EX-13 8 wfc-12312015xex13.htm EXHIBIT 13 Exhibit
Exhibit 13



                                                                                                                                                                                                                                                        
 
 
 
 
Financial Review
 
 
 
 
 
 
 
 
 
Overview
 
 
3

 
Cash, Loan and Dividend Restrictions
 
 
 
Earnings Performance
 
 
4

 
Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments
 
 
 
Balance Sheet Analysis
 
 
5

 
Investment Securities
 
 
 
Off-Balance Sheet Arrangements
 
 
6

 
Loans and Allowance for Credit Losses
 
 
 
Risk Management
 
 
7

 
Premises, Equipment, Lease Commitments and Other Assets
 
 
 
Capital Management
 
 
8

 
Securitizations and Variable Interest Entities
 
 
 
Regulatory Reform
 
 
9

 
Mortgage Banking Activities
 
 
 
Critical Accounting Policies
 
 
10

 
Intangible Assets
 
 
 
Current Accounting Developments
 
 
11

 
Deposits
 
 
 
Forward-Looking Statements
 
 
12

 
Short-Term Borrowings
 
 
 
Risk Factors
 
 
13

 
Long-Term Debt
 
 
 
 
 
 
 
14

 
Guarantees, Pledged Assets and Collateral
 
 
 
 
Controls and Procedures
 
 
15

 
Legal Actions
 
 
 
Disclosure Controls and Procedures
 
 
16

 
Derivatives
 
 
 
Internal Control Over Financial Reporting
 
 
17

 
Fair Values of Assets and Liabilities
 
 
 
Management's Report on Internal Control over Financial Reporting
 
 
18

 
Preferred Stock
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
19

 
Common Stock and Stock Plans
 
 
 
 
 
 
 
20

 
Employee Benefits and Other Expenses
 
 
 
 
Financial Statements
 
 
21

 
Income Taxes
 
 
 
Consolidated Statement of Income
 
 
22

 
Earnings Per Common Share
 
 
 
Consolidated Statement of Comprehensive Income
 
 
23

 
Other Comprehensive Income
 
 
 
Consolidated Balance Sheet
 
 
24

 
Operating Segments
 
 
 
Consolidated Statement of Changes in Equity
 
 
25

 
Parent-Only Financial Statements
 
 
 
Consolidated Statement of Cash Flows
 
 
26

 
Regulatory and Agency Capital Requirements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Financial Statements
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
1

 
Summary of Significant Accounting Policies
 
 
 
 
Quarterly Financial Data
 
2

 
Business Combinations
 
 
 
 
Glossary of Acronyms


 
Wells Fargo & Company
29



This Annual Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” and “Risk Factors” sections, and in the “Regulation and Supervision” section of our Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Form 10-K).
 
When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. When we refer to “legacy Wells Fargo,” we mean Wells Fargo excluding Wachovia Corporation (Wachovia). See the Glossary of Acronyms for terms used throughout this Report.
 
Financial Review

Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.8 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments, mortgage, and consumer and commercial finance through 8,700 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and we have offices in 36 countries to support our customers who conduct business in the global economy. With approximately 265,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 30 on Fortune’s 2015 rankings of America’s largest corporations. We ranked third in assets and first in the market value of our common stock among all U.S. banks at December 31, 2015
We use our Vision and Values to guide us toward growth and success. Our vision is to satisfy our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. We aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by discovering their needs and delivering the most relevant products, services, advice, and guidance.
We have five primary values, which are based on our vision and provide the foundation for everything we do. First, we value and support our people as a competitive advantage and strive to attract, develop, retain and motivate the most talented people we can find. Second, we strive for the highest ethical standards with our team members, our customers, our communities and our shareholders. Third, with respect to our customers, we strive to base our decisions and actions on what is right for them in everything we do. Fourth, for team members we strive to build and sustain a diverse and inclusive culture – one where they feel valued and respected for who they are as well as for the skills and experiences they bring to our company. Fifth, we also look to each of our team members to be leaders in establishing, sharing and communicating our vision. In addition to our five primary values, one of our key day-to-day priorities is to make risk
management a competitive advantage by working hard to ensure
appropriate controls are in place to reduce risks to our customers, maintain and increase our competitive market position, and protect Wells Fargo’s long-term safety, soundness and reputation.
 
