SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|☑||QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the quarterly period ended March 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-2979
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
|(State of incorporation)||(I.R.S. Employer Identification No.)|
420 Montgomery Street, San Francisco, California 94104
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: 1-866-249-3302
Securities registered pursuant to Section 12(b) of the Act:
|Title of Each Class||Trading Symbol||Name of Each Exchange|
on Which Registered
Common Stock, par value $1-2/3
New York Stock
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L
Depositary Shares, each representing a 1/1000th interest in a share of 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q
Depositary Shares, each representing a 1/1000th interest in a share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Z
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series AA
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series CC
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series DD
Guarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|April 22, 2022|
Common stock, $1-2/3 par value
|PART I||Financial Information|
|Item 1.||Financial Statements||Page|
|Consolidated Statement of Income|
|Consolidated Statement of Comprehensive Income|
|Consolidated Balance Sheet|
|Consolidated Statement of Changes in Equity|
|Consolidated Statement of Cash Flows|
|Notes to Financial Statements|
|1 ||—||Summary of Significant Accounting Policies|
|2 ||—||Trading Activities|
|3 ||—||Available-for-Sale and Held-to-Maturity Debt Securities|
|4 ||—||Loans and Related Allowance for Credit Losses|
|5 ||—||Leasing Activity|
|6 ||—||Equity Securities|
|7 ||—||Other Assets|
|8 ||—||Securitizations and Variable Interest Entities|
|9 ||—||Mortgage Banking Activities|
|10 ||—||Intangible Assets|
|11 ||—||Guarantees and Other Commitments|
|12 ||—||Pledged Assets and Collateral|
|13 ||—||Legal Actions|
|15 ||—||Fair Values of Assets and Liabilities|
|16 ||—||Preferred Stock|
|17 ||—||Revenue from Contracts with Customers|
|18 ||—||Employee Benefits and Other Expenses|
|19 ||—||Restructuring Charges|
|20 ||—||Earnings and Dividends Per Common Share|
|21 ||—||Other Comprehensive Income|
|22 ||—||Operating Segments|
|23 ||—||Regulatory Capital Requirements and Other Restrictions|
|Item 2.||Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)|
|Summary Financial Data|
|Balance Sheet Analysis|
|Off-Balance Sheet Arrangements|
|Critical Accounting Policies|
|Current Accounting Developments|
|Risk Factors |
|Glossary of Acronyms|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk|
|Item 4.||Controls and Procedures|
|PART II||Other Information|
|Item 1.||Legal Proceedings|
|Item 1A.||Risk Factors|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds|
|Summary Financial Data|
|Quarter ended||Mar 31, 2022 |
% Change from
|($ in millions, except per share amounts)||Mar 31,|
|Selected Income Statement Data|
|Total revenue||$||17,592 ||20,856 ||18,532 ||(16)||%||(5)|
|Noninterest expense||13,870 ||13,198 ||13,989 ||5 ||(1)|
|Pre-tax pre-provision profit (PTPP) (1)||3,722 ||7,658 ||4,543 ||(51)||(18)|
|Provision for credit losses||(787)||(452)||(1,048)||(74)||25 |
|Wells Fargo net income ||3,671 ||5,750 ||4,636 ||(36)||(21)|
|Wells Fargo net income applicable to common stock||3,393 ||5,470 ||4,256 ||(38)||(20)|
|Common Share Data|
|Diluted earnings per common share||0.88 ||1.38 ||1.02 ||(36)||(14)|
|Dividends declared per common share||0.25 ||0.20 ||0.10 ||25 ||150 |
|Common shares outstanding||3,789.9 ||3,885.8 ||4,141.1 ||(2)||(8)|
|Average common shares outstanding||3,831.1 ||3,927.6 ||4,141.3 ||(2)||(7)|
|Diluted average common shares outstanding||3,868.9 ||3,964.7 ||4,171.0 ||(2)||(7)|
|Book value per common share (2)||$||42.21 ||43.32 ||40.27 ||(3)||5 |
|Tangible book value per common share (2)(3) ||35.13 ||36.35 ||33.49 ||(3)||5 |
|Selected Equity Data (period-end)|
|Total equity||181,689 ||190,110 ||188,034 ||(4)||(3)|
|Common stockholders’ equity||159,968 ||168,331 ||166,748 ||(5)||(4)|
|Tangible common equity (3)||133,144 ||141,254 ||138,702 ||(6)||(4)|
|Return on average assets (ROA) (4)||0.78 ||%||1.17 ||0.97 |
|Return on average equity (ROE) (5)||8.4 ||12.8 ||10.3 |
|Return on average tangible common equity (ROTCE) (3)||10.0 ||15.3 ||12.4 |
|Efficiency ratio (6)||79 ||63 ||75 |
|Net interest margin on a taxable-equivalent basis||2.16 ||2.11 ||2.05 |
|Selected Balance Sheet Data (average)|
|Loans||$||898,005 ||875,036 ||873,439 ||3 ||3 |
|Assets||1,919,392 ||1,943,430 ||1,934,425 ||(1)||(1)|
|Deposits||1,464,072 ||1,470,027 ||1,393,472 ||— ||5 |
|Selected Balance Sheet Data (period-end)|
|Debt securities||535,916 ||537,531 ||505,826 ||— ||6 |
|Loans||911,807 ||895,394 ||861,572 ||2 ||6 |
|Allowance for credit losses for loans||12,681 ||13,788 ||18,043 ||(8)||(30)|
|Equity securities||70,755 ||72,886 ||57,702 ||(3)||23 |
|Assets||1,939,709 ||1,948,068 ||1,957,264 ||— ||(1)|
|Deposits||1,481,354 ||1,482,479 ||1,437,119 ||— ||3 |
|Headcount (#) (period-end)||246,577 ||249,435 ||264,513 ||(1)||(7)|
|Capital and other metrics |
|Risk-based capital ratios and components (7):|
|Common equity tier 1 (CET1)||10.45 ||%||11.35 ||11.85 |
|Tier 1 capital||11.96 ||12.89 ||13.54 |
|Total capital||14.72 ||15.84 ||16.75 |
|Risk-weighted assets (RWAs) (in billions)||$||1,265.5 ||1,239.0 ||1,179.0 ||2 ||7 |
|Common equity tier 1 (CET1)||11.82 ||%||12.60 ||12.60 |
