WELLS FARGO & COMPANY/MN - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
☐ | 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)
Delaware | No. | 41-0449260 | ||||||||||||
(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 | WFC | New York Stock Exchange (NYSE) | ||||||
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L | WFC.PRL | NYSE | ||||||
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 | WFC.PRQ | NYSE | ||||||
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 | WFC.PRR | NYSE | ||||||
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y | WFC.PRY | NYSE | ||||||
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Z | WFC.PRZ | NYSE | ||||||
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series AA | WFC.PRA | NYSE | ||||||
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series CC | WFC.PRC | NYSE | ||||||
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series DD | WFC.PRD | NYSE | ||||||
Guarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLC | WFC/28A | NYSE |
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.
Shares Outstanding | ||||||||
October 21, 2021 | ||||||||
Common stock, $1-2/3 par value | 3,987,232,567 |
FORM 10-Q | ||||||||||||||
CROSS-REFERENCE INDEX | ||||||||||||||
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 | ||||||||||||
14 | — | Derivatives | ||||||||||||
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 | ||||||||||||||
Overview | ||||||||||||||
Earnings Performance | ||||||||||||||
Balance Sheet Analysis | ||||||||||||||
Off-Balance Sheet Arrangements | ||||||||||||||
Risk Management | ||||||||||||||
Capital Management | ||||||||||||||
Regulatory Matters | ||||||||||||||
Critical Accounting Policies | ||||||||||||||
Current Accounting Developments | ||||||||||||||
Forward-Looking Statements | ||||||||||||||
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 | |||||||||||||
Item 6. | Exhibits | |||||||||||||
Signature |
Wells Fargo & Company | 1 |
FINANCIAL REVIEW
Summary Financial Data (1) | |||||||||||||||||||||||||||||||||||||||||||||||
Quarter ended | Sep 30, 2021 % Change from | Nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
($ in millions, except per share amounts) | Sep 30, 2021 | Jun 30, 2021 | Sep 30, 2020 | Jun 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | % Change | |||||||||||||||||||||||||||||||||||||||
Selected Income Statement Data | |||||||||||||||||||||||||||||||||||||||||||||||
Total revenue | $ | 18,834 | 20,270 | 19,316 | (7) | % | (2) | $ | 57,636 | 55,775 | 3 | % | |||||||||||||||||||||||||||||||||||
Noninterest expense | 13,303 | 13,341 | 15,229 | — | (13) | 40,633 | 42,828 | (5) | |||||||||||||||||||||||||||||||||||||||
Pre-tax pre-provision profit (PTPP) (2) | 5,531 | 6,929 | 4,087 | (20) | 35 | 17,003 | 12,947 | 31 | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (1,395) | (1,260) | 769 | (11) | NM | (3,703) | 14,308 | NM | |||||||||||||||||||||||||||||||||||||||
Wells Fargo net income | 5,122 | 6,040 | 3,216 | (15) | 59 | 15,798 | 286 | NM | |||||||||||||||||||||||||||||||||||||||
Wells Fargo net income (loss) applicable to common stock | 4,787 | 5,743 | 2,901 | (17) | 65 | 14,786 | (955) | NM | |||||||||||||||||||||||||||||||||||||||
Common Share Data | |||||||||||||||||||||||||||||||||||||||||||||||
Diluted earnings (loss) per common share | 1.17 | 1.38 | 0.70 | (15) | 67 | 3.57 | (0.23) | NM | |||||||||||||||||||||||||||||||||||||||
Dividends declared per common share | 0.20 | 0.10 | 0.10 | 100 | 100 | 0.40 | 1.12 | (64) | |||||||||||||||||||||||||||||||||||||||
Common shares outstanding | 3,996.9 | 4,108.0 | 4,132.5 | (3) | (3) | ||||||||||||||||||||||||||||||||||||||||||
Average common shares outstanding | 4,056.3 | 4,124.6 | 4,123.8 | (2) | (2) | 4,107.1 | 4,111.4 | — | |||||||||||||||||||||||||||||||||||||||
Diluted average common shares outstanding (3) | 4,090.4 | 4,156.1 | 4,132.2 | (2) | (1) | 4,140.0 | 4,111.4 | 1 | |||||||||||||||||||||||||||||||||||||||
Book value per common share (4) | $ | 42.47 | 41.74 | 38.91 | 2 | 9 | |||||||||||||||||||||||||||||||||||||||||
Tangible book value per common share (4)(5) | 35.54 | 34.95 | 32.15 | 2 | 11 | ||||||||||||||||||||||||||||||||||||||||||
Selected Equity Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Total equity | 191,071 | 193,127 | 181,727 | (1) | 5 | ||||||||||||||||||||||||||||||||||||||||||
Common stockholders' equity | 169,753 | 171,453 | 160,804 | (1) | 6 | ||||||||||||||||||||||||||||||||||||||||||
Tangible common equity (5) | 142,047 | 143,577 | 132,874 | (1) | 7 | ||||||||||||||||||||||||||||||||||||||||||
Performance Ratios | |||||||||||||||||||||||||||||||||||||||||||||||
Return on average assets (ROA) (6) | 1.04 | % | 1.25 | 0.66 | 1.09 | % | 0.02 | ||||||||||||||||||||||||||||||||||||||||
Return on average equity (ROE) (7) | 11.1 | 13.6 | 7.2 | 11.7 | (0.8) | ||||||||||||||||||||||||||||||||||||||||||
Return on average tangible common equity (ROTCE) (5) | 13.2 | 16.3 | 8.7 | 14.0 | (0.9) | ||||||||||||||||||||||||||||||||||||||||||
Efficiency ratio (8) | 71 | 66 | 79 | 70 | 77 | ||||||||||||||||||||||||||||||||||||||||||
Net interest margin on a taxable-equivalent basis | 2.03 | 2.02 | 2.13 | 2.03 | 2.32 | ||||||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (average) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans | $ | 854,024 | 854,747 | 931,708 | — | (8) | $ | 860,666 | 955,918 | (10) | |||||||||||||||||||||||||||||||||||||
Assets | 1,949,700 | 1,939,879 | 1,945,911 | 1 | — | 1,941,391 | 1,947,315 | — | |||||||||||||||||||||||||||||||||||||||
Deposits | 1,450,941 | 1,435,824 | 1,399,028 | 1 | 4 | 1,426,956 | 1,374,638 | 4 | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Debt securities | 542,993 | 533,565 | 476,421 | 2 | 14 | ||||||||||||||||||||||||||||||||||||||||||
Loans | 862,827 | 852,300 | 920,082 | 1 | (6) | ||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses for loans | 14,705 | 16,391 | 20,471 | (10) | (28) | ||||||||||||||||||||||||||||||||||||||||||
Equity securities | 66,526 | 64,547 | 49,348 | 3 | 35 | ||||||||||||||||||||||||||||||||||||||||||
Assets | 1,954,901 | 1,945,996 | 1,920,399 | — | 2 | ||||||||||||||||||||||||||||||||||||||||||
Deposits | 1,470,379 | 1,440,472 | 1,383,215 | 2 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Headcount (#) (period-end) | 253,871 | 259,196 | 274,931 | (2) | (8) | ||||||||||||||||||||||||||||||||||||||||||
Capital and other metrics | |||||||||||||||||||||||||||||||||||||||||||||||
Risk-based capital ratios and components (9): | |||||||||||||||||||||||||||||||||||||||||||||||
Standardized Approach: | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity tier 1 (CET1) | 11.62 | % | 12.07 | 11.38 | |||||||||||||||||||||||||||||||||||||||||||
Tier 1 capital | 13.18 | 13.71 | 13.05 | ||||||||||||||||||||||||||||||||||||||||||||
Total capital | 16.21 | 16.84 | 16.35 | ||||||||||||||||||||||||||||||||||||||||||||
Risk-weighted assets (RWAs) (in billions) | 1,218.9 | 1,188.7 | 1,185.6 | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||
Advanced Approach: | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity tier 1 (CET1) | 12.43 | % | 12.73 | 11.51 | |||||||||||||||||||||||||||||||||||||||||||
Tier 1 capital | 14.11 | 14.47 | 13.20 | ||||||||||||||||||||||||||||||||||||||||||||
Total capital | 16.46 | 16.88 | 15.71 | ||||||||||||||||||||||||||||||||||||||||||||
Risk-weighted assets (RWAs) (in billions) | $ | 1,138.6 | 1,126.5 | 1,172.0 | 1 | (3) | |||||||||||||||||||||||||||||||||||||||||
Tier 1 leverage ratio | 8.36 | % | 8.53 | 8.05 | |||||||||||||||||||||||||||||||||||||||||||
Supplementary Leverage Ratio (SLR) | 6.94 | 7.09 | 7.75 | ||||||||||||||||||||||||||||||||||||||||||||
Total Loss Absorbing Capacity (TLAC) Ratio (10) | 23.68 | 25.11 | 25.76 | ||||||||||||||||||||||||||||||||||||||||||||
Liquidity Coverage Ratio (LCR) (11) | 119 | 123 | 134 |
NM – Not meaningful
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period financial statement line items have been revised to conform with the current period presentation. Prior period risk-based capital and certain other regulatory related metrics were not revised. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
(2)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.
