01—Abstract
Summary
Summary of the 10-K filed February 22, 2022. Cited figures are marked; the original filing is the authoritative source.
Wells Fargo reported 2021 net income of $21.5 billiona ($4.95 diluted EPS), a sharp rebound from $3.4 billion ($0.43 EPS) in 2020, driven mainly by a $18.3 billion swing in the provision for credit losses to a $4.2 billion release, along with an $8.4 billion increase in noninterest income.
Net interest income fell 10% to $35.8 billionb as lower rates, shrinking loan balances and the student loan sale weighed on earnings, while noninterest expense declined 7% to $53.8 billion. The balance sheet remained large at approximately $1.95 trillion in assets, with deposits of $1.48 trillion and total equity of $190.1 billion. Capital and liquidity ratios stayed comfortably above requirements: the Standardized CET1 ratio was 11.35% versus a 9.60% requirement, total loss absorbing capacity was 23.03% versus 21.50%, and the liquidity coverage ratio was 118%.
The Board approved an increase in the first-quarter 2022 dividend to $0.25c per share, and the company repurchased 306 million shares for $14.5 billion during 2021. Investors should keep the ongoing regulatory overhang in view.
The February 2018 Federal Reserve consent order still caps total consolidated assets at year-end 2017 levels, the company remains subject to multiple CFPB and OCC consent orders, and a $250 milliond OCC civil money penalty was assessed in September 2021. Management says resolving these matters will take multiple years, and further penalties remain possible, so the earnings recovery is partly dependent on continued progress in remediation.
02—Key points
Key Highlights
- 2021 net income of $21.5 billion ($4.95 diluted EPS) versus $3.4 billion ($0.43) in 2020, helped by a $4.2 billion provision release and a 24% increase in noninterest income to $42.7 billion.
- Net interest income declined 10% to $35.8 billion, reflecting lower interest rates, soft loan demand, elevated prepayments and the sale of the student loan portfolio.
- Noninterest expense fell 7% to $53.8 billion, aided by lower operating losses and restructuring charges, though it included a $250 million OCC civil money penalty.
- Capital strength remained high: CET1 ratio of 11.35% (binding Standardized Approach) against a 9.60% requirement, Tier 1 leverage of 8.34%, and LCR of 118%.
- Shareholder returns: $14.5 billion of share repurchases (306 million shares) and $3.7 billion of common and preferred dividends in 2021; first-quarter 2022 dividend raised to $0.25 per share.
- Ongoing regulatory constraints include the asset cap under the February 2018 FRB consent order and multiple CFPB/OCC consent orders, which management expects to take multiple years to resolve.
- Credit quality improved: total loan provision was a $4.2 billion release, net charge-offs fell to $1.6 billion (0.18% of average loans), and nonperforming assets declined 18% to $7.3 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 22, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Interest Expense | $3.92B$7.96B | −50.8% |
| Net Income | $22.11B$3.38B | +554.7% |
| EPS (Basic) | $5.13$0.43 | +1093.0% |
| EPS (Diluted) | $5.08$0.43 | +1081.4% |
| Shares Outstanding (Basic) | 4.06B4.12B | −1.4% |
| Shares Outstanding (Diluted) | 4.10B4.13B | −0.9% |
05—Questions
Frequently Asked Questions
Why did Wells Fargo's earnings improve so much in 2021 compared with 2020?
The main driver was the credit provision. In 2020 the company booked a $14.0 billion provision for loan losses as COVID-19 pandemic risks rose, while in 2021 it recorded a $4.2 billion release as the economic outlook improved and charge-offs declined. Noninterest income also rose $8.4 billion, led by $6.4 billion in net gains from equity securities and higher investment advisory fees, partly offset by lower net interest income.
Is Wells Fargo's capital position strong enough to support shareholder returns?
Based on the disclosures, yes. The Standardized CET1 ratio was 11.35% against a 9.60% minimum requirement, and total loss absorbing capacity was 23.03% against 21.50%. The company repurchased $14.5 billion of stock in 2021 and raised its first-quarter 2022 dividend to $0.25 per share. Management still notes that the 2018 Federal Reserve asset cap restricts balance sheet growth, which can limit how much capital is deployed into lending.
What are the main regulatory risks still facing Wells Fargo?
The company remains subject to the February 2018 FRB consent order, which limits total consolidated assets to the December 31, 2017 level until governance and compliance remediation is accepted. It is also under April 2018 CFPB and OCC consent orders covering compliance risk management, auto collateral protection insurance and mortgage rate lock extensions, plus a September 2021 OCC consent order on Home Lending loss mitigation. The company says regulators may impose additional penalties, and it cites a $250 million OCC civil money penalty assessed in 2021.
How is the deposit base and funding profile trending?
Total deposits rose 6% to $1.48 trillion at year-end 2021, driven by consumer savings from government stimulus and payment deferral programs. Noninterest-bearing deposits grew 13% to $528 billion and represented 36% of total deposits. Deposits equaled 166% of total loans, and long-term debt fell 25% to $160.7 billion as the company repaid higher-cost funding.
What is the status of the LIBOR transition and its potential impact?
Wells Fargo substantially transitioned its legacy contracts tied to LIBOR settings that ceased on December 31, 2021. Remaining exposures include over $6 trillion of derivatives indexed to USD LIBOR, over $350 billion of commercial credit facilities maturing after June 30, 2023 that generally lack adequate fallback provisions, and about $30 billion of consumer loans and $45 billion of debt securities. Management expects most of these to transition to SOFR around or after June 30, 2023, but flags operational and contractual risks in the process.
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