Wells Fargo Reports $6.0 Billion in Quarterly Net Income; Diluted EPS of $1.13

Wells Fargo & Company (NYSE:WFC):

  • Financial results:
    • Net income of $6.0 billion, compared with $4.5 billion in third quarter 2017
    • Diluted earnings per share (EPS) of $1.13, compared with $0.83
      • Third quarter 2018 included the redemption of our Series J Preferred Stock, which reduced diluted EPS by $0.03 per share
    • Revenue of $21.9 billion, up from $21.8 billion
      • Net interest income of $12.6 billion, up $123 million, or 1 percent
      • Noninterest income of $9.4 billion, down $31 million
    • Noninterest expense of $13.8 billion, down $588 million, or 4 percent
    • Average deposits of $1.3 trillion, down $40.0 billion, or 3 percent
    • Average loans of $939.5 billion, down $12.9 billion, or 1 percent
    • Return on assets (ROA) of 1.27 percent, return on equity (ROE) of 12.04 percent, and return on average tangible common equity (ROTCE) of 14.33 percent1
  • Credit quality:
    • Provision expense of $580 million, down $137 million, or 19 percent, from third quarter 2017
      • Net charge-offs decreased $37 million to $680 million, or 0.29 percent of average loans (annualized)
      • Reserve release2 of $100 million
    • Nonaccrual loans of $7.1 billion, down $1.6 billion, or 18 percent
  • Strong capital position while returning more capital to shareholders:.
    • Common Equity Tier 1 ratio (fully phased-in) of 11.9 percent3
    • Returned $8.9 billion to shareholders through common stock dividends and net share repurchases, which more than doubled from $4.0 billion in third quarter 2017
      • Net share repurchases of $6.8 billion, which more than tripled from $2.0 billion
      • Period-end common shares outstanding down 216.3 million shares, or 4 percent
      • Quarterly common stock dividend of $0.43 per share, up 10 percent from $0.39 per share

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 September 30, 2018, 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 information.

Selected Financial Information

Quarter ended
Sep 30,Jun 30,Sep 30,
201820182017
Earnings
Diluted earnings per common share$1.130.980.83
Wells Fargo net income (in billions)6.015.194.54
Return on assets (ROA)1.27%1.100.93
Return on equity (ROE)12.0410.608.96
Return on average tangible common equity (ROTCE) (a)14.3312.6210.66
Asset Quality
Net charge-offs (annualized) as a % of average total loans0.29%0.260.30
Allowance for credit losses as a % of total loans1.161.181.27
Allowance for credit losses as a % of annualized net charge-offs406460426
Other
Revenue (in billions)$21.921.621.8
Efficiency ratio (b)62.7%64.965.7
Average loans (in billions)$939.5944.1952.3
Average deposits (in billions)1,266.41,271.31,306.4
Net interest margin2.94%2.932.86

(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 36.

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(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 $6.0 billion, or $1.13 per diluted common share, for third quarter 2018, compared with $4.5 billion, or $0.83 per share, for third quarter 2017, and $5.2 billion, or $0.98 per share, for second quarter 2018.

Chief Executive Officer Tim Sloan said, In the third quarter, we continued to make progress in our efforts to build a better Wells Fargo with a specific focus on our six goals: risk management, customer service, team member engagement, innovation, corporate citizenship and shareholder value. We are strengthening how we manage risk and have made enhancements to our risk management framework. We also continued to make progress on customer remediation, which is an important step in our efforts to rebuild trust. In addition, to better serve our customers and help them succeed financially, we launched Control TowerSM, a digital experience that simplifies our customers online financial lives, and our new Propel Card, one of the richest no-annual-fee credit cards in the industry. Furthermore, our ongoing efforts in corporate citizenship and building stronger communities were recognized in a recent survey on corporate giving by the Chronicle of Philanthropy, which ranked the Wells Fargo Foundation as the No.2 corporate cash giver in the United States. Our focus on shareholder value included progress on our expense savings initiatives, and we returned a record $8.9 billion to shareholders through net common stock repurchases and dividends in the third quarter. Im confident that our efforts to transform Wells Fargo position us for long-term success.

Chief Financial Officer John Shrewsberry said, Wells Fargo reported $6.0 billion of net income in the third quarter. Revenue increased and noninterest expense declined both linked quarter and year-over-year. Our positive operating leverage reflected the benefit of the transformational changes we are making at Wells Fargo, including our focus on reducing expenses. In addition, we saw positive business trends in the third quarter, including growth in primary consumer checking customers, increased debit and credit card usage, and higher year-over-year loan originations in auto, small business, home equity and personal loans and lines. Credit performance and capital levels remained strong. Our commitment to returning more capital to shareholders was demonstrated by an increase in net common share repurchases, which more than tripled from a year ago, and a higher common stock dividend.

Net Interest Income

Net interest income in the third quarter was $12.6 billion, up $31 million from second quarter 2018. Net interest margin was 2.94 percent, up 1 basis point from the prior quarter.

Noninterest Income

Noninterest income in the third quarter was $9.4 billion, up $357 million from second quarter 2018. Third quarter noninterest income included higher other income, market sensitive revenue4, mortgage banking fees, service charges on deposit accounts, and card fees, partially offset by lower trust and investment fees.

  • Mortgage banking income was $846 million, up from $770 million in second quarter 2018. The production margin on residential held-for-sale mortgage loan originations5 increased to 0.97 percent, from 0.77 percent in the second quarter, primarily due to an improvement in secondary market conditions. Residential mortgage loan originations were $46 billion, down from $50 billion in the second quarter. Net mortgage servicing income was $390 million, down from $406 million in the second quarter.
  • Market sensitive revenue was $631 million, up from $527 million in second quarter 2018, predominantly due to higher net gains from equity securities on lower other-than-temporary impairment (OTTI).
  • Other income was $466 million, compared with $323 million in the second quarter. Third quarter results included a $638 million gain from sales of $1.7 billion of purchased credit-impaired (PCI) Pick-a-Pay loans, compared with a $479 million gain from sales of $1.3 billion of PCI Pick-a-Pay loans in second quarter 2018.

Noninterest Expense

Noninterest expense in the third quarter declined $219 million from the prior quarter to $13.8 billion, predominantly due to lower commission and incentive compensation, outside professional services and charitable donations expense. These decreases were partially offset by higher employee benefits, equipment and contract services expense. The efficiency ratio was 62.7 percent in third quarter 2018, compared with 64.9 percent in the second quarter.

Third quarter 2018 operating losses were $605 million, driven primarily by remediation expense for a variety of matters, including an additional $241 million accrual for previously disclosed issues related to automobile collateral protection insurance (CPI).

Income Taxes

The Companys effective income tax rate was 20.1 percent for third quarter 2018 and included net discrete income tax expense related to the re-measurement of our initial estimates for the impacts of the Tax Cuts & Jobs Act recognized in fourth quarter 2017. The effective income tax rate in second quarter 2018 was 25.9 percent and included net discrete income tax expense of $481 million mostly related to state income taxes. The Company currently expects the effective income tax rate in fourth quarter 2018 to be approximately 19 percent, excluding the impact of any future discrete items.

Loans

Total average loans were $939.5 billion in the third quarter, down $4.6 billion from the second quarter. Period-end loan balances were $942.3 billion at September 30, 2018, down $2.0 billion from June 30, 2018. Commercial loans were down $1.2 billion compared with June 30, 2018, predominantly due to a $2.8 billion decline in commercial real estate loans, partially offset by $1.5 billion of growth in commercial and industrial loans. Consumer loans decreased $746 million from the prior quarter, driven by:

  • a $1.6 billion decline in automobile loans due to expected continued runoff, as well as the reclassification of the remaining $374 million of Reliable Financial Services Inc. auto loans to held for sale
  • a $1.2 billion decline in junior lien mortgage loans as payoffs continued to exceed originations
  • these decreases were partially offset by:
    • a $1.3 billion increase in 1-4 family first mortgage loans, as nonconforming mortgage loan originations were partially offset by payoffs and $1.7 billion of sales of PCI Pick-a-Pay mortgage loans
    • a $1.1 billion increase in credit card loans

Additionally, $249 million of nonconforming mortgage loan originations that would have otherwise been included in 1-4 family first mortgage loan outstandings were designated as held for sale in third quarter 2018 in anticipation of the future issuance of residential mortgage-backed securities (RMBS).

Period-End Loan Balances

Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Commercial$501,886503,105503,396503,388500,150
Consumer440,414441,160443,912453,382451,723
Total loans$942,300944,265947,308956,770951,873
Change from prior quarter$(1,965)(3,043)(9,462)4,897(5,550)

Debt and Equity Securities

Debt securities include available-for-sale and held-to-maturity debt securities, as well as debt securities held for trading. Debt securities were $472.3 billion at September 30, 2018, down $3.2 billion from the second quarter, predominantly due to a net decrease in available-for-sale debt securities, as approximately $14.3 billion of purchases, primarily federal agency mortgage-backed securities (MBS) in the available-for-sale portfolio, were more than offset by runoff and sales.

Net unrealized losses on available-for-sale debt securities were $3.8 billion at September 30, 2018, compared with net unrealized losses of $2.4 billion at June 30, 2018, predominantly due to higher interest rates.

Equity securities include marketable and non-marketable equity securities, as well as equity securities held for trading. Equity securities were $61.8 billion at September 30, 2018, up $4.3 billion from the second quarter, largely due to an increase in equity securities held for trading due to stronger customer activity.

Deposits

Total average deposits for third quarter 2018 were $1.3 trillion, down $5.0 billion from the prior quarter, as consumers continued to move excess liquidity to higher-rate alternatives. The average deposit cost for third quarter 2018 was 47 basis points, up 7 basis points from the prior quarter and 21 basis points from a year ago, primarily driven by an increase in Wholesale Banking and Wealth and Investment Management deposit rates.

Capital

Capital in the third quarter continued to exceed our internal target, with a Common Equity Tier 1 ratio (fully phased-in) of 11.9 percent3, down from 12.0 percent in the prior quarter. In third quarter 2018, the Company repurchased 146.5 million shares of its common stock, which reduced period-end common shares outstanding by 137.5 million. The Company paid a quarterly common stock dividend of $0.43 per share.

The Company redeemed its 8.00% Non-Cumulative Perpetual Class A Preferred Stock, Series J, on September 17, 2018, which reduced diluted earnings per common share in third quarter 2018 by $0.03 per share as a result of eliminating the purchase accounting discount recorded on these shares at the time of the Wachovia acquisition.

Credit Quality

Net Loan Charge-offs

The quarterly loss rate in the third quarter was 0.29 percent (annualized), compared with 0.26 percent in the prior quarter and 0.30 percent a year ago. Commercial and consumer losses were 0.12 percent and 0.47 percent, respectively. Total credit losses were $680 million in third quarter 2018, up $78 million from second quarter 2018. Commercial losses were up $85 million driven by higher commercial and industrial loan charge-offs and lower recoveries, while consumer losses decreased $7 million.

Net Loan Charge-Offs

Quarter ended
September 30, 2018June 30, 2018September 30, 2017
Net loanAs a % ofNet loanAs a % ofNet loanAs a % of
charge-averagecharge-averagecharge-average
($ in millions)offsloans (a)offsloans (a)offsloans (a)
Commercial:
Commercial and industrial$1480.18%$580.07%$1250.15%
Real estate mortgage(1)(3)(0.01)
Real estate construction(2)(0.04)(6)(0.09)(15)(0.24)
Lease financing70.14150.3260.12
Total commercial1520.12670.051130.09
Consumer:
Real estate 1-4 family first mortgage(25)(0.04)(23)(0.03)(16)(0.02)
Real estate 1-4 family junior lien mortgage(9)(0.10)(13)(0.13)1
Credit card2993.223233.612773.08
Automobile1301.101130.932021.41
Other revolving credit and installment1331.441351.441401.44
Total consumer5280.475350.496040.53
Total$6800.29%$6020.26%$7170.30%

(a) Quarterly net charge-offs (recoveries) as a percentage of average loans are annualized. See explanation on page 33 of the accounting for purchased credit-impaired (PCI) loans and the impact on selected financial ratios.

Nonperforming Assets

Nonperforming assets decreased $410 million, or 5 percent, from second quarter 2018 to $7.6 billion. Nonaccrual loans decreased $433 million from second quarter 2018 to $7.1 billion reflecting both lower consumer and commercial nonaccruals.

Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

September 30, 2018June 30, 2018September 30, 2017

As a

As aAs a

% of

% of% of
TotaltotalTotaltotalTotaltotal
($ in millions)balancesloansbalancesloansbalancesloans
Commercial:
Commercial and industrial$1,5550.46%$1,5590.46%$2,3970.73%
Real estate mortgage6030.507650.625930.46
Real estate construction440.19510.22380.15
Lease financing960.49800.41810.42
Total commercial2,2980.462,4550.493,1090.62
Consumer:
Real estate 1-4 family first mortgage3,6051.273,8291.354,2131.50
Real estate 1-4 family junior lien mortgage9842.791,0292.821,1012.68
Automobile1180.261190.251370.25
Other revolving credit and installment480.13540.14590.15
Total consumer4,7551.085,0311.145,5101.22
Total nonaccrual loans7,0530.757,4860.798,6190.91
Foreclosed assets:
Government insured/guaranteed8790137
Non-government insured/guaranteed435409569
Total foreclosed assets522499706
Total nonperforming assets$7,5750.80%$7,9850.85%$9,3250.98%
Change from prior quarter:
Total nonaccrual loans$(433)$(233)$(437)
Total nonperforming assets(410)(305)(512)

Allowance for Credit Losses

The allowance for credit losses, including the allowance for unfunded commitments, totaled $11.0 billion at September 30, 2018, down $154 million from June 30, 2018. Third quarter 2018 included a $100 million reserve release2, which reflected strong credit performance and lower loan balances. The allowance coverage for total loans was 1.16 percent, compared with 1.18 percent in second quarter 2018. The allowance covered 4.1 times annualized third quarter net charge-offs, compared with 4.6 times in the prior quarter. The allowance coverage for nonaccrual loans was 155 percent at September 30, 2018, compared with 148 percent at June 30, 2018. The Company believes the allowance was appropriate for losses inherent in the loan portfolio at September 30, 2018.

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
Sep 30,Jun 30,Sep 30,
(in millions)201820182017
Community Banking$2,8162,4961,877
Wholesale Banking2,8512,6352,314
Wealth and Investment Management732445719

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 automobile, student, mortgage, home equity and small business lending, as well as referrals to Wholesale Banking and Wealth and Investment Management business partners. The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations in support of the other operating segments and results of investments in our affiliated venture capital partnerships.

Selected Financial Information

Quarter ended
Sep 30,Jun 30,Sep 30,
(in millions)201820182017
Total revenue$11,81611,80611,520
Provision for credit losses547484650
Noninterest expense7,4677,2907,852
Segment net income2,8162,4961,877
(in billions)
Average loans460.9463.8473.7
Average assets1,024.91,034.31,089.6
Average deposits760.9760.6734.6

Third Quarter 2018 vs. Second Quarter 2018

  • Net income of $2.8 billion, up $320 million, or 13 percent. Second quarter 2018 results included net discrete income tax expense of $481 million mostly related to state income taxes
  • Revenue was flat at $11.8 billion, as higher service charges on deposit accounts, mortgage banking income, gains from sales of PCI Pick-a-Pay loans, and card fees were predominantly offset by lower market sensitive revenue
  • Noninterest expense was up $177 million, or 2 percent, driven mainly by higher operating losses and equipment expense, partially offset by lower charitable contributions, outside professional services and other expense

Third Quarter 2018 vs. Third Quarter 2017

  • Net income was up $939 million, or 50 percent, predominantly due to lower noninterest expense and higher revenue
  • Revenue increased $296 million, or 3 percent, due to a gain from the sales of PCI Pick-a-Pay loans and higher net interest income, partially offset by lower mortgage banking income, market sensitive revenue and service charges on deposit accounts
  • Noninterest expense of $7.5 billion decreased $385 million, or 5 percent, driven by lower operating losses, partially offset by higher personnel expense
  • Provision for credit losses decreased $103 million due to credit improvement in the automobile and consumer real estate portfolios

Business Metrics and Highlights

  • Primary consumer checking customers6,7 up 1.7 percent year-over-year
  • More than 357,000 branch customer experience surveys completed during third quarter 2018, with both ˜Loyalty and ˜Overall Satisfaction with Most Recent Visit scores up from the prior quarter
  • #1 in retail deposits8, based on the FDIC’s recently published Summary of Deposits annual survey
  • Debit card point-of-sale purchase volume9 of $87.5 billion in the third quarter, up 9 percent year-over-year
  • General purpose credit card point-of-sale purchase volume of $19.4 billion in the third quarter, up 7 percent year-over-year
  • Business Insider named our Propel Card the #1 no-fee credit card on its list of “The 8 Best No-Fee Credit Cards to Open in 2018”
  • 29.0 million digital (online and mobile) active customers, including 22.5 million mobile active users7,10
  • 5,663 retail bank branches as of the end of third quarter 2018, reflecting 93 branch consolidations in the quarter and 207 in the first nine months of 2018; additionally, we expect to complete the previously announced divestiture of 52 branches in Indiana, Ohio, Michigan and part of Wisconsin in fourth quarter 2018
  • Home Lending
  • Originations of $46 billion, down from $50 billion in the prior quarter, primarily due to seasonality; included home equity originations of $713 million, up 3 percent from the prior quarter and up 16 percent from the prior year
  • Applications of $57 billion, down from $67 billion in the prior quarter, primarily due to seasonality
  • Application pipeline of $22 billion at quarter end, down from $26 billion at June 30, 2018
  • Production margin on residential held-for-sale mortgage loan originations5 of 0.97 percent, up from 0.77 percent in the prior quarter, due to an improvement in secondary market conditions
  • For the 10th consecutive year, Wells Fargo received first place in the Dynatrace 2018 Mortgage and Home Equity Scorecard, a customer experience best practice benchmark of mortgage and home equity digital channels
  • Automobile originations of $4.8 billion in the third quarter, up 8 percent from the prior quarter and up 10 percent from the prior year
  • Originations of personal loans and lines of $684 million in third quarter 2018, up 3 percent from the prior year
  • Small Business Lending11 originations of $627 million, up 28 percent from the prior year

Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $5 million. Products and businesses include Business Banking, Commercial Real Estate, Corporate Banking, Financial Institutions Group, Government and Institutional Banking, Middle Market Banking, Principal Investments, Treasury Management, Wells Fargo Commercial Capital, and Wells Fargo Securities.

Selected Financial Information

Quarter ended
Sep 30,Jun 30,Sep 30,
(in millions)201820182017
Total revenue$7,3047,1977,504
Provision (reversal of provision) for credit losses26(36)69
Noninterest expense3,9354,2194,234
Segment net income2,8512,6352,314
(in billions)
Average loans462.8464.7463.7
Average assets827.2826.4824.2
Average deposits413.6414.0463.4

Third Quarter 2018 vs. Second Quarter 2018

  • Net income of $2.9 billion, up $216 million, or 8 percent
  • Revenue of $7.3 billion increased $107 million, or 1 percent, driven by higher net interest income, other income and mortgage banking income, partially offset by lower market sensitive revenue
  • Noninterest expense decreased $284 million, or 7 percent, reflecting lower operating losses and personnel expense
  • Provision for credit losses increased $62 million driven by higher loan losses and lower recoveries

Third Quarter 2018 vs. Third Quarter 2017

  • Net income increased $537 million, or 23 percent, as third quarter 2018 results benefited from a lower effective income tax rate
  • Revenue decreased $200 million, or 3 percent, primarily due to the impact of the sales of Wells Fargo Insurance Services USA (WFIS) in fourth quarter 2017 and Wells Fargo Shareowner Services in first quarter 2018, as well as lower net interest income, treasury management fees and operating lease income
  • Noninterest expense decreased $299 million, or 7 percent, on lower expense related to the sales of WFIS and Wells Fargo Shareowner Services, lower project-related expense and operating losses, partially offset by higher regulatory, risk and technology expense

Business Metrics and Highlights

  • Commercial card spend volume12 of $8.2 billion, up 9 percent from the prior year on increased transaction volumes primarily reflecting customer growth, and flat compared with second quarter 2018
  • U.S. investment banking market share of 3.3 percent year-to-date 201813, compared with 3.6 percent year-to-date 201713

Wealth and Investment Management (WIM) provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S. based businesses including Wells Fargo Advisors, The Private Bank, Abbot Downing, Wells Fargo Institutional Retirement and Trust, and Wells Fargo Asset Management. We deliver financial planning, private banking, credit, investment management and fiduciary services to high-net worth and ultra-high-net worth individuals and families. We also serve clients brokerage needs, supply retirement and trust services to institutional clients and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds.

Selected Financial Information

Quarter ended
Sep 30,Jun 30,Sep 30,
(in millions)201820182017
Total revenue$4,2263,9514,256
Provision (reversal of provision) for credit losses6(2)(1)
Noninterest expense3,2433,3613,102
Segment net income732445719
(in billions)
Average loans74.674.772.4
Average assets83.884.083.2
Average deposits159.8167.1184.4

Third Quarter 2018 vs. Second Quarter 2018

  • Net income of $732 million, up $287 million, or 64 percent
  • Revenue of $4.2 billion increased $275 million, or 7 percent, primarily due to higher net gains from equity securities primarily on lower OTTI from a second quarter that included an impairment of $214 million related to the sale of Wells Fargo Asset Management’s (WFAM) ownership stake in The Rock Creek Group, LP (RockCreek), and higher deferred compensation plan investments (offset in employee benefits expense)
  • Noninterest expense decreased $118 million, or 4 percent, predominantly driven by lower operating losses and personnel expense, partially offset by higher employee benefits from deferred compensation plan expense (offset in net gains from equity securities)

Third Quarter 2018 vs. Third Quarter 2017

  • Net income up $13 million, or 2 percent, as third quarter 2018 results benefited from a lower effective income tax rate
  • Revenue decreased $30 million, driven by lower net interest income and brokerage transaction revenue, partially offset by higher asset-based fees and net gains from equity securities
  • Noninterest expense increased $141 million, or 5 percent, primarily due to higher regulatory, risk and technology expense, higher broker commissions and other non-personnel expense

Business Metrics and Highlights

Total WIM Segment

  • WIM total client assets of $1.9 trillion, up 2 percent from a year ago, driven by higher market valuations, partially offset by net outflows
  • Average loan balances up 3 percent from a year ago largely due to growth in non-conforming mortgage loans
  • Third quarter 2018 closed referred investment assets (referrals resulting from the WIM/Community Banking partnership) were flat compared with a year ago

Retail Brokerage

  • Client assets of $1.6 trillion, up 2 percent from prior year, primarily driven by higher market valuations, partially offset by net outflows
  • Advisory assets of $560 billion, up 7 percent from prior year, primarily driven by higher market valuations

Wealth Management

  • Client assets of $240 billion, flat compared with prior year

Asset Management

  • Total assets under management (AUM) of $483 billion, down 3 percent from prior year, as a result of the sale of WFAM’s ownership stake in RockCreek and removal of the associated AUM, as well as equity and fixed income net outflows, partially offset by higher market valuations and money market fund net inflows

Retirement

  • IRA assets of $418 billion, up 5 percent from prior year
  • Institutional Retirement plan assets of $398 billion, up 3 percent from prior year

Conference Call

The Company will host a live conference call on Friday, October 12, at 7:00 a.m. PT (10:00 a.m. ET). You may participate by dialing 866-872-5161 (U.S. and Canada) or 440-424-4922 (International). The call will also be available online at https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/ and https://engage.vevent.com/rt/wells_fargo_ao~8888608.

A replay of the conference call will be available beginning at 11:00 a.m. PT (2:00 p.m. ET) on Friday, October 12 through Friday, October 26. Please dial 855-859-2056 (U.S. and Canada) or 404-537-3406 (International) and enter Conference ID #8888608. The replay will also be available online at https://www.wellsfargo.com/about/investor-relations/quarterly-earnings/ and https://engage.vevent.com/rt/wells_fargo_ao~8888608.

End Notes

1 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 36.

2 Reserve build represents the amount by which the provision for credit losses exceeds net charge-offs, while reserve release represents the amount by which net charge-offs exceed the provision for credit losses.

3 See table on page 37 for more information on Common Equity Tier 1. Common Equity Tier 1 (fully phased-in) is a preliminary estimate and is calculated assuming the full phase-in of the Basel III capital rules.

4 Market sensitive revenue represents net gains from trading activities, debt securities, and equity securities.

5 Production margin represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage originations. See the Selected Five Quarter Residential Mortgage Production Data table on page 42 for more information.