(3)For the nine months ended September 30, 2020, diluted average common shares outstanding equaled average common shares outstanding because our securities convertible into common shares had an anti-dilutive effect.
(4)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.
(5)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 nonmarketable equity securities, 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.
(6)Represents Wells Fargo net income divided by average assets.
(7)Represents Wells Fargo net income (loss) applicable to common stock divided by average common stockholders’ equity.
(8)The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(9)The information presented reflects fully phased-in CET1, tier 1 capital, and RWAs, but reflects total capital in accordance with transition requirements. For additional information, see the “Capital Management” section and Note 23 (Regulatory Capital Requirements and Other Restrictions) to Financial Statements in this Report.
(10)Represents TLAC divided by the greater of RWAs determined under the Standardized and Advanced Approaches, which is our binding TLAC ratio.
(11)Represents high-quality liquid assets divided by projected net cash outflows, as each is defined under the LCR rule.
2 | Wells Fargo & Company |
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, 2020 (2020 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.
Financial Review
Overview |
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 the 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 September 30, 2021.
Wells Fargo’s top priority remains meeting its regulatory requirements to build the right foundation for all that lies ahead. 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. 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. Due to the COVID-19 pandemic, on April 8, 2020, the FRB amended the consent order to allow the Company to exclude from the asset cap any on-balance sheet exposure resulting from loans made by the Company in connection with the Small Business Administration’s Paycheck Protection Program and the FRB’s Main Street Lending Program. As required under the amendment to the consent order, to the extent the Company chooses to exclude these exposures from the asset cap, certain fees and other economic benefits received by the Company from loans made in connection with these programs shall be transferred to the U.S. Treasury or to non-profit organizations approved by the FRB that support small businesses. As of September 30, 2021, the Company had not excluded these exposures from the asset cap. 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
Wells Fargo & Company | 3 |
Overview (continued)
$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
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 top 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. Our priority of rebuilding trust has included numerous actions focused on identifying potential financial harm to customers resulting from these matters and providing remediation. On September 8, 2021, the CFPB consent order regarding retail sales practices expired.
For additional information regarding retail sales practices matters, including related legal matters, see the “Risk Factors” section in our 2020 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.
Other Customer Remediation Activities
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, it is possible that in the future we may 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, including related legal and regulatory risk, see the “Risk Factors” section in our 2020 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.
Recent Developments
COVID-19 Pandemic
In response to the COVID-19 pandemic, we have been working diligently to protect employee safety while continuing to carry out Wells Fargo’s role as a provider of essential services to the
public. We have taken comprehensive steps to help customers, employees and communities.
We have strong levels of capital and liquidity, and we remain focused on delivering for our customers and communities to get through these unprecedented times.
PAYCHECK PROTECTION PROGRAM The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created funding for the Small Business Administration’s (SBA) loan program providing forgiveness of up to the full principal amount of qualifying loans guaranteed under a program called the Paycheck Protection Program (PPP). Since its inception, we have funded approximately 282,000 loans under the PPP totaling approximately $14.0 billion, and more than $8.8 billion of principal forgiveness has been provided on qualifying PPP loans. As of September 30, 2021, we had $4.7 billion of PPP loans outstanding. We voluntarily committed to donate all of the gross
processing fees received from PPP loans funded in 2020 and have committed to donate any net profits from processing fees
received from PPP loans funded in 2021. For additional information on the CARES Act and the PPP, see the “Overview – Recent Developments – COVID-19 Pandemic” section in our 2020 Form 10-K.
LIBOR Transition
The London Interbank Offered Rate (LIBOR) is a widely-referenced benchmark rate, which is published in five currencies and a range of tenors, and seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. On March 5, 2021, the Financial Conduct Authority and the administrator of LIBOR announced that LIBOR will no longer be published on a representative basis after December 31, 2021, with the exception of the most commonly used tenors of U.S. dollar (USD) LIBOR which will no longer be published on a representative basis after June 30, 2023. Additionally, federal banking agencies have issued guidance strongly encouraging banking organizations to cease using USD LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. We have made significant progress in preparation for the December 31, 2021, cessation date and in response to the regulatory guidance.
We have continued to expand our product offerings using the Secured Overnight Financing Rate (SOFR) and other alternative reference rates for our commercial customers. We expect to have a suite of alternative reference rate products available for our customers prior to the end of 2021. In addition, we have continued the transition of interdealer derivative contracts to SOFR in accordance with the recommendation of the Commodity Futures Trading Commission’s Market Risk Advisory Committee.
For additional information on the initiatives undertaken by our LIBOR Transition Office in an effort to mitigate the risks associated with a transition away from LIBOR, as well as the amount of our LIBOR-linked assets and liabilities, see the “Overview – Recent Developments – LIBOR Transition” section in our 2020 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 2020 Form 10-K.
Capital Actions and Restrictions
In June 2021, the Company completed the 2021 Comprehensive Capital Analysis and Review (CCAR) stress test process. On August 5, 2021, the FRB confirmed that the Company's stress
4 | Wells Fargo & Company |
capital buffer (SCB) for the period October 1, 2021, through September 30, 2022, is 3.10%.
For additional information about capital planning, see the “Capital Management – Capital Planning and Stress Testing” section in this Report.
In July 2021, we issued $1.25 billion of our Preferred Stock, Series DD. In September 2021, we redeemed our Preferred Stock, Series O and Series X, for an aggregate cost of $1.8 billion.
Business Divestitures
On November 1, 2021, we closed our previously announced agreement to sell our Corporate Trust Services business and our previously announced agreement to sell Wells Fargo Asset Management, which is subject to certain post-closing adjustments and earn-out provisions.
Financial Performance
Consolidated Financial Highlights | |||||||||||||||||||||||||||||||||||||||||||||||
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Selected income statement data | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 8,909 | 9,379 | (470) | (5) | % | $ | 26,517 | 30,601 | (4,084) | (13) | % | |||||||||||||||||||||||||||||||||||
Noninterest income | 9,925 | 9,937 | (12) | — | 31,119 | 25,174 | 5,945 | 24 | |||||||||||||||||||||||||||||||||||||||
Total revenue | 18,834 | 19,316 | (482) | (2) | 57,636 | 55,775 | 1,861 | 3 | |||||||||||||||||||||||||||||||||||||||
Net charge-offs | 257 | 731 | (474) | (65) | 1,159 | 2,786 | (1,627) | (58) | |||||||||||||||||||||||||||||||||||||||
Change in the allowance for credit losses | (1,652) | 38 | (1,690) | NM | (4,862) | 11,522 | (16,384) | NM | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (1,395) | 769 | (2,164) | NM | (3,703) | 14,308 | (18,011) | NM | |||||||||||||||||||||||||||||||||||||||
Noninterest expense | 13,303 | 15,229 | (1,926) | (13) | 40,633 | 42,828 | (2,195) | (5) | |||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 1,521 | (83) | 1,604 | NM | 3,867 | (1,731) | 5,598 | NM | |||||||||||||||||||||||||||||||||||||||
Wells Fargo net income | 5,122 | 3,216 | 1,906 | 59 | 15,798 | 286 | 15,512 | NM | |||||||||||||||||||||||||||||||||||||||
Wells Fargo net income (loss) applicable to common stock | 4,787 | 2,901 | 1,886 | 65 | 14,786 | (955) | 15,741 | NM | |||||||||||||||||||||||||||||||||||||||
NM – Not meaningful
In third quarter 2021, we generated $5.1 billion of net income and diluted earnings per common share (EPS) of $1.17, compared with net income of $3.2 billion and diluted EPS of $0.70 in the same period a year ago. Financial performance for third quarter 2021, compared with the same period a year ago, included the following:
•total revenue decreased due to lower net interest income;
•provision for credit losses decreased reflecting lower net charge-offs and improvements in the economic environment;
•noninterest expense decreased due to lower restructuring charges, operating losses, and professional and outside services expense;
•average loans decreased due to lower residential mortgage loans driven by paydowns exceeding originations and the resecuritization of loans we purchased from Government National Mortgage Association (GNMA) loan securitization pools, lower commercial loans driven by weak demand and a reduction of PPP loans outstanding, and the reclassification of student loans to loans held for sale (LHFS) included in other consumer loans; 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 reflecting government stimulus programs and continued economic uncertainty associated with the COVID-19 pandemic, as well as the impact of payment deferral programs on consumer 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.
