WELLS FARGO & COMPANY/MN Quarterly Report for Q1 Ended Mar 31, 2018

Summary

Wells Fargo & Company reported a net income of $5.1 billion, or $0.96 per diluted share, for the first quarter of 2018. This represents a decrease from the prior year's $5.6 billion, or $1.03 per diluted share. The decline in profitability was largely attributed to a significant increase in noninterest expense, up 9% year-over-year, driven by a $1.2 billion increase in operating losses, which included an $800 million litigation accrual related to consent orders with the CFPB and OCC. Total revenue saw a slight decrease of 1% to $21.9 billion, impacted by lower net interest income and noninterest income. The company continues to navigate regulatory challenges, including a consent order with the Federal Reserve that limits total consolidated assets to the level as of December 31, 2017. This asset cap, measured on a two-quarter daily average basis, is expected to impact growth. Additionally, the company entered into consent orders with the CFPB and OCC, agreeing to pay $1 billion in civil money penalties to resolve issues related to its compliance risk management program and past practices in automobile collateral protection insurance and mortgage interest rate lock extensions. These regulatory actions and associated remediation efforts are a key focus for management. Despite the challenges, Wells Fargo maintained a strong capital position with a Common Equity Tier 1 ratio of 11.92% under Basel III, well above its internal target. The company returned $4.0 billion to shareholders through dividends and share repurchases, continuing its practice of returning capital. Credit quality remained solid, with net charge-offs decreasing compared to the prior year and nonaccrual loans at their lowest level since the merger with Wachovia.

Key Highlights

• 1Net income decreased to $5.1 billion ($0.96/share) from $5.6 billion ($1.03/share) in the prior year's quarter.
• 2Total revenue decreased 1% to $21.9 billion.
• 3Noninterest expense increased 9% to $15.0 billion, primarily due to a $1.2 billion increase in operating losses, including an $800 million litigation accrual.
• 4The company entered into consent orders with the CFPB and OCC, agreeing to pay $1 billion in penalties and to enhance its compliance risk management program.
• 5An asset cap from a Federal Reserve consent order limits total consolidated assets to the December 31, 2017 level.
• 6Common Equity Tier 1 (CET1) ratio remained strong at 11.92% (fully phased-in, Standardized Approach), exceeding the regulatory minimum.
• 7Returned $4.0 billion to shareholders via common stock dividends and net share repurchases.

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