Wells Fargo mpany : Q3 2022 news release

News Release | October 14, 2022

Wells Fargo Reports Third Quarter 2022 Net Income of $3.5 billion

Diluted EPS of $0.85 included a $(0.45) per share impact from accruals for litigation, customer remediation, and regulatory matters

Company-wide Financial Summary

		Quarter ended
		Sep 30,	Sep 30,
		2022	2021
Selected Income Statement Data
($ in millions except per share amounts)
Total revenue	$	19,505	18,834
Noninterest expense		14,327	13,303
Provision for credit losses		784	(1,395)
Net income		3,528	5,122
Diluted earnings per common share		0.85	1.17
Selected Balance Sheet Data
($ in billions)
Average loans	$	945.5	854.0
Average deposits	1,407.9	1,450.9
CET11		10.3%	11.6
Performance Metrics
ROE2		8.0%	11.1
ROTCE3		9.6	13.2

Operating Segments

	Quarter		Sep 30, 2022
	ended		% Change from
($ in billions)	Sep 30,		Jun 30,	Sep 30,
2022	2022	2021
Average loans
Consumer Banking and Lending	$ 335.6	1 %	3
Commercial Banking	209.0	3	17
Corporate and Investment	306.2	3	19
Banking
Wealth and Investment	85.5	(1)	3
Management
Average deposits
Consumer Banking and Lending	888.0	(1)	5
Commercial Banking	180.2	(4)	(10)
Corporate and Investment	156.8	(5)	(17)
Banking
Wealth and Investment	158.4	(9)	(10)
Management

Third quarter 2022 results included:

• $(2.0) billion, or $(0.45) per share, of accruals primarily related to a variety of historical matters, including litigation, customer remediation, and regulatory matters

Chief Executive Officer Charlie Scharf commented, "Our solid business performance in the third quarter was significantly impacted by $(2.0) billion, or $(0.45) per share, in operating losses related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters. We have been focused on increasing our earnings capacity and see the positive impacts of rising interest rates driving strong net interest income growth and our continued focus on improving operating efficiencies resulting in lower expenses excluding the operating losses above. Credit performance remains strong and we are continuing to invest in our technology platforms, digital platforms and an expanded product set."

"Our top priority remains strengthening our risk and control infrastructure which includes addressing open historical issues and issues that are identified as we advance this work. As we have said several times, we remain at risk of setbacks as we work to complete the work and put these issues behind us and expenses this quarter reflect our ongoing efforts," Scharf added.

"Wells Fargo is positioned well as we will continue to benefit from higher rates and ongoing disciplined expense management. Both consumer and business customers remain in a strong financial condition, and we continue to see historically low delinquencies and high payment rates across our portfolios. We are closely monitoring risks related to the continued impact of high inflation and increasing interest rates, as well as the broader geopolitical risks, and while we do expect to see continued increases in delinquencies and ultimately credit losses, the timing remains unclear," Scharf continued.

"As we look forward, we remain bullish on our business opportunities, and our higher operating margins and strong capital ratios have prepared us for a wide range of macro-economic scenarios. In the third quarter we increased our common stock dividend by 20% and our CET1 ratio was 10.3%, 110 basis points above our current regulatory minimum including buffers. We will continue to prudently manage our capital levels to be appropriately prepared for a range of scenarios, including a slowing economy and market volatility," Scharf concluded.

• Represents our Common Equity Tier 1 (CET1) ratio calculated under the Standardized Approach, which is our binding CET1 ratio. See tables on pages 27-28 of the 3Q22

Quarterly Supplement for more information on CET1. CET1 for September 30, 2022, is a preliminary estimate.

2 Return on equity (ROE) represents Wells Fargo net income applicable to common stock divided by average common stockholders' equity.

3 Tangible common equity and return on average tangible common equity (ROTCE) are non-GAAP financial measures. For additional information, including a corresponding reconciliation to GAAP financial measures, see the "Tangible Common Equity" tables on pages 25-26 of the 3Q22 Quarterly Supplement.

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, and may differ materially from the results and disclosures in this document due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information.