Financial Performance
In 2015, we generated $22.9 billion of net income and record diluted earnings per common share (EPS) of $4.12 and ended
 
the year as the world's most valuable bank by market capitalization. We produced strong loan and deposit growth, grew the number of customers we serve, improved credit quality, enhanced our risk management practices, increased our capital and liquidity levels and rewarded our shareholders by increasing our dividend and continuing to repurchase shares of our common stock. Our achievements during 2015 continued to demonstrate the benefit of our diversified business model and our continued focus on the real economy. Our contribution to the real economy in 2015 was broad based and included originating $213.2 billion in residential mortgage loans, $31.1 billion of auto loans, $18.8 billion in new loan commitments to our small business customers, who primarily have less than $20 million in annual revenue, and $34.4 billion of middle market loans.
Noteworthy items included: 
revenue of $86.1 billion, up 2% from 2014;
pre-tax pre-provision profit (PTPP) of $36.1 billion, up 2%;
an increase in loans of $54.0 billion, up 6%, even with the planned runoff in our non-strategic/liquidating portfolios, and growth in our core loan portfolio of $62.8 billion, up 8%;
strong customer deposit growth generated by our deposit franchise, with total deposits up $55.0 billion, or 5%;
strong credit performance as our net charge-off ratio declined to 33 basis points of average loans;
loan loss allowance releases declined from $1.6 billion in 2014 to $450 million in 2015;
strengthening our capital levels as our Common Equity Tier I ratio (fully phased-in) was 10.77%; and
returning $12.6 billion in capital to our shareholders, our 5th consecutive year of increased returns, through increased common stock dividends and additional net share repurchases.

Balance Sheet and Liquidity
Our balance sheet grew 6% in 2015 to $1.8 trillion, as we increased our liquidity position, improved the quality of our assets and held more capital. We grew deposits by 5% while reducing our deposit costs by two basis points. We also grew our loans each quarter on a year-over-year basis to end 2015 with our 18th consecutive quarter of growth (for the past 15 quarters year-over-year loan growth has been 3% or greater) despite the planned runoff from our non-strategic/liquidating portfolios. Our non-strategic/liquidating loan portfolios decreased $8.8 billion during the year (to less than 6% of total loans) and


30
Wells Fargo & Company
 


our core loan portfolios increased $62.8 billion from the prior year. Our core loan portfolio growth included $11.5 billion from the GE Capital commercial real estate loan purchase and related financing transaction announced in first quarter 2015. We grew our investment securities portfolio by $34.6 billion in 2015 and our federal funds sold, securities purchased under resale agreements and other short-term investments (collectively referred to as federal funds sold and other short-term investments elsewhere in this Report) increased by $11.7 billion, or 5%, during the year. While we believe our liquidity position continued to remain strong with increased regulatory expectations, we have added to our position over the past year.
The strength of our balance sheet during 2015 positioned us for the agreement we announced in third quarter 2015 to purchase GE Capital's Commercial Distribution Finance and Vendor Finance businesses as well as a portion of its Corporate Finance business – an acquisition that will help us serve more markets and meet more of our customers' financial needs. The acquisition is expected to include total assets of approximately $31 billion and is expected to close in two phases. The North American portion, which represents approximately 90% of total assets to be acquired, is expected to close late in first quarter 2016. The international portion is expected to close in second quarter 2016. Also, in January 2016 we closed our purchase of GE Railcar Services, which included $4.0 billion of operating and capital leases, comprised of 77,000 railcars and just over 1,000 locomotives that were added to our existing First Union Rail business. During fourth quarter 2015 we issued long-term debt to partially fund the anticipated closing of these GE Capital acquisitions.
Deposit growth remained strong with period-end deposits up $55.0 billion from 2014. This increase reflected solid growth across both our commercial and consumer businesses. We grew our primary consumer checking customers by 5.6% and primary small business and business banking checking customers by 4.8% from a year ago (November 2015 compared with November 2014). Our ability to grow primary customers is important to our results because these customers have more interactions with us and are significantly more profitable than non-primary customers.
 
Credit Quality
Credit quality remained strong in 2015, demonstrating the benefit of our diversified loan portfolio. Solid performance in several of our commercial and consumer loan portfolios was evidenced by losses remaining near historically low levels, reflecting our long-term risk focus. Net charge-offs of $2.9 billion were 0.33% of average loans, down 2 basis points from a year ago. Net losses in our commercial portfolio were $387 million, or 9 basis points of average loans. Net consumer losses declined to 55 basis points in 2015 from 65 basis points in 2014. Our commercial real estate portfolios were in a net recovery position for each quarter of the last three years, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $497 million, or 44%, from a year ago. The consumer loss levels reflected the benefit of the improving housing market and our continued focus on originating high quality loans. Approximately 67% of the consumer first mortgage portfolio was originated after 2008, when new underwriting standards were implemented.
Our provision for credit losses in 2015 was $2.4 billion compared with $1.4 billion a year ago reflecting a release of
 
