  
Total deposits 1,021,585 1,010,733 1,002,835 952,239 928,933
Short-term borrowings 56,983 60,693 57,175 51,957 56,023
Accrued expenses and other liabilities 74,843 75,622 76,668 83,659 76,827
Long-term debt     123,375     126,191     127,379     130,801     124,984  
      Total liabilities     1,276,786     1,273,239     1,264,057     1,218,656     1,186,767  
Equity
Wells Fargo stockholders' equity:
Preferred stock 13,988 14,412 12,883 12,283 11,694
Common stock 9,136 9,136 9,136 9,105 9,054
Additional paid-in capital 59,945 60,136 59,802 59,089 58,091
Retained earnings 84,923 81,264 77,679 73,994 70,456
Cumulative other comprehensive income 1,797 5,145 5,650 6,435 4,629
Treasury stock (5,858 ) (6,036 ) (6,610 ) (5,186 ) (4,638 )
  Unearned ESOP shares     (1,510 )   (1,971 )   (986 )   (1,041 )   (1,216 )
Total Wells Fargo stockholders' equity 162,421 162,086 157,554 154,679 148,070
Noncontrolling interests     1,356     1,309     1,357     1,380     1,367  
      Total equity     163,777     163,395     158,911     156,059     149,437  
        Total liabilities and equity   $ 1,440,563     1,436,634     1,422,968     1,374,715     1,336,204  
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)
 
              Quarter ended
June 30, 2013     Mar. 31, 2013     Dec. 31, 2012     Sept. 30, 2012     June 30, 2012
Average   Yields/   Average   Yields/   Average   Yields/   Average   Yields/   Average   Yields/
($ in billions)   balance   rates     balance   rates     balance   rates     balance   rates     balance   rates
Earning assets

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

$ 136.5 0.33 % $ 121.0 0.36 % $ 117.1 0.41 % $ 91.6 0.44 % $ 71.3 0.47 %
Trading assets 46.6 2.98 42.1 3.17 42.0 3.28 39.5 3.08 42.6 3.27
Securities available for sale (2):
Securities of U.S. Treasury and federal agencies 6.7 1.73 7.1 1.56 5.3 1.64 1.4 1.05 2.0 1.60
Securities of U.S. states and political subdivisions 39.3 4.42 37.6 4.38 36.4 4.64 35.9 4.36 34.5 4.39
Mortgage-backed securities:
Federal agencies 102.0 2.79 95.4 2.74 90.9 2.71 94.3 2.88 95.0 3.37
    Residential and commercial     31.3   6.50   32.1   6.46   32.7   6.53   33.1   6.67   33.9   6.97
Total mortgage-backed securities 133.3 3.66 127.5 3.68 123.6 3.72 127.4 3.87 128.9 4.32
  Other debt and equity securities     55.5   3.84   53.7   3.58   50.0   3.91   47.7   4.07   48.9   4.39
Total securities available for sale 234.8 3.77 225.9 3.70 215.3 3.87 212.4 3.98 214.3 4.32
Mortgages held for sale 43.4 3.48 43.3 3.42 47.2 3.50 52.1 3.65 49.5 3.86
Loans held for sale 0.2 7.85 0.1 8.83 0.1 9.03 0.9 7.38 0.9 5.48
Loans:
Commercial:
Commercial and industrial 186.1 3.69 184.5 3.73 179.5 3.85 177.5 3.84 171.8 4.21
Real estate mortgage 105.3 3.92 106.2 3.84 105.1 4.02 105.1 4.05 105.5 4.60
Real estate construction 16.4 5.02 16.6 4.84 17.5 4.97 17.7 5.21 17.9 4.96
Lease financing 12.3 6.66 12.4 6.78 12.4 6.43 12.6 6.60 12.9 6.86
    Foreign     42.3   2.23   39.9   2.16   39.7   2.32   39.7   2.46   38.9   2.57
      Total commercial     362.4   3.75   359.6   3.74   354.2   3.87   352.6   3.91   347.0   4.28
Consumer:
Real estate 1-4 family first mortgage 252.6 4.23 252.0 4.29 244.6 4.39 234.0 4.51 230.0 4.62
Real estate 1-4 family junior lien mortgage 71.4 4.29 74.1 4.28 76.9 4.28 79.7 4.26 82.1 4.30
Credit card 24.0 12.55 24.1 12.62 23.9 12.43 23.0 12.64 22.1 12.70
Automobile 47.9 7.05 46.6 7.20 46.0 7.34 45.7 7.44 44.6 7.59
    Other revolving credit and installment     41.9   4.74   41.7   4.70   41.6   4.63   41.7   4.58   42.4   4.51
      Total consumer     437.8   5.05   438.5   5.10   433.0   5.15   424.1   5.23   421.2   5.29
Total loans 800.2 4.46 798.1 4.49 787.2 4.58 776.7 4.63 768.2 4.83
Other     4.2   5.55   4.3   5.19   4.3   5.21   4.4   4.62   4.5   4.56
          Total earning assets   $ 1,265.9   3.80 % $ 1,234.8   3.86 % $ 1,213.2   3.96 % $ 1,177.6   4.09 % $ 1,151.3   4.37 %
Funding sources
Deposits:
Interest-bearing checking $ 40.4 0.06 % $ 32.2 0.06 % $ 30.9 0.06 % $ 28.8 0.06 % $ 30.4 0.07 %
Market rate and other savings 541.8 0.08 537.5 0.09 518.6 0.10 506.1 0.12 500.3 0.12
Savings certificates 52.6 1.23 55.2 1.22 56.7 1.27 58.2 1.29 60.4 1.34
Other time deposits 26.0 0.76 15.9 1.25 13.6 1.51 14.4 1.49 12.8 1.83
  Deposits in foreign offices     68.9   0.15   71.1   0.14   69.4   0.15   71.8   0.16   65.6   0.17
Total interest-bearing deposits 729.7 0.19 711.9 0.21 689.2 0.23 679.3 0.25 669.5 0.27
Short-term borrowings 57.8 0.14 55.4 0.17 52.8 0.21 51.9 0.17 51.7 0.19
Long-term debt 125.5 2.02 127.1 2.20 127.5 2.30 127.5 2.37 127.7 2.48
Other liabilities     13.3   2.25   11.6   2.24   10.0   2.27   9.9   2.40   10.4   2.48
Total interest-bearing liabilities 926.3 0.47 906.0 0.51 879.5 0.55 868.6 0.58 859.3 0.62
Portion of noninterest-bearing funding sources     339.6   -   328.8   -   333.7   -   309.0   -   292.0   -
          Total funding sources   $ 1,265.9     0.34 $ 1,234.8     0.38 $ 1,213.2     0.40 $ 1,177.6     0.43 $ 1,151.3     0.46  