Selected Company-wide Financial Information

					Quarter ended			Sep 30, 2022
						% Change from
			Sep 30,	Jun 30,	Sep 30,		Jun 30,	Sep 30,
			2022	2022	2021	2022	2021
Earnings ($ in millions except per share amounts)
	Net interest income	$	12,098	10,198	8,909	19 %	36
	Noninterest income		7,407	6,830	9,925	8	(25)
	Total revenue		19,505	17,028	18,834	15	4
	Net charge-offs		399	345	257	16	55
	Change in the allowance for credit losses		385	235	(1,652)	64	123
	Provision for credit losses		784	580	(1,395)	35	156
	Noninterest expense		14,327	12,883	13,303	11	8
	Income tax expense		894	613	1,521	46	(41)
	Wells Fargo net income	$	3,528	3,119	5,122	13	(31)
	Diluted earnings per common share		0.85	0.74	1.17	15	(27)
Balance Sheet Data (average) ($ in billions)
	Loans	$	945.5	926.6	854.0	2	11
	Deposits		1,407.9	1,445.8	1,450.9	(3)	(3)
	Assets		1,880.7	1,902.6	1,949.7	(1)	(4)
Financial Ratios
	Return on assets (ROA)		0.74 %	0.66	1.04
	Return on equity (ROE)		8.0	7.1	11.1
	Return on average tangible common equity (ROTCE) (a)		9.6	8.6	13.2
	Efficiency ratio (b)		73	76	71
	Net interest margin on a taxable-equivalent basis		2.83	2.39	2.03

1. Tangible common equity and return on average tangible common equity are non-GAAP financial measures. For additional information, including a corresponding reconciliation to GAAP financial measures, see the "Tangible Common Equity" tables on pages 25-26 of the 3Q22 Quarterly Supplement.
2. The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

Third Quarter 2022 vs. Third Quarter 2021

• Net interest income increased 36%, primarily due to the impact of higher interest rates, higher loan balances, and lower mortgage-backedsecurities premium amortization, partially offset by lower interest income from Paycheck Protection Program (PPP) loans and loans purchased from securitization pools
• Noninterest income decreased 25%, driven by a decline in mortgage banking income on lower originations and gain on sale margins, as well as lower gains from the resecuritization of loans purchased from securitization pools; lower results in our affiliated venture capital and private equity businesses; lower asset-based fees in Wealth and Investment Management on lower market valuations; the impact of business divestitures; and lower investment banking and deposit-related fees. These decreases were partially offset by improved results in our Markets business
• Noninterest expense increased 8% driven by higher operating losses on higher accruals primarily related to a variety of historical matters, including litigation, customer remediation, and regulatory matters, partially offset by lower revenue- related compensation and the impact of business divestitures and efficiency initiatives
• Provision for credit losses in third quarter 2022 included a $385 million increase in the allowance for credit losses reflecting loan growth and a less favorable economic environment

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Selected Company-wide Capital and Liquidity Information

				Quarter ended
($ in billions)		Sep 30,	Jun 30,	Sep 30,
	2022	2022	2021
Capital:
Total equity	$	178.4	179.8	191.1
Common stockholders' equity		156.9	158.3	169.8
Tangible common equity (a)		130.1	131.5	142.0
Common Equity Tier 1 (CET1) ratio (b)		10.3 %	10.4	11.6
Total loss absorbing capacity (TLAC) ratio (c)		23.0	22.7	23.7
Supplementary Leverage Ratio (SLR) (d)		6.7	6.6	6.9
Liquidity:
Liquidity Coverage Ratio (LCR) (e)		123	121	119

1. Tangible common equity and return on average tangible common equity are non-GAAP financial measures. For additional information, including a corresponding reconciliation to GAAP financial measures, see the "Tangible Common Equity" tables on pages 25-26 of the 3Q22 Quarterly Supplement.
2. Represents our CET1 ratio calculated under the Standardized Approach, which is our binding CET1 ratio. See tables on pages 27-28 of the 3Q22 Quarterly Supplement for more information on CET1. CET1 for September 30, 2022, is a preliminary estimate.
3. Represents TLAC divided by risk-weighted assets (RWAs), which is our binding TLAC ratio, determined by using the greater of RWAs under the Standardized and Advanced Approaches. TLAC for September 30, 2022, is a preliminary estimate.
4. SLR for September 30, 2022, is a preliminary estimate.
5. Represents average high-quality liquid assets divided by average projected net cash outflows, as each is defined under the LCR rule. LCR for September 30, 2022, is a preliminary estimate.

