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Wells Fargo 10-Q 2014
 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

 

Commission file number 001-2979

 

WELLS FARGO & COMPANY

(Exact name of registrant as specified in its charter)

 

                                                  Delaware                                                                                    No. 41-0449260

                                        (State of incorporation)                                                         (I.R.S. Employer Identification No.)

 

420 Montgomery Street, San Francisco, California 94163

(Address of principal executive offices)  (Zip Code)

 

Registrant’s telephone number, including area code:  1-866-249-3302 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes þ             No ¨ 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes þ             No ¨ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

        Large accelerated filer         þ                                                                                         Accelerated filer  ¨ 

        Non‑accelerated filer           ¨  (Do not check if a smaller reporting company)               Smaller reporting company  ¨ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨             No þ 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

                                                                                                                                                         Shares Outstanding

                                                                                                                                                             July 31, 2014

Common stock, $1-2/3 par value                                                                                         5,220,407,047              

 

 


 

 

 

FORM 10-Q

CROSS-REFERENCE INDEX

  

  

  

  

  

PART I

Financial Information

  

Item 1.

Financial Statements

Page

  

Consolidated Statement of Income.....................................................................................................................................................  

71

  

Consolidated Statement of Comprehensive Income..................................................................................................................................  

72

  

Consolidated Balance Sheet.............................................................................................................................................................  

73

  

Consolidated Statement of Changes in Equity........................................................................................................................................  

74

  

Consolidated Statement of Cash Flows................................................................................................................................................  

76

  

Notes to Financial Statements

  

  

1

-

Summary of Significant Accounting Policies.....................................................................................................................................  

77

  

2

-

Business Combinations..............................................................................................................................................................  

79

  

3

-

Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments...............................................................  

79

  

4

-

Investment Securities................................................................................................................................................................  

80

  

5

-

Loans and Allowance for Credit Losses...........................................................................................................................................  

88

  

6

-

Other Assets..........................................................................................................................................................................  

106

  

7

-

Securitizations and Variable Interest Entities......................................................................................................................................  

107

  

8

-

Mortgage Banking Activities.......................................................................................................................................................  

115

  

9

-

Intangible Assets.....................................................................................................................................................................  

118

  

10

-

Guarantees, Pledged Assets and Collateral........................................................................................................................................  

119

  

11

-

Legal Actions.........................................................................................................................................................................  

122

  

12

-

Derivatives............................................................................................................................................................................  

123

  

13

-

Fair Values of Assets and Liabilities...............................................................................................................................................  

130

  

14

-

Preferred Stock.......................................................................................................................................................................  

151

  

15

-

Employee Benefits...................................................................................................................................................................  

153

  

16

-

Earnings Per Common Share.......................................................................................................................................................  

154

  

17

-

Other Comprehensive Income......................................................................................................................................................  

155

  

18

-

Operating Segments..................................................................................................................................................................  

157

  

19

-

Regulatory and Agency Capital Requirements....................................................................................................................................  

158

  

  

  

  

  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)

  

  

Summary Financial Data................................................................................................................................................................  

2

  

Overview..................................................................................................................................................................................  

3

  

Earnings Performance...................................................................................................................................................................  

5

  

Balance Sheet Analysis..................................................................................................................................................................  

13

  

Off-Balance Sheet Arrangements......................................................................................................................................................  

17

  

Risk Management........................................................................................................................................................................  

18

  

Capital Management.....................................................................................................................................................................  

59

  

Regulatory Reform.......................................................................................................................................................................  

65

  

Critical Accounting Policies.............................................................................................................................................................  

66

  

Current Accounting Developments....................................................................................................................................................  

67

  

Forward-Looking Statements...........................................................................................................................................................  

68

  

Risk Factors...............................................................................................................................................................................  

69

  

Glossary of Acronyms..................................................................................................................................................................  

159

  

  

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk......................................................................................................................  

44

  

  

  

  

  

Item 4.

Controls and Procedures................................................................................................................................................................  

70

  

  

  

  

  

PART II

Other Information

  

Item 1.

Legal Proceedings........................................................................................................................................................................  

160

  

  

  

  

  

Item 1A.

Risk Factors...............................................................................................................................................................................  

160

  

  

  

  

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds......................................................................................................................  

160

  

  

  

  

  

Item 6.

Exhibits....................................................................................................................................................................................  

161

  

  

  

  

  

Signature.........................................................................................................................................................................................  

161

  

  

  

  

  

Exhibit Index....................................................................................................................................................................................  