Net interest margin on a taxable-equivalent basis

3.46 % 3.48 % 3.56 % 3.66 % 3.91 %
Noninterest-earning assets
Cash and due from banks $ 16.2 16.5 16.4 15.7 16.2
Goodwill 25.6 25.6 25.6 25.5 25.3
Other     121.3     127.4     131.9     135.5     128.8  
          Total noninterest-earnings assets   $ 163.1     169.5     173.9     176.7     170.3  
Noninterest-bearing funding sources
Deposits $ 280.0 274.2 286.9 267.2 254.5
Other liabilities 58.0 63.7 63.1 66.1 58.4
Total equity 164.7 160.4 157.6 152.4 149.4

Noninterest-bearing funding sources used to fund earning assets

    (339.6 )   (328.8 )   (333.7 )   (309.0 )   (292.0 )
         

Net noninterest-bearing funding sources

  $ 163.1     169.5     173.9     176.7     170.3  
            Total assets   $ 1,429.0     1,404.3     1,387.1     1,354.3     1,321.6  
                                                                       
 
(1) Our average prime rate was 3.25% for quarters ended June 30 and March 31, 2013, and December 31, September 30 and June 30, 2012. The average three-month London Interbank Offered Rate (LIBOR) was 0.28%, 0.29%, 0.32%, 0.43% and 0.47% for the same quarters, respectively.
(2) Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.
Wells Fargo & Company and Subsidiaries
FIVE QUARTER SECURITIES AVAILABLE FOR SALE
                     
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013   2013   2012   2012   2012
Securities of U.S. Treasury and federal agencies $ 6,383 6,884 7,146 1,869 1,493
Securities of U.S. states and political subdivisions 40,890 40,456 38,676 37,925 37,251
Mortgage-backed securities:
Federal agencies 110,561 105,472 97,285 102,713 101,863
  Residential and commercial     33,423   35,179   35,899   36,098   35,646
Total mortgage-backed securities 143,984 140,651 133,184 138,811 137,509
Other debt securities     55,425   57,390   53,408   47,993   47,746
Total debt securities available for sale 246,682 245,381 232,414 226,598 223,999
Marketable equity securities     2,757   2,779   2,785   2,752   2,847
        Total securities available for sale   $ 249,439   248,160   235,199   229,350   226,846
         
FIVE QUARTER LOANS                      
   
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013   2013   2012   2012   2012
Commercial:
Commercial and industrial $ 188,758 185,623 187,759 178,191 177,646
Real estate mortgage 104,673 106,119 106,340 104,611 105,666
Real estate construction 16,442 16,650 16,904 17,710 17,594
Lease financing 11,766 12,402 12,424 12,279 12,729
  Foreign (1)     41,833   40,920   37,771   39,741   40,417
    Total commercial     363,472   361,714   361,198   352,532   354,052
Consumer:
Real estate 1-4 family first mortgage 252,841 252,307 249,900 240,554 230,263
Real estate 1-4 family junior lien mortgage 70,059 72,543 75,465 78,091 80,881
Credit card 24,815 24,120 24,640 23,692 22,706
Automobile 48,648 47,259 45,998 46,044 45,180
  Other revolving credit and installment     42,139   42,023   42,373   41,717   42,117
    Total consumer     438,502   438,252   438,376   430,098   421,147
      Total loans (2)   $ 801,974   799,966   799,574   782,630   775,199
 
(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 $28.8 billion, $29.7 billion, $31.0 billion, $32.5 billion and $33.8 billion of purchased credit-impaired (PCI) loans at June 30 and March 31, 2013, and December 31, September 30 and June 30, 2012, respectively. See the PCI loans table for detail of PCI loans.
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)
                 
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013     2013   2012   2012   2012
Nonaccrual loans:
Commercial:
Commercial and industrial $ 1,022 1,193 1,422 1,404 1,549
Real estate mortgage 2,708 3,098 3,322 3,599 3,832
Real estate construction 665 870 1,003 1,253 1,421
Lease financing 20 25 27 49 43
    Foreign     40     56   50   66   79
      Total commercial     4,455     5,242   5,824   6,371   6,924
Consumer:
Real estate 1-4 family first mortgage 10,705 11,320 11,455 11,195 10,368
Real estate 1-4 family junior lien mortgage 2,522 2,712 2,922 3,140 3,091
Automobile 200 220 245 295 164
    Other revolving credit and installment     33     32   40   43   31
      Total consumer (1)     13,460     14,284   14,662   14,673   13,654
        Total nonaccrual loans (2)(3)(4)     17,915     19,526   20,486   21,044   20,578
As a percentage of total loans 2.23 % 2.44 2.56 2.69 2.65
Foreclosed assets:
Government insured/guaranteed (5) $ 1,026 969 1,509 1,479 1,465
  Non-government insured/guaranteed     2,114     2,381   2,514   2,730   2,842
        Total foreclosed assets     3,140     3,350   4,023   4,209   4,307
          Total nonperforming assets   $ 21,055     22,876   24,509   25,253   24,885
          As a percentage of total loans     2.63 %   2.86   3.07   3.23   3.21
 
(1) Includes $1.4 billion at September 30, 2012, resulting from implementation of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be placed on nonaccrual status and written down to net realizable collateral value, regardless of their delinquency status.
(2) Also includes nonaccrual mortgages held for sale and loans held for sale in their respective loan categories.
(3) Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.
(4) Real estate 1-4 family mortgage loans predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) and student loans predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program are not placed on nonaccrual status because they are insured or guaranteed.
(5) Consistent with regulatory reporting requirements, foreclosed real estate securing government insured/guaranteed loans is classified as nonperforming. Both principal and interest for government insured/guaranteed loans secured by the foreclosed real estate are collectible because the loans are predominantly insured by the FHA or guaranteed by the VA.
 
Wells Fargo & Company and Subsidiaries
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
       

 

June 30,

Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013   2013   2012   2012   2012
Loans 90 days or more past due and still accruing:
Total (excluding PCI)(1): $ 22,197 23,082 23,245 22,894 22,872
Less: FHA insured/VA guaranteed (2) 20,112 20,745 20,745 20,320 20,368
Less: Student loans guaranteed under the FFELP (3)     931   977   1,065   1,082   1,144
Total, not government insured/guaranteed   $ 1,154   1,360   1,435   1,492   1,360
 
By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial $ 37 47 47 49 44
Real estate mortgage 175 164 228 206 184
Real estate construction 4 47 27 41 25
Foreign     -   7   1   2   3
Total commercial     216   265   303   298   256
Consumer:
Real estate 1-4 family first mortgage (4) 476 563 564 627 561
Real estate 1-4 family junior lien mortgage (4) 92 112 133 151 159
Credit card 263 306 310 288 274
Automobile 32 33 40 43 36
Other revolving credit and installment     75   81   85   85   74
Total consumer     938   1,095   1,132   1,194   1,104
Total, not government insured/guaranteed   $ 1,154   1,360   1,435   1,492   1,360
 

(1) The carrying value of purchased credit-impaired (PCI) loans contractually 90 days or more past due was $ 5.4 billion, $5.8 billion, $6.0 billion, $6.2 billion and $6.6 billion, at June 30 and March 31, 2013, and December 31, September 30 and June 30, 2012, respectively. These amounts are excluded from the above table as PCI loan accretable yield interest recognition is independent from the underlying contractual loan delinquency status.

