Wells Fargo(WFC) - 2024 Q3 - Quarterly Report

Wells Fargo & Company Form 10-Q for the quarterly period ended September 30, 2024 - This document is the Quarterly Report on Form 10-Q for Wells Fargo & Company for the period ended September 30, 2024, filed with the U.S. Securities and Exchange Commission (SEC)[1] Issuer Information | Field | Value | | :--- | :--- | | Company Name | Wells Fargo & Company | | Stock Ticker | WFC | | Exchange | New York Stock Exchange (NYSE) | | State of Incorporation | Delaware | | Principal Executive Offices | 420 Montgomery Street, San Francisco, California 94104 | Common Stock Outstanding | Date | Shares Outstanding | | :--- | :--- | | October 22, 2024 | 3,329,490,659 | PART I: Financial Information Item 1. Financial Statements The consolidated financial statements present Wells Fargo's financial position and results of operations for the third quarter and first nine months of 2024, with net income decreasing to $5.1 billion in Q3 2024 from $5.8 billion in Q3 2023, and total assets at $1.92 trillion as of September 30, 2024 Consolidated Statement of Income Highlights (Q3 2024 vs Q3 2023) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | 11,690 | 13,105 | (11%) | | Noninterest Income | 8,676 | 7,752 | +12% | | Total Revenue | 20,366 | 20,857 | (2%) | | Provision for Credit Losses | 1,065 | 1,197 | (11%) | | Noninterest Expense | 13,067 | 13,113 | 0% | | Wells Fargo Net Income | 5,114 | 5,767 | (11%) | | Diluted EPS | $1.42 | $1.48 | (4%) | Consolidated Balance Sheet Highlights (As of Sep 30, 2024) | Metric | Sep 30, 2024 ($M) | Dec 31, 2023 ($M) | | :--- | :--- | :--- | | Total Assets | 1,922,125 | 1,932,468 | | Net Loans | 895,381 | 922,076 | | Total Deposits | 1,349,646 | 1,358,173 | | Total Equity | 185,011 | 187,443 | - In Q1 2024, the company adopted ASU 2023-02, which expanded the use of the proportional amortization method for tax credit investments, resulting in a cumulative effect adjustment that reduced retained earnings by $158 million as of January 1, 2024[253][254][255] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) Wells Fargo's Q3 2024 financial performance saw net income of $5.1 billion and diluted EPS of $1.42, primarily due to lower net interest income, while maintaining a strong capital position with a CET1 ratio of 11.34% and focusing on addressing regulatory consent orders Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $20.4B | $20.9B | $61.9B | $62.1B | | Net Income | $5.1B | $5.8B | $14.6B | $15.7B | | Diluted EPS | $1.42 | $1.48 | $3.94 | $3.96 | | Return on Average Assets (ROA) | 1.06% | 1.21% | 1.02% | 1.12% | | Return on Average Equity (ROE) | 11.7% | 13.3% | 11.2% | 12.2% | - The company's top priority remains building a risk and control infrastructure appropriate for its size and complexity to address a number of consent orders and other regulatory actions from the FRB, CFPB, and OCC[9] - Capital and liquidity remained strong, with a Common Equity Tier 1 (CET1) ratio of 11.34% (exceeding the 8.90% minimum) and a Liquidity Coverage Ratio (LCR) of 127% (exceeding the 100% minimum) as of September 30, 2024[23] Overview Wells Fargo, with approximately $1.9 trillion in assets, operates through four segments and prioritizes strengthening its risk and control infrastructure to address multiple outstanding regulatory consent orders, while also facing recent regulatory developments that could significantly impact fee income - The company's top priority is building its risk and control infrastructure to address numerous consent orders, including a Federal Reserve asset cap imposed in February 2018, which limits total consolidated assets to the level as of December 31, 2017[9][11] - Wells Fargo is subject to multiple consent orders from the CFPB and OCC related to its compliance risk management program, past practices in auto lending, mortgage interest rate locks, and loss mitigation activities[12][13][14] - Recent regulatory developments include a proposed CFPB rule to limit overdraft fees and an FRB proposal to reduce debit card interchange fees, both of which are expected to cause a significant reduction in the company's fee income if adopted as proposed[18][19] - The company accrued $241 million for customer remediation activities as of September 30, 2024, a decrease from $819 million at year-end 2023[16] Earnings Performance In Q3 2024, Wells Fargo reported net income of $5.1 billion, or $1.42 per diluted share, an 11% year-over-year decline driven by a decrease in net interest income, partially offset by an increase in noninterest income, with noninterest expense remaining flat Q3 2024 vs Q3 2023 Earnings Summary | Metric ($ in millions) | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | 11,690 | 13,105 | (11)% | | Noninterest Income | 8,676 | 7,752 | 12% | | Total Revenue | 20,366 | 20,857 | (2)% | | Provision for Credit Losses | 1,065 | 1,197 | (11)% | | Noninterest Expense | 13,067 | 13,113 | 0% | | Net Income | 5,114 | 5,767 | (11)% | - Net