6 Customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit.

7 Data as of August 2018, comparisons with August 2017.

8 FDIC data, SNL Financial, as of June 2018. Retail deposit data is pro forma for acquisitions and caps deposits at $1 billion in a single banking branch and excludes credit union deposits.

9 Combined consumer and business debit card purchase volume dollars.

10 Primarily includes retail banking, consumer lending, small business and business banking customers.

11 Small Business Lending includes credit card, lines of credit and loan products (primarily under $100,000 sold through our retail banking branches).

12 Includes commercial card volume for the entire company.

13 Year-to-date through September. Source: Dealogic U.S. investment banking fee market share.

Forward-Looking Statements

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. In particular, forward-looking statements 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 and allowance levels; (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 or liquidity levels or targets and our estimated Common Equity Tier 1 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) our targeted range for return on assets, return on equity, and return on tangible common equity; (xii) the outcome of contingencies, such as legal proceedings; and (xiii) the Companys plans, objectives and strategies.

Forward-looking statements are not based on historical facts but instead represent 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 (including the impact of the Tax Cuts & Jobs Act), geopolitical matters, and any 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, 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 any efficiency ratio or expense 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 interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;
  • significant turbulence or a 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 debt securities and equity securities portfolios;
  • 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;
  • negative effects from the retail banking sales practices matter and from other instances where customers may have experienced financial harm, including on our legal, operational and compliance costs, our ability to engage in certain business activities or offer certain products or services, our ability to keep and attract customers, our ability to attract and retain qualified team members, and our reputation;
  • resolution of regulatory matters, litigation, or other legal actions, which may result in, among other things, additional costs, fines, penalties, restrictions on our business activities, reputational harm, or other adverse consequences;
  • a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or 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, 2017.

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 Companys 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, 2017, 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.

Forward-looking Non-GAAP Financial Measures. From time to time management may discuss forward-looking non-GAAP financial measures, such as forward-looking estimates or targets for return on average tangible common equity. We are unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures because we are unable to provide, without unreasonable effort, a meaningful or accurate calculation or estimation of amounts that would be necessary for the reconciliation due to the complexity and inherent difficulty in forecasting and quantifying future amounts or when they may occur. Such unavailable information could be significant to future results.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargos vision is to satisfy our customers financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investments, mortgage, and consumer and commercial finance through 7,950 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 37 countries and territories to support customers who conduct business in the global economy. With approximately 262,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 26 on Fortunes 2018 rankings of Americas largest corporations.

Wells Fargo & Company and Subsidiaries

QUARTERLY FINANCIAL DATA

TABLE OF CONTENTS

Pages

Summary Information

Summary Financial Data18

Income

Consolidated Statement of Income20
Consolidated Statement of Comprehensive Income22
Condensed Consolidated Statement of Changes in Total Equity22
Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis)23
Five Quarter Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis)25
Noninterest Income and Noninterest Expense26

Balance Sheet

Consolidated Balance Sheet28
Trading Activities30
Debt Securities30
Equity Securities31

Loans

Loans32
Nonperforming Assets33
Loans 90 Days or More Past Due and Still Accruing33
Purchased Credit-Impaired Loans34
Changes in Allowance for Credit Losses36

Equity

Tangible Common Equity37
Common Equity Tier 1 Under Basel III38

Operating Segments

Operating Segment Results39

Other

Mortgage Servicing and other related data41

Wells Fargo & Company and Subsidiaries

SUMMARY FINANCIAL DATA

% Change

Quarter ended

Sep 30, 2018 from

Nine months ended

Sep 30,Jun 30,Sep 30,

Jun 30,

Sep 30,Sep 30,Sep 30,%

($ in millions, except per share amounts)

2018201820172018201720182017Change
For the Period
Wells Fargo net income$6,0075,1864,54216%32$16,32916,0322%
Wells Fargo net income applicable to common stock5,4534,7924,131143214,97814,8141
Diluted earnings per common share1.130.980.8315363.072.944
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)1.27%1.100.9315371.15%1.114
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders equity (ROE)12.0410.608.96143411.0810.971
Return on average tangible common equity (ROTCE)(1)14.3312.6210.66143413.1913.111
Efficiency ratio (2)62.764.965.7(3)(5)65.462.84
Total revenue$21,94121,55321,8492$65,42866,339(1)
Pre-tax pre-provision profit (PTPP) (3)8,1787,5717,4988922,64124,655(8)
Dividends declared per common share0.430.390.3910101.211.155
Average common shares outstanding4,784.04,865.84,948.6(2)(3)4,844.84,982.1(3)
Diluted average common shares outstanding4,823.24,899.84,996.8(2)(3)4,885.05,035.4(3)
Average loans$939,462944,079952,343(1)$944,813957,581(1)
Average assets1,876,2831,884,8841,938,461(3)1,892,2091,932,201(2)
Average total deposits1,266,3781,271,3391,306,356(3)1,278,1851,302,273(2)
Average consumer and small business banking deposits (4)743,503754,047755,094(1)(2)751,030758,443(1)
Net interest margin2.94%2.932.8632.90%2.881
At Period End
Debt securities (5)$472,283475,495474,710(1)(1)$472,283474,710(1)
Loans942,300944,265951,873(1)942,300951,873(1)
Allowance for loan losses10,02110,19311,078(2)(10)10,02111,078(10)
Goodwill26,42526,42926,581(1)26,42526,581(1)
Equity securities (5)61,75557,50554,98171261,75554,98112
Assets1,872,9811,879,7001,934,880(3)1,872,9811,934,880(3)
Deposits1,266,5941,268,8641,306,706(3)1,266,5941,306,706(3)
Common stockholders’ equity176,934181,386181,920(2)(3)176,934181,920(3)
Wells Fargo stockholders equity198,741205,188205,722(3)(3)198,741205,722(3)
Total equity199,679206,069206,617(3)(3)199,679206,617(3)
Tangible common equity (1)148,391152,580152,694(3)(3)148,391152,694(3)
Common shares outstanding4,711.64,849.14,927.9(3)(4)4,711.64,927.9(4)
Book value per common share (6)$37.5537.4136.922$37.5536.922
Tangible book value per common share (1)(6)31.4931.4730.99231.4930.992
Team members (active, full-time equivalent)261,700264,500268,000(1)(2)261,700268,000(2)

(1) 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 and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable 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 36.

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

(3) 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 Companys ability to generate capital to cover credit losses through a credit cycle.

(4) Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.

(5) Financial information for the prior periods of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of Accounting Standards Update (ASU) 2016-01Financial Instruments “ Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

(6) Book value per common share is common stockholders’ equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER SUMMARY FINANCIAL DATA
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
($ in millions, except per share amounts)20182018201820172017
For the Quarter
Wells Fargo net income$6,0075,1865,1366,1514,542
Wells Fargo net income applicable to common stock5,4534,7924,7335,7404,131
Diluted earnings per common share1.130.980.961.160.83
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)1.27%1.101.091.260.93
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders equity (ROE)12.0410.6010.5812.478.96
Return on average tangible common equity (ROTCE)(1)14.3312.6212.6214.8510.66
Efficiency ratio (2)62.764.968.676.265.7
Total revenue$21,94121,55321,93422,05021,849
Pre-tax pre-provision profit (PTPP) (3)8,1787,5716,8925,2507,498
Dividends declared per common share0.430.390.390.390.39
Average common shares outstanding4,784.04,865.84,885.74,912.54,948.6
Diluted average common shares outstanding4,823.24,899.84,930.74,963.14,996.8
Average loans$939,462944,079951,024951,822952,343
Average assets1,876,2831,884,8841,915,8961,935,3181,938,461
Average total deposits1,266,3781,271,3391,297,1781,311,5921,306,356
Average consumer and small business banking deposits (4)743,503754,047755,483757,541755,094
Net interest margin2.94%2.932.842.842.86
At Quarter End
Debt securities (5)$472,283475,495472,968473,366474,710
Loans942,300944,265947,308956,770951,873
Allowance for loan losses10,02110,19310,37311,00411,078
Goodwill26,42526,42926,44526,58726,581
Equity securities (5)61,75557,50558,93562,49754,981
Assets1,872,9811,879,7001,915,3881,951,7571,934,880
Deposits1,266,5941,268,8641,303,6891,335,9911,306,706
Common stockholders’ equity176,934181,386181,150183,134181,920
Wells Fargo stockholders equity198,741205,188204,952206,936205,722
Total equity199,679206,069205,910208,079206,617
Tangible common equity (1)148,391152,580151,878153,730152,694
Common shares outstanding4,711.64,849.14,873.94,891.64,927.9
Book value per common share (6)$37.5537.4137.1737.4436.92
Tangible book value per common share (1)(6)31.4931.4731.1631.4330.99
Team members (active, full-time equivalent)261,700264,500265,700262,700268,000

(1) 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 and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable 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 36.

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

(3) 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 Companys ability to generate capital to cover credit losses through a credit cycle.

(4) Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.

(5) Financial information for the prior quarters of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments “ Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

(6) Book value per common share is common stockholders’ equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding.

Wells Fargo & Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME
Nine months
Quarter ended September 30,%ended September 30,%
(in millions, except per share amounts)20182017Change20182017Change
Interest income
Debt securities (1)$3,5953,25311%$10,6039,65210%
Mortgage loans held for sale210217(3)587590(1)
Loans held for sale (1)351513310738182
Loans11,11610,522632,60731,0215
Equity securities (1)2801865173256031
Other interest income (1)1,128851333,0902,09048
Total interest income16,36415,044947,72643,9519
Interest expense
Deposits1,499869723,8572,08285
Short-term borrowings4622261041,171503133
Long-term debt1,6671,391204,9013,81329
Other interest expense1641095044630944
Total interest expense3,7922,5954610,3756,70755
Net interest income12,57212,449137,35137,244
Provision for credit losses580717(19)1,2231,877(35)
Net interest income after provision for credit losses11,99211,732236,12835,3672
Noninterest income
Service charges on deposit accounts1,2041,276(6)3,5403,865(8)
Trust and investment fees3,6313,609110,98910,8082
Card fees1,0171,00022,9262,964(1)
Other fees850877(3)2,4962,644(6)
Mortgage banking8461,046(19)2,5503,422(25)
Insurance104269(61)320826(61)
Net gains from trading activities (1)158120325925439
Net gains on debt securities57166(66)99322(69)
Net gains from equity securities (1)416363151,4941,20724
Lease income453475(5)1,3511,449(7)
Other6331992181,7201,04565
Total noninterest income9,3699,40028,07729,095(3)
Noninterest expense
Salaries4,4614,356213,28912,9603
Commission and incentive compensation2,4272,553(5)7,8377,7771
Employee benefits1,3771,27984,2204,273(1)
Equipment634523211,8011,62911
Net occupancy7187162,1532,1341
Core deposit and other intangibles264288(8)794864(8)
FDIC and other deposit assessments3363147957975(2)
Other3,5464,322(18)11,73611,0726
Total noninterest expense13,76314,351(4)42,78741,6843
Income before income tax expense7,5986,7811221,41822,778(6)
Income tax expense1,5122,181(31)4,6966,559(28)
Net income before noncontrolling interests6,0864,6003216,72216,2193
Less: Net income from noncontrolling interests795836393187110
Wells Fargo net income$6,0074,54232$16,32916,0322
Less: Preferred stock dividends and other554411351,3511,21811
Wells Fargo net income applicable to common stock$5,4534,13132$14,97814,8141
Per share information
Earnings per common share$1.140.8337$3.092.974
Diluted earnings per common share1.130.83363.072.944
Average common shares outstanding4,784.04,948.6(3)4,844.84,982.1(3)
Diluted average common shares outstanding4,823.24,996.8(3)4,885.05,035.4(3)

