10-QPeriod: Q2 FY2020

WELLS FARGO & COMPANY/MN Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 4, 2020For Securities:WFCWFC-PDWFC-PCWFC-PYWFC-PAWFC-PLWFCNPWFC-PZ

Summary

Wells Fargo & Company/MN (WFC) reported a significant net loss of $2.4 billion for the second quarter of 2020, a stark contrast to the $6.2 billion net income reported in the same period of the previous year. This downturn was primarily driven by an $8.1 billion increase in the provision for credit losses, reflecting the economic impact of the COVID-19 pandemic, alongside a decrease in net interest income and noninterest income. Despite the net loss, the company maintained strong capital and liquidity positions. Total assets stood at $1.97 trillion, with total equity at $180.1 billion. Regulatory capital ratios remained robust, with the Common Equity Tier 1 (CET1) ratio at 10.97%, exceeding regulatory minimums. The company also announced a reduction in its common stock dividend to $0.10 per share for the third quarter of 2020. The increase in allowance for credit losses and net loan charge-offs highlight the significant challenges posed by the economic environment during the quarter.

Financial Statements
Beta
Revenue$17.84B
Interest Expense$1.92B
Net Income-$3.85B
EPS (Basic)$-1.01
EPS (Diluted)$-1.01
Shares Outstanding (Basic)4.11B
Shares Outstanding (Diluted)4.11B

Key Highlights

  • 1Net loss of $2.4 billion ($0.66 diluted loss per common share) in Q2 2020, compared to net income of $6.2 billion ($1.30 diluted EPS) in Q2 2019.
  • 2Provision for credit losses increased significantly to $9.6 billion in Q2 2020, up from $0.5 billion in Q2 2019.
  • 3Net interest income decreased by 18% to $9.9 billion, and net interest margin compressed to 2.25% due to lower market rates.
  • 4Total revenue declined 17% year-over-year to $17.8 billion.
  • 5Allowance for credit losses for loans increased to $20.4 billion (2.19% of total loans) at June 30, 2020, up from $9.7 billion (1.09%) at December 31, 2019.
  • 6Common Equity Tier 1 (CET1) ratio remained strong at 10.97%, above the regulatory minimum.
  • 7Common stock dividend reduced to $0.10 per share for Q3 2020.

Frequently Asked Questions

The primary driver for the significant increase in the provision for credit losses was the economic impact of the COVID-19 pandemic. This led to current and forecasted economic conditions that necessitated a higher allowance for credit losses to cover expected credit losses in the loan portfolio.

Wells Fargo maintained strong capital ratios. The Common Equity Tier 1 (CET1) ratio was 10.97% at June 30, 2020, which is above the company's internal target of 10% and the regulatory minimum of 9%. Other regulatory capital ratios also remained strong.

The company reduced its common stock dividend to $0.10 per share for the third quarter of 2020. Share repurchases were temporarily suspended in Q1 and Q2 2020 due to the Federal Reserve's restrictions on capital distributions for large bank holding companies. Future capital distributions will depend on earnings, capital requirements, market conditions, and regulatory approvals.

The COVID-19 pandemic significantly impacted Wells Fargo's revenue and profitability. Total revenue decreased 17% year-over-year, and the company reported a substantial net loss of $2.4 billion in the second quarter of 2020, primarily due to a much higher provision for credit losses.