Market Overview

Wells Fargo Reports $5.9 Billion in Quarterly Net Income; Diluted EPS of $1.20


Wells Fargo & Company (NYSE:WFC):

  • Financial results:
    • Net income of $5.9 billion, compared with $5.1 billion in first
      quarter 2018
    • Diluted earnings per share (EPS) of $1.20, compared with $0.96
    • Revenue of $21.6 billion, down from $21.9 billion
      • Net interest income of $12.3 billion, up $73 million
      • Noninterest income of $9.3 billion, down $398 million
    • Noninterest expense of $13.9 billion, down $1.1 billion
    • Average deposits of $1.3 trillion, down $35.1 billion, or 3%
    • Average loans of $950.1 billion, down $876 million
    • Return on assets (ROA) of 1.26%, return on equity (ROE) of 12.71%,
      and return on average tangible common equity (ROTCE) of 15.16%1
  • Credit quality:
    • Provision expense of $845 million, up $654 million from first
      quarter 2018
      • Net charge-offs of $695 million, down $46 million
        • Net charge-offs of 0.30% of average loans (annualized),
          down from 0.32%
      • Reserve build2 of $150 million, compared with $550
        million reserve release2
    • Nonaccrual loans of $6.9 billion, down $434 million, or 6%
  • Strong capital position while returning more capital to shareholders:
    • Common Equity Tier 1 ratio (fully phased-in) of 11.9%3
    • Returned $6.0 billion to shareholders through common stock
      dividends and net share repurchases, up 49% from $4.0 billion in
      first quarter 2018

a) Net share repurchases of $3.9 billion, up 86% from $2.1 billion in
first quarter 2018

b) Period-end common shares outstanding down 362 million shares, or 7%

c) Quarterly common stock dividend increased to $0.45 per share,
compared with $0.43 per share in fourth quarter 2018 and $0.39 per share
in first quarter 2018

Financial results reported in this document are preliminary. Final
financial results and other disclosures will be reported in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and
may differ materially from the results and disclosures in this document
due to, among other things, the completion of final review procedures,
the occurrence of subsequent events, or the discovery of additional


Selected Financial Information

      Quarter ended
Mar 31,   Dec 31,   Mar 31,
    2019   2018   2018
Diluted earnings per common share $ 1.20 1.21 0.96
Wells Fargo net income (in billions) 5.86 6.06 5.14
Return on assets (ROA) 1.26 % 1.28 1.09
Return on equity (ROE) 12.71 12.89 10.58
Return on average tangible common equity (ROTCE) (a) 15.16 15.39 12.62
Asset Quality
Net charge-offs (annualized) as a % of average total loans 0.30 % 0.30 0.32
Allowance for credit losses as a % of total loans 1.14 1.12 1.19
Allowance for credit losses as a % of annualized net charge-offs 384 374 376
Revenue (in billions) $ 21.6 21.0 21.9
Efficiency ratio (b) 64.4 % 63.6 68.6
Average loans (in billions) $ 950.1 946.3 951.0
Average deposits (in billions) 1,262.1 1,268.9 1,297.2
Net interest margin   2.91 %   2.94     2.84

(a) Tangible common equity is a non-GAAP financial measure and
represents total equity less preferred equity, noncontrolling
interests, and goodwill and certain identifiable intangible assets
(including goodwill and intangible assets associated with certain
of our nonmarketable equity securities but excluding mortgage
servicing rights), net of applicable deferred taxes. The
methodology of determining tangible common equity may differ among
companies. Management believes that return on average tangible
common equity, which utilizes tangible common equity, is a useful
financial measure because it enables investors and others to
assess the Company's use of equity. For additional information,
including a corresponding reconciliation to GAAP financial
measures, see the "Tangible Common Equity" tables on page 34.

(b) The efficiency ratio is noninterest expense divided by total
revenue (net interest income and noninterest income).


