Why did net income fall year over year even though revenue increased?

Net income declined 7% to $4.6 billion because expenses grew faster than revenue. Revenue rose only 1%, as higher noninterest income was largely offset by an 8% drop in net interest income caused by higher funding costs and lower loan balances. Noninterest expense rose 5%, and the $938 million provision was lower than the prior year, so it partially cushioned the impact.

How did the FDIC special assessment affect the quarter?

The FDIC special assessment added $284 million of expense, or $0.06 per diluted share, in the first quarter. This was a much smaller charge than the roughly $1.9 billion recorded in 4Q23. The estimate reflects a February 2024 update from the FDIC on deposit insurance fund losses and expected recoveries, and it could change.

Is Wells Fargo's credit quality deteriorating?

Credit trends were largely stable compared with the fourth quarter. Total net charge-offs fell slightly, commercial charge-offs declined mainly from CRE office loans, and nonperforming assets dropped 2%. Credit card charge-offs and delinquencies continued to rise, however, and the consumer net charge-off rate increased to 0.84% from 0.79%. Investors should watch these consumer trends.

What does the outlook and capital return activity suggest for investors?

Management reiterated 2024 guidance for net interest income of roughly 7-9% below 2023's $52.4 billion and noninterest expense of about $52.6 billion excluding the FDIC charge. With a preliminary 11.2% CET1 ratio, the company repurchased $6.1 billion of stock and paid a $0.35 quarterly dividend, signaling continued capital returns. Because the results are preliminary, the final figures in the 10-Q may differ.

Are these first quarter results final?

No. The filing states that the financial results are preliminary and may differ materially from the final figures in the Form 10-Q for the quarter ended March 31, 2024. Changes could result from final review procedures, subsequent events, or newly discovered information. CET1, TLAC, SLR, and LCR were also described as preliminary estimates.

WFC 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed April 12, 2024. Cited figures are marked; the original filing is the authoritative source.

Wells Fargo reported first quarter 2024 net income of $4.6 billion^a, or $1.20 per diluted share, compared with $5.0 billion, or $1.23 per diluted share, a year earlier.

Revenue rose 1% year over year to $20.9 billion^b, but the mix shifted sharply: net interest income fell 8% to $12.2 billion as higher funding costs and lower loan balances weighed, while noninterest income rose 17% to $8.6 billion on stronger investment banking fees, trading revenue, Wealth and Investment Management asset-based fees, and an improved venture capital result. Noninterest expense rose 5% to $14.3 billion, including a $284 million FDIC special assessment charge and higher operating losses tied to customer remediation accruals. Return on equity was 10.5% and return on average tangible common equity was 12.3%, both lower than a year earlier, and the efficiency ratio was 69% versus 66%.

Credit quality remained broadly stable quarter over quarter. Net charge-offs were $1.1 billion^c (0.50% of average loans, annualized), with commercial real estate office losses easing while credit card charge-offs continued to rise. Nonperforming assets were $8.2 billion, down 2% from the prior quarter, and the allowance for credit losses for loans was $14.9 billion, or 1.61% of total loans.

Provision for credit losses fell to $938 million^d from $1.2 billion a year earlier, helped by a reserve release in commercial real estate and auto loans. Capital and liquidity remained strong. The preliminary CET1 ratio under the Standardized Approach was 11.2%, above the 8.9% regulatory minimum and buffers, and the company repurchased $6.1 billion of common stock (112.5 million shares) while paying $1.2 billion in dividends at $0.35 per share.

Management also cited the OCC's termination of a 2016 consent order on sales practices, and it reiterated 2024 guidance of roughly 7-9% lower net interest income versus 2023 and noninterest expense of about $52.6 billion excluding the FDIC charge. Because these figures are preliminary and subject to final review, investors should await the Form 10-Q for final results.

02—Key points

Key Highlights

Net income of $4.6 billion ($1.20 diluted EPS) declined 7% year over year, though EPS was up 40% from the fourth quarter's $0.86, which included a large $1.9 billion FDIC charge in 4Q23.
Revenue grew 1% YoY to $20.9 billion as a 17% increase in noninterest income ($8.6 billion) offset an 8% decline in net interest income ($12.2 billion) from higher deposit costs and lower loan balances.
Noninterest expense rose 5% YoY to $14.3 billion, driven by customer remediation accruals, higher FDIC assessments (including the $284 million special assessment), and revenue-related compensation.
Profitability metrics compressed: ROE of 10.5% (vs. 11.7%), ROTCE of 12.3% (vs. 14.0%), and efficiency ratio of 69% (vs. 66%), though all improved from 4Q23.
Credit remained stable: net charge-offs of 0.50% of average loans, nonperforming assets down 2% QoQ, and a $938 million provision that was lower than a year ago, reflecting a reserve release in CRE and auto loans.
Capital position is strong with a preliminary 11.2% CET1 ratio and $6.1 billion in share repurchases, reducing common shares outstanding by 7% over the past year.
Regulatory progress: the OCC terminated the 2016 sales practices consent order, which management described as the sixth enforcement action closed since 2019.

03—Questions

Frequently Asked Questions

Why did net income fall year over year even though revenue increased?
Net income declined 7% to $4.6 billion because expenses grew faster than revenue. Revenue rose only 1%, as higher noninterest income was largely offset by an 8% drop in net interest income caused by higher funding costs and lower loan balances. Noninterest expense rose 5%, and the $938 million provision was lower than the prior year, so it partially cushioned the impact.
How did the FDIC special assessment affect the quarter?
The FDIC special assessment added $284 million of expense, or $0.06 per diluted share, in the first quarter. This was a much smaller charge than the roughly $1.9 billion recorded in 4Q23. The estimate reflects a February 2024 update from the FDIC on deposit insurance fund losses and expected recoveries, and it could change.
Is Wells Fargo's credit quality deteriorating?
Credit trends were largely stable compared with the fourth quarter. Total net charge-offs fell slightly, commercial charge-offs declined mainly from CRE office loans, and nonperforming assets dropped 2%. Credit card charge-offs and delinquencies continued to rise, however, and the consumer net charge-off rate increased to 0.84% from 0.79%. Investors should watch these consumer trends.
What does the outlook and capital return activity suggest for investors?
Management reiterated 2024 guidance for net interest income of roughly 7-9% below 2023's $52.4 billion and noninterest expense of about $52.6 billion excluding the FDIC charge. With a preliminary 11.2% CET1 ratio, the company repurchased $6.1 billion of stock and paid a $0.35 quarterly dividend, signaling continued capital returns. Because the results are preliminary, the final figures in the 10-Q may differ.
Are these first quarter results final?
No. The filing states that the financial results are preliminary and may differ materially from the final figures in the Form 10-Q for the quarter ended March 31, 2024. Changes could result from final review procedures, subsequent events, or newly discovered information. CET1, TLAC, SLR, and LCR were also described as preliminary estimates.

04—Continue

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