The analysis of Wells Fargo’s consolidated statement of income is shown in Table 2.1
Table 2.1
Wells Fargo’s structure of Total income
| Million $ | Share,% | Million $ | Share,% | Rate | |
| Interest income | 53,47 | 53,81 | 1,010 | ||
| Noninterest income | 46,53 | 46,19 | 0,996 | ||
| Total income | 100,00 | 100,00 | 1,003 |
Source: it is calculated according to annual report of Wells Fargo [3].
The overall amount of Wells Fargo’s income grew 0,3% in 2014. Interest income was 53,81% of Wells Fargo’s total income and it increased 1% in 2014. However noninterest income that was 46,19% decreased 0,4% in 2014. So Wells Fargo earned interest income as well as noninterest income. And the structure of Wells Fargo’s interest income is represented in table 2.2
Table 2.2
Interest income of Wells Fargo
| Million $ | Share,% | Million $ | Share,% | Rate | |
| Trading assets | 2,92 | 3,54 | 1,22 | ||
| Investment securities | 17,24 | 17,74 | 1,04 | ||
| Mortgages held for sale | 2,74 | 1,61 | 0,59 | ||
| Loans held for sale | 0,03 | 0,16 | 6,00 | ||
| Loans | 75,54 | 74,97 | 1,00 | ||
| Other interest income | 1,54 | 1,96 | 1,29 | ||
| Total interest income | 100,00 | 100,00 | 1,01 |
Source: it is calculated according to annual report of Wells Fargo [3].
The overall amount of Wells Fargo’s interest income grew 1% in 2014 and this growth was connected with the increase in all parts of interest income except mortgages held for sale. And it was influenced mostly by the growth of trading assets and investment securities that constituted 3% and 17% of total interest income. The biggest part of interest income of the bank was earned from loans, but this kind of income grew a little in 2015.
The structure of Wells Fargo’s noninterest income is represented in table 2.3
Table 2.3
Noninterest income of Wells Fargo
| Million $ | Share,% | Million $ | Share,% | Rate | |
| Service charges on deposits | 12,26 | 12,37 | 1,005 | ||
| Trust and investment fees | 32,77 | 34,98 | 1,063 | ||
| Card fees | 7,79 | 8,41 | 1,075 | ||
| Other fees | 10,59 | 10,65 | 1,002 | ||
| Mortgage banking | 21,41 | 15,63 | 0,727 | ||
| Insurance | 4,43 | 4,05 | 0,912 | ||
| Net gains from trading activities | 3,96 | 2,84 | 0,715 | ||
| Net gains (losses) on debt securities | (29) | 0,07 | 1,45 | 20,448 | |
| Net gains from equity investments | 3,59 | 5,83 | 1,617 | ||
| Lease income | 1,62 | 1,29 | 0,793 | ||
| Other | 1,66 | 2,48 | 1,493 | ||
| Total noninterest income | 100,00 | 100,00 | 0,996 |
Source: it is calculated according to annual report of Wells Fargo [3].
The amount of Wells Fargo’s noninterest income dropped 0,4% in 2015 and it was influenced mostly by the decrease in income from mortgage banking. Besides, there was a fall in noninterest income from insurance and gains from trading activities. But there was an increase in trust and investment fees, card fees and net gains from equity investments. So Wells Fargo has quite diversified sources of noninterest income. Trust and investment fees are the biggest part of noninterest income of the bank and it shows that Wells Fargo provide actively not only traditional banking services, but also investment services.
Return on profitable assets of Wells Fargo is represented in table 2.4
Table 2.4
Return on profitable assets
| Million $ | Million $ | Rate | |
| Total income | 1,003 | ||
| Profitable assets | 1,110 | ||
| Total income / Profitable assets | 0,0637 | 0,0576 | 0,90 |
Source: it is calculated according to annual report of Wells Fargo [3].
Return on profitable assets of Wells Fargo dropped 10% in 2015, because the amount of profitable assets grew faster than the amount of its income. So 1$ of money invested into profitable assets gave less income.