|Tier 1 capital||13.52 ||14.31 ||14.39 |
|Total capital||15.87 ||16.72 ||16.92 |
|Risk-weighted assets (RWAs) (in billions)||$||1,119.5 ||1,116.1 ||1,109.4 ||— ||1 |
|Tier 1 leverage ratio||8.00 ||%||8.34 ||8.36 |
|Supplementary Leverage Ratio (SLR)||6.61 ||6.89 ||7.91 |
|Total Loss Absorbing Capacity (TLAC) Ratio (8)||22.31 ||23.03 ||25.18 |
|Liquidity Coverage Ratio (LCR) (9)||119 ||118 ||127 |
NM – Not meaningful
(1)Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.
(2)Book value per common share is common stockholders’ equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding.
(3)Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, goodwill, certain identifiable intangible assets (other than mortgage servicing rights) and goodwill and other intangibles on investments in consolidated portfolio companies, net of applicable deferred taxes. The methodology of determining tangible common equity may differ among companies. Management believes that return on average tangible common equity and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable management, investors, and others to assess the Company’s use of equity. For additional information, including a corresponding reconciliation to generally accepted accounting principles (GAAP) financial measures, see the “Capital Management – Tangible Common Equity” section in this Report.
(4)Represents Wells Fargo net income divided by average assets.
(5)Represents Wells Fargo net income applicable to common stock divided by average common stockholders’ equity.
(6)The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(7)For additional information, see the “Capital Management” section and Note 23 (Regulatory Capital Requirements and Other Restrictions) to Financial Statements in this Report.
(8)Represents TLAC divided by RWAs, which is our binding TLAC ratio, determined by using the greater of RWAs under the Standardized and Advanced Approaches.
(9)Represents high-quality liquid assets divided by projected net cash outflows, as each is defined under the LCR rule.
This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and in the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).
When we refer to “Wells Fargo,” “the Company,” “we,” “our,” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. See the Glossary of Acronyms for definitions of terms used throughout this Report.
Wells Fargo & Company is a leading financial services company that has approximately $1.9 trillion in assets, proudly serves one in three U.S. households and more than 10% of small businesses in the U.S., and is a leading middle market banking provider in the U.S. We provide a diversified set of banking, investment and mortgage products and services, as well as consumer and commercial finance, through our four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management. Wells Fargo ranked No. 37 on Fortune’s 2021 rankings of America’s largest corporations. We ranked fourth in assets and third in the market value of our common stock among all U.S. banks at March 31, 2022.
Wells Fargo’s top priority remains building a risk and control infrastructure appropriate for its size and complexity. The Company is subject to a number of consent orders and other regulatory actions, which may require the Company, among other things, to undertake certain changes to its business, operations, products and services, and risk management practices. Addressing these regulatory actions is expected to take multiple years, and we are likely to experience issues or delays along the way in satisfying their requirements. Issues or delays with one regulatory action could affect our progress on others, and failure to satisfy the requirements of a regulatory action on a timely basis could result in additional penalties, enforcement actions, and other negative consequences, which could be significant. While we still have significant work to do, the Company is committed to devoting the resources necessary to operate with strong business practices and controls, maintain the highest level of integrity, and have an appropriate culture in place.
Federal Reserve Board Consent Order Regarding Governance Oversight and Compliance and Operational Risk Management
On February 2, 2018, the Company entered into a consent order with the Board of Governors of the Federal Reserve System (FRB). As required by the consent order, the Company’s Board of Directors (Board) submitted to the FRB a plan to further enhance the Board’s governance and oversight of the Company, and the Company submitted to the FRB a plan to further improve the Company’s compliance and operational risk management program. The Company continues to engage with the FRB as the Company works to address the consent order provisions. The consent order also requires the Company, following the FRB’s acceptance and approval of the plans and the Company’s adoption and implementation of the plans, to complete an initial third-party review of the enhancements and improvements provided for in the plans. Until this third-party review is complete
and the plans are approved and implemented to the satisfaction of the FRB, the Company’s total consolidated assets as defined under the consent order will be limited to the level as of December 31, 2017. Compliance with this asset cap is measured on a two-quarter daily average basis to allow for management of temporary fluctuations. After removal of the asset cap, a second third-party review must also be conducted to assess the efficacy and sustainability of the enhancements and improvements.