$450 million from the allowance for credit losses, compared with a release of $1.6 billion a year ago. We did not release or build our allowance in the last half of 2015 as the credit improvement in our residential real estate portfolios was offset by higher commercial allowance reflecting deterioration in our oil and gas portfolio. Total loans in the oil and gas portfolio were down 6% from a year ago and are now less than 2% of our total loans outstanding. Approximately $1.2 billion of the allowance at December 31, 2015 was allocated to our oil and gas portfolio; however the entire allowance is available to absorb credit losses inherent in the total loan portfolio. If oil prices remain low for a prolonged period of time, there could be additional performance deterioration in our oil and gas portfolio resulting in higher criticized assets, nonperforming loans, allowance levels and ultimately credit losses. Deteriorated performance can take the form of increased downgrades, borrower defaults, potentially higher commitment drawdowns prior to default, and downgraded borrowers being unable to fully access the capital markets. Furthermore, our loan exposure in communities where the employment base has a concentration in the oil and gas sector may experience some credit challenges.
Future allowance levels may increase or decrease based on a variety of factors, including loan growth, portfolio performance and general economic conditions.
In addition to lower net charge-offs, nonperforming assets (NPAs) through the end of 2015 have declined for 13 consecutive quarters and were down $2.7 billion, or 17%, from 2014. Nonaccrual loans declined $1.5 billion from the prior year while foreclosed assets were down $1.2 billion from 2014.

Capital
Our capital levels remained strong in 2015, even as we returned more capital to our shareholders, with total equity increasing to $193.9 billion at December 31, 2015, up $8.6 billion from the prior year. We returned $12.6 billion to shareholders in 2015 ($12.5 billion in 2014) through common stock dividends and net share repurchases and our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 59%. During 2015 we increased our quarterly common stock dividend by 7% to $0.375 per share. In 2015, our common shares outstanding declined by 78.2 million shares as we continued to reduce our common share count through the repurchase of 163.4 million common shares during the year. We also entered into a $500 million forward repurchase contract with an unrelated third party in December 2015 that settled in January 2016 for 9.2 million shares. In addition, we entered into a $750 million forward repurchase contract with an unrelated third party in January 2016 that settled in first quarter 2016 for 15.9 million shares. We expect our share count to continue to decline in 2016 as a result of anticipated net share repurchases.
We believe an important measure of our capital strength is the Common Equity Tier 1 ratio on a fully phased-in basis, which increased to 10.77% in 2015 from 10.43% a year ago. Likewise, our other regulatory capital ratios remained strong. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.




 
Wells Fargo & Company
31



Overview (continued)

Table 1: Six-Year Summary of Selected Financial Data
(in millions, except per share amounts)
2015

 
2014

 
2013

 
2012

 
2011

 
2010

 
%
Change
2015/
2014

 
Five-year
compound
growth
rate 

Income statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
45,301

 
43,527

 
42,800

 
43,230

 
42,763

 
44,757

 
4
 %
 

Noninterest income
40,756

 
40,820

 
40,980

 
42,856

 
38,185

 
40,453

 

 

Revenue
86,057

 
84,347


83,780


86,086


80,948


85,210

 
2

 

Provision for credit losses
2,442

 
1,395

 
2,309

 
7,217

 
7,899

 
15,753

 
75

 
(31
)
Noninterest expense
49,974

 
49,037

 
48,842

 
50,398

 
49,393

 
50,456

 
2

 

Net income before noncontrolling interests
23,276

 
23,608

 
22,224

 
19,368

 
16,211

 
12,663

 
(1
)
 
13

Less: Net income from noncontrolling interests
382

 
551

 
346

 
471

 
342

 
301

 
(31
)
 
5

Wells Fargo net income
22,894

 
23,057


21,878


18,897


15,869


12,362

 
(1
)
 
13

Earnings per common share
4.18

 
4.17

 
3.95

 
3.40

 
2.85

 
2.23

 

 
13

Diluted earnings per common share
4.12

 
4.10

 
3.89

 
3.36

 
2.82

 
2.21

 

 
13

Dividends declared per common share
1.475

 
1.350

 
1.150

 
0.880

 
0.480

 
0.200

 
9

 
49

Balance sheet (at year end)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities
$
347,555

 
312,925

 
264,353

 
235,199

 
222,613

 
172,654

 
11
 %
 
15

Loans
916,559

 
862,551

 
822,286

 
798,351

 
769,631

 
757,267

 
6

 
4

Allowance for loan losses
11,545

 
12,319

 
14,502

 
17,060

 
19,372

 
23,022

 
(6
)
 
(13
)
Goodwill
25,529

 
25,705

 
25,637

 
25,637

 
25,115

 
24,770

 
(1
)
 