In the first nine months of 2021, we generated $15.8 billion of net income and diluted EPS of $3.57, compared with net income of $286 million and diluted loss per common share of $0.23 in the same period a year ago. Financial performance for the first nine months of 2021, compared with the same period a year ago, included the following:
•total revenue increased due to higher net gains from equity securities, mortgage banking income, and investment advisory and other asset-based fee income, partially offset by lower net interest income;
•provision for credit losses decreased reflecting lower net charge-offs due to better portfolio credit quality driven by improvements in the economic environment;
•noninterest expense decreased due to lower operating losses, professional and outside services expense, and restructuring charges, partially offset by higher incentive and revenue-related compensation in personnel expense;
•average loans decreased due to paydowns exceeding originations in our residential mortgage loan portfolio, weak demand for commercial loans, and the reclassification of student loans to LHFS included in other consumer loans; and
•average deposits increased driven by growth in the Consumer Banking and Lending, Commercial Banking, and WIM operating segments due to higher levels of liquidity and savings for consumer and commercial customers reflecting government stimulus programs and continued economic uncertainty associated with the COVID-19 pandemic, as well as the impact of payment deferral programs on consumer 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.
Wells Fargo & Company | 5 |
Overview (continued)
Capital and Liquidity
We maintained a strong capital position in the first nine months of 2021, with total equity of $191.1 billion at September 30, 2021, compared with $185.7 billion at December 31, 2020. Our liquidity and regulatory capital ratios remained strong at September 30, 2021, including:
•our liquidity coverage ratio (LCR) was 119%, which continued to exceed the regulatory minimum of 100%;
•our Common Equity Tier 1 (CET1) ratio was 11.62%, which continued to exceed both the regulatory requirement of 9% and our current internal target; and
•our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 23.68%, compared with the regulatory requirement of 21.50%.
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
Credit quality reflected the improving economic environment.
•The allowance for credit losses (ACL) for loans of $14.7 billion at September 30, 2021, decreased $5.0 billion from December 31, 2020.
•Our provision for credit losses for loans was $(3.7) billion in the first nine months of 2021, down from $14.1 billion in the same period a year ago. The decrease in the ACL for loans
and the provision for credit losses in the first nine months of 2021, compared with the same period a year ago, reflected improvements in current and forecasted economic conditions.
•The allowance coverage for total loans was 1.70% at September 30, 2021, compared with 2.22% at December 31, 2020.
•Commercial portfolio net loan charge-offs were $38 million, or 3 basis points of average commercial loans, in third quarter 2021, compared with net loan charge-offs of $356 million, or 29 basis points, in the same period a year ago, predominantly driven by lower losses and higher recoveries in our commercial and industrial portfolio primarily within the oil, gas and pipelines industry, and in the real estate mortgage portfolio.
•Consumer portfolio net loan charge-offs were $221 million, or 23 basis points of average consumer loans, in third quarter 2021, compared with net loan charge-offs of $327 million, or 30 basis points, in the same period a year ago, predominantly driven by lower losses in our credit card portfolio as a result of payment deferral activities and government stimulus programs instituted in response to the COVID-19 pandemic.
•Nonperforming assets (NPAs) of $7.2 billion at September 30, 2021, decreased $1.7 billion, or 19%, from December 31, 2020, predominantly driven by our commercial and industrial portfolio reflecting improvements in the economic environment. NPAs represented 0.83% of total loans at September 30, 2021.
Earnings Performance |
Wells Fargo net income for third quarter 2021 was $5.1 billion ($1.17 diluted EPS), compared with $3.2 billion ($0.70 diluted EPS) in the same period a year ago. Net income increased in third quarter 2021, compared with the same period a year ago, predominantly due to a $2.2 billion decrease in provision for credit losses, and a $1.9 billion decrease in noninterest expense, partially offset by a $1.6 billion increase in income tax expense and a $470 million decrease in net interest income.
Net income for the first nine months of 2021 was $15.8 billion ($3.57 diluted EPS), compared with $286 million ($0.23 diluted loss per common share) in the same period a year ago. Net income increased in the first nine months of 2021, compared with the same period a year ago, predominantly due to a $18.0 billion decrease in provision for credit losses, a $5.9 billion increase in noninterest income, and a $2.2 billion decrease in noninterest expense, partially offset by a $5.6 billion increase in income tax expense and a $4.1 billion decrease in net interest income.
Net Interest Income
Net interest income and net interest margin decreased in both the third quarter and first nine months of 2021, compared with the same periods a year ago. The third quarter 2021 decrease was due to the impact of lower loan balances reflecting soft demand and elevated prepayments, and the impact of lower yields on earning assets, partially offset by a decrease in long-term debt and lower mortgage-backed securities premium amortization. Third quarter 2021 included interest income from PPP loans of $117 million. Additionally, in third quarter 2021, we had interest income associated with loans we purchased from GNMA loan securitization pools of $212 million. For additional information about loans purchased from GNMA loan
securitization pools, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in this Report. The first nine months of 2021 decrease was due to the impact of lower interest rates and lower loan balances reflecting soft demand, elevated prepayments and refinancing activity, as well as unfavorable hedge ineffectiveness accounting results and higher mortgage-backed securities premium amortization, partially offset by a lower cost of funding liabilities.
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 September 30, 2021 and 2020.
For additional information about net interest income and net interest margin, see the “Earnings Performance – Net Interest Income” section in our 2020 Form 10-K.
6 | Wells Fargo & Company |
Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)
Quarter ended September 30, | |||||||||||||||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(in millions) | Average balance | Interest income/ expense | Interest rates | Average balance | Interest income/ expense | Interest rates | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 250,314 | 97 | 0.15 | % | $ | 216,958 | 58 | 0.11 | % | |||||||||||||||||||||||||
Federal funds sold and securities purchased under resale agreements | 68,912 | 6 | 0.03 | 80,431 | 3 | 0.02 | |||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||||||||
Trading debt securities | 88,476 | 517 | 2.33 | 88,021 | 548 | 2.49 | |||||||||||||||||||||||||||||
Available-for-sale debt securities | 179,237 | 705 | 1.57 | 217,556 | 1,067 | 1.96 | |||||||||||||||||||||||||||||
Held-to-maturity debt securities | 261,182 | 1,223 | 1.87 | 176,384 | 922 | 2.09 | |||||||||||||||||||||||||||||
Total debt securities | 528,895 | 2,445 | 1.85 | 481,961 | 2,537 | 2.10 | |||||||||||||||||||||||||||||
Loans held for sale (2) | 24,490 | 172 | 2.81 | 31,023 | 239 | 3.07 | |||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||
Commercial loans: | |||||||||||||||||||||||||||||||||||
Commercial and industrial – U.S. | 247,095 | 1,608 | 2.58 | 270,998 | 1,721 | 2.53 | |||||||||||||||||||||||||||||
Commercial and industrial – Non-U.S. | 72,331 | 361 | 1.98 | 64,048 | 344 | 2.14 | |||||||||||||||||||||||||||||
Real estate mortgage | 121,453 | 817 | 2.67 | 123,391 | 870 | 2.81 | |||||||||||||||||||||||||||||
Real estate construction | 21,794 | 170 | 3.10 | 22,216 | 175 | 3.13 | |||||||||||||||||||||||||||||
Lease financing | 15,492 | 171 | 4.45 | 17,091 | 159 | 3.72 | |||||||||||||||||||||||||||||
Total commercial loans | 478,165 | 3,127 | 2.60 | 497,744 | 3,269 | 2.61 | |||||||||||||||||||||||||||||