(2) Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.

(3) Represents loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program (FFELP).

(4) Includes mortgages held for sale 90 days or more past due and still accruing.

 
     
Wells Fargo & Company and Subsidiaries
PURCHASED CREDIT-IMPAIRED (PCI) LOANS
 
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. PCI loans predominantly represent loans acquired from Wachovia that were deemed to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include statistics such as past due and nonaccrual status, recent borrower credit scores and recent LTV percentages. PCI loans are initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, the associated allowance for credit losses related to these loans is not carried over at the acquisition date.

 

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

 

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

 

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

               
 

June 30,

December 31,
(in millions)     2013   2012   2008
Commercial:
Commercial and industrial $ 195 259 4,580
Real estate mortgage 1,746 1,970 5,803
Real estate construction 602 877 6,462
Foreign     714   871   1,859
Total commercial     3,257   3,977   18,704
Consumer:
Real estate 1-4 family first mortgage 25,408 26,839 39,214
Real estate 1-4 family junior lien mortgage 134 152 728
Automobile     -   -   151
Total consumer     25,542   26,991   40,093
Total PCI loans (carrying value)   $ 28,799   30,968   58,797
 
 
Wells Fargo & Company and Subsidiaries
CHANGES IN NONACCRETABLE DIFFERENCE FOR PCI LOANS
       
The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference. A nonaccretable difference is established in purchase accounting for PCI loans to absorb losses expected at that time on those loans. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. Substantially all our commercial and industrial, CRE and foreign PCI loans are accounted for as individual loans. Conversely, Pick-a-Pay and other consumer PCI loans have been aggregated into several pools based on common risk characteristics. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Resolutions of loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. Our policy is to remove an individual loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference. This removal method assumes that the amount received from resolution approximates pool performance expectations. The accretable yield percentage is unaffected by the resolution and any changes in the effective yield for the remaining loans in the pool are addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan. Modified PCI loans are not removed from a pool even if those loans would otherwise be deemed troubled debt restructurings (TDRs). Modified PCI loans that are accounted for individually are considered TDRs, and removed from PCI accounting, if there has been a concession granted in excess of the original nonaccretable difference. The following table provides an analysis of changes in the nonaccretable difference.
   
 
Other
(in millions)  

 

Commercial

    Pick-a-Pay     consumer     Total  
Balance, December 31, 2008 $ 10,410 26,485 4,069 40,964
Addition of nonaccretable difference due to acquisitions 195 - - 195
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (1,426 ) - - (1,426 )
Loans resolved by sales to third parties (2) (303 ) - (85 ) (388 )
Reclassification to accretable yield for loans with improving credit-related cash flows (3) (1,531 ) (3,031 ) (792 ) (5,354 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (6,923 )   (17,222 )   (2,882 )   (27,027 )
Balance, December 31, 2012 422 6,232 310 6,964
Addition of nonaccretable difference due to acquisitions - - - -
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (47 ) - - (47 )
Loans resolved by sales to third parties (2) (5 ) - - (5 )
Reclassification to accretable yield for loans with improving credit-related cash flows (3) (41 ) (866 ) - (907 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     (18 )   (486 )   (60 )   (564 )
Balance, June 30, 2013   $ 311     4,880     250     5,441  
                           
Balance, March 31, 2013 $ 336 5,887 263 6,486
Addition of nonaccretable difference due to acquisitions - - - -
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1) (17 ) - - (17 )
Loans resolved by sales to third parties (2) - - - -
Reclassification to accretable yield for loans with improving credit-related cash flows (3) (10 ) (866 ) - (876 )
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)     2     (141 )   (13 )   (152 )
Balance, June 30, 2013   $ 311     4,880     250     5,441  
 

(1) Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases for settlements with borrowers due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2) Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3) Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.

(4) Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

 
 
Wells Fargo & Company and Subsidiaries
CHANGES IN ACCRETABLE YIELD RELATED TO PCI LOANS
 
The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is accreted into interest income over the estimated lives of the PCI loans using the effective yield method. The accretable yield is affected by:
 
●Changes in interest rate indices for variable rate PCI loans – Expected future cash flows are based on the variable rates in effect at the time of the quarterly assessment of expected cash flows;
●Changes in prepayment assumptions – Prepayments affect the estimated life of PCI loans which may change the amount of interest income, and possibly principal, expected to be collected; and
●Changes in the expected principal and interest payments over the estimated life – Updates to changes in expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows from loan modifications are included in the regular evaluations of cash flows expected to be collected.
 
The change in the accretable yield related to PCI loans is presented in the following table.
         
 
(in millions)        
Balance, December 31, 2008 $ 10,447
Addition of accretable yield due to acquisitions 131
Accretion into interest income (1) (9,351 )
Accretion into noninterest income due to sales (2) (242 )
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 5,354
Changes in expected cash flows that do not affect nonaccretable difference (3)     12,209  
Balance, December 31, 2012 $ 18,548
Addition of accretable yield due to acquisitions -
Accretion into interest income (1) (905 )
Accretion into noninterest income due to sales (2) (151 )
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 907
Changes in expected cash flows that do not affect nonaccretable difference (3)     1,622  
Balance, June 30, 2013   $ 20,021  
         
Balance, March 31, 2013 $ 17,965
Addition of accretable yield due to acquisitions -
Accretion into interest income (1) (458 )
Accretion into noninterest income due to sales (2) -
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 876
Changes in expected cash flows that do not affect nonaccretable difference (3)     1,638  
Balance, June 30, 2013   $ 20,021  
 

(1) Includes accretable yield released as a result of settlements with borrowers, which is included in interest income.

(2) Includes accretable yield released as a result of sales to third parties, which is included in noninterest income.

(3) Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, changes in interest rates on variable rate PCI loans and sales to third parties.

 
       
CHANGES IN ALLOWANCE FOR PCI LOAN LOSSES
 
When it is estimated that the expected cash flows have decreased subsequent to acquisition for a PCI loan or pool of loans, an allowance is established and a provision for additional loss is recorded as a charge to income. The following table summarizes the changes in allowance for PCI loan losses.
                         