(1) Financial information for the prior periods of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED STATEMENT OF INCOME
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions, except per share amounts)20182018201820172017
Interest income
Debt securities (1)$3,5953,5943,4143,2943,253
Mortgage loans held for sale210198179196217
Loans held for sale (1)3548241215
Loans11,11610,91210,57910,36710,522
Equity securities (1)280221231239186
Other interest income (1)1,1281,042920850851
Total interest income16,36416,01515,34714,95815,044
Interest expense
Deposits1,4991,2681,090931869
Short-term borrowings462398311255226
Long-term debt1,6671,6581,5761,3441,391
Other interest expense164150132115109
Total interest expense3,7923,4743,1092,6452,595
Net interest income12,57212,54112,23812,31312,449
Provision for credit losses580452191651717
Net interest income after provision for credit losses11,99212,08912,04711,66211,732
Noninterest income
Service charges on deposit accounts1,2041,1631,1731,2461,276
Trust and investment fees3,6313,6753,6833,6873,609
Card fees1,0171,0019089961,000
Other fees850846800913877
Mortgage banking8467709349281,046
Insurance104102114223269
Net gains (losses) from trading activities (1)158191243(1)120
Net gains on debt securities57411157166
Net gains from equity securities (1)416295783572363
Lease income453443455458475
Other633485602558199
Total noninterest income9,3699,0129,6969,7379,400
Noninterest expense
Salaries4,4614,4654,3634,4034,356
Commission and incentive compensation2,4272,6422,7682,6652,553
Employee benefits1,3771,2451,5981,2931,279
Equipment634550617608523
Net occupancy718722713715716
Core deposit and other intangibles264265265288288
FDIC and other deposit assessments336297324312314
Other3,5463,7964,3946,5164,322
Total noninterest expense13,76313,98215,04216,80014,351
Income before income tax expense7,5987,1196,7014,5996,781
Income tax expense (benefit)1,5121,8101,374(1,642)2,181
Net income before noncontrolling interests6,0865,3095,3276,2414,600
Less: Net income from noncontrolling interests791231919058
Wells Fargo net income$6,0075,1865,1366,1514,542
Less: Preferred stock dividends and other554394403411411
Wells Fargo net income applicable to common stock$5,4534,7924,7335,7404,131
Per share information
Earnings per common share$1.140.980.971.170.83
Diluted earnings per common share1.130.980.961.160.83
Average common shares outstanding4,784.04,865.84,885.74,912.54,948.6
Diluted average common shares outstanding4,823.24,899.84,930.74,963.14,996.8

(1) Financial information for the prior quarters of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Quarter ended September 30,%Nine months ended September 30,%
(in millions)20182017Change20182017Change
Wells Fargo net income$6,0074,54232%$16,32916,0322%
Other comprehensive income (loss), before tax:
Debt securities (1):
Net unrealized gains (losses) arising during the period(1,468)891NM(5,528)2,825NM
Reclassification of net (gains) losses to net income51(200)NM168(522)NM
Derivatives and hedging activities (2):
Net unrealized gains (losses) arising during the period(24)104NM(416)18NM
Reclassification of net (gains) losses to net income79(105)NM216(460)NM
Defined benefit plans adjustments:
Net actuarial and prior service gains arising during the period11(100)6450
Amortization of net actuarial loss, settlements and other to net income2941(29)90120(25)
Foreign currency translation adjustments:
Net unrealized gains (losses) arising during the period(9)39NM(94)86NM
Other comprehensive income (loss), before tax (2)(1,342)781NM(5,558)2,071NM
Income tax benefit (expense) related to other comprehensive income (2)330(289)NM1,346(753)NM
Other comprehensive income (loss), net of tax (2)(1,012)492NM(4,212)1,318NM
Less: Other comprehensive loss from noncontrolling interests(34)(100)(1)(29)(97)
Wells Fargo other comprehensive income (loss), net of tax (2)(1,012)526NM(4,211)1,347NM
Wells Fargo comprehensive income (2)4,9955,068(1)12,11817,379(30)
Comprehensive income from noncontrolling interests7924229392158148
Total comprehensive income (2)$5,0745,092$12,51017,537(29)

NM “ Not meaningful

(1) The quarter and nine months ended September 30, 2017, includes net unrealized gains (losses) arising during the period from equity securities of ($13) million and $113 million and reclassification of net (gains) losses to net income related to equity securities of $(106) million and $(323) million, respectively. With the adoption in first quarter 2018 of ASU 2016-01, the quarter and nine months ended September 30, 2018, reflects net unrealized (gains) losses arising during the period and reclassification of net (gains) losses to net income from only debt securities.

(2) Financial information for the prior periods has been revised to reflect the impact of the adoption in fourth quarter 2017 of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.

FIVE QUARTER CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Balance, beginning of period$206,069205,910208,079206,617205,949
Cumulative effect from change in accounting policies (1)(24)
Wells Fargo net income6,0075,1865,1366,1514,542
Wells Fargo other comprehensive income (loss), net of tax(1,012)(540)(2,659)(522)526
Noncontrolling interests57(77)(178)247(20)
Common stock issued156731,208436254
Common stock repurchased (2)(7,382)(2,923)(3,029)(2,845)(2,601)
Preferred stock redeemed (3)(2,150)
Preferred stock released by ESOP260490231218209
Common stock warrants repurchased/exercised(36)(1)(157)(46)(19)
Common stock dividends(2,062)(1,900)(1,911)(1,920)(1,936)
Preferred stock dividends(399)(394)(410)(411)(411)
Stock incentive compensation expense202258437206135
Net change in deferred compensation and related plans(31)(13)(813)(52)(11)
Balance, end of period$199,679206,069205,910208,079206,617

(1) The cumulative effect for the quarter ended March 31, 2018, reflects the impact of the adoption in first quarter 2018 of ASU 2016-04, ASU 2016-01 and ASU 2014-09.

(2) For the quarter ended June 30, 2018, includes $1.0 billion related to a private forward repurchase transaction that settled in third quarter 2018 for 18.8 million shares of common stock.

(3) Represents the impact of the redemption of preferred stock, series J, in third quarter 2018.

Wells Fargo & Company and Subsidiaries

AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
Quarter ended September 30,
20182017
InterestInterest
AverageYields/income/AverageYields/income/
(in millions)balanceratesexpensebalanceratesexpense
Earning assets
Interest-earning deposits with banks (3)$148,5651.93%$721205,4891.21%$629
Federal funds sold and securities purchased under resale agreements (3)79,9311.9339070,6401.14203
Debt securities (4):
Trading debt securities (8)84,4813.4573076,6273.21616
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies6,4211.652714,5291.3148
Securities of U.S. states and political subdivisions (7)46,6153.7643852,5004.08535
Mortgage-backed securities:
Federal agencies155,5252.771,079139,7812.58903
Residential and commercial (7)7,3184.688511,0135.44149
Total mortgage-backed securities162,8432.861,164150,7942.791,052
Other debt securities (7)(8)46,3534.3951247,5923.73447
Total available-for-sale debt securities (7)(8)262,2323.262,141265,4153.132,082
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies44,7392.1824644,7082.18246
Securities of U.S. states and political subdivisions6,2514.33686,2665.4485
Federal agency and other mortgage-backed securities95,2982.2753988,2722.26498
Other debt securities1065.6121,4883.0512
Total held-to-maturity debt securities146,3942.33855140,7342.38841
Total debt securities (7)(8)493,1073.023,726482,7762.933,539
Mortgage loans held for sale (5)(7)19,3434.3321022,9233.79217
Loans held for sale (5)(8)2,6195.28351,3834.3915
Commercial loans:
Commercial and industrial – U.S.273,8144.222,915270,0913.812,590
Commercial and industrial – Non U.S. (7)60,8843.6355657,7382.89422
Real estate mortgage121,2844.351,329129,0873.831,245
Real estate construction23,2765.0529624,9814.18263
Lease financing (7)19,5124.6922919,1554.59219
Total commercial loans498,7704.245,325501,0523.764,739
Consumer loans:
Real estate 1-4 family first mortgage284,1334.072,891278,3714.032,809
Real estate 1-4 family junior lien mortgage35,8635.5049641,9164.95521
Credit card36,89312.771,18735,65712.411,114
Automobile46,9635.2061656,7465.34764
Other revolving credit and installment36,8406.7863038,6016.31615
Total consumer loans440,6925.265,820451,2915.145,823

Total loans (5)

939,4624.7211,145952,3434.4110,562
Equity securities (8)37,9022.9828335,8462.12191
Other (8)4,7021.47168,6560.9020
Total earning assets (7)(8)$1,725,6313.81%$16,5261,780,0563.44%$15,376
Funding sources
Deposits:
Interest-bearing checking$51,1771.01%$13148,2780.57%$69
Market rate and other savings693,9370.35614681,1870.17293
Savings certificates20,5860.623221,8060.3116
Other time deposits (7)87,7522.3551966,0461.51251
Deposits in foreign offices53,9331.50203124,7460.76240
Total interest-bearing deposits (7)907,3850.661,499942,0630.37869
Short-term borrowings (8)105,4721.7446399,1930.91226
Long-term debt (7)(8)220,6543.021,667243,5072.281,392
Other liabilities (8)27,1082.4016424,8511.74109
Total interest-bearing liabilities (7)(8)1,260,6191.203,7931,309,6140.792,596
Portion of noninterest-bearing funding sources (7)(8)465,012470,442
Total funding sources (7)(8)$1,725,6310.873,7931,780,0560.582,596
Net interest margin and net interest income on a taxable-equivalent basis (6)(7)2.94%$12,7332.86%$12,780
Noninterest-earning assets
Cash and due from banks$18,35618,456
Goodwill26,42926,600
Other (7)(8)105,867113,349
Total noninterest-earning assets (7)(8)$150,652158,405
Noninterest-bearing funding sources
Deposits$358,993364,293
Other liabilities (7)(8)53,84556,831
Total equity (7)202,826207,723
Noninterest-bearing funding sources used to fund earning assets (7)(8)(465,012)(470,442)
Net noninterest-bearing funding sources (7)(8)$150,652158,405
Total assets (7)$1,876,2831,938,461

(1) Our average prime rate was 5.01% and 4.25% for the quarters ended September 30, 2018 and 2017, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 2.34% and 1.31% for the same quarters, respectively.

(2) Yields/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3) Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 “ Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.

(4) 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.

(5) Nonaccrual loans and related income are included in their respective loan categories.

(6) Includes taxable-equivalent adjustments of $161 million and $332 million for the quarters ended September 30, 2018 and 2017, respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 21% and 35% for the quarters ended September 30, 2018 and 2017, respectively.

(7) Financial information for the prior period has been revised to reflect the impact of the adoption in fourth quarter 2017 of ASU 2017-12Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

(8) Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
Nine months ended September 30,
20182017
InterestInterest
AverageYields/income/AverageYields/income/
(in millions)balanceratesexpensebalanceratesexpense
Earning assets
Interest-earning deposits with banks (3)$158,4801.71%$2,029206,1611.01%$1,557
Federal funds sold and securities purchased under resale agreements (3)79,3681.691,00574,3160.91505
Debt securities (4):
Trading debt securities (8)81,3073.382,06272,0803.161,709
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies6,4241.668019,1821.48212
Securities of U.S. states and political subdivisions (7)47,9743.681,32352,7483.971,569
Mortgage-backed securities:
Federal agencies156,2982.753,220142,7482.602,782
Residential and commercial (7)8,1404.5427712,6715.44517
Total mortgage-backed securities (7)164,4382.843,497155,4192.833,299
Other debt securities (7)(8)47,1464.141,46248,7273.701,351
Total available-for-sale debt securities (7)(8)265,9823.196,362276,0763.116,431
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies44,7312.1973344,7012.19733
Securities of U.S. states and political subdivisions6,2554.342046,2705.35251
Federal agency and other mortgage-backed securities93,6992.321,63274,5252.381,329
Other debt securities4604.02142,5312.4847
Total held-to-maturity debt securities145,1452.382,583128,0272.462,360
Total debt securities (7)(8)492,4342.9811,007476,1832.9410,500
Mortgage loans held for sale (5)(7)18,8494.1558720,8693.77590
Loans held for sale (5)(8)2,7065.281071,4853.4738
Commercial loans:
Commercial and industrial – U.S.273,7114.088,350272,6213.707,547
Commercial and industrial – Non U.S. (7)60,2743.461,55956,5122.831,197
Real estate mortgage123,8044.223,910130,9313.693,615
Real estate construction23,7834.8285724,9494.00747
Lease financing (7)19,3494.8270019,0944.78684
Total commercial loans500,9214.1015,376504,1073.6613,790
Consumer loans:
Real estate 1-4 family first mortgage283,8144.058,613276,3304.048,380
Real estate 1-4 family junior lien mortgage37,3085.311,48443,5894.771,557
Credit card36,41612.733,46735,32212.193,219
Automobile48,9835.181,89959,1055.412,392
Other revolving credit and installment37,3716.621,85139,1286.151,801
Total consumer loans443,8925.2117,314453,4745.1117,349
Total loans (5)944,8134.6232,690957,5814.3431,139
Equity securities (8)38,3222.5773835,4662.16575
Other (8)5,4081.38564,3830.8328
Total earning assets (7)(8)$1,740,3803.70%$48,2191,776,4443.38%$44,932
Funding sources
Deposits:
Interest-bearing checking$66,3640.89%$44149,1340.43%$156
Market rate and other savings683,2790.281,416682,7800.13664
Savings certificates20,2140.467022,6180.3050
Other time deposits (7)82,1752.161,33159,4141.41625
Deposits in foreign offices66,5901.20599123,5530.64587
Total interest-bearing deposits (7)918,6220.563,857937,4990.302,082
Short-term borrowings103,6961.511,17397,8370.69505
Long-term debt (7)223,4852.934,901251,1142.033,813
Other liabilities27,7432.1444620,9101.97309
Total interest-bearing liabilities (7)1,273,5461.0910,3771,307,3600.696,709
Portion of noninterest-bearing funding sources (7)(8)466,834469,084
Total funding sources (7)(8)$1,740,3800.8010,3771,776,4440.506,709
Net interest margin and net interest income on a taxable-equivalent basis (6)(7)2.90%$37,8422.88%$38,223
Noninterest-earning assets
Cash and due from banks$18,60418,443
Goodwill26,46326,645
Other (7)(8)106,762110,669
Total noninterest-earning assets (7)(8)$151,829155,757
Noninterest-bearing funding sources
Deposits$359,563364,774
Other liabilities (7)54,08855,032
Total equity (7)205,012205,035
Noninterest-bearing funding sources used to fund earning assets (7)(8)(466,834)(469,084)
Net noninterest-bearing funding sources (7)(8)$151,829155,757
Total assets (7)$1,892,2091,932,201