Consumer loans: | |||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | 243,201 | 1,897 | 3.12 | 290,607 | 2,357 | 3.24 | |||||||||||||||||||||||||||||
Residential mortgage – junior lien | 18,809 | 195 | 4.11 | 26,018 | 270 | 4.13 | |||||||||||||||||||||||||||||
Credit card | 35,407 | 1,023 | 11.47 | 35,965 | 1,057 | 11.70 | |||||||||||||||||||||||||||||
Auto | 52,370 | 586 | 4.44 | 48,718 | 600 | 4.90 | |||||||||||||||||||||||||||||
Other consumer | 26,072 | 243 | 3.70 | 32,656 | 431 | 5.25 | |||||||||||||||||||||||||||||
Total consumer loans | 375,859 | 3,944 | 4.18 | 433,964 | 4,715 | 4.33 | |||||||||||||||||||||||||||||
Total loans (2) | 854,024 | 7,071 | 3.29 | 931,708 | 7,984 | 3.41 | |||||||||||||||||||||||||||||
Equity securities | 32,790 | 146 | 1.78 | 25,185 | 100 | 1.61 | |||||||||||||||||||||||||||||
Other | 10,070 | 2 | 0.09 | 6,974 | — | (0.02) | |||||||||||||||||||||||||||||
Total interest-earning assets | 1,769,495 | 9,939 | 2.24 | 1,774,240 | 10,921 | 2.45 | |||||||||||||||||||||||||||||
Cash and due from banks | 24,201 | — | 21,991 | — | |||||||||||||||||||||||||||||||
Goodwill | 26,192 | — | 26,388 | — | |||||||||||||||||||||||||||||||
Other (3) | 129,812 | — | 123,292 | — | |||||||||||||||||||||||||||||||
Total noninterest-earning assets | 180,205 | — | 171,671 | — | |||||||||||||||||||||||||||||||
Total assets | $ | 1,949,700 | 9,939 | 1,945,911 | 10,921 | ||||||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||||||
Deposits: | |||||||||||||||||||||||||||||||||||
Demand deposits | $ | 452,301 | 29 | 0.03 | % | $ | 49,608 | 8 | 0.07 | % | |||||||||||||||||||||||||
Savings deposits | 426,201 | 34 | 0.03 | 803,942 | 157 | 0.08 | |||||||||||||||||||||||||||||
Time deposits | 34,171 | 25 | 0.28 | 71,728 | 127 | 0.71 | |||||||||||||||||||||||||||||
Deposits in non-U.S. offices | 28,341 | 11 | 0.16 | 33,992 | 22 | 0.25 | |||||||||||||||||||||||||||||
Total interest-bearing deposits | 941,014 | 99 | 0.04 | 959,270 | 314 | 0.13 | |||||||||||||||||||||||||||||
Short-term borrowings | 43,899 | (7) | (0.06) | 57,292 | (12) | (0.08) | |||||||||||||||||||||||||||||
Long-term debt | 174,643 | 745 | 1.71 | 222,862 | 1,038 | 1.86 | |||||||||||||||||||||||||||||
Other liabilities | 30,387 | 88 | 1.15 | 27,679 | 92 | 1.33 | |||||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,189,943 | 925 | 0.31 | 1,267,103 | 1,432 | 0.45 | |||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | 509,927 | — | 439,758 | — | |||||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 55,789 | — | 57,673 | — | |||||||||||||||||||||||||||||||
Total noninterest-bearing liabilities | 565,716 | — | 497,431 | — | |||||||||||||||||||||||||||||||
Total liabilities | 1,755,659 | 925 | 1,764,534 | 1,432 | |||||||||||||||||||||||||||||||
Total equity (3) | 194,041 | — | 181,377 | — | |||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 1,949,700 | 925 | 1,945,911 | 1,432 | ||||||||||||||||||||||||||||||
Interest rate spread on a taxable-equivalent basis (3) | 1.93 | % | 2.00 | % | |||||||||||||||||||||||||||||||
Net interest income and net interest margin on a taxable-equivalent basis (3) | $ | 9,014 | 2.03 | % | $ | 9,489 | 2.13 | % |
(continued on following page)
Wells Fargo & Company | 7 |
Earnings Performance (continued)
(continued from previous page)
Nine months ended September 30, | |||||||||||||||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(in millions) | Average balance | Interest income/ expense | Interest rates | Average balance | Interest income/ expense | Interest rates | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 243,095 | 224 | 0.12 | % | $ | 174,425 | 490 | 0.37 | % | |||||||||||||||||||||||||
Federal funds sold and securities purchased under resale agreements | 71,179 | 16 | 0.03 | 88,095 | 385 | 0.58 | |||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||||||||
Trading debt securities | 86,828 | 1,552 | 2.38 | 95,018 | 1,981 | 2.78 | |||||||||||||||||||||||||||||
Available-for-sale debt securities | 192,765 | 2,232 | 1.54 | 234,125 | 4,293 | 2.45 | |||||||||||||||||||||||||||||
Held-to-maturity debt securities | 238,769 | 3,356 | 1.88 | 167,061 | 2,899 | 2.31 | |||||||||||||||||||||||||||||
Total debt securities | 518,362 | 7,140 | 1.84 | 496,204 | 9,173 | 2.47 | |||||||||||||||||||||||||||||
Loans held for sale (2) | 28,702 | 696 | 3.24 | 26,841 | 685 | 3.40 | |||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||
Commercial loans: | |||||||||||||||||||||||||||||||||||
Commercial and industrial – U.S. | 249,359 | 4,831 | 2.59 | 289,799 | 6,257 | 2.88 | |||||||||||||||||||||||||||||
Commercial and industrial – Non-U.S. | 69,530 | 1,073 | 2.06 | 68,965 | 1,345 | 2.61 | |||||||||||||||||||||||||||||
Real estate mortgage | 120,907 | 2,452 | 2.71 | 122,903 | 2,987 | 3.25 | |||||||||||||||||||||||||||||
Real estate construction | 21,855 | 505 | 3.09 | 21,288 | 583 | 3.66 | |||||||||||||||||||||||||||||
Lease financing | 15,617 | 529 | 4.52 | 18,152 | 602 | 4.42 | |||||||||||||||||||||||||||||
Total commercial loans | 477,268 | 9,390 | 2.63 | 521,107 | 11,774 | 3.02 | |||||||||||||||||||||||||||||
Consumer loans: | |||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | 252,338 | 5,922 | 3.13 | 288,355 | 7,421 | 3.43 | |||||||||||||||||||||||||||||
Residential mortgage – junior lien | 20,516 | 634 | 4.13 | 27,535 | 932 | 4.52 | |||||||||||||||||||||||||||||
Credit card | 34,942 | 3,035 | 11.61 | 37,415 | 3,243 | 11.58 | |||||||||||||||||||||||||||||
Auto | 50,368 | 1,709 | 4.54 | 48,473 | 1,797 | 4.95 | |||||||||||||||||||||||||||||
Other consumer | 25,234 | 709 | 3.75 | 33,033 | 1,405 | 5.68 | |||||||||||||||||||||||||||||
Total consumer loans | 383,398 | 12,009 | 4.18 | 434,811 | 14,798 | 4.54 | |||||||||||||||||||||||||||||
Total loans (2) | 860,666 | 21,399 | 3.32 | 955,918 | 26,572 | 3.71 | |||||||||||||||||||||||||||||
Equity securities | 30,678 | 416 | 1.81 | 30,027 | 425 | 1.89 | |||||||||||||||||||||||||||||
Other | 9,559 | 4 | 0.06 | 7,373 | 14 | 0.24 | |||||||||||||||||||||||||||||
Total interest-earning assets | 1,762,241 | 29,895 | 2.27 | 1,778,883 | 37,744 | 2.83 | |||||||||||||||||||||||||||||
Cash and due from banks | 24,377 | — | 21,266 | — | |||||||||||||||||||||||||||||||
Goodwill | 26,262 | — | 26,386 | — | |||||||||||||||||||||||||||||||
Other(3) | 128,511 | — | 120,780 | — | |||||||||||||||||||||||||||||||
Total noninterest-earning assets | 179,150 | — | 168,432 | — | |||||||||||||||||||||||||||||||
Total assets | $ | 1,941,391 | 29,895 | 1,947,315 | 37,744 | ||||||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||||||
Deposits: | |||||||||||||||||||||||||||||||||||
Demand deposits | $ | 449,777 | 93 | 0.03 | % | $ | 55,407 | 152 | 0.37 | % | |||||||||||||||||||||||||
Savings deposits | 420,202 | 98 | 0.03 | 788,732 | 1,446 | 0.24 | |||||||||||||||||||||||||||||
Time deposits | 38,402 | 101 | 0.35 | 90,191 | 817 | 1.21 | |||||||||||||||||||||||||||||
Deposits in non-U.S. offices | 29,614 | 11 | 0.05 | 41,642 | 226 | 0.73 | |||||||||||||||||||||||||||||
Total interest-bearing deposits | 937,995 | 303 | 0.04 | 975,972 | 2,641 | 0.36 | |||||||||||||||||||||||||||||
Short-term borrowings | 50,439 | (27) | (0.07) | 74,538 | 263 | 0.47 | |||||||||||||||||||||||||||||
Long-term debt | 184,608 | 2,483 | 1.79 | 228,067 | 3,515 | 2.06 | |||||||||||||||||||||||||||||
Other liabilities | 28,999 | 298 | 1.37 | 29,270 | 350 | 1.59 | |||||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,202,041 | 3,057 | 0.34 | 1,307,847 | 6,769 | 0.69 | |||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | 488,961 | — | 398,666 | — | |||||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 59,010 | — | 56,367 | — | |||||||||||||||||||||||||||||||
Total noninterest-bearing liabilities | 547,971 | — | 455,033 | — | |||||||||||||||||||||||||||||||
Total liabilities | 1,750,012 | 3,057 | 1,762,880 | 6,769 | |||||||||||||||||||||||||||||||
Total equity (3) | 191,379 | — | 184,435 | — | |||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 1,941,391 | 3,057 | 1,947,315 | 6,769 | ||||||||||||||||||||||||||||||
Interest rate spread on a taxable-equivalent basis (3) | 1.93 | % | 2.14 | % | |||||||||||||||||||||||||||||||
Net interest margin and net interest income on a taxable-equivalent basis (3) | $ | 26,838 | 2.03 | % | $ | 30,975 | 2.32 | % |
(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 $105 million and $110 million for the quarters ended September 30, 2021 and 2020, respectively, and $321 million and $374 million for the first nine months of 2021 and 2020, respectively, predominantly related to tax-exempt income on certain loans and securities.