Consent Orders with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency Regarding Compliance Risk Management Program, Automobile Collateral Protection Insurance Policies, and Mortgage Interest Rate Lock Extensions
On April 20, 2018, the Company entered into consent orders with the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) to pay an aggregate of $1 billion in civil money penalties to resolve matters regarding the Company’s compliance risk management program and past practices involving certain automobile collateral protection insurance (CPI) policies and certain mortgage interest rate lock extensions. As required by the consent orders, the Company submitted to the CFPB and OCC an enterprise-wide compliance risk management plan and a plan to enhance the Company’s internal audit program with respect to federal consumer financial law and the terms of the consent orders. In addition, as required by the consent orders, the Company submitted for non-objection plans to remediate customers affected by the automobile collateral protection insurance and mortgage interest rate lock matters, as well as a plan for the management of remediation activities conducted by the Company. The Company continues to work to address the provisions of the consent orders. The Company has not yet satisfied certain aspects of the consent orders, and as a result, we believe regulators may impose additional penalties or take other enforcement actions. On September 9, 2021, the OCC assessed a $250 million civil money penalty against the Company related to insufficient progress in addressing requirements under the OCC’s April 2018 consent order and loss mitigation activities in the Company’s Home Lending business.
Consent Order with the OCC Regarding Loss Mitigation Activities
On September 9, 2021, the Company entered into a consent order with the OCC requiring the Company to improve the execution, risk management, and oversight of loss mitigation activities in its Home Lending business. In addition, the consent order restricts the Company from acquiring certain third-party
residential mortgage servicing and limits transfers of certain mortgage loans requiring customer remediation out of the Company’s mortgage servicing portfolio until remediation is provided.
Retail Sales Practices Matters and Other Customer Remediation Activities
In September 2016, we announced settlements with the CFPB, the OCC, and the Office of the Los Angeles City Attorney, and entered into related consent orders with the CFPB and the OCC, in connection with allegations that some of our retail customers received products and services they did not request. As a result, it remains a priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, employees, and other stakeholders, and building a better Company for the future. On September 8, 2021, the CFPB consent order regarding retail sales practices expired.
Our priority of rebuilding trust has also included an effort to identify other areas or instances where customers may have experienced financial harm, provide remediation as appropriate, and implement additional operational and control procedures. We are working with our regulatory agencies in this effort. We have previously disclosed key areas of focus as part of our rebuilding trust efforts and are in the process of providing remediation for those matters. We have accrued for the probable and estimable remediation costs related to our rebuilding trust efforts, which amounts may change based on additional facts and information, as well as ongoing reviews and communications with our regulators. As our ongoing reviews continue and as we continue to strengthen our risk and control infrastructure, we have identified and may in the future identify additional items or areas of potential concern. To the extent issues are identified, we will continue to assess any customer harm and provide remediation as appropriate.
For additional information regarding retail sales practices matters and other customer remediation activities, including related legal and regulatory risk, see the “Risk Factors” section in our 2021 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.
The London Interbank Offered Rate (LIBOR) is a widely referenced benchmark rate that seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. On March 5, 2021, the United Kingdom’s Financial Conduct Authority and ICE Benchmark Administration, the administrator of LIBOR, announced that certain settings of LIBOR would no longer be published on a representative basis after December 31, 2021, and the most commonly used U.S. dollar (USD) LIBOR settings would no longer be published on a representative basis after June 30, 2023. Central banks in various jurisdictions convened committees to identify replacement rates to facilitate the transition away from LIBOR. The committee convened by the Federal Reserve in the United States, the Alternative Reference Rates Committee (ARRC), recommended the Secured Overnight Financing Rate (SOFR) as the replacement rate for USD LIBOR. Additionally, the Federal Reserve, the OCC and the Federal Deposit Insurance Corporation (FDIC) have issued guidance strongly encouraging banking organizations to cease using USD LIBOR as a reference rate in new contracts.
In preparation for the cessation of the various LIBOR settings, we have undertaken a variety of activities. Among other things, we proactively implemented internal “stop-sell” dates to discontinue offering products referencing LIBOR except pursuant to limited exceptions consistent with regulatory guidance. At the same time, we expanded our suite of product offerings that are indexed to alternative reference rates.
We also continue to transition our legacy LIBOR contracts to alternative reference rates. We transitioned substantially all of our legacy contracts with LIBOR settings impacted by the December 31, 2021, cessation date to alternative reference rates, and we will continue to address contracts with LIBOR settings that are impacted by the June 30, 2023, cessation date.