 
Other
(in millions)  

 

Commercial

    Pick-a-Pay   consumer     Total  
Balance, December 31, 2008 $ - - - -
Provision for losses due to credit deterioration 1,693 - 123 1,816
Charge-offs     (1,605 )   -   (94 )   (1,699 )
Balance, December 31, 2012 88 - 29 117
Provision for losses due to credit deterioration / (reversal of provision) (34 ) - 1 (33 )
Charge-offs     (5 )   -   (8 )   (13 )
Balance, June 30, 2013   $ 49     -   22     71  
                         
Balance, March 31, 2013 $ 53 - 27 80
Provision for losses due to credit deterioration / (reversal of provision) (2 ) - 1 (1 )
Charge-offs     (2 )   -   (6 )   (8 )
Balance, June 30, 2013   $ 49     -   22     71  
 
         
Wells Fargo & Company and Subsidiaries
PICK-A-PAY PORTFOLIO (1)
 
June 30, 2013
PCI loans All other loans
Ratio of Ratio of
Adjusted carrying carrying
unpaid Current value to value to
principal LTV

 

Carrying

current

 

Carrying

current
(in millions)  

 

balance (2)

  ratio (3)    

 

value (4)

  value (5)  

 

value (4)

  value (5)
California $ 20,585 103 % $ 16,570 82 % $ 14,450 75 %
Florida 2,605 107 2,070 79 3,026 87
New Jersey 1,143 91 1,183 89 1,925 78
New York 657 88 667 85 866 77
Texas 285 76 270 71 1,183 61
Other states     5,002 97   4,347 82   8,198 81
Total Pick-a-Pay loans   $ 30,277 $ 25,107 $ 29,648
                                 
 

(1) The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2013.

(2) Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

(3) The current LTV ratio is calculated as the adjusted unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.

(4) Carrying value, which does not reflect the allowance for loan losses, includes remaining purchase accounting adjustments, which, for PCI loans may include the nonaccretable difference and the accretable yield and, for all other loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.

(5) The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.

 
         
NON-STRATEGIC AND LIQUIDATING LOAN PORTFOLIOS
 

 

June 30,

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

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

  $ 2,532   2,770   3,170   3,836   4,278

Total commercial

    2,532   2,770   3,170   3,836   4,278
Consumer:
Pick-a-Pay mortgage (1) 54,755 56,608 58,274 60,080 62,045
Liquidating home equity 4,173 4,421 4,647 4,951 5,199
Legacy Wells Fargo Financial indirect auto 428 593 830 1,104 1,454
Legacy Wells Fargo Financial debt consolidation 13,707 14,115 14,519 15,002 15,511
Education Finance - government guaranteed 11,534 11,922 12,465 12,951 13,823
Legacy Wachovia other PCI loans (1)     435   462   657   732   818
Total consumer     85,032   88,121   91,392   94,820   98,850
Total non-strategic and liquidating loan portfolios   $ 87,564   90,891   94,562   98,656   103,128
 

(1) Net of purchase accounting adjustments related to PCI loans.

 
       
Wells Fargo & Company and Subsidiaries
CHANGES IN ALLOWANCE FOR CREDIT LOSSES  
 
Six months
  Quarter ended June 30,   ended June 30,  
(in millions)     2013     2012     2013     2012  
Balance, beginning of period $ 17,193 19,129 17,477 19,668
Provision for credit losses 652 1,800 1,871 3,795
Interest income on certain impaired loans (1) (73 ) (82 ) (146 ) (169 )
Loan charge-offs:
Commercial:
Commercial and industrial (184 ) (360 ) (365 ) (719 )
Real estate mortgage (49 ) (114 ) (109 ) (196 )
Real estate construction (7 ) (60 ) (12 ) (140 )
Lease financing (24 ) (5 ) (27 ) (13 )
Foreign     (8 )   (17 )   (19 )   (46 )
Total commercial     (272 )   (556 )   (532 )   (1,114 )
Consumer:
Real estate 1-4 family first mortgage (392 ) (772 ) (867 ) (1,600 )
Real estate 1-4 family junior lien mortgage (428 ) (757 ) (942 ) (1,577 )
Credit card (266 ) (286 ) (532 ) (587 )
Automobile (126 ) (131 ) (290 ) (310 )
Other revolving credit and installment     (185 )   (187 )   (367 )   (381 )
Total consumer     (1,397 )   (2,133 )   (2,998 )   (4,455 )
Total loan charge-offs     (1,669 )   (2,689 )   (3,530 )   (5,569 )
Loan recoveries:
Commercial:
Commercial and industrial 107 111 195 214
Real estate mortgage 54 33 85 69
Real estate construction 52 43 91 56
Lease financing 6 5 10 11
Foreign     9     6     17     21  
Total commercial     228     198     398     371  
Consumer:
Real estate 1-4 family first mortgage 64 29 110 66
Real estate 1-4 family junior lien mortgage 69 68 134 125
Credit card 32 46 63 105
Automobile 84 103 172 208
Other revolving credit and installment     40     45     82     99  
Total consumer     289     291     561     603  
Total loan recoveries     517     489     959     974  
Net loan charge-offs (2)     (1,152 )   (2,200 )   (2,571 )   (4,595 )
Allowances related to business combinations/other     (2 )   (1 )   (13 )   (53 )
Balance, end of period   $ 16,618     18,646     16,618     18,646  
Components:
Allowance for loan losses $ 16,144 18,320 16,144 18,320
Allowance for unfunded credit commitments     474     326     474     326  
Allowance for credit losses (3)   $ 16,618     18,646     16,618     18,646  
Net loan charge-offs (annualized) as a percentage of average total loans (2) 0.58

%

 

1.15 0.65 1.20
Allowance for loan losses as a percentage of total loans (3) 2.01 2.36 2.01 2.36
Allowance for credit losses as a percentage of total loans (3)     2.07     2.41     2.07     2.41  
 

(1) Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan's effective interest rate over the remaining life of the loan recognize reductions in allowance as interest income.

(2) For PCI loans, charge-offs are only recorded to the extent that losses exceed the purchase accounting estimates.

(3) The allowance for credit losses includes $71 million and $212 million at June 30, 2013 and 2012, respectively, related to PCI loans acquired from Wachovia. Loans acquired from Wachovia are included in total loans net of related purchase accounting net write-downs.