1

Assets
1,787,632

 
1,687,155

 
1,523,502

 
1,421,746

 
1,313,867

 
1,258,128

 
6

 
7

Deposits
1,223,312

 
1,168,310

 
1,079,177

 
1,002,835

 
920,070

 
847,942

 
5

 
8

Long-term debt
199,536

 
183,943

 
152,998

 
127,379

 
125,354

 
156,983

 
8

 
5

Wells Fargo stockholders' equity
192,998

 
184,394

 
170,142

 
157,554

 
140,241

 
126,408

 
5

 
9

Noncontrolling interests
893

 
868

 
866

 
1,357

 
1,446

 
1,481

 
3

 
(10
)
Total equity
193,891

 
185,262

 
171,008

 
158,911

 
141,687

 
127,889

 
5

 
9




32
Wells Fargo & Company
 


Table 2: Ratios and Per Common Share Data
 
Year ended December 31, 
 
 
2015

 
2014

 
2013

Profitability ratios
 
 
 
 
 
Wells Fargo net income to average assets (ROA)
1.31
%
 
1.45

 
1.51

Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)
12.60

 
13.41

 
13.87

Efficiency ratio (1)
58.1

 
58.1

 
58.3

Capital ratios (2)(3)
 
 
 
 
 
At year end:
 
 
 
 
 
Wells Fargo common stockholders' equity to assets
9.62

 
9.86

 
10.17

Total equity to assets
10.85

 
10.98

 
11.22

Risk-based capital:
 
 
 
 
 
Common Equity Tier 1
11.07

 
11.04

 
10.82

Tier 1 capital
12.63

 
12.45

 
12.33

Total capital
15.45

 
15.53

 
15.43

Tier 1 leverage
9.37

 
9.45

 
9.60

Average balances:
 
 
 
 
 
Average Wells Fargo common stockholders' equity to average assets
9.78

 
10.22

 
10.41

Average total equity to average assets
10.99

 
11.32

 
11.41

Per common share data
 
 
 
 
 
Dividend payout (4)
35.8

 
32.9

 
29.6

Book value
$
33.78

 
32.19

 
29.48

Market price (5)
 
 
 
 
 
High
58.77

 
55.95

 
45.64

Low
47.75

 
44.17

 
34.43

Year end
54.36

 
54.82

 
45.40

(1)
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(2)
The risk-based capital ratios presented at December 31, 2015, were calculated under the lower of Standardized or Advanced Approach determined pursuant to Basel III with Transition Requirements. Accordingly, the total capital ratio was calculated under the Advanced Approach and the other ratios were calculated under the Standardized Approach. The risk-based capital ratios were calculated under the Basel III General Approach at December 31, 2014, and under Basel I at December 31, 2013.
(3)
See the "Capital Management" section and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
(4)
Dividends declared per common share as a percentage of diluted earnings per common share.
(5)
Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.


 
Wells Fargo & Company
33



Earnings Performance
Wells Fargo net income for 2015 was $22.9 billion ($4.12 diluted earnings per common share), compared with $23.1 billion ($4.10 diluted per share) for 2014 and $21.9 billion ($3.89 diluted per share) for 2013. Our 2015 earnings reflected continued strong execution of our business strategy as well as growth in many of our businesses. Our financial performance in 2015 benefited from a $1.8 billion increase in net interest income, which was offset by a $1.0 billion increase in our provision for credit losses and a $937 million increase in noninterest expense.
Revenue, the sum of net interest income and noninterest income, was $86.1 billion in 2015, compared with $84.3 billion in 2014 and $83.8 billion in 2013. The increase in revenue for 2015 compared with 2014 was predominantly due to an increase in net interest income, reflecting increases in income from trading assets, investment securities, and loans. Our diversified sources of revenue generated by our businesses continued to be balanced between net interest income and noninterest income. In 2015, net interest income of $45.3 billion represented 53% of revenue, compared with $43.5 billion (52%) in 2014 and $42.8 billion (51%) in 2013.
 
Noninterest income was $40.8 billion in 2015, representing 47% of revenue, compared with $40.8 billion (48%) in 2014 and $41.0 billion (49%) in 2013. Noninterest income was relatively stable in 2015 compared with a year ago, reflecting our continued ability to generate fee income despite fluctuations in market sensitive revenue.
Noninterest expense was $50.0 billion in 2015, compared with $49.0 billion in 2014 and $48.8 billion in 2013. The increase in noninterest expense in 2015, compared with 2014, reflected higher compensation expense and operating losses. Noninterest expense as a percentage of revenue (efficiency ratio) was 58.1% in 2015, 58.1% in 2014 and 58.3% in 2013, reflecting our expense management efforts.
Table 3 presents the components of revenue and noninterest expense as a percentage of revenue for year-over-year results.


