Wells Fargo & Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Wells Fargo is a diversified financial services company with approximately $1.96 trillion in assets and four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management.
Financial performance and position
| Metric | Q1 2024 | Comparison |
|---|---|---|
| Total revenue | $20.9 billion | Up 1% year over year |
| Net interest income | $12.2 billion | Down 8% year over year |
| Net interest margin, taxable-equivalent | 2.81% | 3.20% in Q1 2023 |
| Noninterest income | $8.6 billion | Up 17% year over year |
| Noninterest expense | $14.3 billion | Up 5% year over year |
| Provision for credit losses | $938 million | Down 22% year over year |
| Net income | $4.6 billion | $5.0 billion in Q1 2023 |
| Diluted EPS | $1.20 | $1.23 in Q1 2023 |
| Efficiency ratio | 69% | 66% in Q1 2023 |
| Cash flows | Operating: $(12.1) billion; investing: $21.1 billion; financing: $23.6 billion | Cash, cash equivalents and restricted cash increased $32.5 billion during the quarter |
Balance sheet and funding: At March 31, assets were $1.959 trillion, deposits $1.383 trillion, loans $922.8 billion, and total equity $182.7 billion. Long-term debt was $187.8 billion and short-term borrowings $109.0 billion. Average loans were down 2% and average deposits down 1% year over year. Period-end deposits increased 2% from December 31, 2023, while loans decreased 1%.
Capital and liquidity: The binding Standardized CET1 ratio was 11.19%, versus 11.43% at year-end 2023 and a 8.90% requirement. The supplementary leverage ratio was 6.85%; TLAC was 25.10% of risk-weighted assets versus a 21.50% minimum. The liquidity coverage ratio was 126%, above the 100% minimum. The filing reports approximately $502.4 billion of unencumbered primary liquidity sources and $516.2 billion of available borrowing capacity at the FHLB and Federal Reserve Discount Window.
Material changes and business trends
- Lower net interest income reflected higher costs for interest-bearing deposits and long-term debt, and lower loan balances; higher yields on interest-earning assets partly offset these pressures.
- Higher noninterest income included stronger investment banking, trading, and asset-based advisory fees. It also benefited from lower venture-capital investment impairments, a legacy lease resolution gain, and an earn-out gain related to the 2021 sale of Wells Fargo Asset Management.
- Expense growth reflected higher operating losses, technology costs, and an additional $284 million FDIC special assessment expense. Customer remediation expense was $428 million, compared with $57 million in Q1 2023. Professional and outside services expense declined.
- Segment net income year over year: Consumer Banking and Lending $1.7 billion, down 7%; Commercial Banking $986 million, down 18%; Corporate and Investment Banking $2.0 billion, up 9%; Wealth and Investment Management $381 million, down 17%. Corporate reported a $435 million net loss.
- Average deposits fell as customers moved to higher-yielding alternatives; average deposit cost increased to 1.74% from 1.58% in Q4 2023. Consumer and small-business deposit outflows were partly offset by commercial deposit and certificate-of-deposit growth.
- The company repurchased 112.5 million common shares for approximately $6.1 billion and declared a $0.35 per-share dividend. Remaining repurchase authorization was approximately $20.7 billion at quarter-end.
Credit, risks, contingencies, and outlook
- Loan net charge-offs rose to $1.149 billion from $604 million a year earlier. Commercial charge-offs were $341 million, driven particularly by commercial real estate (CRE) office exposure; consumer charge-offs were $808 million, largely reflecting credit card losses. Credit card delinquency rates also increased year over year.
- The loan allowance for credit losses was $14.9 billion, or 1.61% of loans, down $226 million from year-end. Nonperforming assets were $8.2 billion, 0.89% of loans. Criticized commercial loans increased to $34.4 billion from $33.0 billion at year-end.
- CRE loans totaled $148.8 billion; office represented 20% of the portfolio. Management said it continues to closely monitor office credit quality amid weakened demand. Commercial nonaccrual loans declined during the quarter, primarily due to charge-offs and paydowns of office-related CRE loans.
- Customer remediation liabilities were $1.0 billion at March 31, up from $819 million at year-end. The filing says ongoing reviews may identify additional customer-harm matters. The high end of reasonably possible legal losses in excess of accrued probable losses was approximately $1.8 billion; actual outcomes may differ.
- The Federal Reserve consent order continues to cap consolidated assets at the December 31, 2017 level until required plans, implementation, and third-party review satisfy the FRB. The company says resolution work will take multiple years; delays or repeat issues could lead to penalties, business restrictions, or higher capital or liquidity requirements.
- The FDIC special assessment estimate may change as actual fund losses are determined. Wells Fargo expects significant reductions in overdraft and debit-card interchange fees if the CFPB and FRB proposals are adopted as proposed.
- Federal banking regulators’ proposed Basel III changes, if adopted as proposed, are expected by the company to significantly increase risk-weighted assets and capital requirements; proposed phase-in begins July 2025. No specific company earnings or revenue guidance for coming quarters is provided in the supplied filing text.
- Management’s credit-loss estimate uses economic scenarios that include slowing growth, higher unemployment, and lower CRE prices; actual economic conditions and losses could be worse than assumed. Other stated risks include interest-rate and funding-cost changes, market disruption, cyber and operational failures, litigation, regulation, and deposit behavior.
Important facts for investors to verify
- Whether net interest income and margin stabilize as deposit costs, deposit mix, and loan balances evolve.
- Whether credit-card losses and delinquencies continue rising, and whether office CRE criticized loans, nonaccruals, and charge-offs worsen or improve.
- How remediation accruals, legal exposures, and the estimated FDIC assessment change as reviews and regulatory determinations progress.
- Progress toward satisfying the Federal Reserve asset-cap consent order and other outstanding regulatory actions.
- The final scope and impact of proposed overdraft, interchange-fee, and Basel III rules on revenue, expenses, and capital requirements.
- Whether capital returns, including buybacks and dividends, remain consistent with regulatory requirements and capital targets.