01—Abstract
Summary
Summary of the 10-K filed February 25, 2015. Cited figures are marked; the original filing is the authoritative source.
Wells Fargo closed 2014 as the fourth-largest U.S. bank holding company by assets, with $1.7 trilliona in assets, $1.2 trillion in deposits, and $184 billion in stockholders' equity.
The company reported record 2014 net income of $23.1 billionb, up 5% from 2013, and record diluted EPS of $4.10, also up 5%. Revenue rose 1% to $84.3 billion, and the efficiency ratio improved slightly to 58.1%. Growth came from core loans (up $60.3 billion, or 8%) and deposits (up $89.1 billion, or 8%), while the non-strategic and liquidating portfolios shrank by $20.1 billion.
Credit quality continued to improve. Net charge-offs fell to 0.35% of average loans from 0.56% in 2013, nonperforming assets declined 21%, and the provision for credit losses dropped to $1.4 billionc from $2.3 billion. The allowance for credit losses was reduced to $13.2 billion, or 1.53% of total loans, and management noted that future allowance levels may rise or fall.
Mortgage banking income fell 27% to $6.4 billion as originations dropped to $175 billiond from $351 billion, which pressured noninterest income. Capital strengthened: the estimated Basel III Advanced Approach CET1 ratio (fully phased-in) rose to 10.43% from 9.76%, and the company returned $12.5 billion to shareholders through dividends and net buybacks. Investors should watch the net interest margin, which compressed to 3.11% from 3.40%, the pending G-SIB surcharge and TLAC rules, the Basel III phase-in, and ongoing legal and regulatory matters, including the FHA insurance litigation and the Gutierrez posting-order judgment of about $203 million.
02—Key points
Key Highlights
- Record 2014 net income of $23.1 billion (up 5%) and record diluted EPS of $4.10 (up 5%) on revenue of $84.3 billion (up 1%).
- Core loans grew $60.3 billion (8%) and total deposits grew $89.1 billion (8%), with total loans at $862.6 billion.
- Credit improved: net charge-offs were 0.35% of average loans (down from 0.56%), nonperforming assets fell 21%, and the provision for credit losses declined to $1.4 billion.
- Net interest margin compressed to 3.11% from 3.40%, driven by higher funding balances and long-term debt issuance tied to liquidity expectations.
- Mortgage banking income fell 27% to $6.4 billion as mortgage originations dropped to $175 billion from $351 billion.
- Estimated Basel III Advanced Approach CET1 ratio rose to 10.43% (from 9.76%); $12.5 billion was returned to shareholders, and net share repurchases were up 74%.
- Designated a G-SIB; the FRB's proposed surcharge would add 1.0% to 4.5% of RWAs to the 7.0% CET1 minimum, phased in from 2016 to 2019.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 25, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Interest Expense | $4.03B$4.29B | −6.2% |
| Net Income | $23.06B$21.88B | +5.4% |
| EPS (Basic) | $4.17$3.95 | +5.6% |
| EPS (Diluted) | $4.10$3.89 | +5.4% |
| Shares Outstanding (Basic) | 5.24B5.29B | −0.9% |
| Shares Outstanding (Diluted) | 5.32B5.37B | −0.9% |
05—Questions
Frequently Asked Questions
How did Wells Fargo's profitability change in 2014?
Net income rose 5% to $23.1 billion and diluted EPS rose 5% to a record $4.10. Revenue grew 1% to $84.3 billion, and noninterest expense was roughly flat at $49.0 billion, which kept the efficiency ratio near 58%.
Is the bank's credit quality improving?
Yes. Net charge-offs fell to $2.9 billion (0.35% of average loans) from $4.5 billion, nonaccrual loans declined to $12.8 billion, and the provision fell to $1.4 billion, which was $1.6 billion below net charge-offs. The allowance still carries a reserve of 1.53% of total loans.
What are the main pressures on revenue?
Mortgage banking income fell 27% on lower refinancing volume, and net interest margin dropped 29 basis points to 3.11% due to higher funding balances and a flat yield curve. Management expects a low-rate environment to continue to pressure net interest income.
How strong is Wells Fargo's capital position?
The estimated CET1 ratio under Basel III (Advanced Approach, fully phased-in) was 10.43%, up from 9.76%. Under the General Approach, total risk-based capital was 15.53%. The company said it was well capitalized at year-end and returned $12.5 billion to shareholders in 2014.
What regulatory or legal risks should investors monitor?
Key items include the FRB's proposed G-SIB capital surcharge, the TLAC proposal, the Volcker Rule compliance deadline of July 2015 (extended for some funds), and the LCR phase-in starting in 2015. Litigation includes the U.S. FHA insurance suit, interchange fee litigation, and the Gutierrez order posting case, which has a judgment of about $203 million.
06—Continue