 
       
Wells Fargo & Company and Subsidiaries
FIVE QUARTER CHANGES IN ALLOWANCE FOR CREDIT LOSSES  
 
  Quarter ended  
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013     2013     2012     2012     2012  
Balance, beginning of quarter $ 17,193 17,477 17,803 18,646 19,129
Provision for credit losses 652 1,219 1,831 1,591 1,800
Interest income on certain impaired loans (1) (73 ) (73 ) (70 ) (76 ) (82 )
Loan charge-offs:
Commercial:
Commercial and industrial (184 ) (181 ) (302 ) (285 ) (360 )
Real estate mortgage (49 ) (60 ) (86 ) (100 ) (114 )
Real estate construction (7 ) (5 ) (10 ) (41 ) (60 )
Lease financing (24 ) (3 ) (6 ) (5 ) (5 )
Foreign     (8 )   (11 )   (30 )   (35 )   (17 )
Total commercial     (272 )   (260 )   (434 )   (466 )   (556 )
Consumer:
Real estate 1-4 family first mortgage (392 ) (475 ) (694 ) (719 ) (772 )
Real estate 1-4 family junior lien mortgage (428 ) (514 ) (765 ) (1,095 ) (757 )
Credit card (266 ) (266 ) (259 ) (255 ) (286 )
Automobile (126 ) (164 ) (189 ) (152 ) (131 )
Other revolving credit and installment     (185 )   (182 )   (192 )   (184 )   (187 )
Total consumer (2)     (1,397 )   (1,601 )   (2,099 )   (2,405 )   (2,133 )
Total loan charge-offs     (1,669 )   (1,861 )   (2,533 )   (2,871 )   (2,689 )
Loan recoveries:
Commercial:
Commercial and industrial 107 88 93 154 111
Real estate mortgage 54 31 48 46 33
Real estate construction 52 39 28 40 43
Lease financing 6 4 4 4 5
Foreign     9     8     6     5     6  
Total commercial     228     170     179     249     198  
Consumer:
Real estate 1-4 family first mortgage 64 46 45 46 29
Real estate 1-4 family junior lien mortgage 69 65 75 59 68
Credit card 32 31 37 43 46
Automobile 84 88 77 77 103
Other revolving credit and installment     40     42     39     39     45  
Total consumer     289     272     273     264     291  
Total loan recoveries     517     442     452     513     489  
Net loan charge-offs     (1,152 )   (1,419 )   (2,081 )   (2,358 )   (2,200 )
Allowances related to business combinations/other     (2 )   (11 )   (6 )   -     (1 )
Balance, end of quarter   $ 16,618     17,193     17,477     17,803     18,646  
Components:
Allowance for loan losses $ 16,144 16,711 17,060 17,385 18,320
Allowance for unfunded credit commitments     474     482     417     418     326  
Allowance for credit losses   $ 16,618     17,193     17,477     17,803     18,646  
Net loan charge-offs (annualized) as a percentage of average total loans 0.58

%

 

0.72 1.05 1.21 1.15
Allowance for loan losses as a percentage of:
Total loans 2.01 2.09 2.13 2.22 2.36
Nonaccrual loans 90 86 83 83 89
Nonaccrual loans and other nonperforming assets 77 73 70 69 74
Allowance for credit losses as a percentage of:
Total loans 2.07 2.15 2.19 2.27 2.41
Nonaccrual loans 93 88 85 85 91
Nonaccrual loans and other nonperforming assets 79 75 71 70 75
                                 
 

(1) Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan's effective interest rate over the remaining life of the loan recognize reductions in allowance as interest income.

(2) Includes $321 million and $567 million for the quarters ended December 31 and September 30, 2012, respectively, resulting from the implementation of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be placed on nonaccrual status and written down to net realizable collateral value, regardless of their delinquency status.

 
 
Wells Fargo & Company and Subsidiaries
FIVE QUARTER TIER 1 COMMON EQUITY UNDER BASEL I (1)  
           
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in billions)         2013     2013     2012     2012     2012  
Total equity $ 163.8 163.4 158.9 156.1 149.4
Noncontrolling interests         (1.4 )   (1.3 )   (1.3 )   (1.4 )   (1.3 )
Total Wells Fargo stockholders' equity       $ 162.4     162.1     157.6     154.7     148.1  
Adjustments:
Preferred equity (12.6 ) (12.6 ) (12.0 ) (11.3 ) (10.6 )
Goodwill and intangible assets (other than MSRs) (32.2 ) (32.5 ) (32.9 ) (33.4 ) (33.5 )
Applicable deferred taxes 3.0 3.1 3.2 3.3 3.5
Deferred tax asset limitation - - - - -
MSRs over specified limitations (0.8 ) (0.8 ) (0.7 ) (0.7 ) (0.7 )
Cumulative other comprehensive income (1.8 ) (5.1 ) (5.6 ) (6.4 ) (4.6 )
Other         (0.4 )   (0.6 )   (0.6 )   (0.4 )   (0.5 )
Tier 1 common equity   (A)   $ 117.6     113.6     109.0     105.8     101.7  
Total risk-weighted assets (2)   (B)   $ 1,095.8     1,094.3     1,077.1     1,067.1     1,008.6  
Tier 1 common equity to total risk-weighted assets (2)   (A)/(B)     10.73

%

 

10.39     10.12     9.92     10.08  
 

(1) Tier 1 common equity is a non-generally accepted accounting principle (GAAP) financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews Tier 1 common equity along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.

(2) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The Company’s June 30, 2013, risk-weighted assets (RWA) and resulting Tier 1 common equity to total RWA are preliminary and reflect total estimated on-balance sheet and total estimated derivative and off-balance sheet RWA of $881.4 billion and $214.4 billion, respectively. Effective September 30, 2012, the Company refined its determination of the risk weighting of certain unused lending commitments that provide for the ability to issue standby letters of credit and commitments to issue standby letters of credit under syndication arrangements where the Company has an obligation to issue in a lead agent or similar capacity beyond its contractual participation level.

 
TIER 1 COMMON EQUITY UNDER BASEL III (ESTIMATED) (1) (2)  
 
June 30,
(in billions)                                 2013  
Tier 1 common equity under Basel I                           $     117.6  
Adjustments from Basel I to Basel III (3) (5):

Cumulative other comprehensive income related to AFS securities and defined benefit pension plans

 

1.6
Other                                 0.8  
Total adjustments from Basel I to Basel III 2.4
Threshold deductions, as defined under Basel III (4) (5)                                 -  
Tier 1 common equity anticipated under Basel III   (C)                       $     120.0  
Total risk-weighted assets anticipated under Basel III (6)   (D)                       $     1,404.1  

Tier 1 common equity to total risk-weighted assets anticipated under Basel III

  (C)/(D)                             8.54

%

 

(1) Tier 1 common equity is a non-generally accepted accounting principle (GAAP) financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews Tier 1 common equity along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.