interest income decreased by 11% year-over-year to $11.7 billion, with the net interest margin contracting to 2.67% from 3.03% a year ago, primarily due to higher interest rates on deposits[21][28] - Noninterest income grew 12% year-over-year to $8.7 billion, driven by higher investment banking fees (+37%), investment advisory fees (+11%), and net gains from trading activities (+14%), partially offset by net losses from debt securities[32] - Noninterest expense was flat year-over-year at $13.1 billion, as lower professional and outside services expense was largely offset by higher technology, telecommunications, and equipment expense[42] Balance Sheet Analysis As of September 30, 2024, Wells Fargo's total assets slightly decreased to $1.92 trillion, with a 3% contraction in the loan portfolio to $909.7 billion and a 1% decrease in deposits to $1.35 trillion, while net unrealized losses on investment securities declined Balance Sheet Components | Component ($ in millions) | Sep 30, 2024 | Dec 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | 1,922,125 | 1,932,468 | (0.5)% | | Total Loans | 909,711 | 936,682 | (2.9)% | | Total Deposits | 1,349,646 | 1,358,173 | (0.6)% | | AFS & HTM Debt Securities (Amortized Cost) | 412,626 | 399,863 | +3.2% | - Total net unrealized losses on AFS and HTM debt securities decreased to $34.9 billion from $42.1 billion at year-end 2023, partly due to the sale of approximately $16 billion of AFS debt securities to reinvest in higher-yielding securities[106] - The decline in consumer loans was driven by decreases in residential mortgage and auto loans as paydowns outpaced originations, partially offset by growth in credit card loans[108] Off-Balance Sheet Arrangements Wells Fargo engages in various off-balance sheet arrangements, including unfunded credit commitments, transactions with unconsolidated variable interest entities, guarantees, and derivative instruments, to meet customer needs and manage risks - The company has legally binding unfunded credit commitments to lend to customers, which are managed through credit risk monitoring activities[115] - Wells Fargo utilizes special purpose entities (SPEs), generally considered variable interest entities (VIEs), in connection with securitization transactions[116] - Guarantees are issued in the form of standby letters of credit, written options, and other similar arrangements[117] - Derivatives are used to manage market risk (interest rate, credit, foreign currency) and to assist customers with their risk management objectives[118] Risk Management Wells Fargo actively manages a range of risks, with credit risk being a primary focus, as evidenced by stable nonperforming assets but increased criticized commercial loans and rising net charge-offs, while maintaining strong liquidity and a positive interest rate sensitivity Credit Quality Overview | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Nonaccrual Loans | $8,172M | $8,256M | | Nonaccrual Loans as % of Total Loans | 0.90% | 0.88% | | Allowance for Credit Losses (ACL) for Loans | $14,739M | $15,088M | | ACL for Loans as % of Total Loans | 1.62% | 1.61% | - Criticized loans in the commercial portfolio increased to $37.6 billion from $33.0 billion at year-end 2023, primarily driven by increases in commercial and industrial loans[26] - The company's Liquidity Coverage Ratio (LCR) was 127% for Q3 2024, comfortably above the 100% regulatory minimum, indicating a strong liquidity position[191][193] - Net interest income sensitivity analysis indicates that a +100 bps parallel shift in interest rates would increase net interest income by an estimated $0.9 billion over the next 12 months[180] Capital Management Wells Fargo maintained a strong capital position, with a Common Equity Tier 1 (CET1) ratio of 11.34% exceeding regulatory minimums, and returned significant capital to shareholders through share repurchases and dividends in the first nine months of 2024 Key Capital Ratios (Standardized Approach) | Ratio | Sep 30, 2024 | Required Minimum (with buffers) | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 11.34% | 8.90% | | Tier 1 Capital | 12.84% | 10.40% | | Total Capital | 15.45% | 12.40% | Leverage and TLAC Ratios | Ratio | Sep 30, 2024 | Required Minimum | | :--- | :--- | :--- | | Supplementary Leverage Ratio (SLR) | 6.92% | 5.00% | | Tier 1 Leverage Ratio | 8.29% | 4.00% | | TLAC Ratio (% of RWAs) | 25.29% | 21.50% | - The company's stress capital buffer will increase from 2.90% to 3.80% for the period of October 1, 2024, through September 30, 2025[207] - In the first nine months of 2024, Wells Fargo repurchased 275 million shares of common stock for $15.6 billion and paid $4.6 billion in common and preferred stock dividends[224] Regulatory Matters The U.S. financial services industry is extensively regulated, impacting Wells Fargo's operations and compliance costs, with a new CFPB rule on Personal Financial Data Rights requiring the company to make consumer data