Wells Fargo mpany : Q4 2020 news release (PDF)

News Release | January 15, 2021

Wells Fargo Reports Fourth Quarter 2020 Net Income of $3.0 billion, or $0.64 per Diluted Share

Company-wide Financial Summary
				Operating Segments and Other Highlights4
					Consumer Banking and Lending
		Quarter ended
					◦	Average loans of $373.9 billion, down 2%
		Dec 31,	Dec 31,
		2020	2019		◦	Average deposits of $763.2 billion, up 18%
Selected Income Statement Data					Commercial Banking
($ in millions except per share amounts)			◦	Average loans of $190.9 billion, down 15%
Total revenue	$	17,925	19,860
	◦	Average deposits of $203.6 billion, up 6%
Noninterest expense		14,802	15,614
		Corporate and Investment Banking
Provision for credit losses		(179)	644
		◦	Average loans of $239.8 billion, down 4%
Net income		2,992	2,873
		◦	Average trading-related assets of $190.4 billion, down
Diluted earnings per
	0.64	0.60			19%
common share			◦
					Average deposits of $205.8 billion, down 20%
Selected Balance Sheet Data ($ in billions)			Wealth and Investment Management
Average loans	$	899.7	956.5		◦	Total client assets of $2.0 trillion, up 6%
Average deposits		1,380.1	1,321.9		◦	Average loans of $80.1 billion, up 5%
CET11		11.6%	11.1		◦	Average deposits of $169.9 billion, up 22%
Performance Metrics					Capital
				◦ The Company's Board of Directors approved an increase
ROE2		6.4%	5.9			in the Company's authority to repurchase common
ROTCE3		7.7	7.1			stock by an additional 500 million shares, bringing the
						total authorized amount to 667 million common shares

Fourth quarter 2020 results included:

• $(781) million, or ($0.14) per share, impact of restructuring charges
• $757 million, or $0.14 per share, reserve release due to the announced sale of our student loan portfolio
• $(321) million, or ($0.06) per share, impact of customer remediation accruals

Chief Executive Officer Charlie Scharf commented on the quarter, "Although our financial performance improved and we earned $3.0 billion in the fourth quarter, our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us."

"Our agenda is clear and we are making progress. We have prioritized and are moving forward on our risk and control buildout - the recently terminated BSA/AML consent order is just one of many, but it is an important step forward; we have a new management team in place; the disciplines we use to manage the company are completely different than one year ago; we have clarified our strategic priorities and are exiting certain non-strategic businesses; and we have identified and are implementing a series of actions to improve our financial performance," Scharf added.

"With a more consistent broad-based recovery and as we continue to press forward with our agenda, we expect you will see that this franchise is capable of much more" Scharf concluded.

• Represents the lower of our Common Equity Tier 1 (CET1) ratio calculated under the Standardized Approach and under the Advanced Approach. See tables on pages 25-26 of the 4Q20 Quarterly Supplement for more information on CET1. CET1 is a preliminary estimate.
  2 Return on equity (ROE) represents Wells Fargo net income (loss) 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 23-24 of the 4Q20 Quarterly Supplement.
  4 Comparisons in the bullet points are for fourth quarter 2020 versus fourth quarter 2019, unless otherwise specified.

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Annual Report on Form 10-K for the year ended December 31, 2020, 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			Dec 31, 2020				Year ended
							% Change from
			Dec 31,	Sep 30,	Dec 31,		Sep 30,	Dec 31,			Dec 31,	Dec 31,
			2020	2020	2019	2020	2019			2020	2019
Earnings ($ in millions except per share amounts)
	Net interest income	$	9,275	9,368	11,200	(1)%	(17)	$	39,835	47,231
	Noninterest income		8,650	9,494	8,660	(9)	-			32,505	37,832
	Total revenue		17,925	18,862	19,860	(5)	(10)			72,340	85,063
	Net charge-offs		584	731	769	(20)	(24)			3,370	2,762
	Increase (decrease) in the allowance for		(763)	38	(125)		NM	510			10,759	(75)
	credit losses
	Provision for credit losses		(179)	769	644		NM	NM			14,129	2,687
	Noninterest expense		14,802	15,229	15,614	(3)	(5)			57,630	58,178
	Income tax expense (benefit)		108	645	678	(83)	(84)			(3,005)	4,157
	Wells Fargo net income	$	2,992	2,035	2,873	47	4	$	3,301	19,549
	Diluted earnings per common share		0.64	0.42	0.60	52	7			0.41	4.05
Balance Sheet Data (average) ($ in billions)
	Loans	$	899.7	931.7	956.5	(3)	(6)	$	941.8	951.0
	Deposits		1,380.1	1,399.0	1,321.9	(1)	4			1,376.0	1,286.3
	Assets		1,926.9	1,947.7	1,941.8	(1)	(1)			1,943.5	1,913.4
Financial Ratios
	Return on assets (ROA)		0.62 %	0.42	0.59						0.17 %	1.02
	Return on equity (ROE)		6.4	4.2	5.9						1.0	10.2
	Return on average tangible common		7.7	5.1	7.1						1.3	12.2
	equity (ROTCE) (a)
	Efficiency ratio (b)		83	81	79						80	68
	Net interest margin		2.13	2.13	2.53						2.27	2.73

NM - Not meaningful

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 23-24 of the 4Q20 Quarterly Supplement.
2. The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