34
Wells Fargo & Company
 


Table 3: Net Interest Income, Noninterest Income and Noninterest Expense as a Percentage of Revenue
 
Year ended December 31, 
 
(in millions)
2015

 
% of revenue 

 
2014

 
% of revenue 

 
2013

 
% of revenue 

Interest income (on a taxable equivalent basis)
 
 
 
 
 
 
 
 
 
 
 
Trading assets
$
2,010

 
2
 %
 
$
1,712

 
2
 %
 
$
1,406

 
2
 %
Investment securities
9,906

 
12

 
9,253

 
11

 
8,841

 
11

Mortgages held for sale (MHFS)
785

 
1

 
767

 
1

 
1,290

 
2

Loans held for sale (LHFS)
19

 

 
78

 

 
13

 

Loans
36,663

 
43

 
35,715

 
42

 
35,618

 
43

Other interest income
990

 
1

 
932

 
1

 
724

 
1

Total interest income (on a taxable equivalent basis)
50,373

 
59

 
48,457

 
57

 
47,892

 
57

Interest expense
 
 
 
 
 
 
 
 
 
 
 
Deposits
963

 
1

 
1,096

 
1

 
1,337

 
2

Short-term borrowings
64

 

 
62

 

 
71

 

Long-term debt
2,592

 
4

 
2,488

 
3

 
2,585

 
3

Other interest expense
357

 

 
382

 

 
307

 

Total interest expense
3,976

 
5

 
4,028

 
4

 
4,300

 
5

Net interest income (on a taxable-equivalent basis)
46,397

 
54

 
44,429

 
53

 
43,592

 
52

Taxable-equivalent adjustment
(1,096
)
 
(1
)
 
(902
)
 
(1
)
 
(792
)
 
(1
)
Net interest income (A) 
45,301

 
53

 
43,527

 
52

 
42,800

 
51

Noninterest income
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
5,168

 
6

 
5,050

 
6

 
5,023

 
6

Trust and investment fees (1)
14,468

 
16

 
14,280

 
17

 
13,430

 
16

Card fees
3,720

 
4

 
3,431

 
4

 
3,191

 
4

Other fees (1)
4,324

 
5

 
4,349

 
5

 
4,340

 
5

Mortgage banking (1)
6,501

 
7

 
6,381

 
8

 
8,774

 
10

Insurance
1,694

 
2

 
1,655

 
2

 
1,814

 
2

Net gains from trading activities
614

 
1

 
1,161

 
1

 
1,623

 
2

Net gains (losses) on debt securities
952

 
1

 
593

 
1

 
(29
)
 

Net gains from equity investments
2,230

 
3

 
2,380

 
3

 
1,472

 
2

Lease income
621

 
1

 
526

 
1

 
663

 
1

Other
464

 
1

 
1,014

 
1

 
679

 
1

Total noninterest income (B)
40,756

 
47

 
40,820

 
48

 
40,980

 
49

Noninterest expense
 
 
 
 
 
 
 
 
 
 
 
Salaries
15,883

 
19

 
15,375

 
18

 
15,152

 
18

Commission and incentive compensation
10,352

 
12

 
9,970

 
12

 
9,951

 
12

Employee benefits
4,446

 
5

 
4,597

 
5

 
5,033

 
6

Equipment
2,063

 
2

 
1,973

 
2

 
1,984

 
2

Net occupancy
2,886

 
3

 
2,925

 
3

 
2,895

 
3

Core deposit and other intangibles
1,246

 
1

 
1,370

 
2

 
1,504

 
2

FDIC and other deposit assessments
973

 
1

 
928

 
1

 
961

 
1

Other (2)
12,125

 
15

 
11,899

 
14

 
11,362

 
14

Total noninterest expense
49,974

 
58

 
49,037

 
58

 
48,842

 
58

Revenue (A) + (B)
$
86,057

 
 
 
$
84,347

 
 
 
$
83,780

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
See Table 7 – Noninterest Income in this Report for additional detail.
(2)
See Table 8 – Noninterest Expense in this Report for additional detail.


 
Wells Fargo & Company
35



Earnings Performance (continued)

Net Interest Income
Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid for deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 5 to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.
While the Company believes that it has the ability to increase net interest income over time, net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. In addition, some variable sources of interest income, such as resolutions from purchased credit-impaired (PCI) loans, loan prepayment fees and collection of interest on nonaccrual loans, can vary from period to period. Net interest income growth has been challenged during the prolonged low interest rate environment as higher yielding loans and securities runoff have been replaced with lower yielding assets.
Net interest income on a taxable-equivalent basis was $46.4 billion in 2015, compared with $44.4 billion in 2014, and $43.6 billion in 2013. The net interest margin was 2.95% in 2015, down 16 basis points from 3.11% in 2014, which was down 29 basis points from 3.40% in 2013. The increase in net interest income for 2015, compared with 2014, was primarily driven by loan growth, the benefit of swapping a portion of our variable rate commercial loans to fixed rate, securities purchases, higher trading balances, and reduced deposit costs. Strong growth in commercial loans, retained first lien real estate loans and credit cards contributed to higher net interest income as originations more than replaced runoff in the non-strategic/liquidating portfolios. This increase was partially offset by the impact of increased interest expense on higher long-term debt balances and reduced interest income from loans held for sale (LHFS) following the sale of substantially all of the government guaranteed student loan portfolio in 2014. Funding costs in 2015 remained relatively flat compared with 2014 due to lower deposit costs as a result of disciplined pricing, partially offset by increased long-term debt interest expense. The decline in net interest margin in 2015, compared with 2014, was primarily due to customer-driven deposit growth and higher long-term debt balances, partially offset by growth in loans and securities. The growth in customer-driven deposits and funding balances during 2015 kept cash, federal funds sold, and other short-term investments elevated, which diluted net interest margin but was essentially neutral to net interest income. During fourth quarter 2015, we issued long-term debt to partially fund the previously announced acquisition of certain commercial lending businesses and assets from GE Capital, with the majority of assets anticipated to close in first quarter 2016.


