01—Abstract
Summary
Summary of the 10-Q filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.
Wells Fargo reported first-quarter 2024 net income of $4.6 billiona ($1.20 diluted EPS), down 7% from $5.0 billion ($1.23) a year earlier.
Total revenue rose 1% to $20.9 billionb as noninterest income climbed 17% to $8.6 billion, driven by investment banking fees (+92%), investment advisory fees (+10%) and lease income, which offset a 8% decline in net interest income to $12.2 billion. Net interest margin compressed to 2.81% from 3.20% as deposit costs rose and average loans fell 2%. Noninterest expense rose 5% to $14.3 billion, pressured by higher operating losses (including $428 million of customer remediation) and a $284 million FDIC special assessment.
The efficiency ratio deteriorated to 69% from 66%. Credit quality showed mixed trends. Net charge-offs more than doubled to $1.16 billionc, led by commercial real estate office loans and credit card losses, while the provision for credit losses fell 22% to $938 million after a reserve release.
Nonperforming assets were $8.2 billiond, or 0.89% of loans, slightly improved from year-end. Capital remained strong, with the Standardized CET1 ratio at 11.19% versus a 8.90% requirement, and the company repurchased $6.1 billion of common stock in the quarter. Tangible book value per share rose 9% year over year to $39.17.
The filing continues to stress the company's ongoing consent orders with the Federal Reserve, OCC and CFPB, including the asset cap that remains in place. Management warned that pending CFPB overdraft-fee and FRB debit interchange proposals would significantly reduce fee revenue if adopted as proposed, and that further customer remediation and legal costs could follow.
02—Key points
Key Highlights
- Net income fell 7% year over year to $4.6 billion, with diluted EPS of $1.20 versus $1.23, as a $1.1 billion drop in net interest income outweighed a $1.2 billion rise in noninterest income.
- Net interest income declined 8% to $12.2 billion and net interest margin contracted to 2.81% from 3.20%, reflecting higher deposit costs and lower loan balances.
- Noninterest expense rose 5% to $14.3 billion, lifting the efficiency ratio to 69% from 66%; the increase included $428 million of customer remediation costs and a $284 million FDIC special assessment.
- Credit losses increased: net charge-offs more than doubled to $1.16 billion, mainly from commercial real estate office loans and credit cards, though the total provision fell 22% to $938 million.
- Capital position remains strong with a Standardized CET1 ratio of 11.19% versus an 8.90% minimum, and the company repurchased $6.1 billion of common stock (112 million shares) in the quarter.
- Tangible book value per common share rose 9% year over year to $39.17, and the company retains its $30 billion buyback authorization with $20.7 billion remaining.
- Ongoing consent orders and an FRB asset cap remain in effect, and proposed CFPB overdraft-fee and FRB debit interchange rules could significantly reduce fee revenue if adopted as currently drafted.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 2, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Interest Expense | $10.61B$6.02B | +76.3% |
| Net Income | $4.62B$4.99B | −7.5% |
| EPS (Basic) | $1.21$1.24 | −2.4% |
| EPS (Diluted) | $1.20$1.23 | −2.4% |
| Shares Outstanding (Basic) | 3.56B3.79B | −6.0% |
| Shares Outstanding (Diluted) | 3.60B3.82B | −5.7% |
05—Questions
Frequently Asked Questions
Why did Wells Fargo's net income decline despite higher revenue?
Total revenue grew only 1%, but net interest income fell 8% as deposit costs rose faster than asset yields and loan balances shrank. Noninterest expense also climbed 5%, driven by operating losses from customer remediation and the FDIC special assessment, so net income fell 7% to $4.6 billion.
Is the company's credit quality deteriorating?
Partly. Net charge-offs rose to $1.16 billion from $604 million a year earlier, concentrated in commercial real estate (office) and credit card portfolios. However, the provision for credit losses fell because of reserve releases, nonperforming assets declined slightly to $8.2 billion (0.89% of loans), and the allowance covers nonaccrual loans 1.79 times.
How much capital is the company returning to shareholders?
In the quarter, Wells Fargo repurchased 112 million common shares for $6.1 billion and paid $1.6 billion in common and preferred dividends. It also redeemed its Series R preferred stock for $840 million. Management retains $20.7 billion of remaining repurchase authority under the $30 billion program.
What regulatory risks could affect future results?
The company remains under multiple consent orders, including an FRB asset cap that limits total consolidated assets to the December 2017 level. Failure to satisfy regulatory requirements could bring fines, business restrictions, or higher capital requirements. Proposed CFPB overdraft-fee limits and FRB debit interchange reductions would significantly reduce fee income if adopted as proposed, and the Basel III endgame proposal could materially raise risk-weighted assets.
What drove the increase in noninterest income?
Noninterest income rose 17% to $8.6 billion. Key drivers were investment banking fees (up 92% to $627 million), investment advisory fees (up 10% on higher market valuations), lease income (up 21% including a legacy lease gain), and a $375 million swing in equity securities results to a gain of $18 million, partly offset by lower net servicing and mortgage-related activity.
06—Continue