(2) The Basel III Tier 1 common equity and risk-weighted assets are estimated based on management’s interpretation of the Basel III capital rules adopted July 2, 2013, by the Federal Reserve Board. The rules establish a new comprehensive capital framework for U.S. banking organizations that implement the Basel III capital framework and certain provisions of the Dodd-Frank Act.

(3) Adjustments from Basel I to Basel III represent reconciling adjustments, primarily certain components of cumulative other comprehensive income deducted for Basel I purposes, to derive Tier 1 common equity under Basel III.

(4) Threshold deductions, as defined under Basel III, include individual and aggregate limitations, as a percentage of Tier 1 common equity, with respect to MSRs, deferred tax assets and investments in unconsolidated financial companies.

(5) Volatility in interest rates can have a significant impact on the valuation of cumulative other comprehensive income and MSRs and therefore, may impact adjustments from Basel I to Basel III, and MSRs subject to threshold deductions, as defined under Basel III, in future reporting periods.

(6) The estimate of RWA reflects management’s interpretation of RWA determined under Basel III capital rules adopted by the Federal Reserve Board that incorporates different classifications of assets, with certain risk weights based on a borrower’s credit rating or Wells Fargo’s own models, along with adjustments to address a combination of credit/counterparty, operational and market risks, and other Basel III elements.

 
 

Wells Fargo & Company and Subsidiaries

OPERATING SEGMENT RESULTS (1)

 
  Community   Wholesale

 

Wealth, Brokerage

      Consolidated
(income/expense in millions,   Banking Banking and Retirement Other (2) Company

average balances in billions)

    2013   2012   2013   2012   2013   2012   2013     2012     2013   2012
Quarter ended June 30,      
Net interest income (3) $ 7,251 7,306 3,101 3,347 700 698 (302 ) (314 ) 10,750 11,037

Provision (reversal of provision) for credit losses

763 1,573 (118 ) 188 19 37 (12 ) 2 652 1,800
Noninterest income 5,691 5,786 3,034 2,770 2,561 2,273 (658 ) (577 ) 10,628 10,252
Noninterest expense     7,213   7,580   3,183   3,113   2,542   2,376   (683 )   (672 )   12,255   12,397

Income (loss) before income

tax expense (benefit)

4,966 3,939 3,070 2,816 700 558 (265 ) (221 ) 8,471 7,092
Income tax expense (benefit)     1,633   1,313   1,065   932   266   210   (101 )   (84 )   2,863   2,371

Net income (loss) before noncontrolling interests

3,333 2,626 2,005 1,884 434 348 (164 ) (137 ) 5,608 4,721

Less: Net income from noncontrolling interests

    88   91   1   3   -   5   -     -     89   99
Net income (loss) (4)   $ 3,245   2,535   2,004   1,881   434   343   (164 )   (137 )   5,519   4,622
Average loans $ 498.2 483.9 286.9 270.2 45.4 42.5 (30.3 ) (28.4 ) 800.2 768.2
Average assets 820.9 746.6 499.9 478.4 177.1 160.9 (68.9 ) (64.3 ) 1,429.0 1,321.6
Average core deposits 623.0 586.1 230.5 220.9 146.4 134.2 (63.8 ) (60.6 ) 936.1 880.6
                                               
 
Six months ended June 30,
Net interest income (3) $ 14,370 14,632 6,106 6,528 1,369 1,399 (596 ) (634 ) 21,249 21,925

Provision (reversal of provision) for credit losses

2,025 3,451 (176 ) 283 33 80 (11 ) (19 ) 1,871 3,795
Noninterest income 11,471 11,881 6,115 5,622 5,089 4,634 (1,287 ) (1,137 ) 21,388 21,000
Noninterest expense     14,590   15,405   6,274   6,167   5,181   4,923   (1,390 )   (1,105 )   24,655   25,390

Income (loss) before income tax expense (benefit)

9,226 7,657 6,123 5,700 1,244 1,030 (482 ) (647 ) 16,111 13,740
Income tax expense (benefit)     2,921   2,606   2,072   1,948   473   391   (183 )   (246 )   5,283   4,699

Net income (loss) before noncontrolling interests

6,305 5,051 4,051 3,752 771 639 (299 ) (401 ) 10,828 9,041

Less: Net income from noncontrolling interests

    136   168   2   3   -   -   -     -     138   171
Net income (loss) (4)   $ 6,169   4,883   4,049   3,749   771   639   (299 )   (401 )   10,690   8,870
Average loans $ 498.6 485.0 285.7 269.4 44.6 42.5 (29.7 ) (28.5 ) 799.2 768.4
Average assets 810.3 742.5 498.0 473.1 178.7 161.4 (70.3 ) (64.7 ) 1,416.7 1,312.3
Average core deposits 621.1 580.7 227.3 220.9 147.9 134.9 (65.3 ) (60.9 ) 931.0 875.6
                                               
 

(1) The management accounting process measures the performance of the operating segments based on our management structure and is not necessarily comparable with other similar information for other financial services companies. We define our operating segments by product type and customer segment. In first quarter 2012, we modified internal funds transfer rates and the allocation of funding.

(2) Includes Wachovia integration expenses, through completion in the first quarter of 2012, and the elimination of items that are included in both Community Banking and Wealth, Brokerage and Retirement, largely representing services and products for wealth management customers provided in Community Banking stores.

(3) Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.

(4) Represents segment net income (loss) for Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement segments and Wells Fargo net income for the consolidated company.

 
         
Wells Fargo & Company and Subsidiaries
FIVE QUARTER OPERATING SEGMENT RESULTS (1)  
 
  Quarter ended  
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(income/expense in millions, average balances in billions)     2013     2013     2012     2012     2012  
COMMUNITY BANKING
Net interest income (2) $ 7,251 7,119 7,166 7,247 7,306
Provision for credit losses 763 1,262 1,757 1,627 1,573
Noninterest income 5,691 5,780 6,616 5,863 5,786
Noninterest expense     7,213     7,377     8,033     7,402     7,580  
Income before income tax expense 4,966 4,260 3,992 4,081 3,939
Income tax expense     1,633     1,288     918     1,250     1,313  
Net income before noncontrolling interests 3,333 2,972 3,074 2,831 2,626
Less: Net income from noncontrolling interests     88     48     205     91     91  
Segment net income   $ 3,245     2,924     2,869     2,740     2,535  
Average loans $ 498.2 498.9 493.1 485.3 483.9
Average assets 820.9 799.6 794.2 765.1 746.6
Average core deposits 623.0 619.2 608.9 594.5 586.1
                                 
