01—Abstract
Summary
Summary of the 10-K filed February 20, 2024. Cited figures are marked; the original filing is the authoritative source.
Wells Fargo closed 2023 with $1.9 trilliona in assets, $936.7 billion in loans, $1.4 trillion in deposits, and $185.7 billion in stockholders' equity, making it the fourth-largest U.S. bank holding company by assets.
Net income rose to $19.1 billionb ($4.83 diluted EPS) from $13.7 billion ($3.27) in 2022, driven by a $7.4 billion increase in net interest income and a $1.6 billion decline in noninterest expense, partially offset by a $3.9 billion rise in the provision for credit losses. Return on average equity improved to 11.0% from 7.8%, and the efficiency ratio improved to 67% from 77%. Credit quality weakened, mainly in commercial real estate.
Nonperforming assets rose 47% to $8.4 billionc, driven by office-property nonaccruals, and the allowance for loan credit losses increased to $15.1 billion (1.61% of loans). Net charge-offs rose to $3.5 billion, with credit card losses the primary driver on the consumer side. Results also absorbed a $1.9 billion pre-tax FDIC special assessment, which will be paid over eight quarters beginning June 2024.
The company remains well capitalized, with a 11.43% CET1 ratio (Standardized, binding), an LCR of 125%, and $30 billiond of buyback authority of which about $26.7 billion remained at year-end. Management flags continuing regulatory consent orders, a proposed Basel III endgame rule expected to significantly raise risk-weighted assets, and proposed overdraft and interchange fee limits that could materially reduce fee income. Investors should weigh the earnings recovery against these regulatory overhangs and the commercial real estate exposure.
02—Key points
Key Highlights
- Net income of $19.1 billion and diluted EPS of $4.83 in 2023, up 40% and 48% respectively from 2022, led by a $7.4 billion (17%) increase in net interest income.
- Net interest margin expanded to 3.06% from 2.63%, reflecting higher interest rates on earning assets, though deposit costs rose sharply (Q4 2023 average deposit cost of 1.58% vs. 0.46% a year earlier).
- Noninterest expense fell 3% to $55.6 billion, though 2023 included a $1.9 billion FDIC special assessment; operating losses dropped 83% to $1.2 billion as legal and remediation costs declined.
- Commercial real estate stress increased: nonaccrual loans rose to $8.3 billion (0.88% of loans), criticized CRE mortgage loans reached $17.5 billion, and the allowance for loan credit losses rose to $15.1 billion.
- Capital position remained strong with a CET1 ratio of 11.43% (vs. 8.90% requirement), TLAC of 25.05%, and returned $12.0 billion via share repurchases and $6.0 billion in dividends.
- Regulatory overhang persists: multiple consent orders (including the FRB's 2018 asset cap), the proposed Basel III endgame rule expected to significantly increase RWAs, and proposed CFPB overdraft and FRB debit interchange fee limits that could significantly reduce fee revenue.
- Customer remediation accruals declined to $819 million from $2.3 billion, and the OCC terminated its retail sales practices consent order in February 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 20, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Interest Expense | $32.74B$9.07B | +260.8% |
| Net Income | $19.14B$13.68B | +40.0% |
| EPS (Basic) | $4.88$3.30 | +47.9% |
| EPS (Diluted) | $4.83$3.27 | +47.7% |
| Shares Outstanding (Basic) | 3.69B3.81B | −3.1% |
| Shares Outstanding (Diluted) | 3.72B3.84B | −3.0% |
05—Questions
Frequently Asked Questions
Why did Wells Fargo's earnings rise so sharply in 2023?
The main driver was net interest income, which rose $7.4 billion to $52.4 billion because higher interest rates lifted earnings on loans and securities faster than deposit costs. Noninterest expense also fell $1.6 billion, largely from lower legal and customer remediation charges that were significant in 2022. These gains were partially offset by a $3.9 billion increase in the provision for credit losses, primarily for commercial real estate and credit card loans.
How serious is the commercial real estate problem?
It is the most notable credit concern in the filing. Commercial nonaccrual loans rose by $3.1 billion, mostly in office properties, and criticized CRE mortgage loans grew to $17.5 billion from $11.3 billion. Loans in California and New York make up about 40% of the office portfolio. Management says it is closely monitoring the portfolio, and the allowance for loan credit losses increased by $1.5 billion, but further deterioration in property values could require additional provisions.
Is the dividend and buyback program at risk?
Not immediately. Capital ratios are well above regulatory minimums, and the company repurchased $12.0 billion of stock in 2023 under a $30 billion authorization with about $26.7 billion remaining. However, the proposed Basel III endgame rule would raise risk-weighted assets and capital requirements, and the Federal Reserve's stress capital buffer (2.90%) and G-SIB surcharge (1.50%) can change annually. Future distributions depend on regulatory outcomes and stress test results.
What regulatory risks could affect future results?
Several consent orders remain in effect, including the 2018 Federal Reserve order that caps total consolidated assets at the December 31, 2017 level until governance and risk management remediation is complete. The company also faces a 2022 CFPB consent order and a 2021 OCC consent order. Failure to meet these requirements could bring fines, business restrictions, or higher capital requirements. Proposed CFPB overdraft-fee limits and Federal Reserve debit interchange-fee limits could significantly reduce deposit-related and card fee income.
06—Continue