8 | Wells Fargo & Company |
Noninterest Income
Table 2: Noninterest Income
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Deposit-related fees | $ | 1,416 | 1,299 | 117 | 9 | % | $ | 4,013 | 3,888 | 125 | 3 | % | |||||||||||||||||||||||||||||||||||
Lending-related fees | 365 | 352 | 13 | 4 | 1,088 | 1,025 | 63 | 6 | |||||||||||||||||||||||||||||||||||||||
Investment advisory and other asset-based fees | 2,882 | 2,505 | 377 | 15 | 8,432 | 7,265 | 1,167 | 16 | |||||||||||||||||||||||||||||||||||||||
Commissions and brokerage services fees | 525 | 568 | (43) | (8) | 1,741 | 1,795 | (54) | (3) | |||||||||||||||||||||||||||||||||||||||
Investment banking fees | 547 | 441 | 106 | 24 | 1,685 | 1,379 | 306 | 22 | |||||||||||||||||||||||||||||||||||||||
Card fees | 1,078 | 912 | 166 | 18 | 3,104 | 2,601 | 503 | 19 | |||||||||||||||||||||||||||||||||||||||
Net servicing income | 145 | 341 | (196) | (57) | 25 | (77) | 102 | 132 | |||||||||||||||||||||||||||||||||||||||
Net gains on mortgage loan originations/sales | 1,114 | 1,249 | (135) | (11) | 3,896 | 2,363 | 1,533 | 65 | |||||||||||||||||||||||||||||||||||||||
Mortgage banking | 1,259 | 1,590 | (331) | (21) | 3,921 | 2,286 | 1,635 | 72 | |||||||||||||||||||||||||||||||||||||||
Net gains from trading activities | 92 | 361 | (269) | (75) | 461 | 1,232 | (771) | (63) | |||||||||||||||||||||||||||||||||||||||
Net gains on debt securities | 283 | 264 | 19 | 7 | 434 | 713 | (279) | (39) | |||||||||||||||||||||||||||||||||||||||
Net gains (losses) from equity securities | 869 | 649 | 220 | 34 | 3,957 | (219) | 4,176 | NM | |||||||||||||||||||||||||||||||||||||||
Lease income | 322 | 333 | (11) | (3) | 950 | 1,021 | (71) | (7) | |||||||||||||||||||||||||||||||||||||||
Other | 287 | 663 | (376) | (57) | 1,333 | 2,188 | (855) | (39) | |||||||||||||||||||||||||||||||||||||||
Total | $ | 9,925 | 9,937 | (12) | — | $ | 31,119 | 25,174 | 5,945 | 24 |
NM – Not meaningful
Third quarter 2021 vs. third quarter 2020
Deposit-related fees increased driven by:
•higher consumer transaction volumes compared with a third quarter 2020 that included reduced volumes due to the economic slowdown associated with the COVID-19 pandemic;
•lower fee waivers and reversals compared with a third quarter 2020 that included elevated fee waivers due to our actions to support customers during the COVID-19 pandemic; and
•higher treasury management fees on commercial accounts driven by an increase in transaction service volumes and repricing.
Investment advisory and other asset-based fees increased reflecting higher market valuations on client investment assets.
For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” and “Earnings Performance – Operating Segment Results – Corporate – Wells Fargo Asset Management (WFAM) Assets Under Management” sections in this Report.
Investment banking fees increased driven by higher loan syndication fees, advisory fees, and equity underwriting fees.
Card fees increased reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes.
Net servicing income decreased predominantly due to lower income from mortgage servicing right (MSR) valuation changes and related hedges driven by more favorable valuation adjustments in third quarter 2020 due to improving economic conditions.
Net gains on mortgage loan originations/sales decreased
driven by:
•lower residential real estate held for sale (HFS) origination volumes and margins in our retail and correspondent production channels;
partially offset by:
•higher gains related to the resecuritization of loans we purchased from GNMA loan securitization pools in 2020.
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 driven by:
•lower gains on equity products compared with a third quarter 2020 that reflected higher volumes and customer activity due to volatility in the equities markets;
•lower client trading activity for credit products due to widening credit spreads; and
•lower asset-backed finance client trading activity due to a decline in demand for commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS) products.
Net gains (losses) from equity securities increased due to higher unrealized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses.
Other income decreased due to lower equity method investment income compared with a third quarter 2020 that included $228 million of equity method investment income related to a change in the accounting measurement model for certain nonmarketable equity securities from our affiliated venture capital business.
Wells Fargo & Company | 9 |
Earnings Performance (continued)
First nine months of 2021 vs. first nine months of 2020
Lending-related fees increased reflecting higher loan commitment fees.
Investment advisory and other asset-based fees increased reflecting higher market valuations on client investment assets.
For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” and “Earnings Performance – Operating Segment Results – Corporate – Wells Fargo Asset Management (WFAM) Assets Under Management” sections in this Report.
Investment banking fees increased driven by higher loan syndication fees, advisory fees, and equity underwriting fees.
Card fees increased reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes.
Net servicing income increased reflecting negative MSR valuation adjustments in the first nine months of 2020 for higher expected servicing costs and higher prepayment estimates due to changes in economic conditions that improved in 2021.
Net gains on mortgage loan originations/sales increased
driven by:
•a higher production margin in our retail production channel;
•higher gains related to the resecuritization of loans we purchased from GNMA loan securitization pools in 2020; and
•losses in the first nine months of 2020 driven by the impact of interest rate volatility on hedging activities associated with our residential mortgage loans held for sale portfolio and pipeline, as well as valuation losses on certain residential and commercial loans held for sale due to the impact of the COVID-19 pandemic on market conditions.
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 client trading activity for interest rate products, equities, and commodities;
partially offset by:
•higher client trading activity for asset-backed finance products.
Net gains on debt securities decreased primarily due to lower gains on sales of agency MBS and municipal bonds.
Net gains (losses) from equity securities increased driven by:
•higher unrealized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses;
•higher realized gains on the sales of equity securities;
•higher gains on deferred compensation plan investments (largely offset in personnel expense). Refer to Table 3a for the results for our deferred compensation plan and related hedges; and
•lower impairment of equity securities due to the market impact of the COVID-19 pandemic in first quarter 2020.
Other income decreased due to:
•lower gains on the sales of residential mortgage loans which were reclassified to held for sale in 2019; and
•higher valuation losses related to the retained litigation risk, including the timing and amount of final settlement, associated with shares of Visa Class B common stock that we previously sold. For additional information, see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in our 2020 Form 10-K; and
•lower income from investments accounted for under the equity method;
partially offset by:
•a gain on the sale of our student loan portfolio.
10 | Wells Fargo & Company |
Noninterest Expense
Table 3: Noninterest Expense
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Personnel | $ | 8,690 | 8,624 | 66 | 1 | % | $ | 27,066 | 25,863 | 1,203 | 5 | % | |||||||||||||||||||||||||||||||||||
Technology, telecommunications and equipment | 741 | 791 | (50) | (6) | 2,400 | 2,261 | 139 | 6 | |||||||||||||||||||||||||||||||||||||||
Occupancy | 738 | 851 | (113) | (13) | 2,243 | 2,437 | (194) | (8) | |||||||||||||||||||||||||||||||||||||||
Operating losses | 540 | 1,219 | (679) | (56) | 1,056 | 2,902 | (1,846) | (64) | |||||||||||||||||||||||||||||||||||||||
Professional and outside services | 1,417 | 1,760 | (343) | (19) | 4,255 | 5,042 | (787) | (16) | |||||||||||||||||||||||||||||||||||||||
Leases (1) | 220 | 291 | (71) | (24) | 672 | 795 | (123) | (15) | |||||||||||||||||||||||||||||||||||||||
Advertising and promotion | 153 | 144 | 9 | 6 | 375 | 462 | (87) | (19) | |||||||||||||||||||||||||||||||||||||||
Restructuring charges | 1 | 718 | (717) | (100) | 10 | 718 | (708) | (99) | |||||||||||||||||||||||||||||||||||||||
Other | 803 | 831 | (28) | (3) | 2,556 | 2,348 | 208 | 9 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 13,303 | 15,229 | (1,926) | (13) | $ | 40,633 | 42,828 | (2,195) | (5) |
(1)Represents expenses for assets we lease to customers.