Selected Company-wide Credit Information

				Quarter ended
($ in millions)		Sep 30,	Jun 30,	Sep 30,
	2022	2022	2021
Net charge-offs	$	399	345	257
Net loan charge-offs as a % of average total loans (annualized)		0.17 %	0.15	0.12
Total nonaccrual loans	$	5,587	5,993	7,058
As a % of total loans		0.59 %	0.64	0.82
Total nonperforming assets	$	5,712	6,123	7,179
As a % of total loans		0.60 %	0.65	0.83
Allowance for credit losses for loans	$	13,225	12,884	14,705
As a % of total loans		1.40 %	1.37	1.70

Third Quarter 2022 vs. Second Quarter 2022

• Net loan charge-offs remained low. Commercial net loan charge-offs were $6 million, while consumer net loan charge- offs as a percentage of average loans were 0.40% (annualized), up from 0.33%, primarily due to higher net loan charge- offs in the auto portfolio
• Nonperforming assets decreased 7%. Nonaccrual loans decreased $406 million driven by lower residential mortgage nonaccrual loans primarily due to sustained payment performance of borrowers after exiting COVID-19-related accommodation programs

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Operating Segment Performance

Consumer Banking and Lendingoffers diversified financial products and services for consumers and small businesses with annual sales generally up to $10 million. These financial products and services include checking and savings accounts, credit and debit cards, as well as home, auto, personal, and small business lending.

Selected Financial Information

					Quarter ended		Sep 30, 2022
						% Change from
			Sep 30,	Jun 30,	Sep 30,		Jun 30,	Sep 30,
			2022	2022	2021	2022	2021
Earnings (in millions)
	Consumer and Small Business Banking	$	6,232	5,510	4,822	13 %	29
	Consumer Lending:
	Home Lending		973	972	2,012		-	(52)
	Credit Card		1,349	1,304	1,251	3	8
	Auto		423	436	445	(3)	(5)
	Personal Lending		300	285	274	5	9
	Total revenue		9,277	8,507	8,804	9	5
	Provision for credit losses		917	613	(518)	50	277
	Noninterest expense		6,758	6,036	6,053	12	12
	Net income	$	1,201	1,393	2,451	(14)	(51)
Average balances (in billions)
	Loans	$	335.6	330.9	325.6	1	3
	Deposits		888.0	898.7	848.4	(1)	5

Third Quarter 2022 vs. Third Quarter 2021

• Revenue increased 5%
• • Consumer and Small Business Banking was up 29% driven by the impact of higher interest rates and higher deposit balances, partially offset by lower revenue from PPP loans and lower deposit-related fees reflecting the elimination of non-sufficient funds and other fees
  • Home Lending was down 52% on lower mortgage banking income driven by lower originations and gain on sale margins, as well as lower revenue from the resecuritization of loans purchased from securitization pools
  • Credit Card was up 8% driven by higher loan balances, including the impact of higher point of sale volume and new product launches
  • Auto was down 5% driven by loan spread compression, partially offset by higher loan balances
  • Personal Lending was up 9% on higher loan balances
• Noninterest expense increased 12% reflecting higher operating losses, partially offset by lower revenue-related compensation in Home Lending due to lower production and the impact of efficiency initiatives

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Commercial Bankingprovides financial solutions to private, family owned and certain public companies. Products and services include banking and credit products across multiple industry sectors and municipalities, secured lending and lease products, and treasury management.

Selected Financial Information

					Quarter ended		Sep 30, 2022
						% Change from
			Sep 30,	Jun 30,	Sep 30,		Jun 30,	Sep 30,
			2022	2022	2021	2022	2021
Earnings (in millions)
	Middle Market Banking	$	1,793	1,459	1,165	23 %	54
	Asset-Based Lending and Leasing		1,159	1,033	911	12	27
	Total revenue		2,952	2,492	2,076	18	42
	Provision for credit losses		(168)	21	(335)		NM	50
	Noninterest expense		1,526	1,478	1,396	3	9
	Net income	$	1,182	741	759	60	56
Average balances (in billions)
	Loans	$	209.0	202.0	178.6	3	17
	Deposits		180.2	188.3	199.2	(4)	(10)

NM - Not meaningful

Third Quarter 2022 vs. Third Quarter 2021

• Revenue increased 42%
• • Middle Market Banking was up 54% primarily due to the impact of higher interest rates and higher loan balances, partially offset by lower deposit balances and lower deposit-related fees driven by the impact of higher earnings credit rates, which result in lower fees for commercial customers
  • Asset-BasedLending and Leasing was up 27% driven by higher net gains from equity securities, higher loan balances, and higher revenue from renewable energy investments
• Noninterest expense increased 9% primarily due to higher operating costs and operating losses, partially offset by the impact of efficiency initiatives

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