WHOLESALE BANKING
Net interest income (2) $ 3,101 3,005 3,092 3,028 3,347
Provision (reversal of provision) for credit losses (118 ) (58 ) 60 (57 ) 188
Noninterest income 3,034 3,081 2,901 2,921 2,770
Noninterest expense     3,183     3,091     3,007     2,908     3,113  
Income before income tax expense 3,070 3,053 2,926 3,098 2,816
Income tax expense     1,065     1,007     892     1,103     932  
Net income before noncontrolling interests 2,005 2,046 2,034 1,995 1,884
Less: Net income from noncontrolling interests     1     1     2     2     3  
Segment net income   $ 2,004     2,045     2,032     1,993     1,881  
Average loans $ 286.9 284.5 279.2 277.1 270.2
Average assets 499.9 496.1 489.7 490.7 478.4
Average core deposits 230.5 224.1 240.7 225.4 220.9
                                 
WEALTH, BROKERAGE AND RETIREMENT
Net interest income (2) $ 700 669 689 680 698
Provision for credit losses 19 14 15 30 37
Noninterest income 2,561 2,528 2,405 2,353 2,273
Noninterest expense     2,542     2,639     2,513     2,457     2,376  
Income before income tax expense 700 544 566 546 558
Income tax expense     266     207     215     208     210  
Net income before noncontrolling interests 434 337 351 338 348
Less: Net income from noncontrolling interests     -     -     -     -     5  
Segment net income   $ 434     337     351     338     343  
Average loans $ 45.4 43.8 43.3 42.5 42.5
Average assets 177.1 180.3 171.7 163.8 160.9
Average core deposits 146.4 149.4 143.4 136.7 134.2
                                 
OTHER (3)
Net interest income (2) $ (302 ) (294 ) (304 ) (293 ) (314 )
Provision (reversal of provision) for credit losses (12 ) 1 (1 ) (9 ) 2
Noninterest income (658 ) (629 ) (617 ) (586 ) (577 )
Noninterest expense     (683 )   (707 )   (657 )   (655 )   (672 )
Loss before income tax benefit (265 ) (217 ) (263 ) (215 ) (221 )
Income tax benefit     (101 )   (82 )   (101 )   (81 )   (84 )
Net loss before noncontrolling interests (164 ) (135 ) (162 ) (134 ) (137 )
Less: Net income from noncontrolling interests     -     -     -     -     -  
Other net loss   $ (164 )   (135 )   (162 )   (134 )   (137 )
Average loans $ (30.3 ) (29.1 ) (28.4 ) (28.2 ) (28.4 )
Average assets (68.9 ) (71.7 ) (68.5 ) (65.3 ) (64.3 )
Average core deposits (63.8 ) (66.8 ) (64.2 ) (61.2 ) (60.6 )
                                 
CONSOLIDATED COMPANY
Net interest income (2) $ 10,750 10,499 10,643 10,662 11,037
Provision for credit losses 652 1,219 1,831 1,591 1,800
Noninterest income 10,628 10,760 11,305 10,551 10,252
Noninterest expense     12,255     12,400     12,896     12,112     12,397  
Income before income tax expense 8,471 7,640 7,221 7,510 7,092
Income tax expense     2,863     2,420     1,924     2,480     2,371  
Net income before noncontrolling interests 5,608 5,220 5,297 5,030 4,721
Less: Net income from noncontrolling interests     89     49     207     93     99  
Wells Fargo net income   $ 5,519     5,171     5,090     4,937     4,622  
Average loans $ 800.2 798.1 787.2 776.7 768.2
Average assets 1,429.0 1,404.3 1,387.1 1,354.3 1,321.6
Average core deposits 936.1 925.9 928.8 895.4 880.6
                                 
 

(1) The management accounting process measures the performance of the operating segments based on our management structure and is not necessarily comparable with other similar information for other financial services companies. We define our operating segments by product type and customer segment.

(2) Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.

(3) Includes Wachovia integration expenses, through completion in the first quarter of 2012, and the elimination of items that are included in both Community Banking and Wealth, Brokerage and Retirement, largely representing services and products for wealth management customers provided in Community Banking stores.

 
         

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING

       
 
  Quarter ended  

 

June 30,

Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013     2013     2012     2012     2012  
MSRs measured using the fair value method:
Fair value, beginning of quarter $ 12,061 11,538 10,956 12,081 13,578
Servicing from securitizations or asset transfers 1,060 935 1,094 1,173 1,139
Sales     (160 )   (423 )   -     -     (293 )
Net additions     900     512     1,094     1,173     846  
Changes in fair value:
Due to changes in valuation model inputs or assumptions:
Mortgage interest rates (1) 2,223 1,030 388 (1,131 ) (1,496 )
Servicing and foreclosure costs (2) (82 ) (58 ) (127 ) (350 ) (146 )
Discount rates (3) - - (53 ) - -
Prepayment estimates and other (4)     (274 )   (211 )   115     54     11  
Net changes in valuation model inputs or assumptions     1,867     761     323     (1,427 )   (1,631 )
Other changes in fair value (5)     (643 )   (750 )   (835 )   (871 )   (712 )
Total changes in fair value     1,224     11     (512 )   (2,298 )   (2,343 )
Fair value, end of quarter   $ 14,185     12,061     11,538     10,956     12,081  
 

(1) Primarily represents prepayment speed changes due to changes in mortgage interest rates, but also includes other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on custodial deposit balances).

(2) Includes costs to service and unreimbursed foreclosure costs.

(3) Reflects discount rate assumption change, excluding portion attributable to changes in mortgage interest rates; the fourth quarter 2012 change reflects updated broker input on market values for servicing fees in excess of the minimum that can be retained on loans sold to Freddie Mac and Fannie Mae.

(4) Represents changes driven by other valuation model inputs or assumptions including prepayment speed estimation changes and other assumption updates. Prepayment speed estimation changes are influenced by observed changes in borrower behavior that occur independent of interest rate changes.

(5) Represents changes due to collection/realization of expected cash flows over time.

                                 
 
  Quarter ended  
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013     2013     2012     2012     2012  
Amortized MSRs:
Balance, beginning of quarter $ 1,181 1,160 1,144 1,130 1,074
Purchases 26 27 43 42 78
Servicing from securitizations or asset transfers 31 56 34 30 34
Amortization     (62 )   (62 )   (61 )   (58 )   (56 )
Balance, end of quarter     1,176     1,181     1,160     1,144     1,130  
                                 
 
Fair value of amortized MSRs:
Beginning of quarter $ 1,404 1,400 1,399 1,450 1,263
End of quarter     1,533     1,404     1,400     1,399     1,450  
 
   

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING (CONTINUED)

 
 
  Quarter ended  
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in millions)     2013     2013   2012   2012   2012  
Servicing income, net:
Servicing fees (1) $ 1,030 997 926 984 1,070
Changes in fair value of MSRs carried at fair value:
Due to changes in valuation model inputs or assumptions (2) 1,867 761 323 (1,427 ) (1,631 )
Other changes in fair value (3)     (643 )   (750 ) (835 ) (871 ) (712 )
Total changes in fair value of MSRs carried at fair value 1,224 11 (512 ) (2,298 ) (2,343 )
Amortization (62 ) (62 ) (61 ) (58 ) (56 )
Net derivative gains (losses) from economic hedges (4)     (1,799 )   (632 ) (103 ) 1,569   2,008  
Total servicing income, net   $ 393     314   250   197   679  
Market-related valuation changes to MSRs, net of hedge results (2)+(4) $ 68 129 220 142 377
                           
 

(1) Includes contractually specified servicing fees, late charges and other ancillary revenues.