In first quarter 2022, the Adjustable Interest Rate Act (the LIBOR Act) was enacted to provide a statutory framework to replace LIBOR with a benchmark rate based on SOFR in contracts that do not have fallback provisions or that have fallback provisions resulting in a replacement rate based on LIBOR. We expect that the LIBOR Act will allow for the transition of certain of our commercial credit facilities and other contracts that do not have appropriate fallback provisions to replace LIBOR.
For additional information on the amounts of certain of our LIBOR-linked contracts, as well as our transition plans for these contracts, see the “Overview – Recent Developments – LIBOR Transition” section in our 2021 Form 10-K. For information regarding the risks and potential impact of LIBOR or any other referenced financial metric being significantly changed, replaced or discontinued, see the “Risk Factors” section in our 2021 Form 10-K.
|Consolidated Financial Highlights|
|Quarter ended Mar 31,|
|($ in millions)||2022||2021||$ Change||% Change|
|Selected income statement data|
|Net interest income||$||9,221 ||8,808 ||413 ||5 ||%|
|Noninterest income||8,371 ||9,724 ||(1,353)||(14)|
|Total revenue||17,592 ||18,532 ||(940)||(5)|
|Net charge-offs||305 ||523 ||(218)||(42)|
|Change in the allowance for credit losses||(1,092)||(1,571)||479 ||30 |
|Provision for credit losses||(787)||(1,048)||261 ||25 |
|Noninterest expense||13,870 ||13,989 ||(119)||(1)|
|Income tax expense||707 ||901 ||(194)||(22)|
|Wells Fargo net income||3,671 ||4,636 ||(965)||(21)|
|Wells Fargo net income applicable to common stock||3,393 ||4,256 ||(863)||(20)|
In first quarter 2022, we generated $3.7 billion of net income and diluted earnings per common share (EPS) of $0.88, compared with $4.6 billion of net income and EPS of $1.02 in the same period a year ago. Financial performance for first quarter 2022, compared with the same period a year ago, included the following:
•total revenue decreased due to lower mortgage banking income, other income, and investment advisory and other asset-based fee income, partially offset by higher net interest income;
•provision for credit losses reflected lower net charge-offs, reduced uncertainty around the economic impact of the COVID-19 pandemic on our loan portfolios, and increased uncertainty related to the risks of high inflation;
•noninterest expense decreased due to lower personnel expense, professional and outside services expense, and other expense, partially offset by higher operating losses;
•average loans increased due to growth in commercial, credit card and auto loans, partially offset by a decrease in residential mortgage loans as paydowns exceeded originations; and
•average deposits increased driven by growth in the Consumer Banking and Lending, Commercial Banking, and Wealth and Investment Management (WIM) operating segments due to higher levels of liquidity and savings for consumer and commercial customers, partially offset by actions taken to manage under the asset cap which reduced deposits in the Corporate and Investment Banking operating segment and Corporate.
Capital and Liquidity
We maintained a strong capital position in first quarter 2022, with total equity of $181.7 billion at March 31, 2022, compared with $190.1 billion at December 31, 2021. Our liquidity and regulatory capital ratios remained strong at March 31, 2022, including:
•our Common Equity Tier 1 (CET1) ratio was 10.45% under the Standardized Approach (our binding ratio), which continued to exceed the regulatory requirement of 9.10%;
•our total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 22.31%, compared with the regulatory requirement of 21.50%; and
•our liquidity coverage ratio (LCR) was 119%, which continued to exceed the regulatory minimum of 100%.
See the “Capital Management” and the “Risk Management – Asset/Liability Management – Liquidity Risk and Funding” sections in this Report for additional information regarding our capital and liquidity, including the calculation of our regulatory capital and liquidity amounts.
Credit quality reflected the following:
•The allowance for credit losses (ACL) for loans of $12.7 billion at March 31, 2022, decreased $1.1 billion from December 31, 2021.
•Our provision for credit losses for loans was $(775) million in first quarter 2022, up from $(1.1) billion in the same period a year ago. The ACL for loans and the provision for credit losses reflected lower net charge-offs, reduced uncertainty around the economic impact of the COVID-19 pandemic on our loan portfolios, and increased uncertainty related to the risks of high inflation.
•The allowance coverage for total loans was 1.39% at March 31, 2022, compared with 1.54% at December 31, 2021.
•Commercial portfolio net loan charge-offs were $(29) million, or (2) basis points of average commercial loans, in first quarter 2022, compared with net loan charge-offs of $149 million, or 13 basis points, in the same period a year ago, due to lower losses in our commercial and industrial portfolio driven by higher recoveries in the oil, gas and pipeline industry, and lower losses in our real estate mortgage portfolio.
•Consumer portfolio net loan charge-offs were $334 million, or 35 basis points of average consumer loans, in first quarter 2022, compared with net loan charge-offs of $364 million, or 37 basis points, in the same period a year ago, driven by lower losses in our credit card and other consumer portfolios, partially offset by higher losses in our auto loan portfolio.
•Nonperforming assets (NPAs) of $7.0 billion at March 31, 2022, decreased $323 million, or 4%, from December 31, 2021, driven by decreases in all commercial nonaccrual loan portfolios, partially offset by increases in our residential mortgage nonaccrual loans primarily resulting from certain customers exiting COVID-19 accommodation programs. NPAs represented 0.77% of total loans at March 31, 2022.
