Wells Fargo’s Capital Position Remains Strong

Wells Fargo (WFC) reported its third-quarter earnings on October 14, 2015, beating Wall Street (SPY) analysts’ expectations. Capital position as measured by the Tier I Capital Ratio under Basel III norms remained constant at 10.7%, higher than the 10.5% reported in the previous quarter. Tier I Capital is a measure of a bank’s financial strength from a regulator’s point of view. It’s the ratio of a bank’s equity capital to its risk-weighted assets.

Non-performing assets (or NPAs) fell by $1.1 billion from 2Q15 to $13.3 billion, driven by non-accrual loans. Non-accrual loans fell $906 million to $11.5 billion on improvements in several loan categories, including consumer real estate.

Wells Fargo’s credit quality was strong during the quarter, as the annualized charge-off rate remained low at 0.31%, complemented by a decline in NPAs. Charge-off rate included commercial losses of 0.08% and consumer losses of 0.53%. Charge-off rates are defined as the flow of a bank’s net charge-offs (gross charge-offs minus recoveries) during a quarter divided by the average level of its loans. Credit losses increased to $703 million due to a seasonal increase in the auto loan portfolio.

The company purchased 51.7 million shares from the public. Dividend payout ratio increased to 60% as the company declared a quarterly dividend of $0.38 per share, up from $0.35 last year.

Major US Banks such as J.P. Morgan (JPM), Citigroup (C), Bank of America (BAC), and Goldman Sachs (GS) are reporting their third-quarter earnings this week.