Third quarter 2021 vs. third quarter 2020
Personnel expense increased driven by:
•higher incentive compensation expense; and
•higher revenue-related compensation expense;
partially offset by:
•lower salaries as a result of reduced headcount.
Technology, telecommunications and equipment expense decreased due to lower expense for contracts related to telecommunications, hardware, and maintenance.
Occupancy expense decreased driven by:
•lower rent expense; and
•lower cleaning fees, supplies, and equipment expenses compared with a third quarter 2020 that included higher expenses due to the COVID-19 pandemic.
Operating losses decreased driven by lower expense for customer remediation accruals and litigation accruals, partially offset by a $250 million operating loss associated with the September 2021 OCC enforcement action.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
Restructuring charges decreased due to lower personnel-related charges related to our efficiency initiatives. For additional information on restructuring charges, see Note 19 (Restructuring Charges) to Financial Statements in this Report.
First nine months of 2021 vs. first nine months of 2020
Personnel expense increased driven by:
•higher incentive compensation expense, including the impact of higher market valuations on stock-based compensation;
•higher revenue-related compensation expense; and
•higher deferred compensation expense;
partially offset by:
•lower salaries as a result of reduced headcount.
Table 3a presents results for our deferred compensation plan and related hedges. In second quarter 2020, we entered into arrangements to transition our economic hedges of the deferred compensation plan liabilities from equity securities to derivative instruments. As a result of this transition, changes in fair value of derivatives used to economically hedge the deferred compensation plan are reported in personnel expense rather than in net gains (losses) from equity securities within noninterest income. For additional information on the derivatives used in the economic hedges, see Note 14 (Derivatives) to Financial Statements in this Report.
Table 3a: Deferred Compensation and Related Hedges
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Net interest income | $ | — | — | $ | — | 15 | |||||||||||||||||
Net gains (losses) from equity securities | — | 1 | 1 | (274) | |||||||||||||||||||
Total revenue (losses) from deferred compensation plan investments | — | 1 | 1 | (259) | |||||||||||||||||||
Decrease (increase) in deferred compensation plan liabilities | 42 | (220) | (380) | (112) | |||||||||||||||||||
Net derivative gains (losses) from economic hedges of deferred compensation | (42) | 215 | 357 | 356 | |||||||||||||||||||
Decrease (increase) in personnel expense | — | (5) | (23) | 244 | |||||||||||||||||||
Loss before income tax expense | $ | — | (4) | $ | (22) | (15) |
Wells Fargo & Company | 11 |
Earnings Performance (continued)
Technology, telecommunications and equipment expense increased due to higher expense for technology contracts and the reversal of a software licensing liability accrual in second quarter 2020.
Occupancy expense decreased driven by:
•lower rent expense; and
•lower cleaning fees, supplies, and equipment expenses compared with a first nine months of 2020 that included higher expenses due to the COVID-19 pandemic.
Operating losses decreased driven by lower expense for customer remediation accruals and litigation accruals, partially offset by a $250 million operating loss associated with the September 2021 OCC enforcement action.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
Leases expense decreased reflecting a reduction in the size of the operating lease asset portfolio.
Advertising and promotion expense decreased driven by a continued reduction in marketing and brand campaign volumes due to the impact of the COVID-19 pandemic.
Restructuring charges decreased due to lower personnel-related charges related to our efficiency initiatives that began in third quarter 2020. For additional information on restructuring charges, see Note 19 (Restructuring Charges) to Financial Statements in this Report.
Other expenses increased driven by:
•a write-down of goodwill in the first nine months of 2021 related to the sale of our student loan portfolio; and
•higher charitable donations expense driven by the donation of PPP processing fees;
partially offset by:
•a reduction in business travel and company events due to the impact of the COVID-19 pandemic.
Income Tax Expense
Income tax expense was $1.5 billion in third quarter 2021, compared with an income tax benefit of $83 million in the same period a year ago. The effective income tax rate was 22.9% for third quarter 2021, compared with (2.6)% for the same period a year ago.
Income tax expense was $3.9 billion in the first nine months of 2021, compared with an income tax benefit of $1.7 billion in the same period a year ago. The effective income tax rate was 19.7% for the first nine months of 2021, compared with 119.8% for the same period a year ago.
The increase in our income tax expense for both the third quarter and first nine months of 2021, compared with the same periods a year ago, was driven by higher pre-tax income. In addition, the third quarter and first nine months of 2020 included net discrete income tax benefits primarily related to the resolution and reevaluation of prior period matters with U.S. federal and state tax authorities.
12 | Wells Fargo & Company |
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 | Commercial Banking | Corporate and Investment Banking | Wealth and Investment Management | Corporate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• Consumer and Small Business Banking • Home Lending • Credit Card • Auto • Personal Lending | • Middle Market Banking • Asset-Based Lending and Leasing | • Banking • Commercial Real Estate • Markets | • Wells Fargo Advisors • The Private Bank | • Corporate Treasury • Enterprise Functions • Investment Portfolio • Affiliated venture capital and private equity businesses • Non-strategic businesses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wells Fargo & Company | 13 |
Earnings Performance (continued)
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 September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 5,707 | 1,231 | 1,866 | 637 | (427) | (105) | 8,909 | |||||||||||||||||||||||||||||||||
Noninterest income | 3,097 | 845 | 1,519 | 2,981 | 1,752 | (269) | 9,925 | ||||||||||||||||||||||||||||||||||
Total revenue | 8,804 | 2,076 | 3,385 | 3,618 | 1,325 | (374) | 18,834 | ||||||||||||||||||||||||||||||||||
Provision for credit losses | (518) | (335) | (460) | (73) | (9) | — | (1,395) | ||||||||||||||||||||||||||||||||||
Noninterest expense | 6,053 | 1,396 | 1,797 | 2,917 | 1,140 | — | 13,303 | ||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | 3,269 | 1,015 | 2,048 | 774 | 194 | (374) | 6,926 | ||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 818 | 254 | 518 | 195 | 110 | (374) | 1,521 | ||||||||||||||||||||||||||||||||||
Net income before noncontrolling interests | 2,451 | 761 | 1,530 | 579 | 84 | — | 5,405 | ||||||||||||||||||||||||||||||||||
Less: Net income from noncontrolling interests | — | 2 | — | — | 281 | — | 283 | ||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 2,451 | 759 | 1,530 | 579 | (197) | — | 5,122 | |||||||||||||||||||||||||||||||||
Quarter ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 5,918 | 1,408 | 1,714 | 717 | (268) | (110) | 9,379 | |||||||||||||||||||||||||||||||||
Noninterest income | 3,228 | 818 | 1,593 | 2,573 | 1,921 | (196) | 9,937 | ||||||||||||||||||||||||||||||||||
Total revenue | 9,146 | 2,226 | 3,307 | 3,290 | 1,653 | (306) | 19,316 | ||||||||||||||||||||||||||||||||||
Provision for credit losses | 640 | 339 | (121) | (10) | (79) | — | 769 | ||||||||||||||||||||||||||||||||||
Noninterest expense | 7,345 | 1,623 | 1,991 | 2,742 | 1,528 | — | 15,229 | ||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | 1,161 | 264 | 1,437 | 558 | 204 | (306) | 3,318 | ||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 290 | 71 | 355 | 139 | (632) | (306) | (83) | ||||||||||||||||||||||||||||||||||