(1) Our average prime rate was 4.78% and 4.03% for the first nine months of 2018 and 2017, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 2.20% and 1.20% for the same periods, respectively.

(2) Yields/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3) Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 “ Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.

(4) 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.

(5) Nonaccrual loans and related income are included in their respective loan categories.

(6) Includes taxable-equivalent adjustments of $491 million and $980 million for the first nine months of 2018 and 2017, respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 21% and 35% for the first nine months of 2018 and 2017, respectively.

(7) Financial information for the prior period has been revised to reflect the impact of the adoption in fourth quarter 2017 of ASU 2017-12Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

(8) Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
Quarter ended
Sep 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017
AverageYields/AverageYields/AverageYields/AverageYields/AverageYields/
($ in billions)balanceratesbalanceratesbalanceratesbalanceratesbalancerates
Earning assets
Interest-earning deposits with banks (3)$148.61.93%$154.81.75%$172.31.49%$189.11.27%$205.51.21%
Federal funds sold and securities purchased under resale agreements (3)79.91.9380.01.7378.11.4075.81.2070.61.14
Debt securities (4):
Trading debt securities (5)84.53.4580.73.4578.73.2481.63.1776.63.21
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies6.41.656.41.666.41.666.41.6614.51.31
Securities of U.S. states and political subdivisions46.63.7647.43.9150.03.3752.43.9152.54.08
Mortgage-backed securities:
Federal agencies155.52.77154.92.75158.42.72152.92.62139.82.58
Residential and commercial7.34.688.24.868.94.129.44.8511.05.44
Total mortgage-backed securities162.82.86163.12.86167.32.79162.32.75150.82.79
Other debt securities (5)46.44.3947.14.3348.13.7348.63.6247.73.73
Total available-for-sale debt securities (5)262.23.26264.03.28271.83.04269.73.10265.53.13
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies44.72.1844.72.1944.72.2044.72.1944.72.18
Securities of U.S. states and political subdivisions6.34.336.34.346.34.346.35.266.35.44
Federal agency and other mortgage-backed securities95.32.2794.92.3390.82.3889.62.2588.32.26
Other debt securities0.15.610.64.660.73.231.22.641.43.05
Total held-to-maturity debt securities146.42.33146.52.38142.52.42141.82.36140.72.38
Total debt securities (5)493.13.02491.23.04493.02.89493.12.90482.82.93
Mortgage loans held for sale19.34.3318.84.2218.43.8920.53.8222.93.79
Loans held for sale (5)2.65.283.55.482.04.921.53.191.44.39
Commercial loans:
Commercial and industrial – U.S.273.84.22275.34.16272.03.85270.33.89270.13.81
Commercial and industrial – Non U.S.60.93.6359.73.5160.23.2359.22.9657.72.89
Real estate mortgage121.34.35124.04.27126.24.05127.23.88129.13.83
Real estate construction23.35.0523.64.8824.44.5424.44.3825.04.18
Lease financing19.54.6919.34.4819.45.3019.30.6219.24.59
Total commercial loans498.84.24501.94.15502.23.91500.43.68501.13.76
Consumer loans:
Real estate 1-4 family first mortgage284.14.07283.14.06284.24.02282.04.01278.44.03
Real estate 1-4 family junior lien mortgage35.95.5037.25.3238.85.1340.44.9641.94.95
Credit card36.912.7735.912.6636.412.7536.412.3735.612.41
Automobile47.05.2048.65.1851.55.1654.35.1356.75.34
Other revolving credit and installment36.86.7837.46.6237.96.4638.36.2838.66.31
Total consumer loans440.75.26442.25.20448.85.16451.45.10451.25.14
Total loans939.54.72944.14.64951.04.50951.84.35952.34.41
Equity securities (5)37.92.9837.32.3839.82.3538.02.6035.92.12
Other (5)4.71.475.61.486.01.217.20.888.70.90
Total earning assets (5)$1,725.63.81%$1,735.33.73%$1,760.63.55%$1,777.03.43%$1,780.13.44%
Funding sources
Deposits:
Interest-bearing checking$51.21.01%$80.30.90%$67.80.77%$50.50.68%$48.30.57%
Market rate and other savings693.90.35676.70.26679.10.22679.90.19681.20.17
Savings certificates20.60.6220.00.4320.00.3420.90.3121.80.31
Other time deposits87.82.3582.12.2676.61.8468.21.4966.11.51
Deposits in foreign offices53.91.5051.51.3094.80.98124.60.81124.70.76
Total interest-bearing deposits907.40.66910.60.56938.30.47944.10.39942.10.37
Short-term borrowings105.51.74103.81.54101.81.24102.10.9999.20.91
Long-term debt220.73.02223.82.97226.02.80231.62.32243.52.28
Other liabilities27.02.4028.22.1227.91.9224.71.8624.81.74
Total interest-bearing liabilities1,260.61.201,266.41.101,294.00.971,302.50.811,309.60.79
Portion of noninterest-bearing funding sources (5)465.0468.9466.6474.5470.5
Total funding sources (5)$1,725.60.87$1,735.30.80$1,760.60.71$1,777.00.59$1,780.10.58
Net interest margin on a taxable-equivalent basis2.94%2.93%2.84%2.84%2.86%
Noninterest-earning assets
Cash and due from banks$18.418.618.919.218.5
Goodwill26.426.426.526.626.6
Other (5)105.9104.6109.9112.5113.3
Total noninterest-earnings assets (5)$150.7149.6155.3158.3158.4
Noninterest-bearing funding sources
Deposits$359.0360.7358.9367.5364.3
Other liabilities (5)53.951.756.857.956.9
Total equity202.8206.1206.2207.4207.7
Noninterest-bearing funding sources used to fund earning assets (5)(465.0)(468.9)(466.6)(474.5)(470.5)
Net noninterest-bearing funding sources (5)$150.7149.6155.3158.3158.4

Total assets

$1,876.31,884.91,915.91,935.31,938.5

(1) Our average prime rate was 5.01% for the quarter ended September 30, 2018, 4.80% for the quarter ended June 30,2018, 4.52% for the quarter ended March 31, 2018, 4.30% for the quarter ended December 31, 2017 and 4.25% for the quarter ended September 30, 2017. The average three-month London Interbank Offered Rate (LIBOR) was 2.34%, 2.34%, 1.93%, 1.46% and 1.31% for the same quarters, respectively.

(2) Yields/rates include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3) Financial information for the prior quarters of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.

(4) 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.

(5) Financial information for the prior quarters of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

NONINTEREST INCOME
Quarter ended September 30,%Nine months ended September 30,%
(in millions)20182017Change20182017Change
Service charges on deposit accounts$1,2041,276(6)%$3,5403,865(8)%
Trust and investment fees:
Brokerage advisory, commissions and other fees2,3342,30417,0916,9572
Trust and investment management835840(1)2,5202,5061
Investment banking462465(1)1,3781,3452
Total trust and investment fees3,6313,609110,98910,8082
Card fees1,0171,00022,9262,964(1)
Other fees:
Charges and fees on loans298318(6)903950(5)
Cash network fees121126(4)367386(5)
Commercial real estate brokerage commissions12912083233037
Letters of credit fees7277(6)223227(2)
Wire transfer and other remittance fees12011453573337
All other fees110122(10)323445(27)
Total other fees850877(3)2,4962,644(6)
Mortgage banking:
Servicing income, net390309261,2641,1658
Net gains on mortgage loan origination/sales activities456737(38)1,2862,257(43)
Total mortgage banking8461,046(19)2,5503,422(25)
Insurance104269(61)320826(61)
Net gains from trading activities (1)158120325925439
Net gains on debt securities57166(66)99322(69)
Net gains from equity securities (1)416363151,4941,20724
Lease income453475(5)1,3511,449(7)
Life insurance investment income1671521049344112
All other466478911,227604103
Total$9,3699,400$28,07729,095(3)

(1) Financial information for the prior periods has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

NONINTEREST EXPENSE

Quarter ended Sep 30,%Nine months ended Sep 30,%
(in millions)20182017Change20182017Change
Salaries$4,4614,3562%$13,28912,9603%
Commission and incentive compensation2,4272,553(5)7,8377,7771
Employee benefits1,3771,27984,2204,273(1)
Equipment634523211,8011,62911
Net occupancy7187162,1532,1341
Core deposit and other intangibles264288(8)794864(8)
FDIC and other deposit assessments3363147957975(2)
Operating losses6051,329(54)2,6921,96137
Outside professional services761955(20)2,4632,788(12)
Contract services (1)593415431,5761,22828
Operating leases311347(10)9421,026(8)
Outside data processing166227(27)492683(28)
Travel and entertainment141154(8)450504(11)
Advertising and promotion2231376360341446
Postage, stationery and supplies120128(6)383407(6)
Telecommunications9090270272(1)
Foreclosed assets5966(11)141204(31)
Insurance2624876726
All other (1)4514501,6481,5139
Total$13,76314,351(4)$42,78741,6843

(1) The prior periods have been revised to conform with the current period presentation whereby temporary help is included in contract services rather than in all other noninterest expense.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER NONINTEREST INCOME
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Service charges on deposit accounts$1,2041,1631,1731,2461,276
Trust and investment fees:
Brokerage advisory, commissions and other fees2,3342,3542,4032,4012,304
Trust and investment management835835850866840
Investment banking462486430420465
Total trust and investment fees3,6313,6753,6833,6873,609
Card fees1,0171,0019089961,000
Other fees:
Charges and fees on loans298304301313318
Cash network fees121120126120126
Commercial real estate brokerage commissions12910985159120
Letters of credit fees7272797877
Wire transfer and other remittance fees120121116115114
All other fees11012093128122
Total other fees850846800913877
Mortgage banking:
Servicing income, net390406468262309
Net gains on mortgage loan origination/sales activities456364466666737
Total mortgage banking8467709349281,046
Insurance104102114223269
Net gains (losses) from trading activities (1)158191243(1)120
Net gains on debt securities57411157166
Net gains from equity securities (1)416295783572363
Lease income453443455458475
Life insurance investment income167162164153152
All other46632343840547
Total$9,3699,0129,6969,7379,400

(1) Financial information for the prior quarters of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

FIVE QUARTER NONINTEREST EXPENSE

Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Salaries$4,4614,4654,3634,4034,356
Commission and incentive compensation2,4272,6422,7682,6652,553
Employee benefits1,3771,2451,5981,2931,279
Equipment634550617608523
Net occupancy718722713715716
Core deposit and other intangibles264265265288288
FDIC and other deposit assessments336297324312314
Operating losses6056191,4683,5311,329
Outside professional services7618818211,025955
Contract services (1)593536447410415
Operating leases311311320325347
Outside data processing166164162208227
Travel and entertainment141157152183154
Advertising and promotion223227153200137
Postage, stationery and supplies120121142137128
Telecommunications9088929290
Foreclosed assets5944384766
Insurance2624262824
All other (1)451624573330450
Total$13,76313,98215,04216,80014,351

(1) The prior quarters of 2017 have been revised to conform with the current period presentation whereby temporary help is included in contract services rather than in all other noninterest expense.