162

1

 


 

 

 

 

PART I - FINANCIAL INFORMATION

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

FINANCIAL REVIEW

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Summary Financial Data

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

% Change

  

  

  

  

  

  

  

  

  

  

  

  

  

Quarter ended

  

June 30, 2014 from

  

Six months ended

  

  

  

  

  

  

  

  

  

June 30,

  

March 31,

  

June 30,

  

March 31,

  

June 30,

  

June 30,

  

June 30,

%

  

($ in millions, except per share amounts)

  

 2014 

  

 2014 

  

 2013 

  

 2014 

  

 2013 

  

 2014 

  

 2013 

Change

  

For the Period

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Wells Fargo net income

$

 5,726 

  

 5,893 

  

 5,519 

  

 (3) 

%

 4 

  

 11,619 

  

 10,690 

 9 

%

Wells Fargo net income

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

applicable to common stock

  

 5,424 

  

 5,607 

  

 5,272 

  

 (3) 

  

 3 

  

 11,031 

  

 10,203 

 8 

  

Diluted earnings per common share

  

 1.01 

  

 1.05 

  

 0.98 

  

 (4) 

  

 3 

  

 2.06 

  

 1.90 

 8 

  

Profitability ratios (annualized):

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Wells Fargo net income to

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

average assets (ROA) (1)

  

 1.47 

%

 1.57 

  

 1.55 

  

 (6) 

  

 (5) 

  

 1.52 

  

 1.52 

 - 

  

  

Wells Fargo net income applicable

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

to common stock to average

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Wells Fargo common

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

stockholders' equity (ROE)

  

 13.40 

  

 14.35 

  

 14.02 

  

 (7) 

  

 (4) 

  

 13.86 

  

 13.81 

 - 

  

Efficiency ratio (2)

  

 57.9 

  

 57.9 

  

 57.3 

  

 - 

  

 1 

  

 57.9 

  

 57.8 

 - 

  

Total revenue

$

 21,066 

  

 20,625 

  

 21,378 

  

 2 

  

 (1) 

  

 41,691 

  

 42,637 

 (2) 

  

Pre-tax pre-provision profit (PTPP) (3)

  

 8,872 

  

 8,677 

  

 9,123 

  

 2 

  

 (3) 

  

 17,549 

  

 17,982 

 (2) 

  

Dividends declared per common share

  

 0.35 

  

 0.30 

  

 0.30 

  

 17 

  

 17 

  

 0.65 

  

 0.55 

 18 

  

Average common shares outstanding

  

 5,268.4 

  

 5,262.8 

  

 5,304.7 

  

 - 

  

 (1) 

  

 5,265.6 

  

 5,291.9 

 - 

  

Diluted average common shares outstanding

  

 5,350.8 

  

 5,353.3 

  

 5,384.6 

  

 - 

  

 (1) 

  

 5,353.2 

  

 5,369.9 

 - 

  

Average loans (1)

$

 831,043 

  

 823,790 

  

 798,386 

  

 1 

  

 4 

  

 827,436 

  

 797,528 

 4 

  

Average assets (1)

  

 1,564,003 

  

 1,525,905 

  

 1,427,150 

  

 2 

  

 10 

  

 1,545,060 

  

 1,415,105 

 9 

  

Average core deposits (4)

  

 991,727 

  

 973,801 

  

 936,090 

  

 2 

  

 6 

  

 982,814 

  

 931,006 

 6 

  

Average retail core deposits (5)

  

 698,763 

  

 690,643 

  

 666,043 

  

 1 

  

 5 

  

 694,726 

  

 664,487 

 5 

  

Net interest margin (1)

  

 3.15 

%

 3.20 

  

 3.47 

  

 (2) 

  

 (9) 

  

 3.17 

  

 3.48 

 (9) 

  

At Period End

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Investment securities

$

 279,069 

  

 270,327 

  

 249,439 

  

 3 

  

 12 

  

 279,069 

  

 249,439 

 12 

  

Loans (1)

  

 828,942 

  

 826,443 

  

 799,867 

  

 - 

  

 4 

  

 828,942 

  

 799,867 

 4 

  

Allowance for loan losses

  

 13,101 

  

 13,695 

  

 16,144 

  

 (4) 

  

 (19) 

  

 13,101 

  

 16,144 

 (19) 

  

Goodwill

  

 25,705 

  

 25,637 

  

 25,637 

  

 - 

  

 - 

  

 25,705 

  

 25,637 

 - 

  

Assets (1)

  

 1,598,874 

  

 1,546,707 

  

 1,438,456 

  

 3 

  

 11 

  

 1,598,874 

  

 1,438,456 

 11 

  

Core deposits (4)

  

 1,007,485 

  

 994,185 

  

 941,158 

  

 1 

  

 7 

  

 1,007,485 

  

 941,158 

 7 

  

Wells Fargo stockholders' equity

  

 180,859 

  

 175,654 

  

 162,421 

  

 3 

  

 11 

  

 180,859 

  

 162,421 

 11 

  

Total equity

  

 181,549 

  

 176,469 

  

 163,777 

  

 3 

  

 11 

  

 181,549 

  

 163,777 

 11 

  

Tier 1 capital (6)

  

 151,679 

  

 147,549 

  

 132,969 

  

 3 

  

 14 

  

 151,679 

  

 132,969 

 14 

  

Total capital (6)

  

 189,480 

  

 183,559 

  

 164,998 

  

 3 

  

 15 

  

 189,480 

  

 164,998 

 15 

  

Capital ratios:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Total equity to assets (1)

  

 11.35 

%

 11.41 

  

 11.39 

  

 - 

  

 - 

  

 11.35 

  

 11.39