Net income before noncontrolling interests | 871 | 193 | 1,082 | 419 | 836 | — | 3,401 | ||||||||||||||||||||||||||||||||||
Less: Net income from noncontrolling interests | — | 1 | — | — | 184 | — | 185 | ||||||||||||||||||||||||||||||||||
Net income | $ | 871 | 192 | 1,082 | 419 | 652 | — | 3,216 | |||||||||||||||||||||||||||||||||
Nine months ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 16,940 | 3,687 | 5,428 | 1,904 | (1,121) | (321) | 26,517 | |||||||||||||||||||||||||||||||||
Noninterest income | 9,204 | 2,578 | 4,899 | 8,794 | 6,496 | (852) | 31,119 | ||||||||||||||||||||||||||||||||||
Total revenue | 26,144 | 6,265 | 10,327 | 10,698 | 5,375 | (1,173) | 57,636 | ||||||||||||||||||||||||||||||||||
Provision for credit losses | (1,304) | (1,116) | (1,245) | (92) | 54 | — | (3,703) | ||||||||||||||||||||||||||||||||||
Noninterest expense | 18,522 | 4,469 | 5,435 | 8,836 | 3,371 | — | 40,633 | ||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | 8,926 | 2,912 | 6,137 | 1,954 | 1,950 | (1,173) | 20,706 | ||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 2,233 | 727 | 1,531 | 491 | 58 | (1,173) | 3,867 | ||||||||||||||||||||||||||||||||||
Net income before noncontrolling interests | 6,693 | 2,185 | 4,606 | 1,463 | 1,892 | — | 16,839 | ||||||||||||||||||||||||||||||||||
Less: Net income (loss) from noncontrolling interests | — | 5 | (2) | — | 1,038 | — | 1,041 | ||||||||||||||||||||||||||||||||||
Net income | $ | 6,693 | 2,180 | 4,608 | 1,463 | 854 | — | 15,798 | |||||||||||||||||||||||||||||||||
Nine months ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 17,637 | 4,695 | 5,698 | 2,274 | 671 | (374) | 30,601 | |||||||||||||||||||||||||||||||||
Noninterest income | 7,766 | 2,227 | 5,076 | 7,492 | 3,224 | (611) | 25,174 | ||||||||||||||||||||||||||||||||||
Total revenue | 25,403 | 6,922 | 10,774 | 9,766 | 3,895 | (985) | 55,775 | ||||||||||||||||||||||||||||||||||
Provision for credit losses | 5,311 | 3,675 | 4,760 | 253 | 309 | — | 14,308 | ||||||||||||||||||||||||||||||||||
Noninterest expense | 20,535 | 4,776 | 5,905 | 8,142 | 3,470 | — | 42,828 | ||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | (443) | (1,529) | 109 | 1,371 | 116 | (985) | (1,361) | ||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | (155) | (371) | 48 | 343 | (611) | (985) | (1,731) | ||||||||||||||||||||||||||||||||||
Net income (loss) before noncontrolling interests | (288) | (1,158) | 61 | 1,028 | 727 | — | 370 | ||||||||||||||||||||||||||||||||||
Less: Net income from noncontrolling interests | — | 3 | — | — | 81 | — | 84 | ||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (288) | (1,161) | 61 | 1,028 | 646 | — | 286 | |||||||||||||||||||||||||||||||||
(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.
14 | Wells Fargo & Company |
Consumer Banking and Lending offers diversified financial products and services for consumers and small businesses with annual sales generally up to $5 million. These financial products and services include checking and savings accounts, credit and
debit cards, as well as home, auto, personal, and small business lending. Table 5a and Table 5b provide additional information for Consumer Banking and Lending.
Table 5a: Consumer Banking and Lending – Income Statement and Selected Metrics
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions, unless otherwise noted) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Income Statement | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 5,707 | 5,918 | (211) | (4) | % | $ | 16,940 | 17,637 | (697) | (4) | % | |||||||||||||||||||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||
Deposit-related fees | 799 | 708 | 91 | 13 | 2,192 | 2,162 | 30 | 1 | |||||||||||||||||||||||||||||||||||||||
Card fees | 1,014 | 860 | 154 | 18 | 2,923 | 2,428 | 495 | 20 | |||||||||||||||||||||||||||||||||||||||
Mortgage banking | 1,168 | 1,544 | (376) | (24) | 3,585 | 2,142 | 1,443 | 67 | |||||||||||||||||||||||||||||||||||||||
Other | 116 | 116 | — | — | 504 | 1,034 | (530) | (51) | |||||||||||||||||||||||||||||||||||||||
Total noninterest income | 3,097 | 3,228 | (131) | (4) | 9,204 | 7,766 | 1,438 | 19 | |||||||||||||||||||||||||||||||||||||||
Total revenue | 8,804 | 9,146 | (342) | (4) | 26,144 | 25,403 | 741 | 3 | |||||||||||||||||||||||||||||||||||||||
Net charge-offs | 302 | 369 | (67) | (18) | 1,031 | 1,543 | (512) | (33) | |||||||||||||||||||||||||||||||||||||||
Change in the allowance for credit losses | (820) | 271 | (1,091) | NM | (2,335) | 3,768 | (6,103) | NM | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (518) | 640 | (1,158) | NM | (1,304) | 5,311 | (6,615) | NM | |||||||||||||||||||||||||||||||||||||||
Noninterest expense | 6,053 | 7,345 | (1,292) | (18) | 18,522 | 20,535 | (2,013) | (10) | |||||||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | 3,269 | 1,161 | 2,108 | 182 | 8,926 | (443) | 9,369 | NM | |||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 818 | 290 | 528 | 182 | 2,233 | (155) | 2,388 | NM | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 2,451 | 871 | 1,580 | 181 | $ | 6,693 | (288) | 6,981 | NM | |||||||||||||||||||||||||||||||||||||
Revenue by Line of Business | |||||||||||||||||||||||||||||||||||||||||||||||
Consumer and Small Business Banking | $ | 4,822 | 4,721 | 101 | 2 | $ | 14,086 | 13,983 | 103 | 1 | |||||||||||||||||||||||||||||||||||||
Consumer Lending: | |||||||||||||||||||||||||||||||||||||||||||||||
Home Lending | 2,012 | 2,527 | (515) | (20) | 6,311 | 5,880 | 431 | 7 | |||||||||||||||||||||||||||||||||||||||
Credit Card | 1,399 | 1,345 | 54 | 4 | 4,108 | 3,916 | 192 | 5 | |||||||||||||||||||||||||||||||||||||||
Auto | 445 | 404 | 41 | 10 | 1,263 | 1,172 | 91 | 8 | |||||||||||||||||||||||||||||||||||||||
Personal Lending | 126 | 149 | (23) | (15) | 376 | 452 | (76) | (17) | |||||||||||||||||||||||||||||||||||||||
Total revenue | $ | 8,804 | 9,146 | (342) | (4) | $ | 26,144 | 25,403 | 741 | 3 | |||||||||||||||||||||||||||||||||||||
Selected Metrics | |||||||||||||||||||||||||||||||||||||||||||||||
Consumer Banking and Lending: | |||||||||||||||||||||||||||||||||||||||||||||||
Return on allocated capital (1) | 19.7 | % | 6.6 | 18.1 | % | (1.4) | |||||||||||||||||||||||||||||||||||||||||
Efficiency ratio (2) | 69 | 80 | 71 | 81 | |||||||||||||||||||||||||||||||||||||||||||
Headcount (#) (period-end) | 114,334 | 131,516 | (13) | 114,334 | 131,516 | (13) | |||||||||||||||||||||||||||||||||||||||||
Retail bank branches (#) | 4,796 | 5,229 | (8) | 4,796 | 5,229 | (8) | |||||||||||||||||||||||||||||||||||||||||
Digital active customers (# in millions) (3) | 32.7 | 32.0 | 2 | 32.7 | 32.0 | 2 | |||||||||||||||||||||||||||||||||||||||||
Mobile active customers (# in millions) (3) | 27.0 | 25.9 | 4 | 27.0 | 25.9 | 4 | |||||||||||||||||||||||||||||||||||||||||
Consumer and Small Business Banking: | |||||||||||||||||||||||||||||||||||||||||||||||
Deposit spread (4) | 1.5 | % | 1.8 | 1.5 | % | 1.9 | |||||||||||||||||||||||||||||||||||||||||
Debit card purchase volume ($ in billions) (5) | $ | 118.6 | 102.9 | 15.7 | 15 | $ | 349.1 | 286.6 | 62.5 | 22 | |||||||||||||||||||||||||||||||||||||
Debit card purchase transactions (# in millions) (5) | 2,515 | 2,273 | 11 | 7,285 | 6,495 | 12 |
(continued on following page)
Wells Fargo & Company | 15 |
Earnings Performance (continued)
(continued from previous page)
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions, unless otherwise noted) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Home Lending: | |||||||||||||||||||||||||||||||||||||||||||||||
Mortgage banking: | |||||||||||||||||||||||||||||||||||||||||||||||
Net servicing income | $ | 109 | 331 | (222) | (67) | % | $ | (90) | (78) | (12) | (15) | % | |||||||||||||||||||||||||||||||||||
Net gains on mortgage loan originations/sales | 1,059 | 1,213 | (154) | (13) | 3,675 | 2,220 | 1,455 | 66 | |||||||||||||||||||||||||||||||||||||||
Total mortgage banking | $ | 1,168 | 1,544 | (376) | (24) | $ | 3,585 | 2,142 | 1,443 | 67 | |||||||||||||||||||||||||||||||||||||
Originations ($ in billions): | |||||||||||||||||||||||||||||||||||||||||||||||
Retail | $ | 35.2 | 32.8 | 2.4 | 7 | $ | 105.7 | 86.4 | 19.3 | 22 | |||||||||||||||||||||||||||||||||||||