Wells Fargo net income for first quarter 2022 was $3.7 billion ($0.88 diluted EPS), compared with $4.6 billion ($1.02 diluted EPS) in the same period a year ago. Net income decreased in first quarter 2022, compared with the same period a year ago, predominantly due to a $1.4 billion decrease in noninterest income, partially offset by a $413 million increase in net interest income.
Net Interest Income
Net interest income and net interest margin increased in first quarter 2022, compared with the same period a year ago, due to lower mortgage-backed securities premium amortization, lower costs and balances of long-term debt, and higher loan balances, partially offset by lower interest income from loans purchased from securitization pools and Paycheck Protection Program (PPP) loans. Interest income from PPP loans was $49 million in first quarter 2022, compared with $102 million in the same period a year ago. Additionally, interest income associated with loans we purchased from Government National Mortgage Association (GNMA) loan securitization pools was $221 million in first quarter 2022, compared with $263 million in the same period a year ago. For additional information about loans purchased from GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Mortgage Banking Activities” section in this Report.
Table 1 presents the individual components of net interest income and the net interest margin. Net interest income and net interest margin are presented on a taxable-equivalent basis in Table 1 to consistently reflect income from taxable and tax-exempt loans and debt and equity securities based on a 21% federal statutory tax rate for the periods ended March 31, 2022 and 2021.
For additional information about net interest income and net interest margin, see the “Earnings Performance – Net Interest Income” section in our 2021 Form 10-K.
Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)
|Quarter ended March 31,|
|(in millions) ||Average |
|Interest rates||Average |
|Interest-earning deposits with banks||$||179,051 ||96 ||0.22 ||%||$||223,437 ||57 ||0.10 ||%|
|Federal funds sold and securities purchased under resale agreements||64,845 ||(9)||(0.05)||72,148 ||7 ||0.04 |
|Trading debt securities||90,677 ||553 ||2.44 ||87,383 ||534 ||2.45 |
|Available-for-sale debt securities||169,048 ||723 ||1.72 ||206,946 ||841 ||1.63 |
|Held-to-maturity debt securities||279,245 ||1,379 ||1.98 ||216,826 ||1,027 ||1.90 |
|Total debt securities||538,970 ||2,655 ||1.97 ||511,155 ||2,402 ||1.89 |
|Loans held for sale (2)||19,513 ||140 ||2.86 ||34,554 ||331 ||3.85 |
|Commercial and industrial – U.S.||276,070 ||1,700 ||2.50 ||252,892 ||1,596 ||2.56 |
|Commercial and industrial – Non-U.S.||77,759 ||403 ||2.10 ||65,419 ||338 ||2.10 |
|Real estate mortgage||127,464 ||833 ||2.65 ||120,734 ||812 ||2.73 |
|Real estate construction||20,259 ||165 ||3.31 ||21,755 ||166 ||3.10 |
|Lease financing||14,586 ||155 ||4.24 ||15,799 ||184 ||4.62 |
|Total commercial loans||516,138 ||3,256 ||2.56 ||476,599 ||3,096 ||2.63 |
|Residential mortgage – first lien||242,883 ||1,907 ||3.14 ||266,251 ||2,068 ||3.11 |
|Residential mortgage – junior lien||16,017 ||165 ||4.17 ||22,321 ||228 ||4.13 |
|Credit card||38,164 ||1,065 ||11.32 ||35,205 ||1,033 ||11.90 |
|Auto||56,701 ||584 ||4.17 ||48,680 ||560 ||4.66 |
|Other consumer||28,102 ||256 ||3.69 ||24,383 ||233 ||3.87 |
|Total consumer loans||381,867 ||3,977 ||4.20 ||396,840 ||4,122 ||4.18 |
|Total loans (2)||898,005 ||7,233 ||3.25 ||873,439 ||7,218 ||3.34 |
|Equity securities||33,282 ||170 ||2.05 ||29,434 ||137 ||1.87 |
|Other||11,498 ||3 ||0.12 ||9,498 ||1 ||0.03 |
|Total interest-earning assets ||$||1,745,164 ||10,288 ||2.38 ||%||$||1,753,665 ||10,153 ||2.33 ||%|
|Cash and due from banks||24,976 ||— ||24,598 ||— |
|Goodwill||25,180 ||— ||26,383 ||— |
|Other||124,072 ||— ||129,779 ||— |
|Total noninterest-earning assets ||$||174,228 ||— ||180,760 ||— |
|Total assets ||$||1,919,392 ||10,288 ||1,934,425 ||10,153 |
|Demand deposits||$||455,350 ||38 ||0.03 ||%||$||444,764 ||33 ||0.03 ||%|
|Savings deposits||440,680 ||24 ||0.02 ||411,596 ||32 ||0.03 |
|Time deposits||27,849 ||19 ||0.28 ||44,025 ||47 ||0.43 |
|Deposits in non-U.S. offices||21,456 ||2 ||0.03 ||30,731 ||— ||0.01 |
|Total interest-bearing deposits||945,335 ||83 ||0.04 ||931,116 ||112 ||0.05 |
|Federal funds purchased and securities sold under agreements to repurchase||20,431 ||(3)||(0.05)||47,357 ||2 ||— |
|Other short-term borrowings||12,327 ||(11)||(0.36)||11,725 ||(11)||(0.37)|
|Total short-term borrowings||32,758 ||(14)||(0.17)||59,082 ||(9)||(0.06)|
|Long-term debt||153,803 ||761 ||1.98 ||198,340 ||1,026 ||2.07 |
|Other liabilities||31,092 ||130 ||1.68 ||28,875 ||109 ||1.50 |
