01—Abstract
Summary
Summary of the 8-K filed January 12, 2024. Cited figures are marked; the original filing is the authoritative source.
Wells Fargo reported preliminary fourth quarter 2023 net income of $3.4 billiona, or $0.86 per diluted share, down from $5.8 billion ($1.48) in the prior quarter, though up 9% from $3.2 billion ($0.75) a year earlier.
Results were weighed down by a $1.9 billionb FDIC special assessment ($0.40 per share) and $969 million of severance expense for planned actions ($0.20 per share), partly offset by $621 million of discrete tax benefits ($0.17 per share). Full year 2023 net income was $19.1 billion, or $4.83 per diluted share, versus $13.7 billion and $3.27 in 2022. Total revenue of $20.5 billion was up 2% year over year, with noninterest income up 17% while net interest income fell 5% on lower deposit and loan balances.
Credit quality showed continued deterioration. Net loan charge-offs rose to 0.53% of average loans annualized from 0.36% in the prior quarter, driven by commercial real estate office loans and credit card. Nonperforming assets increased 3% to $8.4 billionc, and the allowance for credit losses for loans rose to $15.1 billion, or 1.61% of total loans.
Management described credit as showing "modest deterioration" that remains consistent with expectations. Capital and liquidity remained strong, with a preliminary Standardized CET1 ratio of 11.4%, up from 10.6% a year earlier, and the company repurchased $2.4 billiond of stock in the quarter. The bigger forward-looking concern for investors is guidance: management indicated 2024 net interest income could be roughly 7-9% lower than the 2023 level of $52.4 billion, assuming lower rates and continued consumer deposit attrition.
Management also expects roughly $1.3 billion of ongoing business-related operating losses in 2024 and lower severance expense. All figures are preliminary and subject to final 10-K review.
02—Key points
Key Highlights
- Q4 2023 net income of $3.4 billion ($0.86 diluted EPS), down 40% sequentially but up 9% year over year; full year 2023 net income of $19.1 billion ($4.83 EPS) versus $13.7 billion ($3.27) in 2022.
- Q4 results absorbed a $1.9 billion FDIC special assessment ($0.40/share) and $969 million of planned-action severance ($0.20/share), partly offset by $621 million ($0.17/share) of discrete tax benefits.
- Total revenue of $20.5 billion rose 2% year over year, with noninterest income up 17% while net interest income fell 5% to $12.8 billion.
- Net loan charge-offs rose to 0.53% of average loans (annualized) from 0.36% in Q3, led by commercial real estate office and credit card; nonperforming assets reached $8.4 billion.
- Allowance for credit losses for loans increased to $15.1 billion (1.61% of total loans) from $13.6 billion a year earlier.
- Preliminary CET1 ratio of 11.4% (Standardized Approach) and TLAC ratio of 25.0%; the company repurchased 51.7 million shares ($2.4 billion) in Q4.
- 2024 guidance points to net interest income roughly 7-9% below the 2023 level of $52.4 billion, with expense expected to decline to about $52.6 billion excluding the FDIC assessment.
03—Questions
Frequently Asked Questions
Why did Wells Fargo's quarterly earnings drop so sharply from Q3 2023?
Q4 2023 net income fell to $3.4 billion from $5.8 billion in Q3, largely due to a $1.9 billion FDIC special assessment and $969 million of severance expense for planned actions. Noninterest expense rose to $15.8 billion from $13.1 billion, while net interest income declined 3% sequentially on higher funding costs. Discrete tax benefits of $621 million partly offset these charges.
Is Wells Fargo's credit quality deteriorating?
Modestly, according to management. Net loan charge-offs reached 0.53% of average loans, up from 0.36% in Q3, and nonperforming assets rose 3% to $8.4 billion, driven mainly by commercial real estate office loans. Credit card delinquencies and charge-offs also increased. The allowance for credit losses grew to $15.1 billion, which management said reflects its expectations.
What is the outlook for net interest income in 2024?
Management indicated 2024 net interest income could be roughly 7-9% lower than the 2023 level of $52.4 billion. Key drivers include lower forward interest rates, continued attrition of consumer banking deposits, and modest average loan declines, with net interest income expected to trough toward the end of 2024. The company also assumes the asset cap remains in place for 2024.
How strong is Wells Fargo's capital position?
Capital remains strong. The preliminary Standardized CET1 ratio was 11.4%, up from 10.6% a year earlier and above the company's regulatory minimum plus buffers of 8.9%. The TLAC ratio was 25.0% against a 21.5% requirement. The company returned capital through $2.4 billion of share repurchases in Q4 and a $0.35 quarterly dividend per share.
Are these results final?
No. The filing states that the financial results are preliminary and may differ materially from final results reported in the 2023 Form 10-K due to final review procedures, subsequent events, or newly discovered information. Certain figures, including CET1, TLAC, and SLR for December 31, 2023, are described as preliminary estimates.
04—Continue