Wells Fargo & Company (NYSE:WFC) reported net income of $5.9 billion, or
$1.20 per diluted common share, for first quarter 2019, compared with
$5.1 billion, or $0.96 per share, for first quarter 2018, and
$6.1 billion, or $1.21 per share, for fourth quarter 2018.

Interim Chief Executive Officer Allen Parker said, "Since assuming this
role, I have been focused on leading our Company forward by emphasizing
my top priorities: serving our customers and supporting our Wells Fargo
team members; meeting and exceeding the expectations of our regulators;
and continuing the important transformation of the Company. We have more
work ahead of us, and our strong leadership team is dedicated to making
our Company the most customer-focused, efficient, and innovative Wells
Fargo ever. All these efforts are focused on creating a first-rate
organization that is characterized by a strong financial foundation, a
leading presence in our chosen markets, focused growth within a
responsible risk management framework, operational excellence, and
highly engaged team members. I want to thank our team members for their
continued commitment and tireless efforts, and I'm confident and
enthusiastic about the extraordinary opportunities we have in front of
us to build an even stronger Wells Fargo for all our stakeholders."

Chief Financial Officer John Shrewsberry said, "Wells Fargo reported
$5.9 billion of net income in the first quarter. Our financial results
included continued strong credit performance and high levels of
liquidity. In addition, our continued de-risking of the balance sheet
and consistent level of profitability have resulted in capital levels
well above our regulatory minimum. As a result, we returned $6.0 billion
to shareholders through common stock dividends and net share repurchases
in the first quarter, up 49% from a year ago. Returning excess capital
to shareholders remains a priority. While our expenses in the first
quarter included typically higher personnel expense, we remain committed
to, and are on track to achieving, our 2019 expense target."

Net Interest Income

Net interest income in the first quarter was $12.3 billion, down $333
million from fourth quarter 2018, driven primarily by two fewer days in
the quarter and balance sheet mix and repricing, including the impact of
a flattening yield curve. The net interest margin was 2.91%, down 3
basis points from the prior quarter due to balance sheet mix and

Noninterest Income

Noninterest income in the first quarter was $9.3 billion, up $962
million from fourth quarter 2018. First quarter noninterest income
included higher market sensitive revenue4 and mortgage
banking income, partially offset by lower other income, trust and
investment fees, and other fees.

  • Trust and investment fees were $3.4 billion, down from $3.5 billion in
    fourth quarter 2018, driven by lower asset-based fees on retail
    brokerage advisory assets, reflecting lower market valuations at
    December 31, 2018.
  • Mortgage banking income was $708 million, up from $467 million in
    fourth quarter 2018. Net mortgage servicing income was $364 million,
    up from $109 million in the fourth quarter, which included negative
    mortgage servicing rights valuation adjustments. The production margin
    on residential held-for-sale mortgage loan originations5
    increased to 1.05%, from 0.89% in the fourth quarter, primarily due to
    an improvement in secondary market conditions. Residential mortgage
    loan originations in the first quarter were $33 billion, down from
    $38 billion in the fourth quarter primarily due to seasonality. The
    unclosed application pipeline at March 31, 2019, was $32 billion, up
    from $18 billion at December 31, 2018.
  • Market sensitive revenue4 was $1.3 billion, up from $40
    million in fourth quarter 2018, and included higher net gains from
    equity securities driven by a $797 million increase in deferred
    compensation plan investment results (P&L neutral, largely offset by
    higher employee benefits expense). Net gains from trading activities
    increased $347 million compared with the prior quarter, driven
    predominantly by strength in credit and asset-backed products. Net
    gains from debt securities increased $116 million compared with the
    prior quarter, predominantly due to the sale of non-agency residential
    mortgage-backed securities.

Noninterest Expense

Noninterest expense in the first quarter increased $577 million from the
prior quarter to $13.9 billion, predominantly due to $778 million of
seasonally higher employee benefits and incentive compensation expense,
as well as a $785 million increase in deferred compensation expense (P&L
neutral, largely offset by net gains from equity securities). These
increases were partially offset by lower core deposit

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