15.07.2016, 15:28
Wells Fargo Reports $5.6 Billion in Net Income; Diluted EPS of $1.01; Revenue Up 4 Percent from Prior Year
OREANDA-NEWS. Wells Fargo & Company (NYSE:WFC) reported net income of $5.6 billion, or $1.01 per diluted common share, for second quarter 2016, compared with $5.7 billion, or $1.03 per share, for second quarter 2015, and $5.5 billion, or $0.99 per share, for first quarter 2016.
Chairman and CEO John Stumpf said, “Wells Fargo's second quarter results demonstrated our ability to generate consistent performance during periods of economic, capital markets and interest rate uncertainty. Compared with a year ago, we had solid growth in loans, deposits and customers, which are our fundamental drivers of long-term value. We also improved our efficiency ratio while continuing to reinvest in the franchise. We returned more capital to our shareholders in the quarter and were pleased to have received a non-objection to our 2016 Capital Plan from the Federal Reserve. We remain well positioned to continue to meet the financial needs of our customers.”
Chief Financial Officer John Shrewsberry added, “Second quarter results benefited from our diversified business model, as demonstrated by higher linked-quarter net interest income, growth in many of our fee-based businesses and positive operating leverage. Earning assets increased in the second quarter, driven by growth in both loans and investment securities. Investment securities were up $18.5 billion in the second quarter, reflecting gross purchases of approximately $38 billion compared with $5 billion in first quarter. Second quarter purchases were made at interest rate levels above those available late in the quarter, after the 'Brexit' vote. We continue to have capacity for additional deployment of liquidity, but will remain disciplined in our investment approach. Capital remained strong with a net payout ratio4 of 62 percent in the quarter, as we returned $3.2 billion to shareholders through common stock dividends and net share repurchases."
Net Interest Income
Net interest income in second quarter 2016 increased $66 million from first quarter 2016 to $11.7 billion, primarily driven by loan growth, including the full quarter benefit of the assets acquired from GE Capital that closed late in the first quarter. The benefit to net interest income from loan growth was partially offset by reduced income in the investment securities portfolio reflecting accelerated prepayments, primarily on our mortgage-backed securities (MBS), increased interest expense from higher debt balances, and lower interest income from trading assets.
Net interest margin was 2.86 percent, down 4 basis points from first quarter 2016. The decline was primarily driven by the impact of growth in long-term debt, growth in deposits and reduced income on investment securities. The impact of all other balance sheet growth, mix changes and repricing was beneficial to the net interest margin.
Noninterest Income
Noninterest income in the second quarter was $10.4 billion, down from $10.5 billion in first quarter 2016. Second quarter noninterest income reflected higher net gains on debt securities, trust and investment fees, net gains from trading activities, lease income, card fees and service charges on deposit accounts. These increases were partially offset by a linked-quarter reduction in other income, driven by a decline in hedge ineffectiveness income from $379 million in first quarter 2016 to $56 million in second quarter. Other income also included a $290 million gain on the sale of our health benefit services business in second quarter 2016, while first quarter results included a $381 million gain from the sale of our crop insurance business. Insurance revenue declined $141 million linked quarter, due to the sale of our crop insurance business.
Trust and investment fees were $3.5 billion, up $162 million from the prior quarter, primarily due to higher investment banking fees, as well as higher retail brokerage asset-based fees and transaction activity, and trust and investment management fees.
Mortgage banking noninterest income was $1.4 billion, down $184 million from first quarter 2016, as a $306 million increase in origination gains was more than offset by a decline in servicing revenue due in part to lower mortgage servicing rights (MSR) hedging results. Residential mortgage loan originations were $63 billion in the second quarter, up $19 billion linked quarter. The production margin on residential held-for-sale mortgage loan originations5 was 1.66 percent, compared with 1.68 percent in first quarter.
Noninterest Expense
Noninterest expense declined $162 million from the prior quarter, primarily due to lower employee benefits, which were seasonally elevated in first quarter 2016, as well as lower operating losses. Insurance expense also declined as a result of the first quarter 2016 sale of our crop insurance business. The decline in noninterest expense was partially offset by higher outside professional services, primarily for project-related expenses, and higher operating lease depreciation expense as a result of the GE Capital transactions. The efficiency ratio was 58.1 percent in second quarter 2016, compared with 58.7 percent in the prior quarter. The Company continues to expect to operate at the higher end of its targeted efficiency ratio range of 55 to 59 percent for full year 2016.