The structure of Wells Fargo’s expenses is shown in table 2.5
Table 2.5
Wells Fargo’s structure of total expense
| Million $ | Share,% | Million $ | Share,% | Rate | |
| Interest expense | 8,1% | 7,6% | 0,938 | ||
| Noninterest expense | 91,9% | 92,4% | 1,004 | ||
| Total expense | 100,0% | 100,0% | 0,999 |
Source: it is calculated according to annual report of Wells Fargo [3].
The overall amount of Wells Fargo’s income dropped 0,1% in 2015. Noninterest expense was 92,4% of Wells Fargo’s total expense and it increased 0,4% in 2015. However interest expense that was 7,6% decreased 6,2% in 2015. And that was the reason of the decrease in the overall amount of Wells Fargo’s expense.
The structure of Wells Fargo’s interest expenses is shown in table 2.6
Table 2.6
Interest expense of Wells Fargo
| Million $ | Share,% | Million $ | Share,% | Rate | |
| Deposits | 31,17 | 27,23 | 0,82 | ||
| Short-term borrowings | 1,40 | 1,47 | 0,98 | ||
| Long-term debt | 60,27 | 61,81 | 0,96 | ||
| Other interest expense | 7,16 | 9,49 | 1,24 | ||
| Total interest expense | 100,00 | 100,00 | 0,94 |
Source: it is calculated according to annual report of Wells Fargo [3].
The overall amount of Wells Fargo’s interest expense dropped 6% in 2015 and this was connected with the decrease in all parts of interest income except other interest expense. And it was influenced mostly by the 18% decline of deposits’ expenses that constituted 27% of total interest expense. Also the biggest part of interest expenses of the bank was connected with long-term debt, and this kind of expenditures fall 4% in 2015.
The structure of Wells Fargo’s noninterest expenses is shown in table 2.7
Table 2.7
Noninterest expense of Wells Fargo
| Million $ | Share,% | Million $ | Share,% | Rate | |
| Salaries | 31,02 | 31,35 | 1,015 | ||
| Commission and incentive compensation | 20,37 | 20,33 | 1,002 | ||
| Employee benefits | 10,30 | 9,37 | 0,913 | ||
| Equipment | 4,06 | 4,02 | 0,994 | ||
| Net occupancy | 5,93 | 5,96 | 1,010 |
Table 2.7 continuation
| Core deposits and other intangibles | 3,08 | 2,79 | 0,911 | ||
| FDIC and other deposit assessments | 1,97 | 1,89 | 0,966 | ||
| Other | 23,26 | 24,27 | 1,047 | ||
| Total noninterest expense | 100,00 | 100,00 | 1,004 |
Source: it is calculated according to annual report of Wells Fargo [3].
The amount of Wells Fargo’s noninterest expense grew 0,4%. The increase in noninterest expense in 2015, compared with 2014, reflected higher salaries expense and other expenses, including operating losses and outside professional services. Besides, there was a fall in noninterest expenditures from employee benefits and core deposits and other intangibles. Core deposits include noninterest-bearing deposits, interest-bearing checking, savings certificates, market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).
Cost of Wells Fargo’s liabilities is represented in table 2.8
Table 2.8
Cost of Wells Fargo’s liabilities
| Million $ | Million $ | Rate | |
| Interest expense | 0,94 | ||
| Total liabilities | 0,90 | ||
| Cost of liabilities | 0,0029 | 0,0030 | 1,04 |
Source: it is calculated according to annual report of Wells Fargo [3].
Wells Fargo’s cost of liabilities grew 4% in 2015, because the amount of total liabilities dropped faster than the amount of its interest expenses. So 1$ of borrowed money became more expensive for the bank.
Wells Fargo’s net interest margin represented in table 2.9
Table 2.9
Wells Fargo’s net interest margin
| Million $ | Million $ | Rate | |
| Net income | 1,05 | ||
| Interest income | 1,01 | ||
| Profitable assets | 1,11 | ||
| Interest expense | 0,94 | ||
| Total liabilities | 0,90 | ||
| Return on earning assets | 0,0341 | 0,0310 | 0,91 |
| Cost of liabilities | 0,0029 | 0,0030 | 1,04 |
| Net interest margin | 0,0312 | 0,0280 | 0,899 |
Source: it is calculated according to annual report of Wells Fargo [3].