Wells Fargo & Company and Subsidiaries

CONSOLIDATED BALANCE SHEET

Sep 30,Dec 31,%
(in millions, except shares)20182017Change
Assets
Cash and due from banks$18,79123,367(20)%
Interest-earning deposits with banks (1)140,732192,580(27)
Total cash, cash equivalents, and restricted cash (1)159,523215,947(26)
Federal funds sold and securities purchased under resale agreements (1)83,47180,0254
Debt securities:
Trading, at fair value (2)65,18857,62413
Available-for-sale, at fair value (2)262,964276,407(5)
Held-to-maturity, at cost144,131139,3353
Mortgage loans held for sale19,22520,070(4)
Loans held for sale (2)1,7651,13156
Loans942,300956,770(2)
Allowance for loan losses(10,021)(11,004)(9)
Net loans932,279945,766(1)
Mortgage servicing rights:
Measured at fair value15,98013,62517
Amortized1,4141,424(1)
Premises and equipment, net8,8028,847(1)
Goodwill26,42526,587(1)
Derivative assets11,81112,228(3)
Equity securities (2)61,75562,497(1)
Other assets (2)78,24890,244(13)
Total assets$1,872,9811,951,757(4)
Liabilities
Noninterest-bearing deposits$352,869373,722(6)
Interest-bearing deposits913,725962,269(5)
Total deposits1,266,5941,335,991(5)
Short-term borrowings105,451103,2562
Derivative liabilities8,5868,796(2)
Accrued expenses and other liabilities71,34870,6151
Long-term debt221,323225,020(2)
Total liabilities1,673,3021,743,678(4)
Equity
Wells Fargo stockholders equity:
Preferred stock23,48225,358(7)
Common stock “ $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares9,1369,136
Additional paid-in capital60,58360,893(1)
Retained earnings154,731145,2637
Cumulative other comprehensive income (loss)(6,873)(2,144)221
Treasury stock “ 770,250,428 shares and 590,194,846 shares(40,538)(29,892)36
Unearned ESOP shares(1,780)(1,678)6
Total Wells Fargo stockholders equity198,741206,936(4)
Noncontrolling interests9381,143(18)
Total equity199,679208,079(4)
Total liabilities and equity$1,872,9811,951,757(4)

(1) Financial information has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.

(2) Financial information for the prior quarter has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED BALANCE SHEET
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Assets
Cash and due from banks$18,79120,45018,14523,36719,206
Interest-earning deposits with banks (1)140,732142,999184,250192,580205,648
Total cash, cash equivalents, and restricted cash (1)159,523163,449202,395215,947224,854
Federal funds sold and securities purchased under resale agreements (1)83,47180,18473,55080,02567,457
Debt securities:
Trading, at fair value (2)65,18865,60259,86657,62460,970
Available-for-sale, at fair value (2)262,964265,687271,656276,407271,317
Held-to-maturity, at cost144,131144,206141,446139,335142,423
Mortgage loans held for sale19,22521,50917,94420,07020,009
Loans held for sale (2)1,7653,4083,5811,1311,339
Loans942,300944,265947,308956,770951,873
Allowance for loan losses(10,021)(10,193)(10,373)(11,004)(11,078)
Net loans932,279934,072936,935945,766940,795
Mortgage servicing rights:
Measured at fair value15,98015,41115,04113,62513,338
Amortized1,4141,4071,4111,4241,406
Premises and equipment, net8,8028,8828,8288,8478,449
Goodwill26,42526,42926,44526,58726,581
Derivative assets11,81111,09911,46712,22812,580
Equity securities (2)61,75557,50558,93562,49754,981
Other assets (2)78,24880,85085,88890,24488,381
Total assets$1,872,9811,879,7001,915,3881,951,7571,934,880
Liabilities
Noninterest-bearing deposits$352,869365,021370,085373,722366,528
Interest-bearing deposits913,725903,843933,604962,269940,178
Total deposits1,266,5941,268,8641,303,6891,335,9911,306,706
Short-term borrowings105,451104,49697,207103,25693,811
Derivative liabilities8,5868,5077,8838,7969,497
Accrued expenses and other liabilities71,34872,48073,39770,61578,993
Long-term debt221,323219,284227,302225,020239,256
Total liabilities1,673,3021,673,6311,709,4781,743,6781,728,263
Equity
Wells Fargo stockholders equity:
Preferred stock23,48225,73726,22725,35825,576
Common stock9,1369,1369,1369,1369,136
Additional paid-in capital60,58359,64460,39960,89360,759
Retained earnings154,731150,803147,928145,263141,549
Cumulative other comprehensive income (loss)(6,873)(5,461)(4,921)(2,144)(1,622)
Treasury stock(40,538)(32,620)(31,246)(29,892)(27,772)
Unearned ESOP shares(1,780)(2,051)(2,571)(1,678)(1,904)
Total Wells Fargo stockholders equity198,741205,188204,952206,936205,722
Noncontrolling interests9388819581,143895
Total equity199,679206,069205,910208,079206,617

Total liabilities and equity

$1,872,9811,879,7001,915,3881,951,7571,934,880

(1) Financial information has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.

(2) Financial information for prior quarters has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER TRADING ASSETS AND LIABILITIES
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Trading assets
Debt securities$65,18865,60259,86657,62460,970
Equity securities (1)26,13822,97825,32730,00422,797
Loans held for sale1,2661,3501,6951,0231,182
Gross trading derivative assets30,30230,75830,64431,34031,052
Netting (2)(19,188)(20,687)(20,112)(19,629)(18,881)
Total trading derivative assets11,11410,071

10,532

11,71112,171

Total trading assets

103,706100,00197,420100,36297,120
Trading liabilities
Short sales23,99221,76523,30318,47219,096
Gross trading derivative liabilities29,26829,84729,71731,38630,365
Netting (2)(21,842)(22,311)(22,569)(23,062)(21,662)
Total trading derivative liabilities7,4267,5367,1488,3248,703

Total trading liabilities

$31,41829,30130,45126,79627,799

(1) Financial information for the prior quarters of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01 and assets held as economic hedges for our deferred compensation plan obligations have been reclassified as marketable equity securities not held for trading.

(2) Represents balance sheet netting for trading derivative assets and liability balances, and trading portfolio level counterparty valuation adjustments.

FIVE QUARTER DEBT SECURITIES

Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Trading debt securities$65,18865,60259,86657,62460,970
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies6,1876,2716,2796,3196,350
Securities of U.S. states and political subdivisions48,21647,55949,64351,32652,774
Mortgage-backed securities:
Federal agencies153,511154,556156,814160,219150,181
Residential and commercial6,9398,2869,2649,17311,046
Total mortgage-backed securities160,450162,842166,078169,392161,227
Other debt securities48,11149,01549,65649,37050,966
Total available-for-sale debt securities262,964265,687271,656276,407271,317
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies44,74344,73544,72744,72044,712
Securities of U.S. states and political subdivisions6,2936,3006,3076,3136,321
Federal agency and other mortgage-backed securities (1)93,02093,01689,74887,52790,071
Other debt securities751556647751,319
Total held-to-maturity debt securities144,131144,206141,446139,335142,423
Total debt securities$472,283475,495472,968473,366474,710

(1) Predominantly consists of federal agency mortgage-backed securities.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER EQUITY SECURITIES
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Held for trading at fair value:
Marketable equity securities$26,13822,97825,32730,00422,797
Not held for trading:
Fair value:
Marketable equity securities (1)5,7055,2734,9314,3564,348
Nonmarketable equity securities (2)6,4795,8765,3034,8674,523
Total equity securities at fair value12,18411,14910,2349,2238,871
Equity method:
LIHTC (3)10,45310,36110,31810,2699,884
Private equity3,8383,7323,8403,8393,757
Tax-advantaged renewable energy1,9671,9501,8221,9501,954
New market tax credit and other259262268294292
Total equity method16,51716,30516,24816,35215,887
Other:
Federal bank stock and other at cost (4)5,4675,6735,7805,8286,251
Private equity (5)1,4491,4001,3461,0901,175
Total equity securities not held for trading35,61734,52733,60832,49332,184
Total equity securities$61,75557,50558,93562,49754,981

(1) Includes $3.6 billion, $3.5 billion, $3.5 billion, $3.7 billion and $3.5 billion at September 30, June 30 and March 31, 2018, and December 31 and September 30, 2017, respectively, related to securities held as economic hedges of our deferred compensation plan obligations.

(2) Includes $6.3 billion, $5.5 billion, $5.0 billion, $4.9 billion and $4.5 billion at September 30, June 30 and March 31, 2018, and December 31 and September 30, 2017, respectively, related to investments for which we elected the fair value option.

(3) Represents low-income housing tax credit investments.

(4) Includes $5.4 billion, $5.6 billion, $5.7 billion, $5.4 billion and $5.8 billion at September 30, June 30 and March 31, 2018, and December 31 and September 30, 2017, respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock.

(5) Represents nonmarketable equity securities for which we have elected to account for the security under the measurement alternative.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER LOANS
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Commercial:
Commercial and industrial$338,048336,590334,678333,125327,944
Real estate mortgage120,403123,964125,543126,599128,475
Real estate construction23,69022,93723,88224,27924,520
Lease financing19,74519,61419,29319,38519,211

Total commercial

501,886503,105503,396503,388500,150
Consumer:
Real estate 1-4 family first mortgage284,273283,001282,658284,054280,173
Real estate 1-4 family junior lien mortgage35,33036,54237,92039,71341,152
Credit card37,81236,68436,10337,97636,249
Automobile46,07547,63249,55453,37155,455
Other revolving credit and installment36,92437,30137,67738,26838,694
Total consumer440,414441,160443,912453,382451,723
Total loans (1)$942,300944,265947,308956,770951,873

(1) Includes $6.9 billion, $9.0 billion, $10.7 billion, $12.8 billion, and $13.6 billion of purchased credit-impaired (PCI) loans at September 30, June 30 and March 31, 2018, and December 31 and September 30, 2017, respectively.

Our foreign loans are reported by respective class of financing receivable in the table above. Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign primarily based on whether the borrower’s primary address is outside of the United States. The following table presents total commercial foreign loans outstanding by class of financing receivable.

Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Commercial foreign loans:
Commercial and industrial$61,69661,73259,69660,10658,570
Real estate mortgage6,8917,6178,0828,0338,032
Real estate construction726542668655647
Lease financing1,1871,0971,0771,1261,141
Total commercial foreign loans$70,50070,98869,52369,92068,390

Wells Fargo & Company and Subsidiaries

FIVE QUARTER NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)

Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Nonaccrual loans:
Commercial:
Commercial and industrial$1,5551,5591,5161,8992,397
Real estate mortgage603765755628593
Real estate construction4451453738
Lease financing9680937681
Total commercial2,2982,4552,4092,6403,109
Consumer:
Real estate 1-4 family first mortgage3,6053,8294,0534,1224,213
Real estate 1-4 family junior lien mortgage9841,0291,0871,0861,101
Automobile118119117130137
Other revolving credit and installment4854535859
Total consumer4,7555,0315,3105,3965,510
Total nonaccrual loans (1)(2)(3)$7,0537,4867,7198,0368,619
As a percentage of total loans0.75%0.790.810.840.91
Foreclosed assets:
Government insured/guaranteed$8790103120137
Non-government insured/guaranteed435409468522569
Total foreclosed assets522499571642706
Total nonperforming assets$7,5757,9858,2908,6789,325
As a percentage of total loans0.80%0.850.880.910.98

(1) Includes nonaccrual mortgages held for sale and loans held for sale in their respective loan categories.

(2) Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.

(3) Real estate 1-4 family mortgage loans predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) are not placed on nonaccrual status because they are insured or guaranteed.