|Total interest-bearing liabilities||$||1,162,988 ||960 ||0.33 ||%||$||1,217,413 ||1,238 ||0.41 ||%|
|Noninterest-bearing demand deposits||518,737 ||— ||462,356 ||— |
|Other noninterest-bearing liabilities ||51,330 ||— ||65,582 ||— |
|Total noninterest-bearing liabilities ||$||570,067 ||— ||527,938 ||— |
|Total liabilities ||$||1,733,055 ||960 ||1,745,351 ||1,238 |
|Total equity||186,337 ||— ||189,074 ||— |
|Total liabilities and equity ||$||1,919,392 ||960 ||1,934,425 ||1,238 |
|Interest rate spread on a taxable-equivalent basis (3)||2.05 ||%||1.92 ||%|
Net interest margin and net interest income on a taxable-equivalent basis (3)
|$||9,328 ||2.16 ||%||$||8,915 ||2.05 ||%|
(1)The average balance amounts represent amortized costs. The interest rates are based on interest income or expense amounts for the period and are annualized. Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(2)Nonaccrual loans and any related income are included in their respective loan categories.
(3)Includes taxable-equivalent adjustments of $107 million for both quarters ended March 31, 2022 and 2021, predominantly related to tax-exempt income on certain loans and securities.
Earnings Performance (continued)
Table 2: Noninterest Income
|Quarter ended Mar 31,|
|(in millions)||2022||2021||$ Change||% Change|
|Deposit-related fees||$||1,473 ||1,255 ||218 ||17 ||%|
|Lending-related fees||342 ||361 ||(19)||(5)|
|Investment advisory and other asset-based fees ||2,498 ||2,756 ||(258)||(9)|
|Commissions and brokerage services fees ||537 ||636 ||(99)||(16)|
|Investment banking fees||447 ||568 ||(121)||(21)|
|Card fees||1,029 ||949 ||80 ||8 |
|Net servicing income||154 ||(99)||253 ||256 |
|Net gains on mortgage loan originations/sales||539 ||1,425 ||(886)||(62)|
|Mortgage banking||693 ||1,326 ||(633)||(48)|
|Net gains from trading activities||218 ||348 ||(130)||(37)|
|Net gains from debt securities||2 ||151 ||(149)||(99)|
|Net gains from equity securities||576 ||392 ||184 ||47 |
|Lease income||327 ||315 ||12 ||4 |
|Other ||229 ||667 ||(438)||(66)|
|Total||$||8,371 ||9,724 ||(1,353)||(14)|
First quarter 2022 vs. first quarter 2021
Deposit-related fees increased driven by lower fee waivers and reversals as first quarter 2021 included various accommodations to support customers during the COVID-19 pandemic, as well as other temporary fee waivers.
In January 2022, we announced enhancements and changes to help our consumer customers avoid overdraft-related fees, which we began to implement in March 2022. We expect this will lower certain deposit-related fees for the remainder of 2022.
Investment advisory and other asset-based fees decreased reflecting:
•lower asset-based and trust fees due to divestitures in fourth quarter 2021;
partially offset by:
•higher market valuations on WIM advisory assets.
For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” section in this Report.
Commissions and brokerage services fees decreased driven by lower transactional revenue.
Investment banking fees decreased driven by lower debt and equity underwriting fees as a result of lower market activity.
Card fees increased reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes.
Net servicing income increased reflecting:
•lower amortization of the fair value mortgage servicing right (MSR) due to lower prepayment rates driven by increases in interest rates; and
•lower unreimbursed servicing costs due to fewer payoffs and favorable recoveries from loss mitigation activities;
partially offset by:
•lower contractually specified servicing fees due to a lower balance of loans serviced for others.
Net gains on mortgage loan originations/sales decreased
•lower residential mortgage held for sale (HFS) origination volumes and lower margins in our retail and correspondent production channels; and
•a shift in production to more correspondent loans, which have a lower production margin compared with retail loans.
For additional information on servicing income and net gains on mortgage loan originations/sales, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains from trading activities decreased reflecting:
•lower trading activity in residential mortgage-backed securities and high yield products;
partially offset by:
•higher foreign exchange, rates, and commodities trading revenue.
Net gains from debt securities decreased due to lower gains on sales of agency mortgage-backed securities (MBS) as a result of decreased sales volumes.
Net gains from equity securities increased reflecting:
•higher unrealized gains on nonmarketable equity securities driven by our affiliated venture capital and private equity businesses; and
•higher realized gains on the sales of equity securities;
partially offset by:
•higher impairment of equity securities.