Fourth Quarter 2020 vs. Fourth Quarter 2019

• Net interest income decreased 17%, primarily due to the impact of lower interest rates, which drove a repricing of the balance sheet, lower loan balances primarily due to weak demand and elevated prepayments, lower investment securities balances, and higher mortgage-backed securities premium amortization
• Noninterest income was slightly down. Higher mortgage banking fees and gains in our affiliated venture capital and private equity partnerships were more than offset by the gain on the sale of our commercial real estate brokerage business in fourth quarter 2019, as well as lower deposit-related fees and net gains from trading activities
• Noninterest expense decreased 5%, predominantly due to lower operating losses. Fourth quarter 2020 operating losses included $321 million of customer remediation accruals, while fourth quarter 2019 included $1.5 billion of litigation accruals. Additionally, travel expense and advertising expense declined as a result of the COVID-19 pandemic, while professional and outside services expense declined primarily due to efficiency initiatives. These decreases were partially offset by $781 million of restructuring charges
• Provision for credit losses decreased $823 million, predominantly due to a $757 million reserve release due to the announced sale of our student loan portfolio, as well as lower net charge-offs

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Selected Company-wide Capital and Liquidity Information

				Quarter ended
($ in billions)		Dec 31,	Sep 30,	Dec 31,
	2020	2020	2019
Capital:
Total equity	$	185.9	182.0	188.0
Common stockholders' equity		164.8	161.1	166.7
Tangible common equity (a)		136.9	133.2	138.5
CET1 (b)		11.6 %	11.4	11.1
Total loss absorbing capacity (TLAC) (c)		25.8	25.8	23.3
Liquidity:
LCR (d)		133	134	120

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 23-24 of the 4Q20 Quarterly Supplement.
2. Represents the lower of our Common Equity Tier 1 (CET1) ratio calculated under the Standardized Approach and under the Advanced Approach. See tables on pages 25-26 of the 4Q20 Quarterly Supplement for more information on CET1. CET1 is a preliminary estimate.
3. TLAC is a preliminary estimate.
4. Liquidity coverage ratio (LCR) is calculated as high-quality liquid assets divided by projected net cash outflows, as each is defined under the LCR rule. LCR is a preliminary estimate.

Selected Company-wide Loan Credit Information

				Quarter ended
($ in millions)		Dec 31,	Sep 30,	Dec 31,
	2020	2020	2019
Provision for credit losses for loans	$	(144)	751	644
Net loan charge-offs		584	683	769
As a % of average total loans (annualized)		0.26 %	0.29	0.32
Total nonaccrual loans	$	8,728	8,022	5,346
As a % of total loans		0.98 %	0.87	0.56
Total nonperforming assets	$	8,887	8,178	5,649
As a % of total loans		1.00 %	0.89	0.59
Allowance for credit losses for loans	$	19,713	20,471	10,456
As a % of total loans		2.22 %	2.22	1.09

Fourth Quarter 2020 vs. Third Quarter 2020

• Net loan charge-offs as a percentage of average loans was 0.26% (annualized) for both commercial and consumer loans. Both portfolios saw declines in losses and net charge-off rates. Commercial net loan charge-offs were impacted by a small number of credit exposures in the commercial real estate portfolio. Consumer losses decreased as the impacts of government stimulus programs and customer accommodations, including payment deferrals, continued to impact performance
• Nonperforming assets increased 9%. Nonaccrual loans increased $706 million predominantly due to increases in the commercial real estate, residential mortgage, and lease financing portfolios, partially offset by a decrease in the commercial and industrial portfolio
• Allowance for credit losses for loans decreased $758 million predominantly due to the announced sale of our student loan portfolio

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Business Segment Performance

We reorganized our management reporting 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. We define our 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 operating segments based on the Company's management structure, and the results are regularly reviewed by our Chief Executive Officer and Operating Committee. Prior period operating segment results have been revised to reflect this reorganization. The reorganization did not impact the previously reported consolidated financial results of the Company.

Consumer Banking and Lendingoffers diversified financial products and services for consumers and small businesses with annual sales generally up to $5 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		Dec 31, 2020
						% Change from
			Dec 31,	Sep 30,	Dec 31,		Sep 30,	Dec 31,
			2020	2020	2019	2020	2019
Earnings (in millions)
	Consumer and Small Business Banking	$	4,701	4,721	5,098		- %	(8)
	Consumer Lending:
	Home Lending		1,995	2,527	1,960	(21)	2
	Credit Card		1,372	1,345	1,470	2	(7)
	Auto		403	404	387		-	4
	Personal Lending		142	149	167	(5)	(15)
	Total revenue		8,613	9,146	9,082	(6)	(5)
	Provision for credit losses		351	640	485	(45)	(28)
	Noninterest expense		6,441	7,345	7,421	(12)	(13)
	Net income	$	1,364	871	632	57	116
Average balances (in billions)
	Loans	$	373.9	379.8	383.1	(2)	(2)
	Deposits		763.2	756.5	646.1	1	18

Fourth Quarter 2020 vs. Fourth Quarter 2019

• Revenue decreased 5%
• • Consumer and Small Business Banking was down 8% primarily due to the impact of lower interest rates and lower deposit-related fees on reduced transaction activity and higher fee waivers provided in response to the COVID-19 pandemic
  • Home Lending was up 2% as higher mortgage banking results were partially offset by lower net interest income, primarily driven by lower loan balances
  • Credit Card was down 7% driven by lower balances and lower fees due to reduced activity as a result of the COVID-19 pandemic
  • Auto was up 4% on higher net interest income, while Personal Lending was down 15% driven by lower loan balances
• Noninterest expense decreased 13%, predominantly due to lower operating losses and marketing and advertising expense
• Provision for credit losses decreased $134 million driven by lower net charge-offs across the consumer loan portfolios, which included the impacts of government stimulus programs and customer payment deferral activities

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