The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and other sources of funding. Wells Fargo’s net interest margin was 3,12% in 2014, but it decreased to 2,8% in 2015. So despite the fact that net income of the bank grew 5% in 2014, the return of bank’s earning assets dropped and the cost of liabilities grew in the same time. That’s why the net interest margin of Wells Fargo decreased 10,1% in 2015.
CONCLUSION
Wells Fargo extended its active and passive operations in analyzing period resulting in growth of bank’s assets, liabilities and equity. The biggest part of liabilities of the bank consists of interest-bearing deposits so it uses a stable source of financing, because the bank can predict when clients would like to withdraw their money. It should be mentioned that Wells Fargo used more long-term debt in 2014 than in 2013. The growth of equity was influenced mostly by the rise of retained earnings and this is a qualitative source of growth of bank capital. Total equity of the bank covers about 12% of Wells Fargo’s total liabilities, so the bank has sufficient amount of capital. The bank allocates resources not only in traditional banking assets such as loans, but also Wells Fargo invests money in securities. Assets of Wells Fargo are quite diversified.
Wells Fargo earned interest income as well as noninterest income. The biggest part of interest income of the bank was earned from loans. Wells Fargo has quite diversified sources of noninterest income such as trust and investment fees, income from mortgage and insurance, investment fees, card fees and gains from trading activities. Interest expenses of the bank were connected mostly with long-term debt. Noninterest expense reflected higher salaries expense and other expenses, including operating losses and outside professional services in 2015.
Return on credit portfolio of Wells Fargo dropped 3% in 2015, because the amount of loans grew faster than the amount of net interest income. So 1$ of money invested in loans gave less net interest income. Bank’s return on equity dropped 3% in 2014 because amount of total equity increased faster than its net income in 2015.
Wells Fargo’s net interest margin of Wells Fargo decreased 10,1% in 2015. So despite the fact that net income of the bank grew 5% in 2015, the return of bank’s earning assets dropped and the cost of liabilities grew in the same time.
Wells Fargo is quite sustainable and profitable bank, and it decided to extend its active and passive operations in 2015 despite the fact that it would decrease bank’s effective usage of its resources.
Financial statements in the Russian Federation and in the United States of America are quite similar, but each has its own special features. Balance sheet in Russia doesn’t include such positions as mortgages held for sale and loans held for sale and mortgage servicing rights in active part. It’s not typically for Russian banks to sale its mortgages and loans. However, balance sheet in Russia differentiate deposits and loans of other banks among overall amount of its deposits and loans. Interbank deposits and loans are quite stable and not risky resources. Balance sheet in the United States of America doesn’t have such positions as reassessment of securities and plants and it doesn’t separate retained earnings of current and previous periods. And it reflects unearned ESOP shares. An employee stock ownership plan (ESOP) is a qualified, defined contribution, employee benefit plan designed to invest primarily in the stock of the sponsoring employer. ESOPs are often used as a corporate finance strategy and are also used to align the interests of a company's employees with those of the company's shareholders.
Statement of income in the United States of America includes interest income and expense and noninterest income and expense, while statement of income in Russia distinguishes income and expense as interest, fee and operating. Besides, statement of income in the United States of America shows information about bank’s shares: earning per common share, dividends declared per common share, average number of outstanding shares, statement of income in Russia doesn’t include this kind of information.
BIBLIOGRAPHY
1. Choudhry, M. 2012. The Principles of Banking, 3–20. John Wiley & Sons.
2. Koch, T. 2014. Bank management, 84–97. Nelson Education.
3. Wells Fargo and Company Annual Report 2015. – access mode: https://www.wellsfargo.com/about/investor-relations/annual-reports/
4. Federal Reserve statistical release 31.12.2015. – access mode: https://www.federalreserve.gov/releases/lbr/current/
5. Толпыгина Л. М. Анализ деятельности коммерческого банка на основе публикуемой отчетности: учеб. пособие / Л. М.Толпыгина. – Иркутск: Изд-во БГУЭП, 2012. – 330 с.