Other income decreased due to:
•a gain on the sale of a portion of our student loan portfolio in first quarter 2021;
•higher losses due to growth in wind energy investments (offset by benefits and credits in income tax expense); and
•lower gains on the sales of certain residential mortgage loans which were reclassified to HFS.
Table 3: Noninterest Expense
|Quarter ended Mar 31,|
|(in millions)||2022||2021||$ Change||% Change|
|Personnel||$||9,271 ||9,558 ||(287)||(3)||%|
|Technology, telecommunications and equipment||876 ||844 ||32 ||4 |
|Occupancy||722 ||770 ||(48)||(6)|
|Operating losses||673 ||213 ||460 ||216 |
|Professional and outside services||1,286 ||1,388 ||(102)||(7)|
|Leases (1)||188 ||226 ||(38)||(17)|
|Advertising and promotion||99 ||90 ||9 ||10 |
|Restructuring charges||5 ||13 ||(8)||(62)|
|Other||750 ||887 ||(137)||(15)|
|Total||$||13,870 ||13,989 ||(119)||(1)|
(1)Represents expenses for assets we lease to customers.
First quarter 2022 vs. first quarter 2021
Personnel expense decreased driven by:
•lower salaries as a result of reduced headcount driven by efficiency initiatives and divestitures; and
•lower incentive compensation expense.
Occupancy expense decreased driven by efficiency initiatives.
Operating losses increased driven by higher customer remediation expense related to expansions of the population of affected customers, remediation payments, and/or remediation time frames predominantly for a variety of historical matters.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
Leases expense decreased driven by lower depreciation expense from a reduction in the size of our operating lease asset portfolio.
Other expenses decreased driven by:
•a write-down of goodwill in first quarter 2021 related to the sale of a portion of our student loan portfolio, and
•lower donation expense due to the donation of PPP processing fees in first quarter 2021;
partially offset by:
•higher pension plan settlement expense.
Income Tax Expense
Income tax expense was $707 million in first quarter 2022, compared with $901 million in the same period a year ago, driven by lower pre-tax income and net discrete income tax benefits primarily related to stock-based compensation. The effective income tax rate was 16.1% for first quarter 2022, compared with 16.3% for the same period a year ago.
Earnings Performance (continued)
Operating Segment Results
Our management reporting is organized into four reportable operating segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. All other business activities that are not included in the reportable operating segments have been included in Corporate. For additional information, see Table 4. We define our reportable operating segments by type of product and customer segment, and their results are based on our management reporting process. The management reporting process measures the performance of the reportable operating segments based on the Company’s management structure, and the results are regularly reviewed by our Chief Executive Officer and Operating Committee. The management reporting process is based on U.S. GAAP and includes specific adjustments, such as funds transfer pricing for asset/liability management, shared revenues and expenses, and taxable-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources, which allows management to assess performance consistently across the operating segments.
Funds Transfer Pricing Corporate treasury manages a funds transfer pricing methodology that considers interest rate risk, liquidity risk, and other product characteristics. Operating segments pay a funding charge for their assets and receive a funding credit for their deposits, both of which are included in net interest income. The net impact of the funding charges or credits is recognized in corporate treasury.
Revenue and Expense Sharing When lines of business jointly serve customers, the line of business that is responsible for providing the product or service recognizes revenue or expense with a referral fee paid or an allocation of cost to the other line of
business based on established internal revenue-sharing agreements.
When a line of business uses a service provided by another line of business or enterprise function (included in Corporate), expense is generally allocated based on the cost and use of the service provided.
Taxable-Equivalent Adjustments Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
Allocated Capital Reportable operating segments are allocated capital under a risk-sensitive framework that is primarily based on aspects of our regulatory capital requirements, and the assumptions and methodologies used to allocate capital are periodically assessed and revised. Management believes that return on allocated capital is a useful financial measure because it enables management, investors, and others to assess a reportable operating segment’s use of capital.
Selected Metrics We present certain financial and nonfinancial metrics that management uses when evaluating reportable operating segment results. Management believes that these metrics are useful to investors and others to assess the performance, customer growth, and trends of reportable operating segments or lines of business.
Table 4: Management Reporting Structure
|Wells Fargo & Company|
Consumer Banking and Lending
|Corporate and Investment Banking|
Wealth and Investment Management
• Consumer and Small Business Banking
• Home Lending
• Credit Card
• Personal Lending
• Middle Market Banking
• Asset-Based Lending and Leasing
• Commercial Real Estate
• Wells Fargo Advisors
• The Private
• Corporate Treasury
• Enterprise Functions
• Investment Portfolio
• Affiliated venture capital and private equity businesses
• Non-strategic businesses
Table 5 and the following discussion present our results by reportable operating segment. For additional information, see Note 22 (Operating Segments) to Financial Statements in this Report.
