14.04.2016, 15:20
Wells Fargo Reports $5.5 Billion in Quarterly Net Income (PDF)
OREANDA-NEWS. Wells Fargo & Company (NYSE:WFC) reported net income of $5.5 billion, or $0.99 per diluted common share, for first quarter 2016, compared with $5.8 billion, or $1.04 per share, for first quarter 2015, and $5.6 billion, or $1.00 per share, for fourth quarter 2015.
Chairman and CEO John Stumpf said, “Wells Fargo's first quarter results reflected the benefit of our diversified business model as we managed challenges presented by a volatile operating environment for our industry. We again generated solid growth in the fundamental drivers of long-term value creation: loans, deposits and capital. We also completed two important acquisitions from GE Capital, which are great additions to our company and demonstrate the benefit of our strong financial position. We remain focused on meeting the financial needs of our consumer and business customers, and I believe we are well positioned for the future.”
Chief Financial Officer John Shrewsberry added, “Our first quarter results demonstrated an ability to produce consistent revenue and net income across economic and interest rate cycles. While challenges in the energy industry and persistent low rates impacted our bottom line, our diversified business model was again beneficial to our results. We were disciplined in deploying liquidity into investment securities in the quarter, with gross purchases well below recent quarters. This was partially responsible for the $30 billion increase in our federal funds and shortterm investment balances compared with the prior quarter. Our capital remained very strong with Common Equity Tier 1 (fully phased-in) of $142.7 billion3. Our net payout ratio4 was 60% in the quarter, as we returned $3.0 billion to shareholders through common stock dividends and net share repurchases."
Net Interest Income
Net interest income in first quarter 2016 increased $79 million from fourth quarter 2015 to $11.7 billion. This increase was driven largely by earning asset growth, including a partial quarter impact from the assets acquired from GE Capital, the benefit of the fourth quarter increase in the federal funds rate and disciplined deposit pricing. These increases to net interest income were partially offset by reduced income from variable sources, including periodic dividends and loans fees, and one less day in the quarter.
Net interest margin was 2.90 percent, down 2 basis points from fourth quarter 2015. Income from variable sources reduced the net interest margin by approximately 2 basis points linked-quarter. All other growth, mix and repricing was essentially neutral to net interest margin.
Noninterest Income
Noninterest income in the first quarter was $10.5 billion, up from $10.0 billion in fourth quarter 2015, primarily due to a $381 million gain from the previously announced sale of our crop insurance business (included in other noninterest income) and the impact of lower interest rates and currency movements on hedging results (hedge ineffectiveness) of $379 million, driven by long-term debt. Noninterest income also reflected increases in lease income, which includes operating leases acquired in the GE Capital transactions, and trading gains, reflecting higher customer accommodation trading results in all market businesses. These increases were partially offset by lower gains from equity investments and debt securities, and declines in trust and investment fees, mortgage banking fee income, and commercial real estate brokerage commissions.
Trust and investment fees were $3.4 billion, down $126 million from the prior quarter, primarily due to lower investment banking fees and lower retail brokerage transaction activity and asset-based fees reflecting lower market valuations.
Mortgage banking noninterest income was $1.6 billion, down $62 million from fourth quarter 2015, primarily driven by a decrease in mortgage originations and production margins in the first quarter, partially offset by higher servicing income. Residential mortgage loan originations were $44 billion in the first quarter, down $3 billion linked quarter. The production margin on residential held-for-sale mortgage loan originations was 1.68 percent, compared with 1.83 percent in fourth quarter. Net servicing income was $850 million, compared with $730 million in fourth quarter.
Noninterest Expense
Noninterest expense in the first quarter was $13.0 billion, compared with $12.6 billion in fourth quarter 2015. First quarter expenses included seasonally higher employee benefits and incentive compensation, as well as an increase in operating lease expense due to the leases acquired in the GE Capital transactions. These higher expenses were offset by lower outside professional services, equipment and advertising, which typically decline in first quarter, and lower operating losses. The efficiency ratio was 58.7 percent in first quarter 2016, compared with 58.4 percent in the prior quarter. The Company currently expects 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 first quarter results reflected the benefit of our diversified business model as we managed challenges presented by a volatile operating environment for our industry. We again generated solid growth in the fundamental drivers of long-term value creation: loans, deposits and capital. We also completed two important acquisitions from GE Capital, which are great additions to our company and demonstrate the benefit of our strong financial position. We remain focused on meeting the financial needs of our consumer and business customers, and I believe we are well positioned for the future.”
Chief Financial Officer John Shrewsberry added, “Our first quarter results demonstrated an ability to produce consistent revenue and net income across economic and interest rate cycles. While challenges in the energy industry and persistent low rates impacted our bottom line, our diversified business model was again beneficial to our results. We were disciplined in deploying liquidity into investment securities in the quarter, with gross purchases well below recent quarters. This was partially responsible for the $30 billion increase in our federal funds and shortterm investment balances compared with the prior quarter. Our capital remained very strong with Common Equity Tier 1 (fully phased-in) of $142.7 billion3. Our net payout ratio4 was 60% in the quarter, as we returned $3.0 billion to shareholders through common stock dividends and net share repurchases."
Net Interest Income
Net interest income in first quarter 2016 increased $79 million from fourth quarter 2015 to $11.7 billion. This increase was driven largely by earning asset growth, including a partial quarter impact from the assets acquired from GE Capital, the benefit of the fourth quarter increase in the federal funds rate and disciplined deposit pricing. These increases to net interest income were partially offset by reduced income from variable sources, including periodic dividends and loans fees, and one less day in the quarter.
Net interest margin was 2.90 percent, down 2 basis points from fourth quarter 2015. Income from variable sources reduced the net interest margin by approximately 2 basis points linked-quarter. All other growth, mix and repricing was essentially neutral to net interest margin.
Noninterest Income
Noninterest income in the first quarter was $10.5 billion, up from $10.0 billion in fourth quarter 2015, primarily due to a $381 million gain from the previously announced sale of our crop insurance business (included in other noninterest income) and the impact of lower interest rates and currency movements on hedging results (hedge ineffectiveness) of $379 million, driven by long-term debt. Noninterest income also reflected increases in lease income, which includes operating leases acquired in the GE Capital transactions, and trading gains, reflecting higher customer accommodation trading results in all market businesses. These increases were partially offset by lower gains from equity investments and debt securities, and declines in trust and investment fees, mortgage banking fee income, and commercial real estate brokerage commissions.
Trust and investment fees were $3.4 billion, down $126 million from the prior quarter, primarily due to lower investment banking fees and lower retail brokerage transaction activity and asset-based fees reflecting lower market valuations.
Mortgage banking noninterest income was $1.6 billion, down $62 million from fourth quarter 2015, primarily driven by a decrease in mortgage originations and production margins in the first quarter, partially offset by higher servicing income. Residential mortgage loan originations were $44 billion in the first quarter, down $3 billion linked quarter. The production margin on residential held-for-sale mortgage loan originations was 1.68 percent, compared with 1.83 percent in fourth quarter. Net servicing income was $850 million, compared with $730 million in fourth quarter.
Noninterest Expense
Noninterest expense in the first quarter was $13.0 billion, compared with $12.6 billion in fourth quarter 2015. First quarter expenses included seasonally higher employee benefits and incentive compensation, as well as an increase in operating lease expense due to the leases acquired in the GE Capital transactions. These higher expenses were offset by lower outside professional services, equipment and advertising, which typically decline in first quarter, and lower operating losses. The efficiency ratio was 58.7 percent in first quarter 2016, compared with 58.4 percent in the prior quarter. The Company currently expects 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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