Chairman and CEO John Stumpf said, “Wells Fargo's second quarter results demonstrated our ability to generate consistent performance during periods of economic, capital markets and interest rate uncertainty. Compared with a year ago, we had solid growth in loans, deposits and customers, which are our fundamental drivers of long-term value. We also improved our efficiency ratio while continuing to reinvest in the franchise. We returned more capital to our shareholders in the quarter and were pleased to have received a non-objection to our 2016 Capital Plan from the Federal Reserve. We remain well positioned to continue to meet the financial needs of our customers.”
Chief Financial Officer John Shrewsberry added, “Second quarter results benefited from our diversified business model, as demonstrated by higher linked-quarter net interest income, growth in many of our fee-based businesses and positive operating leverage. Earning assets increased in the second quarter, driven by growth in both loans and investment securities. Investment securities were up $18.5 billion in the second quarter, reflecting gross purchases of approximately $38 billion compared with $5 billion in first quarter. Second quarter purchases were made at interest rate levels above those available late in the quarter, after the 'Brexit' vote. We continue to have capacity for additional deployment of liquidity, but will remain disciplined in our investment approach. Capital remained strong with a net payout ratio4 of 62 percent in the quarter, as we returned $3.2 billion to shareholders through common stock dividends and net share repurchases."
Net Interest Income
Net interest income in second quarter 2016 increased $66 million from first quarter 2016 to $11.7 billion, primarily driven by loan growth, including the full quarter benefit of the assets acquired from GE Capital that closed late in the first quarter. The benefit to net interest income from loan growth was partially offset by reduced income in the investment securities portfolio reflecting accelerated prepayments, primarily on our mortgage-backed securities (MBS), increased interest expense from higher debt balances, and lower interest income from trading assets.
Net interest margin was 2.86 percent, down 4 basis points from first quarter 2016. The decline was primarily driven by the impact of growth in long-term debt, growth in deposits and reduced income on investment securities. The impact of all other balance sheet growth, mix changes and repricing was beneficial to the net interest margin.
Noninterest Income
Noninterest income in the second quarter was $10.4 billion, down from $10.5 billion in first quarter 2016. Second quarter noninterest income reflected higher net gains on debt securities, trust and investment fees, net gains from trading activities, lease income, card fees and service charges on deposit accounts. These increases were partially offset by a linked-quarter reduction in other income, driven by a decline in hedge ineffectiveness income from $379 million in first quarter 2016 to $56 million in second quarter. Other income also included a $290 million gain on the sale of our health benefit services business in second quarter 2016, while first quarter results included a $381 million gain from the sale of our crop insurance business. Insurance revenue declined $141 million linked quarter, due to the sale of our crop insurance business.
Trust and investment fees were $3.5 billion, up $162 million from the prior quarter, primarily due to higher investment banking fees, as well as higher retail brokerage asset-based fees and transaction activity, and trust and investment management fees.
Mortgage banking noninterest income was $1.4 billion, down $184 million from first quarter 2016, as a $306 million increase in origination gains was more than offset by a decline in servicing revenue due in part to lower mortgage servicing rights (MSR) hedging results. Residential mortgage loan originations were $63 billion in the second quarter, up $19 billion linked quarter. The production margin on residential held-for-sale mortgage loan originations5 was 1.66 percent, compared with 1.68 percent in first quarter.
Noninterest Expense
Noninterest expense declined $162 million from the prior quarter, primarily due to lower employee benefits, which were seasonally elevated in first quarter 2016, as well as lower operating losses. Insurance expense also declined as a result of the first quarter 2016 sale of our crop insurance business. The decline in noninterest expense was partially offset by higher outside professional services, primarily for project-related expenses, and higher operating lease depreciation expense as a result of the GE Capital transactions. The efficiency ratio was 58.1 percent in second quarter 2016, compared with 58.7 percent in the prior quarter. The Company continues to expect to operate at the higher end of its targeted efficiency ratio range of 55 to 59 percent for full year 2016.
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