(2) Refer to the changes in fair value MSRs table on the previous page for more detail.

(3) Represents changes due to collection/realization of expected cash flows over time.

(4) Represents results from free-standing derivatives (economic hedges) used to hedge the risk of changes in fair value of MSRs.

                           
 
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in billions)     2013     2013   2012   2012   2012  
Managed servicing portfolio (1):
Residential mortgage servicing:
Serviced for others $ 1,487 1,486 1,498 1,508 1,499
Owned loans serviced 358 367 368 364 357
Subservicing     6     7   7   7   7  
Total residential servicing     1,851     1,860   1,873   1,879   1,863  
Commercial mortgage servicing:
Serviced for others 409 404 408 405 406
Owned loans serviced 105 106 106 105 106
Subservicing     11     14   13   13   13  
Total commercial servicing     525     524   527   523   525  
Total managed servicing portfolio   $ 2,376     2,384   2,400   2,402   2,388  
Total serviced for others $ 1,896 1,890 1,906 1,913 1,905
Ratio of MSRs to related loans serviced for others 0.81

%

 

0.70 0.67 0.63 0.69
Weighted-average note rate (mortgage loans serviced for others) 4.59 4.69 4.77 4.87 4.97
                           
 

(1) The components of our managed servicing portfolio are presented at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.

 
SELECTED FIVE QUARTER RESIDENTIAL MORTGAGE PRODUCTION DATA                          
 
  Quarter ended  
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(in billions)     2013     2013   2012   2012   2012  
Application data:
Wells Fargo first mortgage quarterly applications $ 146 140 152 188 208
Refinances as a percentage of applications 54

%

 

65 72 72 69
Wells Fargo first mortgage unclosed pipeline, at quarter end $ 63 74 81 97 102
                           
                           
Residential real estate originations:
Wells Fargo first mortgage loans:
Retail $ 62 59 63 61 62
Correspondent/Wholesale 50 49 61 77 68
Other (1)     -     1   1   1   1  
Total quarter-to-date   $ 112     109   125   139   131  
Total year-to-date   $ 221     109   524   399   260  
 

(1) Consists of home equity loans and lines.

 
   
Wells Fargo & Company and Subsidiaries

CHANGES IN MORTGAGE REPURCHASE LIABILITY

 
 
  Quarter ended   Six months ended  
June 30, Mar. 31, June 30, June 30, June 30,
(in millions)     2013   2013   2012     2013   2012  
Balance, beginning of period $ 2,317 2,206 1,444 2,206 1,326
Provision for repurchase losses:
Loan sales 40 59 72 99 134
Change in estimate (1)     25   250   597     275   965  
Total additions 65 309 669 374 1,099
Losses     (160 ) (198 ) (349 )   (358 ) (661 )
Balance, end of period   $ 2,222   2,317   1,764     2,222   1,764  
 

(1) Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders.

 
UNRESOLVED REPURCHASE DEMANDS AND MORTGAGE INSURANCE RESCISSIONS
 
Mortgage
insurance
Government rescissions
sponsored with no
($ in millions)         entities (1)   Private     demand (2)   Total  
June 30, 2013
Number of loans 6,313 1,206 561 8,080
Original loan balance (3) $ 1,413 258 127 1,798
 
March 31, 2013
Number of loans 5,910 1,278 652 7,840
Original loan balance (3) $ 1,371 278 145 1,794
 
December 31, 2012
Number of loans 6,621 1,306 753 8,680
Original loan balance (3) $ 1,503 281 160 1,944
 
September 30, 2012
Number of loans 6,525 1,513 817 8,855
Original loan balance (3) $ 1,489 331 183 2,003
 
June 30, 2012
Number of loans 5,687 913 840 7,440
Original loan balance (3) $ 1,265 213 188 1,666
                           
 

(1) Includes repurchase demands of 942 and $190 million, 674 and $147 million, 661 and $132 million, 534 and $111 million, and 526 and $103 million, for June 30 and March 31, 2013, and December 31, September 30, and June 30, 2012, respectively, received from investors on mortgage servicing rights acquired from other originators. We generally have the right of recourse against the seller and may be able to recover losses related to such repurchase demands subject to counterparty risk associated with the seller. The number of repurchase demands from GSEs that are from mortgage loans originated in 2006 through 2008 totaled 89% at June 30, 2013.

(2) As part of our representations and warranties in our loan sales contracts, we typically represent to GSEs and private investors that certain loans have mortgage insurance to the extent there are loans that have loan to value ratios in excess of 80% that require mortgage insurance. To the extent the mortgage insurance is rescinded by the mortgage insurer due to a claim of breach of a contractual representation or warranty, the lack of insurance may result in a repurchase demand from an investor. Similar to repurchase demands, we evaluate mortgage insurance rescission notices for validity and appeal for reinstatement if the rescission was not based on a contractual breach. When investor demands are received due to lack of mortgage insurance, they are reported as unresolved repurchase demands based on the applicable investor category for the loan (GSE or private). Over the last year, approximately 15% of our repurchase demands from GSEs had mortgage insurance rescission as one of the reasons for the repurchase demand. Of all the mortgage insurance rescission notices received in 2012, approximately 75% have resulted in repurchase demands through June 2013. Not all mortgage insurance rescissions received in 2012 have been completed through the appeals process with the mortgage insurer and, upon successful appeal, we work with the investor to rescind the repurchase demand.

(3) While the original loan balances related to these demands are presented above, the establishment of the repurchase liability is based on a combination of factors, such as our appeals success rates, reimbursement by correspondent and other third party originators, and projected loss severity, which is driven by the difference between the current loan balance and the estimated collateral value less costs to sell the property.

Contacts

Wells Fargo & Company
Media:
Mary Eshet, 704-383-7777
or
Investors:
Jim Rowe, 415-396-8216

Contacts

Wells Fargo & Company
Media:
Mary Eshet, 704-383-7777
or
Investors:
Jim Rowe, 415-396-8216