Wells Fargo 2012 Annual Report Download - page 46

Earnings Performance (continued)
Operating Segment Results
We are organized for management reporting purposes into three
operating segments: Community Banking; Wholesale Banking;
and Wealth, Brokerage and Retirement. These segments are
defined by product type and customer segment and their results
are based on our management accounting process, for which
there is no comprehensive, authoritative financial accounting
guidance equivalent to generally accepted accounting principles
(GAAP). In first quarter 2012, we modified internal funds
transfer rates and the allocation of funding. The prior periods
have been revised to reflect these changes. Table 9 and the
following discussion present our results by operating segment.
For a more complete description of our operating segments,
including additional financial information and the underlying
management accounting process, see Note 24 (Operating
Segments) to Financial Statements in this Report.
Table 9: Operating Segment Results – Highlights
Year ended December 31,
Wealth, Brokerage
(in billions)
Community Banking Wholesale Banking and Retirement
2012 2011 2012 2011 2012 2011
Revenue $ 53.4 50.8 24.1 21.6 12.2 12.2
Net income 10.5 9.1 7.8 7.0 1.3 1.3
Average loans 487.1 496.3 273.8 249.1 42.7 43.0
Average core deposits 591.2 556.3 227.0 202.1 137.5 130.0
Community Banking offers a complete line of diversified
financial products and services for consumers and small
businesses. These products include investment, insurance and
trust services in 39 states and D.C., and mortgage and home
equity loans in all 50 states and D.C. through its Regional
Banking and Wells Fargo Home Lending business units. Cross-
sell of our products is an important part of our strategy to
achieve our vision to satisfy all our customers’ financial needs.
Our retail bank household cross-sell was 6.05 products per
household in fourth quarter 2012, up from 5.93 a year ago. We
believe there is more opportunity for cross-sell as we continue to
earn more business from our customers. Our goal is eight
products per customer, which is approximately half of our
estimate of potential demand for an average U.S. household. In
fourth quarter 2012, one of every four of our retail banking
households had eight or more of our products.
Community Banking reported net income of $10.5 billion in
2012, up $1.4 billion, or 15%, from 2011. Revenue was
$53.4 billion for 2012, an increase of $2.6 billion, or 5%,
compared with 2011, as a result of higher mortgage banking
revenue and growth in deposit service charges, partially offset by
lower debit card revenue due to regulatory changes enacted in
October 2011, and lower net interest income. Average core
deposits increased $35 billion, or 6%, from a year ago.
Noninterest expense increased $1.6 billion, or 5%, from 2011,
largely the result of higher mortgage volume-related expenses,
costs associated with settling mortgage servicing and
foreclosure-related matters, including the DOJ and the IFR
settlements, and a $250 million contribution to the Wells Fargo
Foundation. The provision for credit losses was $1.1 billion, or
14%, lower than 2011 due to improved portfolio performance.
Wholesale Banking provides financial solutions to businesses
across the United States and globally with annual sales generally
in excess of $20 million. Products and business segments
include Middle Market Commercial Banking, Government and
Institutional Banking, Corporate Banking, Commercial Real
Estate, Treasury Management, Wells Fargo Capital Finance,
Insurance, International, Real Estate Capital Markets,
Commercial Mortgage Servicing, Corporate Trust, Equipment
Finance, Wells Fargo Securities, Principal Investments, Asset
Backed Finance, and Asset Management.
Wholesale Banking reported net income of $7.8 billion in
2012, up $787 million, or 11%, from $7.0 billion in 2011. The
year over year increase in net income was the result of strong
revenue growth partially offset by increased noninterest expense
and a higher provision for loan losses.
Revenue in 2012 of $24.1 billion increased $2.5 billion, or
12%, from 2011, due to broad-based business growth as well as
growth from acquisitions. Net interest income of $12.6 billion
increased $1.0 billion or 9% driven by strong loan and deposit
growth. Average loans of $273.8 billion increased $24.7 billion,
or 10%, driven by strong customer demand and acquisitions.
Average core deposits of $227.0 billion in 2012 increased
$24.9 billion, or 12%, from 2011 reflecting continued strong
customer liquidity. Noninterest income of $11.4 billion increased
$1.5 billion, or 15%, due to strong growth in asset backed
finance, commercial banking, commercial real estate,
investment banking, real estate capital markets and sales &
trading.
Total noninterest expense in 2012 increased $905 million, or
8%, compared with 2011 due to higher personnel expenses
related to revenue growth and higher non-personnel expenses
related to growth initiatives and compliance and regulatory
requirements as well as increased operating losses. The
provision for credit losses increased $396 million from 2011, as a
$319 million decline in loan losses was more than offset by a
provision for increase in loans, particularly from acquisitions.
Wealth, Brokerage and Retirement provides a full range of
financial advisory services to clients using a planning approach
to meet each client's needs. Wealth Management provides
affluent and high net worth clients with a complete range of
wealth management solutions, including financial planning,
private banking, credit, investment management and trust.
Abbot Downing, a Wells Fargo business, provides
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