 
Table 4 presents the components of earning assets and funding sources as a percentage of earning assets to provide a more meaningful analysis of year-over-year changes that influenced net interest income.
Average earning assets increased $142.4 billion in 2015 from a year ago, as average investment securities increased $55.1 billion and average federal funds sold and other short-term investments increased $25.6 billion for the same period, respectively. In addition, average loans increased $51.0 billion in 2015, compared with a year ago.
Deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Deposits include noninterest-bearing deposits, interest-bearing checking, market rate and other savings, savings certificates, other time deposits, and deposits in foreign offices. Average deposits rose to $1.2 trillion in 2015, compared with $1.1 trillion in 2014, and funded 135% of average loans compared with 134% a year ago. Average deposits decreased to 76% of average earning assets in 2015, compared with 78% a year ago. The cost of these deposits has continued to decline due to a sustained low interest rate environment and a shift in our deposit mix from higher cost certificates of deposit to lower yielding checking and savings products.
Table 5 presents the individual components of net interest income and the net interest margin. The effect on interest income and costs of earning asset and funding mix changes described above, combined with rate changes during 2015, are analyzed in Table 6.


36
Wells Fargo & Company
 


Table 4: Average Earning Assets and Funding Sources as a Percentage of Average Earnings Assets
 
Year ended December 31,
 
 
2015
 
 
2014
 
(in millions)
Average
balance

 
% of
earning
assets

 
Average
balance

 
% of
earning
assets

Earning assets
 
 
 
 
 
 
 
Federal funds sold, securities purchased under resale agreements and other short-term investments
$
266,832

 
17
%
 
$
241,282

 
17
%
Trading assets
66,679

 
4

 
55,140

 
4

Investment securities:
 
 


 
 
 


Available-for-sale securities:
 
 


 
 
 


Securities of U.S. Treasury and federal agencies
32,093

 
2

 
10,400

 
1

Securities of U.S. states and political subdivisions
47,404

 
3

 
43,138

 
3

Mortgage-backed securities:
 
 


 
 
 


Federal agencies
100,218

 
6

 
114,076

 
8

Residential and commercial
22,490

 
2

 
26,475

 
2

Total mortgage-backed securities
122,708

 
8

 
140,551

 
10

Other debt and equity securities
49,752

 
3

 
47,488

 
3

Total available-for-sale securities
251,957

 
16

 
241,577

 
17

Held-to-maturity securities
74,048

 
5

 
29,319

 
2

Mortgages held for sale (1)
21,603

 
2

 
19,018

 
2

Loans held for sale (1)
573

 

 
4,226

 

Loans:
 
 


 
 
 


Commercial:
 
 


 
 
 


Commercial and industrial - U.S.
237,844

 
15

 
204,819

 
14

Commercial and industrial - Non U.S.
46,028

 
3

 
42,661

 
3

Real estate mortgage
116,893

 
7

 
112,710

 
8

Real estate construction
20,979

 
1

 
17,676

 
1

Lease financing
12,301

 
1

 
12,257

 
1

Total commercial
434,045

 
27

 
390,123

 
27

Consumer:
 
 


 
 
 


Real estate 1-4 family first mortgage
268,560

 
17

 
261,620

 
18

Real estate 1-4 family junior lien mortgage
56,242

 
4

 
62,510

 
4

Credit card
31,307

 
2

 
27,491

 
2

Automobile
57,766

 
4

 
53,854

 
4

Other revolving credit and installment
37,512

 
2

 
38,834

 
3

Total consumer
451,387

 
29

 
444,309

 
31

Total loans (1)
885,432

 
56

 
834,432

 
58

Other
4,947

 

 
4,673

 

Total earning assets
$
1,572,071

 
100
%
 
$
1,429,667

 
100
%
Funding sources
 
 


 
 
 


Deposits:
 
 


 
 
 