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING

Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Total (excluding PCI)(1):$9,2099,46410,75311,99710,227
Less: FHA insured/VA guaranteed (2)(3)8,2768,6229,78610,9349,266
Total, not government insured/guaranteed$9338429671,063961
By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial$4223402627
Real estate mortgage5626232311
Real estate construction1
Total commercial9849644938
Consumer:
Real estate 1-4 family first mortgage (3)129133164219190
Real estate 1-4 family junior lien mortgage (3)3233486049
Credit card460429473492475
Automobile108105113143111
Other revolving credit and installment1069310510098
Total consumer8357939031,014923
Total, not government insured/guaranteed$9338429671,063961

(1) PCI loans totaled $567 million, $811 million, $1.0 billion, $1.4 billion and $1.4 billion, at September 30, June 30 and March 31, 2018, and December 31 and September 30, 2017, respectively.

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

(3) Includes mortgage loans held for sale 90 days or more past due and still accruing.

Wells Fargo & Company and Subsidiaries

CHANGES IN ACCRETABLE YIELD RELATED TO 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.

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.

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 since the merger with Wachovia is presented in the following table.

QuarterNine months
endedended
Sep 30,Sep 30,
(in millions)201820182009-2017
Balance, beginning of period$5,7338,88710,447
Change in accretable yield due to acquisitions161
Accretion into interest income (1)(279)(892)(16,983)
Accretion into noninterest income due to sales (2)(638)(1,760)(801)
Reclassification from nonaccretable difference for loans with improving credit-related cash flows (3)340211,597
Changes in expected cash flows that do not affect nonaccretable difference (4)(410)(2,228)4,466
Balance, end of period$4,4094,4098,887

(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) At September 30, 2018, our carrying value for PCI loans totaled $6.9 billion and the remainder of nonaccretable difference established in purchase accounting totaled $419 million. The nonaccretable difference absorbs losses of contractual amounts that exceed our carrying value for PCI loans.

(4) 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.

Wells Fargo & Company and Subsidiaries

CHANGES IN ALLOWANCE FOR CREDIT LOSSES
Quarter ended September 30,Nine months ended September 30,
(in millions)2018201720182017
Balance, beginning of period$11,11012,14611,96012,540
Provision for credit losses5807171,2231,877
Interest income on certain impaired loans (1)(42)(43)(128)(137)
Loan charge-offs:
Commercial:
Commercial and industrial(209)(194)(507)(608)
Real estate mortgage(9)(21)(30)(34)
Real estate construction
Lease financing(15)(11)(52)(31)
Total commercial(233)(226)(589)(673)
Consumer:
Real estate 1-4 family first mortgage(45)(67)(141)(191)
Real estate 1-4 family junior lien mortgage(47)(70)(141)(225)
Credit card(376)(337)(1,185)(1,083)
Automobile(214)(274)(730)(741)
Other revolving credit and installment(161)(170)(505)(544)
Total consumer(843)(918)(2,702)(2,784)
Total loan charge-offs(1,076)(1,144)(3,291)(3,457)
Loan recoveries:
Commercial:
Commercial and industrial6169216234
Real estate mortgage10244668
Real estate construction2151227
Lease financing851813
Total commercial81113292342
Consumer:
Real estate 1-4 family first mortgage7083207216
Real estate 1-4 family junior lien mortgage5669171205
Credit card7760231177
Automobile8472279246
Other revolving credit and installment28308894
Total consumer315314976938
Total loan recoveries3964271,2681,280
Net loan charge-offs(680)(717)(2,023)(2,177)
Other(12)6(76)6
Balance, end of period$10,95612,10910,95612,109
Components:
Allowance for loan losses$10,02111,07810,02111,078
Allowance for unfunded credit commitments9351,0319351,031
Allowance for credit losses$10,95612,10910,95612,109
Net loan charge-offs (annualized) as a percentage of average total loans0.29%0.300.290.30
Allowance for loan losses as a percentage of total loans1.061.161.061.16
Allowance for credit losses as a percentage of total loans1.161.271.161.27

(1) Certain impaired loans with an allowance calculated by discounting expected cash flows using the loans effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CHANGES IN ALLOWANCE FOR CREDIT LOSSES
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Balance, beginning of quarter$11,11011,31311,96012,10912,146
Provision for credit losses580452191651717
Interest income on certain impaired loans (1)(42)(43)(43)(49)(43)
Loan charge-offs:
Commercial:
Commercial and industrial(209)(134)(164)(181)(194)
Real estate mortgage(9)(19)(2)(4)(21)
Real estate construction
Lease financing(15)(20)(17)(14)(11)
Total commercial(233)(173)(183)(199)(226)
Consumer:
Real estate 1-4 family first mortgage(45)(55)(41)(49)(67)
Real estate 1-4 family junior lien mortgage(47)(47)(47)(54)(70)
Credit card(376)(404)(405)(398)(337)
Automobile(214)(216)(300)(261)(274)
Other revolving credit and installment(161)(164)(180)(169)(170)
Total consumer(843)(886)(973)(931)(918)
Total loan charge-offs(1,076)(1,059)(1,156)(1,130)(1,144)
Loan recoveries:
Commercial:
Commercial and industrial6176796369
Real estate mortgage1019171424
Real estate construction264315
Lease financing85545
Total commercial8110610584113
Consumer:
Real estate 1-4 family first mortgage7078597283
Real estate 1-4 family junior lien mortgage5660556169
Credit card7781736260
Automobile84103927372
Other revolving credit and installment2829312730
Total consumer315351310295314
Total loan recoveries396457415379427
Net loan charge-offs(680)(602)(741)(751)(717)
Other(12)(10)(54)6
Balance, end of quarter$10,95611,11011,31311,96012,109
Components:
Allowance for loan losses$10,02110,19310,37311,00411,078
Allowance for unfunded credit commitments9359179409561,031
Allowance for credit losses$10,95611,11011,31311,96012,109
Net loan charge-offs (annualized) as a percentage of average total loans0.29%0.260.320.310.30
Allowance for loan losses as a percentage of:
Total loans1.061.081.101.151.16
Nonaccrual loans142136134137129
Nonaccrual loans and other nonperforming assets132128125127119
Allowance for credit losses as a percentage of:
Total loans1.161.181.191.251.27
Nonaccrual loans155148147149141
Nonaccrual loans and other nonperforming assets145139136138130

(1) Certain impaired loans with an allowance calculated by discounting expected cash flows using the loans effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.

Wells Fargo & Company and Subsidiaries

TANGIBLE COMMON EQUITY (1)
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions, except ratios)20182018201820172017
Tangible book value per common share (1):
Total equity$199,679206,069205,910208,079206,617
Adjustments:
Preferred stock(23,482)(25,737)(26,227)(25,358)(25,576)
Additional paid-in capital on ESOP

preferred stock

(105)(116)(146)(122)(130)
Unearned ESOP shares1,7802,0512,5711,6781,904
Noncontrolling interests(938)(881)(958)(1,143)(895)
Total common stockholders’ equity(A)176,934181,386181,150183,134181,920
Adjustments:
Goodwill(26,425)(26,429)(26,445)(26,587)(26,581)
Certain identifiable intangible assets

(other than MSRs)

(826)(1,091)(1,357)(1,624)(1,913)
Other assets (2)(2,121)(2,160)(2,388)(2,155)(2,282)
Applicable deferred taxes (3)8298749189621,550
Tangible common equity(B)$148,391152,580151,878153,730152,694
Common shares outstanding(C)4,711.64,849.14,873.94,891.64,927.9
Book value per common share(A)/(C)$37.5537.4137.1737.4436.92
Tangible book value per common share(B)/(C)31.4931.4731.1631.4330.99
Quarter endedNine months ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,Sep 30,Sep 30,
(in millions, except ratios)2018201820182017201720182017
Return on average tangible common equity (1):
Net income applicable to common stock(A)$5,4534,7924,7335,7404,13114,97814,814
Average total equity202,826206,067206,180207,413207,723205,012205,035
Adjustments:
Preferred stock(24,219)(26,021)(26,157)(25,569)(25,780)(25,459)(25,600)
Additional paid-in capital on ESOP preferred stock(115)(129)(153)(129)(136)(132)(142)
Unearned ESOP shares2,0262,3482,5081,8962,1142,2922,226
Noncontrolling interests(892)(919)(997)(998)(926)(936)(931)
Average common stockholders equity(B)179,626181,346181,381182,613182,995180,777180,588
Adjustments:
Goodwill(26,429)(26,444)(26,516)(26,579)(26,600)(26,463)(26,645)
Certain identifiable intangible assets (other than MSRs)(958)(1,223)(1,489)(1,767)(2,056)(1,221)(2,314)
Other assets (2)(2,083)(2,271)(2,233)(2,245)(2,231)(2,195)(2,163)
Applicable deferred taxes (3)8458899331,3321,5798891,650
Average tangible common equity(C)$151,001152,297152,076153,354153,687151,787151,116
Return on average common stockholders’ equity (ROE) (annualized)(A)/(B)12.04%10.6010.5812.478.9611.0810.97
Return on average tangible common equity (ROTCE) (annualized)(A)/(C)14.3312.6212.6214.8510.6613.1913.11

(1) 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 and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company’s use of equity.

(2) Represents goodwill and other intangibles on nonmarketable equity securities, which are included in other assets.

(3) Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

Wells Fargo & Company and Subsidiaries

COMMON EQUITY TIER 1 UNDER BASEL III (FULLY PHASED-IN) (1)
Estimated
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in billions, except ratio)20182018201820172017
Total equity$199.7206.1205.9208.1206.6
Adjustments:
Preferred stock(23.5)(25.7)(26.2)(25.4)(25.6)
Additional paid-in capital on ESOP

preferred stock

(0.1)(0.1)(0.1)(0.1)(0.1)
Unearned ESOP shares1.82.02.61.71.9
Noncontrolling interests(0.9)(0.9)(1.0)(1.1)(0.9)
Total common stockholders’ equity177.0181.4181.2183.2181.9
Adjustments:
Goodwill(26.4)(26.4)(26.4)(26.6)(26.6)
Certain identifiable intangible assets (other than MSRs)(0.8)(1.1)(1.4)(1.6)(1.9)
Other assets (2)(2.1)(2.2)(2.4)(2.2)(2.3)
Applicable deferred taxes (3)0.80.90.91.01.6
Investment in certain subsidiaries and other0.30.40.40.2(0.1)
Common Equity Tier 1 (Fully Phased-In) under Basel III(A)148.8153.0152.3154.0152.6
Total risk-weighted assets (RWAs) anticipated under Basel III (4)(5)(B)$1,252.41,276.31,278.11,285.61,292.8
Common Equity Tier 1 to total RWAs anticipated under Basel III (Fully Phased-In) (5)(A)/(B)11.9%12.011.912.011.8

(1) Basel III capital rules, adopted by the Federal Reserve Board on July 2, 2013, revised the definition of capital, increased minimum capital ratios, and introduced a minimum Common Equity Tier 1 (CET1) ratio. The rules are being phased in through the end of 2021. Fully phased-in capital amounts, ratios and RWAs are calculated assuming the full phase-in of the Basel III capital rules. Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in.

(2) Represents goodwill and other intangibles on nonmarketable equity securities, which are included in other assets.

(3) Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

(4) The final Basel III capital rules provide for two capital frameworks: the Standardized Approach, which replaced Basel I, and the Advanced Approach applicable to certain institutions. Under the final rules, we are subject to the lower of our CET1 ratio calculated under the Standardized Approach and under the Advanced Approach in the assessment of our capital adequacy. Because the final determination of our CET1 ratio and which approach will produce the lower CET1 ratio as of September 30, 2018, is subject to detailed analysis of considerable data, our CET1 ratio at that date has been estimated using the Basel III definition of capital under the Basel III Standardized Approach RWAs. The capital ratio for June 30 and March 31, 2018, and December 31 and September 30, 2017, was calculated under the Basel III Standardized Approach RWAs.

(5) The Companys September 30, 2018, RWAs and capital ratio are preliminary estimates.