Table 5: Operating Segment Results – Highlights
|(in millions)||Consumer Banking and Lending||Commercial Banking||Corporate and Investment Banking||Wealth and Investment Management||Corporate (1)||Reconciling Items (2)||Consolidated Company|
|Quarter ended March 31, 2022|
|Net interest income||$||5,996 ||1,361 ||1,990 ||799 ||(818)||(107)||9,221 |
|Noninterest income||2,567 ||966 ||1,480 ||2,958 ||806 ||(406)||8,371 |
|Total revenue||8,563 ||2,327 ||3,470 ||3,757 ||(12)||(513)||17,592 |
|Provision for credit losses||(190)||(344)||(196)||(37)||(20)||— ||(787)|
|Noninterest expense||6,395 ||1,531 ||1,983 ||3,175 ||786 ||— ||13,870 |
|Income (loss) before income tax expense (benefit)||2,358 ||1,140 ||1,683 ||619 ||(778)||(513)||4,509 |
|Income tax expense (benefit)||588 ||280 ||425 ||154 ||(227)||(513)||707 |
|Net income (loss) before noncontrolling interests||1,770 ||860 ||1,258 ||465 ||(551)||— ||3,802 |
|Less: Net income from noncontrolling interests||— ||3 ||— ||— ||128 ||— ||131 |
|Net income (loss)||$||1,770 ||857 ||1,258 ||465 ||(679)||— ||3,671 |
|Quarter ended March 31, 2021|
|Net interest income||$||5,615 ||1,254 ||1,779 ||657 ||(390)||(107)||8,808 |
|Noninterest income||3,039 ||827 ||1,825 ||2,887 ||1,417 ||(271)||9,724 |
|Total revenue||8,654 ||2,081 ||3,604 ||3,544 ||1,027 ||(378)||18,532 |
|Provision for credit losses||(419)||(399)||(284)||(43)||97 ||— ||(1,048)|
|Noninterest expense||6,267 ||1,630 ||1,833 ||3,028 ||1,231 ||— ||13,989 |
|Income (loss) before income tax expense (benefit)||2,806 ||850 ||2,055 ||559 ||(301)||(378)||5,591 |
|Income tax expense (benefit)||702 ||212 ||500 ||140 ||(275)||(378)||901 |
|Net income (loss) before noncontrolling interests||2,104 ||638 ||1,555 ||419 ||(26)||— ||4,690 |
|Less: Net income from noncontrolling interests||— ||1 ||— ||— ||53 ||— ||54 |
|Net income (loss)||$||2,104 ||637 ||1,555 ||419 ||(79)||— ||4,636 |
(1)All other business activities that are not included in the reportable operating segments have been included in Corporate. For additional information, see the “Corporate” section below.
(2)Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
Earnings Performance (continued)
Consumer Banking and Lending offers diversified financial products and services for consumers and small businesses with annual sales generally up to $10 million. These financial products and services include checking and savings accounts, credit and
debit cards, as well as home, auto, personal, and small business lending. Table 5a and Table 5b provide additional information for Consumer Banking and Lending.
Table 5a: Consumer Banking and Lending – Income Statement and Selected Metrics
|Quarter ended Mar 31,|
|($ in millions, unless otherwise noted)||2022||2021||$ Change||% Change|
|Net interest income||$||5,996 ||5,615 ||381 ||7 ||%|
|Deposit-related fees||845 ||661 ||184 ||28 |
|Card fees||961 ||892 ||69 ||8 |
|Mortgage banking||654 ||1,259 ||(605)||(48)|
|Other||107 ||227 ||(120)||(53)|
|Total noninterest income||2,567 ||3,039 ||(472)||(16)|
|Total revenue||8,563 ||8,654 ||(91)||(1)|
|Net charge-offs||375 ||370 ||5 ||1 |
|Change in the allowance for credit losses||(565)||(789)||224 ||28|
|Provision for credit losses||(190)||(419)||229 ||55|
|Noninterest expense||6,395 ||6,267 ||128 ||2 |
|Income before income tax expense||2,358 ||2,806 ||(448)||(16)|
|Income tax expense ||588 ||702 ||(114)||(16)|
|Net income||$||1,770 ||2,104 ||(334)||(16)|
|Revenue by Line of Business|
|Consumer and Small Business Banking||$||5,071 ||4,550 ||521 ||11 |
|Home Lending||1,490 ||2,227 ||(737)||(33)|
|Credit Card (1)||1,265 ||1,188 ||77 ||6 |
|Auto||444 ||403 ||41 ||10 |
|Personal Lending (1)||293 ||286 ||7 ||2 |
|Total revenue||$||8,563 ||8,654 ||(91)||(1)|
|Consumer Banking and Lending:|
|Return on allocated capital (2)||14.4 ||%||17.2 |
|Efficiency ratio (3)||75 ||72 |
|Headcount (#) (period-end)||113,273 ||123,547 ||(8)|
|Retail bank branches (#)||4,705 ||4,944 ||(5)|
|Digital active customers (# in millions) (4)||33.7 ||32.9 ||2 |
|Mobile active customers (# in millions) (4)||27.8 ||26.7 ||4 |
|Consumer and Small Business Banking:|
|Deposit spread (5)||1.6 ||%||1.6 |
|Debit card purchase volume ($ in billions) (6)||$||115.0 ||108.5 ||6.5 ||6 |
|Debit card purchase transactions (# in millions) (6)||2,338 |