Interest-bearing checking
$
38,640

 
2
%
 
$
39,729

 
3
%
Market rate and other savings
625,549

 
40

 
585,854

 
41

Savings certificates
31,887

 
2

 
38,111

 
3

Other time deposits
51,790

 
3

 
51,434

 
3

Deposits in foreign offices
107,138

 
7

 
95,889

 
7

Total interest-bearing deposits
855,004

 
54

 
811,017

 
57

Short-term borrowings
87,465

 
6

 
60,111

 
4

Long-term debt
185,078

 
12

 
167,420

 
12

Other liabilities
16,545

 
1

 
14,401

 
1

Total interest-bearing liabilities
1,144,092

 
73

 
1,052,949

 
74

Portion of noninterest-bearing funding sources
427,979

 
27

 
376,718

 
26

Total funding sources
$
1,572,071

 
100
%
 
$
1,429,667

 
100
%
Noninterest-earning assets
 
 
 
 
 
 
 
Cash and due from banks
$
17,327

 
 
 
16,361

 
 
Goodwill
25,673

 
 
 
25,687

 
 
Other
127,848

 
 
 
121,634

 
 
Total noninterest-earning assets
$
170,848

 
 
 
163,682

 
 
Noninterest-bearing funding sources
 
 
 
 
 
 
 
Deposits
$
339,069

 
 
 
303,127

 
 
Other liabilities
68,174

 
 
 
56,985

 
 
Total equity
191,584

 
 
 
180,288

 
 
Noninterest-bearing funding sources used to fund earning assets
(427,979
)
 
 
 
(376,718
)
 
 
Net noninterest-bearing funding sources
$
170,848

 
 
 
163,682

 
 
Total assets
$
1,742,919

 
 
 
1,593,349

 
 
 
 
 
 
 
 
 
 
(1)
Nonaccrual loans are included in their respective loan categories.


 
Wells Fargo & Company
37



Earnings Performance (continued)

Table 5: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
 
 
 
 
 
2015

 
 
 
 
 
2014

(in millions) 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

Earning assets
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold, securities purchased under
resale agreements and other short-term investments
$
266,832

 
0.28
%
 
$
738

 
241,282

 
0.28
%
 
$
673

Trading assets
66,679

 
3.01

 
2,010

 
55,140

 
3.10

 
1,712

Investment securities (3):
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
32,093

 
1.58

 
505

 
10,400

 
1.64

 
171

Securities of U.S. states and political subdivisions
47,404

 
4.23

 
2,007

 
43,138

 
4.29

 
1,852

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
100,218

 
2.73

 
2,733

 
114,076

 
2.84

 
3,235

Residential and commercial
22,490

 
5.73

 
1,289

 
26,475

 
6.03

 
1,597

Total mortgage-backed securities
122,708

 
3.28

 
4,022

 
140,551

 
3.44

 
4,832

Other debt and equity securities
49,752

 
3.42

 
1,701

 
47,488

 
3.66

 
1,741

Total available-for-sale securities
251,957

 
3.27

 
8,235

 
241,577

 
3.56

 
8,596

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Securities of U.S. Treasury and federal agencies
44,173

 
2.19

 
968

 
17,239

 
2.23

 
385

Securities of U.S. states and political subdivisions
2,087

 
5.40

 
113

 
246

 
4.93

 
12

Federal agency mortgage-backed securities
21,967

 
2.23

 
489

 
5,921

 
2.55

 
151

Other debt securities
5,821

 
1.73

 
101

 
5,913

 
1.85

 
109

Held-to-maturity securities
74,048

 
2.26

 
1,671

 
29,319

 
2.24

 
657

Total investment securities
326,005

 
3.04

 
9,906

 
270,896

 
3.42

 
9,253

Mortgages held for sale (4)
21,603

 
3.63

 
785

 
19,018

 
4.03

 
767

Loans held for sale (4)
573

 
3.25

 
19

 
4,226

 
1.85

 
78

Loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial - U.S.
237,844

 
3.29

 
7,836

 
204,819

 
3.35

 
6,869

Commercial and industrial - non U.S.
46,028

 
1.90

 
877

 
42,661

 
2.03

 
867

Real estate mortgage
116,893

 
3.41

 
3,984

 
112,710

 
3.64

 
4,100

Real estate construction
20,979

 
3.57

 
749

 
17,676

 
4.21

 
744

Lease financing
12,301

 
4.70

 
577

 
12,257

 
5.63

 
690

Total commercial
434,045

 
3.23

 
14,023

 
390,123

 
3.40

 
13,270

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Real estate 1-4 family first mortgage
268,560