Wells Fargo & Company and Subsidiaries

OPERATING SEGMENT RESULTS (1)

(income/expense in millions,

average balances in billions)

Community Banking

Wholesale Banking

Wealth and Investment Management

Other (2)

Consolidated Company

2018201720182017201820172018201720182017
Quarter ended Sep 30,
Net interest income (3)$7,3387,1544,7264,7631,1021,177(594)(645)12,57212,449
Provision (reversal of provision) for credit losses54765026696(1)1(1)580717
Noninterest income4,4784,3662,5782,7413,1243,079(811)(786)9,3699,400
Noninterest expense7,4677,8523,9354,2343,2433,102(882)(837)13,76314,351
Income (loss) before income tax expense (benefit)3,8023,0183,3433,2019771,155(524)(593)7,5986,781
Income tax expense (benefit)9251,079475894244433(132)(225)1,5122,181
Net income (loss) before noncontrolling interests2,8771,9392,8682,307733722(392)(368)6,0864,600
Less: Net income (loss) from noncontrolling interests616217(7)137958
Net income (loss)$2,8161,8772,8512,314732719(392)(368)6,0074,542
Average loans$460.9473.7462.8463.774.672.4(58.8)(57.5)939.5952.3
Average assets1,024.91,089.6827.2824.283.883.2(59.6)(58.5)1,876.31,938.5
Average deposits760.9734.6413.6463.4159.8184.4(67.9)(76.0)1,266.41,306.4
Nine months ended Sep 30,
Net interest income (3)$21,87921,41913,95114,2533,3253,489(1,804)(1,917)37,35137,244
Provision (reversal of provision) for credit losses1,2491,919(30)(39)(2)26(5)1,2231,877
Noninterest income13,57313,8797,8298,3079,0949,250(2,419)(2,341)28,07729,095
Noninterest expense23,45922,39912,13212,4379,8949,377(2,698)(2,529)42,78741,684
Income (loss) before income tax expense (benefit)10,74410,9809,67810,1622,5273,360(1,531)(1,724)21,41822,778
Income tax expense (benefit)3,1473,3161,3022,6426301,255(383)(654)4,6966,559
Net income (loss) before noncontrolling interests7,5977,6648,3767,5201,8972,105(1,148)(1,070)16,72216,219
Less: Net income (loss) from noncontrolling interests37219815(21)610393187
Net income (loss)$7,2257,4668,3617,5411,8912,095(1,148)(1,070)16,32916,032
Average loans$465.0476.5464.2466.374.471.6(58.8)(56.8)944.8957.6
Average assets1,040.21,089.6827.6817.984.082.5(59.6)(57.8)1,892.21,932.2
Average deposits756.4726.8424.4463.7168.2190.6(70.8)(78.8)1,278.21,302.3

(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. Effective first quarter 2018, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on a more granular level. This methodology change affects results across all three of our reportable operating segments and results for all periods prior to 2018 have been revised to reflect this methodology change. Our previously reported consolidated financial results were not impacted by the methodology change; however, in connection with the adoption of ASU 2016-01 in first quarter 2018, certain reclassifications occurred within noninterest income.

(2) Includes the elimination of certain items that are included in more than one business segment, most of which represents products and services for Wealth and Investment Management customers served through Community Banking distribution channels.

(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 as well as interest credits for any funding of a segment available to be provided to other segments. The cost of liabilities includes actual interest expense on segment liabilities as well as funding charges for any funding provided from other segments.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER OPERATING SEGMENT RESULTS (1)
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(income/expense in millions, average balances in billions)20182018201820172017
COMMUNITY BANKING
Net interest income (2)$7,3387,3467,1957,2397,154
Provision for credit losses547484218636650
Noninterest income4,4784,4604,6354,4814,366
Noninterest expense7,4677,2908,70210,2167,852
Income before income tax expense3,8024,0322,9108683,018
Income tax expense (benefit)9251,413809(2,682)1,079
Net income before noncontrolling interests2,8772,6192,1013,5501,939
Less: Net income from noncontrolling interests611231887862
Segment net income$2,8162,4961,9133,4721,877
Average loans$460.9463.8470.5473.2473.7
Average assets1,024.91,034.31,061.91,073.21,089.6
Average deposits760.9760.6747.5738.3734.6
WHOLESALE BANKING
Net interest income (2)$4,7264,6934,5324,5574,763
Provision (reversal of provision) for credit losses26(36)(20)2069
Noninterest income2,5782,5042,7472,8832,741
Noninterest expense3,9354,2193,9784,1874,234
Income before income tax expense3,3433,0143,3213,2333,201
Income tax expense475379448854894
Net income before noncontrolling interests2,8682,6352,8732,3792,307
Less: Net income (loss) from noncontrolling interests17(2)6(7)
Segment net income$2,8512,6352,8752,3732,314
Average loans$462.8464.7465.1463.5463.7
Average assets827.2826.4829.2837.2824.2
Average deposits413.6414.0446.0465.7463.4
WEALTH AND INVESTMENT MANAGEMENT
Net interest income (2)$1,1021,1111,1121,1521,177
Provision (reversal of provision) for credit losses6(2)(6)(7)(1)
Noninterest income3,1242,8403,1303,1813,079
Noninterest expense3,2433,3613,2903,2463,102
Income before income tax expense9775929581,0941,155
Income tax expense244147239413433
Net income before noncontrolling interests733445719681722
Less: Net income from noncontrolling interests1563
Segment net income$732445714675719
Average loans$74.674.773.972.972.4
Average assets83.884.084.283.783.2
Average deposits159.8167.1177.9184.1184.4
OTHER (3)
Net interest income (2)$(594)(609)(601)(635)(645)
Provision (reversal of provision) for credit losses16(1)2(1)
Noninterest income(811)(792)(816)(808)(786)
Noninterest expense(882)(888)(928)(849)(837)
Loss before income tax benefit(524)(519)(488)(596)(593)
Income tax benefit(132)(129)(122)(227)(225)
Net loss before noncontrolling interests(392)(390)(366)(369)(368)
Less: Net income from noncontrolling interests
Other net loss$(392)(390)(366)(369)(368)
Average loans$(58.8)(59.1)(58.5)(57.8)(57.5)
Average assets(59.6)(59.8)(59.4)(58.8)(58.5)
Average deposits(67.9)(70.4)(74.2)(76.5)(76.0)
CONSOLIDATED COMPANY
Net interest income (2)$12,57212,54112,23812,31312,449
Provision for credit losses580452191651717
Noninterest income9,3699,0129,6969,7379,400
Noninterest expense13,76313,98215,04216,80014,351
Income before income tax expense7,5987,1196,7014,5996,781
Income tax expense (benefit)1,5121,8101,374(1,642)2,181
Net income before noncontrolling interests6,0865,3095,3276,2414,600
Less: Net income from noncontrolling interests791231919058
Wells Fargo net income$6,0075,1865,1366,1514,542
Average loans$939.5944.1951.0951.8952.3
Average assets1,876.31,884.91,915.91,935.31,938.5
Average deposits1,266.41,271.31,297.21,311.61,306.4

(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. Effective first quarter 2018, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on a more granular level. This methodology change affects results across all three of our reportable operating segments and results for all periods prior to 2018 have been revised to reflect this methodology change. Our previously reported consolidated financial results were not impacted by the methodology change; however, in connection with the adoption of ASU 2016-01 in first quarter 2018, certain reclassifications occurred within noninterest income.

(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 as well as interest credits for any funding of a segment available to be provided to other segments. The cost of liabilities includes actual interest expense on segment liabilities as well as funding charges for any funding provided from other segments.

(3) Includes the elimination of certain items that are included in more than one business segment, most of which represents products and services for Wealth and Investment Management customers served through Community Banking distribution channels.

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
MSRs measured using the fair value method:
Fair value, beginning of quarter$15,41115,04113,62513,33812,789
Purchases541
Servicing from securitizations or asset transfers (1)502486573639605
Sales and other (2)(2)(1)(4)(32)64
Net additions5004855696071,210
Changes in fair value:
Due to changes in valuation model inputs or assumptions:
Mortgage interest rates (3)5823761,253221(171)
Servicing and foreclosure costs (4)(9)30342360
Discount rates (5)(9)13
Prepayment estimates and other (6)(33)(61)43(55)(31)
Net changes in valuation model inputs or assumptions5313451,330202(142)
Changes due to collection/realization of expected cash flows over time(462)(460)(483)(522)(519)
Total changes in fair value69(115)847(320)(661)
Fair value, end of quarter$15,98015,41115,04113,62513,338

(1)  Includes impacts associated with exercising our right to repurchase delinquent loans from GNMA loan securitization pools.

(2) Includes sales and transfers of MSRs, which can result in an increase of total reported MSRs if the sales or transfers are related to nonperforming loan portfolios or portfolios with servicing liabilities.

(3) Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on custodial deposit balances).

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

(5) Reflects discount rate assumption change, excluding portion attributable to changes in mortgage interest rates.

(6) 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 and other external factors that occur independent of interest rate changes.

Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Amortized MSRs:
Balance, beginning of quarter$1,4071,4111,4241,4061,399
Purchases4222184031
Servicing from securitizations or asset transfers3339344341
Amortization(68)(65)(65)(65)(65)
Balance, end of quarter$1,4141,4071,4111,4241,406
Fair value of amortized MSRs:
Beginning of quarter$2,3092,3072,0251,9901,989
End of quarter2,3892,3092,3072,0251,990

Wells Fargo & Company and Subsidiaries

FIVE QUARTER CONSOLIDATED MORTGAGE SERVICING (CONTINUED)
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Servicing income, net:
Servicing fees (1)$890905906833795
Changes in fair value of MSRs carried at fair value:
Due to changes in valuation model inputs or assumptions (2)(A)5313451,330202(142)
Changes due to collection/realization of expected cash flows over time(462)(460)(483)(522)(519)
Total changes in fair value of MSRs carried at fair value69(115)847(320)(661)
Amortization(68)(65)(65)(65)(65)
Net derivative gains (losses) from economic hedges (3)(B)(501)(319)(1,220)(186)240
Total servicing income, net$390406468262309
Market-related valuation changes to MSRs, net of hedge results (2)(3)(A)+(B)$30261101698

(1)  Includes contractually specified servicing fees, late charges and other ancillary revenues, net of unreimbursed direct servicing costs.

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

(3)  Represents results from economic hedges used to hedge the risk of changes in fair value of MSRs.

Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in billions)20182018201820172017
Managed servicing portfolio (1):
Residential mortgage servicing:
Serviced for others$1,1841,1901,2011,2091,223
Owned loans serviced337340337342340
Subserviced for others54533
Total residential servicing1,5261,5341,5431,5541,566
Commercial mortgage servicing:
Serviced for others529518510495480
Owned loans serviced121124125127128
Subserviced for others9101098
Total commercial servicing659652645631616
Total managed servicing portfolio$2,1852,1862,1882,1852,182
Total serviced for others$1,7131,7081,7111,7041,703
Ratio of MSRs to related loans serviced for others1.02%0.980.960.880.87
Weighted-average note rate (mortgage loans serviced for others)4.294.274.244.234.23

(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.

Wells Fargo & Company and Subsidiaries

SELECTED FIVE QUARTER RESIDENTIAL MORTGAGE PRODUCTION DATA
Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
20182018201820172017
Net gains on mortgage loan origination/sales activities (in millions):
Residential(A)$324281324504546
Commercial7549769581
Residential pipeline and unsold/repurchased loan management (1)57346667110
Total$456364466666737
Application data (in billions):
Wells Fargo first mortgage quarterly applications$5767586373
Refinances as a percentage of applications26%25353837
Wells Fargo first mortgage unclosed pipeline, at quarter end$2226242329
Residential real estate originations:
Purchases as a percentage of originations81%78656472
Refinances as a percentage of originations1922353628
Total100%100100100100
Wells Fargo first mortgage loans (in billions):
Retail$1821162326
Correspondent2728273032
Other (2)111
Total quarter-to-date$4650435359
Held-for-sale(B)$3337344044
Held-for-investment131391315
Total quarter-to-date$4650435359
Total year-to-date$1399343212159
Production margin on residential held-for-sale mortgage originations(A)/(B)0.97%0.770.941.251.24

(1) Predominantly includes the results of sales of modified Government National Mortgage Association (GNMA) loans, interest rate management activities and changes in estimate to the liability for mortgage loan repurchase losses.

(2) Consists of home equity loans and lines.

CHANGES IN MORTGAGE REPURCHASE LIABILITY

Quarter ended
Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,
(in millions)20182018201820172017
Balance, beginning of period$179181181179178
Assumed with MSR purchases (1)10
Provision for repurchase losses:
Loan sales54346
Change in estimate (2)(4)(2)12(12)
Net additions (reductions) to provision1246(6)
Losses(2)(4)(4)(4)(3)
Balance, end of period$178179181181179

(1) Represents repurchase liability associated with portfolio of loans underlying mortgage servicing rights acquired during the period.

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

Media
Ancel Martinez, 415-222-3858
[email protected]
or
Investor
Relations

John M. Campbell, 415-396-0523
[email protected]

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