available to authorized parties by April 1, 2026 - In October 2024, the CFPB issued a new rule under section 1033 of the Dodd-Frank Act concerning Personal Financial Data Rights[228] - The rule requires financial service providers to make consumers' data available upon request to consumers and authorized third parties, with a compliance date of April 1, 2026[228] Critical Accounting Policies The company's financial statements rely on estimates and assumptions, with management identifying six critical accounting policies that involve subjective and complex judgments on uncertain matters - Management identifies six critical accounting policies requiring complex judgments: allowance for credit losses, valuation of residential MSRs, fair value of financial instruments, income taxes, liability for legal actions, and goodwill impairment[232] Current Accounting Developments The company is evaluating the impact of two new FASB accounting standards, ASU 2023-07 and ASU 2023-09, which will enhance segment and income tax disclosures, respectively, but are not expected to affect the consolidated financial statements - ASU 2023-07, effective December 31, 2024, will enhance reportable segment disclosures, requiring more detail on significant segment expenses[231][235] - ASU 2023-09, effective January 1, 2025, will require more disaggregated annual income tax disclosures related to the effective income tax rate reconciliation and income taxes paid[236] Forward-Looking Statements This report contains forward-looking statements about the company's future performance and strategies, which are subject to inherent uncertainties and risks that could cause actual results to differ materially - The report includes forward-looking statements concerning future financial performance, credit quality, net interest income, capital levels, and regulatory outcomes[237] - Actual results may differ materially from forward-looking statements due to various factors, including economic conditions, regulatory actions, market disruptions, and operational failures[237] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is incorporated by reference from the Management's Discussion and Analysis (MD&A) section of the report, which details the company's management of various market risks - Information regarding quantitative and qualitative disclosures about market risk is contained within the 'Risk Management' section of the MD&A[4] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during Q3 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[241] - There were no material changes to the company's internal control over financial reporting during the third quarter of 2024[243] PART II: Other Information Item 1. Legal Proceedings This section incorporates by reference the information provided in Note 10 to the Financial Statements, which details the various judicial, regulatory, and governmental proceedings the company is involved in - Details regarding legal proceedings are located in Note 10 (Legal Actions) of the Financial Statements[511] Item 1A. Risk Factors This section incorporates by reference the information provided in the 'Risk Factors' section of the Financial Review within this report, which supplements the risk factors disclosed in the company's 2023 Form 10-K - Information on risk factors is located in the 'Risk Factors' section of the Financial Review in this report and is incorporated by reference[512][240] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2024, Wells Fargo repurchased a total of 61,995,046 shares of its common stock, with approximately $11.3 billion remaining under its current stock repurchase authorization as of September 30, 2024 Q3 2024 Common Stock Repurchases | Month | Total Shares Repurchased | Weighted Average Price Paid | | :--- | :--- | :--- | | July | 42 | $57.73 | | August | 34,916,207 | $55.03 | | September | 27,078,797 | $55.90 | | Total | 61,995,046 | N/A | - As of September 30, 2024, approximately $11.3 billion remained available for repurchase under the Board's authorization[513] Item 5. Other Information The company reported no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q3 2024 and disclosed blocking consumer bank accounts identified as part of the 'Government of Iran' per OFAC definitions, with de minimis associated revenue - No directors or officers adopted or terminated Rule 10b5-1 trading plans in Q3 2024[514] - The company disclosed blocking consumer bank accounts of customers identified as part of the 'Government of Iran' per OFAC definitions, with the associated revenue being de minimis[516] Item 6. Exhibits This section provides a list of exhibits filed with the Form 10-Q, including the company's Restated Certificate of Incorporation, By-Laws, and certifications from the principal executive and financial officers pursuant to the Sarbanes-Oxley Act of 2002 - A list of exhibits filed with the Form 10-Q is provided, including corporate governance documents and officer certifications[518][519]