 
4.10

 
11,002

 
261,620

 
4.19

 
10,961

Real estate 1-4 family junior lien mortgage
56,242

 
4.25

 
2,391

 
62,510

 
4.30

 
2,686

Credit card
31,307

 
11.70

 
3,664

 
27,491

 
11.98

 
3,294

Automobile
57,766

 
5.84

 
3,374

 
53,854

 
6.27

 
3,377

Other revolving credit and installment
37,512

 
5.89

 
2,209

 
38,834

 
5.48

 
2,127

Total consumer
451,387

 
5.02

 
22,640

 
444,309

 
5.05

 
22,445

Total loans (4)
885,432

 
4.14

 
36,663

 
834,432

 
4.28

 
35,715

Other
4,947

 
5.11

 
252

 
4,673

 
5.54

 
259

Total earning assets
$
1,572,071

 
3.20
%
 
$
50,373

 
1,429,667

 
3.39
%
 
$
48,457

Funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
38,640

 
0.05
%
 
$
20

 
39,729

 
0.07
%
 
$
26

Market rate and other savings
625,549

 
0.06

 
367

 
585,854

 
0.07

 
403

Savings certificates
31,887

 
0.63

 
201

 
38,111

 
0.85

 
323

Other time deposits
51,790

 
0.45

 
232

 
51,434

 
0.40

 
207

Deposits in foreign offices
107,138

 
0.13

 
143

 
95,889

 
0.14

 
137

Total interest-bearing deposits
855,004

 
0.11

 
963

 
811,017

 
0.14

 
1,096

Short-term borrowings
87,465

 
0.07

 
64

 
60,111

 
0.10

 
62

Long-term debt
185,078

 
1.40

 
2,592

 
167,420

 
1.49

 
2,488

Other liabilities
16,545

 
2.15

 
357

 
14,401

 
2.65

 
382

Total interest-bearing liabilities
1,144,092

 
0.35

 
3,976

 
1,052,949

 
0.38

 
4,028

Portion of noninterest-bearing funding sources
427,979

 

 

 
376,718

 

 

Total funding sources
$
1,572,071

 
0.25

 
3,976

 
1,429,667

 
0.28

 
4,028

Net interest margin and net interest income on a taxable-equivalent basis (5) 
 
 
2.95
%
 
$
46,397

 
 
 
3.11
%
 
$
44,429

Noninterest-earning assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
17,327

 
 
 
 
 
16,361

 
 
 
 
Goodwill
25,673

 
 
 
 
 
25,687

 
 
 
 
Other
127,848

 
 
 
 
 
121,634

 
 
 
 
Total noninterest-earning assets
$
170,848

 
 
 
 
 
163,682

 
 
 
 
Noninterest-bearing funding sources
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
339,069

 
 
 
 
 
303,127

 
 
 
 
Other liabilities
68,174

 
 
 
 
 
56,985

 
 
 
 
Total equity
191,584

 
 
 
 
 
180,288

 
 
 
 
Noninterest-bearing funding sources used to
fund earning assets
(427,979
)
 
 
 
 
 
(376,718
)
 
 
 
 
Net noninterest-bearing funding sources
$
170,848

 
 
 
 
 
163,682

 
 
 
 
Total assets
$
1,742,919

 
 
 
 
 
1,593,349

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Our average prime rate was 3.26% for the year ended December 31, 2015, and 3.25% for the years ended December 31, 2014, 2013, 2012, and 2011, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 0.32%, 0.23%, 0.27%, 0.43%, and 0.34% for the same years, respectively.
(2)
Yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

38
Wells Fargo & Company
 



 
 
 
 
2013

 
 
 
 
 
2012

 
 
 
 
 
2011

Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
Average 
balance 

 
Yields/ 
rates 

 
Interest 
income/ 
expense 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
154,902

 
0.32
%
 
$
489

 
84,081

 
0.45
%
 
$
378

 
87,186

 
0.40
%
 
$
345

44,745

 
3.14

 
1,406

 
41,950

 
3.29

 
1,380

 
39,737

 
3.68

 
1,463

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6,750

 
1.66

 
112

 
3,604

 
1.31

 
47

 
5,503

 
1.25

 
69

39,922

 
4.38

 
1,748

 
34,875

 
4.48

 
1,561

 
24,035

 
5.09

 
1,223

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
107,148

 
2.83

 
3,031

 
92,887

 
3.12

 
2,893

 
74,665

 
4.36

 
3,257

30,717

 
6.47

 
1,988

 
33,545

 
6.75

 
2,264

 
31,902

 
8.20

 
2,617

137,865

 
3.64

 
5,019

 
126,432

 
4.08

 
5,157

 
106,567

 
5.51

 
5,874

55,002

 
3.53

 
1,940

 
49,245

 
4.04

 
1,992

 
38,625

 
5.03

 
1,941

239,539

 
3.68

 
8,819

 
214,156

 
4.09

 
8,757

 
174,730

 
5.21

 
9,107

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

701

 
3.09

 
22

 

 

 

 

 

 

16

 
1.99

 

 

 

 

 

 

 

717

 
3.06

 
22