01—Abstract
Summary
Summary of the 10-Q filed August 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Wells Fargo's second quarter 2024 Form 10-Q shows a bank that remains profitable and well capitalized, but with revenue pressure and credit deterioration in commercial real estate.
Q2 2024 net income was $4.9 billiona, or $1.33 diluted EPS, flat on net income versus a year ago and up from $1.25 in Q2 2023. Total revenue rose only 1% to $20.7 billion, as a 19% jump in noninterest income (driven by trading, investment banking, and asset-based fees) offset a 9% decline in net interest income. Noninterest expense rose 2% to $13.3 billion, held up by higher operating losses and customer remediation costs.
Credit quality is the main area of concern. Provision for credit losses fell 28% to $1.2 billionb, but net charge-offs rose 71% to $1.3 billion, driven by credit cards and commercial real estate office loans. Nonperforming assets reached $8.7 billion, up 2% from year-end 2023, with nonaccrual loans concentrated in CRE office.
Average loans fell 3% year over year as the company shrank its Home Lending and Auto portfolios, and average deposits were roughly flat, with deposit costs rising sharply. Capital and regulatory overhang remain central to the investment case. The CET1 ratio was 11.01% under the Standardized Approach, comfortably above the 8.90% requirement, and the Board raised the Q3 2024 dividend to $0.40c per share.
The stress capital buffer is set to rise to 3.80%d from 2.90%, and the company still operates under multiple consent orders with an asset cap in place. Management also disclosed ongoing SEC investigation of advisory account cash sweep programs and continuing legal, AML, and customer remediation matters.
02—Key points
Key Highlights
- Q2 2024 diluted EPS of $1.33 vs. $1.25 a year ago (+6%); H1 2024 diluted EPS of $2.53 vs. $2.48, supported by buybacks that cut diluted shares 6% year over year.
- Net interest income fell 9% to $11.9 billion and net interest margin dropped to 2.75% from 3.09%, driven by higher deposit costs and lower loan balances.
- Noninterest income rose 19% to $8.8 billion, led by net gains from trading (+29%), investment banking fees (+70%), and investment advisory fees (+12%).
- Net charge-offs rose 71% to $1.3 billion, with the consumer rate at 0.88% (credit cards 4.96%) and the commercial rate at 0.35%, driven by CRE office loans; nonperforming assets reached $8.7 billion (0.94% of loans).
- Capital remained strong with CET1 at 11.01% (Standardized, binding) vs. an 8.90% requirement; Q3 2024 dividend raised to $0.40 per share, and the 2024 stress capital buffer is expected to increase to 3.80%.
- Regulatory overhang persists: the asset cap from the 2018 Federal Reserve consent order remains in place, several CFPB and OCC consent orders are still open, and the SEC is investigating advisory account cash sweep options.
- The company repurchased $12.1 billion of common stock in the first half of 2024 and redeemed $2.8 billion of preferred stock, while issuing $2.0 billion of new Series FF preferred in July 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 1, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Interest Expense | $10.96B$7.67B | +43.0% |
| Net Income | $4.91B$4.94B | −0.6% |
| EPS (Basic) | $1.35$1.26 | +7.1% |
| EPS (Diluted) | $1.33$1.25 | +6.4% |
| Shares Outstanding (Basic) | 3.45B3.70B | −6.8% |
| Shares Outstanding (Diluted) | 3.49B3.72B | −6.4% |
05—Questions
Frequently Asked Questions
Why did Wells Fargo's net interest income decline despite a larger balance sheet?
Net interest income fell 9% in Q2 2024 to $11.9 billion. The decline was driven by higher interest rates on deposits (average interest-bearing deposit costs rose to 2.46% from 1.63%), a shift of customers into higher-yielding products, and lower average loan balances (down 3%). Total assets were roughly flat year over year, so the decline reflects funding costs and mix rather than balance sheet size. Management also noted a late-Q2 increase in pricing on advisory sweep deposits, which it expects will further reduce future net interest income.
Is credit quality deteriorating, and where are the main pressures?
Yes, in terms of net charge-offs and nonperforming assets, even though the provision for credit losses fell. Net charge-offs rose 71% year over year to $1.3 billion. Credit card net charge-offs reached 4.96% annualized, and commercial real estate losses rose sharply, mainly in office properties. Nonaccrual loans increased to $8.4 billion, with the increase concentrated in CRE office. The allowance for loan losses (1.61% of total loans) was roughly stable, and the allowance release in the quarter helped reduce the provision.
How strong is Wells Fargo's capital position, and what are the implications for shareholder returns?
Capital remains solid. The CET1 ratio was 11.01% under the binding Standardized Approach, above the 8.90% minimum plus buffers, and TLAC was 24.78%. Return on average tangible common equity was 13.7% in Q2 2024. The Board raised the Q3 2024 common dividend to $0.40 per share from $0.35. However, the Federal Reserve expects the stress capital buffer to rise to 3.80% from 2.90% beginning October 2024, which will raise the minimum CET1 requirement and could constrain buybacks. The company repurchased $12.1 billion of stock in H1 2024, with $14.7 billion of remaining authorization.
What are the key regulatory and legal risks disclosed in the filing?
Wells Fargo remains under several consent orders. The Federal Reserve's 2018 governance order keeps a total asset cap at December 31, 2017 levels until remediation is complete. The OCC's 2021 loss mitigation order restricts certain mortgage servicing acquisitions, and the CFPB's 2022 order requires remediation and a $1.7 billion civil penalty. Customer remediation accruals were $678 million at June 30, 2024. Other exposures include an SEC investigation into advisory account cash sweep programs, government inquiries into anti-money laundering and sanctions compliance, the Zelle dispute-handling inquiry, and the Visa/Mastercard interchange litigation. The high end of reasonably possible losses above accruals was about $2.0 billion.
What is driving the growth in noninterest income and noninterest expense?
Noninterest income rose 19% in Q2 2024, led by trading gains (up 29% on equities and structured products), investment banking fees (up 70% on broad-based deal activity), and higher asset-based advisory fees from market valuations. Q2 also included a $122 million gain on an exchange of Visa Class B shares. Noninterest expense rose 2%, driven by higher operating losses (up 113% to $493 million, reflecting legal actions and customer remediation), and higher technology costs from software amortization. Personnel expense was flat, as efficiency initiatives offset higher revenue-related compensation. Professional services expense fell 13%.
06—Continue