Correspondent | 16.7 | 28.8 | (12.1) | (42) | 51.2 | 82.4 | (31.2) | (38) | |||||||||||||||||||||||||||||||||||||||
Total originations | $ | 51.9 | 61.6 | (9.7) | (16) | $ | 156.9 | 168.8 | (11.9) | (7) | |||||||||||||||||||||||||||||||||||||
% of originations held for sale (HFS) | 60.6 | % | 78.1 | 67.3 | % | 73.2 | |||||||||||||||||||||||||||||||||||||||||
Third-party mortgage loans serviced (period-end) ($ in billions) (6) | $ | 739.5 | 917.6 | (178.1) | (19) | $ | 739.5 | 917.6 | (178.1) | (19) | |||||||||||||||||||||||||||||||||||||
Mortgage servicing rights (MSR) carrying value (period-end) | 6,862 | 6,355 | 507 | 8 | 6,862 | 6,355 | 507 | 8 | |||||||||||||||||||||||||||||||||||||||
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) (6) | 0.93 | % | 0.69 | 0.93 | % | 0.69 | |||||||||||||||||||||||||||||||||||||||||
Home lending loans 30+ days or more delinquency rate (7)(8) | 0.45 | 0.56 | 0.45 | 0.56 | |||||||||||||||||||||||||||||||||||||||||||
Credit Card: | |||||||||||||||||||||||||||||||||||||||||||||||
Point of sale (POS) volume ($ in billions) | $ | 26.5 | 21.3 | 5.2 | 24 | $ | 73.1 | 58.7 | 14.4 | 25 | |||||||||||||||||||||||||||||||||||||
New accounts (# in thousands) (9) | 526 | 212 | 148 | 1,115 | 782 | 43 | |||||||||||||||||||||||||||||||||||||||||
Credit card loans 30+ days or more delinquency rate (8) | 1.40 | % | 1.76 | 1.40 | % | 1.76 | |||||||||||||||||||||||||||||||||||||||||
Auto: | |||||||||||||||||||||||||||||||||||||||||||||||
Auto originations ($ in billions) | $ | 9.2 | 5.4 | 3.8 | 70 | $ | 24.5 | 17.5 | 7.0 | 40 | |||||||||||||||||||||||||||||||||||||
Auto loans 30+ days or more delinquency rate (8) | 1.46 | % | 1.67 | 1.46 | % | 1.67 | |||||||||||||||||||||||||||||||||||||||||
Personal Lending: | |||||||||||||||||||||||||||||||||||||||||||||||
New funded balances | $ | 731 | 323 | 408 | 126 | $ | 1,709 | 1,305 | 404 | 31 |
NM – Not meaningful
(1)Return on allocated capital is segment net income (loss) applicable to common stock divided by segment average allocated capital. Segment net income (loss) applicable to common stock is segment net income (loss) less allocated preferred stock dividends.
(2)Efficiency ratio is segment noninterest expense divided by segment total revenue (net interest income and noninterest income).
(3)Digital and mobile active customers is the number of consumer and small business customers who have logged on via a digital or mobile device, respectively, in the prior 90 days. Digital active customers includes both online and mobile customers.
(4)Deposit spread is (i) the internal funds transfer pricing credit on segment deposits minus interest paid to customers for segment deposits, divided by (ii) average segment deposits.
(5)Debit card purchase volume and transactions reflect combined activity for both consumer and business debit card purchases.
(6)Excludes residential mortgage loans subserviced for others.
(7)Excludes residential mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) and loans held for sale.
(8)Beginning in second quarter 2020, customer payment deferral activities instituted in response to the COVID-19 pandemic may have delayed the recognition of delinquencies for those customers who would have otherwise moved into past due status.
(9)Excludes certain private label new account openings.
Third quarter 2021 vs. third quarter 2020
Revenue decreased driven by:
•lower mortgage banking noninterest income due to lower HFS origination volumes and margins, as well as lower income from MSR valuation changes and related hedges, partially offset by higher gains related to the resecuritization of loans we purchased from GNMA loan securitization pools in 2020; and
•lower net interest income reflecting the lower interest rate environment and lower loan balances, partially offset by higher deposit balances;
partially offset by:
•higher card fees reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes; and
•higher deposit-related fees driven by higher consumer transaction volumes compared with a third quarter 2020 that included reduced volumes due to the economic slowdown associated with the COVID-19 pandemic, and lower fee waivers and reversals compared with a third
quarter 2020 that included elevated fee waivers due to our actions to support customers during the COVID-19 pandemic.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower operating losses due to lower expense for litigation accruals and customer remediation accruals;
•lower personnel expense driven by lower branch staffing expense related to efficiency initiatives in Consumer and Small Business Banking;
•lower occupancy expense related to lower cleaning fees, supplies, and equipment expenses compared with a third quarter 2020 that included higher expenses due to the COVID-19 pandemic; and
•lower advertising and promotion expense.
16 | Wells Fargo & Company |
First nine months of 2021 vs. first nine months of 2020
Revenue increased driven by:
•higher mortgage banking noninterest income due to a higher production margin in our retail production channel, higher gains related to the resecuritization of loans we purchased from GNMA loan securitization pools in 2020, and losses in the first nine months of 2020 driven by the impact of interest rate volatility on hedging activities and valuation losses due to the impact of the COVID-19 pandemic on market conditions; and
•higher card fees reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes;
partially offset by:
•lower net interest income reflecting the lower interest rate environment and lower loan balances, partially offset by higher deposit balances; and
•lower other income driven by lower gains on the sales of residential mortgage loans which were reclassified to held for sale in 2019.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower operating losses due to lower expense for litigation accruals and customer remediation accruals;
•lower personnel expense reflecting additional payments made in the first nine months of 2020 to certain customer-facing and support employees and for back-up child care services, as well as lower branch staffing expense in the first nine months of 2021 related to efficiency initiatives in Consumer and Small Business Banking, partially offset by higher revenue-related compensation in Home Lending;
•lower advertising and promotion expense; and
•lower occupancy expense related to lower cleaning fees, supplies, and equipment expenses compared with a first nine months of 2020 that included higher expenses due to the COVID-19 pandemic;
partially offset by:
•higher charitable donations expense driven by the donation of PPP processing fees.
Table 5b: Consumer Banking and Lending – Balance Sheet
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (average) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans by Line of Business: | |||||||||||||||||||||||||||||||||||||||||||||||
Home Lending | $ | 217,011 | 270,036 | (53,025) | (20) | % | $ | 227,663 | 269,692 | (42,029) | (16) | % | |||||||||||||||||||||||||||||||||||
Auto | 53,043 | 49,770 | 3,273 | 7 | 51,121 | 49,625 | 1,496 | 3 | |||||||||||||||||||||||||||||||||||||||
Credit Card | 35,407 | 35,965 | (558) | (2) | 34,942 | 37,415 | (2,473) | (7) | |||||||||||||||||||||||||||||||||||||||
Small Business | 15,122 | 18,100 | (2,978) | (16) | 17,991 | 14,248 | 3,743 | 26 | |||||||||||||||||||||||||||||||||||||||
Personal Lending | 4,974 | 5,912 | (938) | (16) | 5,026 | 6,354 | (1,328) | (21) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 325,557 | 379,783 | (54,226) | (14) | $ | 336,743 | 377,334 | (40,591) | (11) | |||||||||||||||||||||||||||||||||||||
Total deposits | 848,419 | 756,485 | 91,934 | 12 | 824,752 | 708,288 | 116,464 | 16 | |||||||||||||||||||||||||||||||||||||||
Allocated capital | 48,000 | 48,000 | — | — | 48,000 | 48,000 | — | — | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans by Line of Business: | |||||||||||||||||||||||||||||||||||||||||||||||
Home Lending | $ | 216,649 | 273,635 | (56,986) | (21) | $ | 216,649 | 273,635 | (56,986) | (21) | |||||||||||||||||||||||||||||||||||||
Auto | 54,472 | 49,442 | 5,030 | 10 | 54,472 | 49,442 | 5,030 | 10 | |||||||||||||||||||||||||||||||||||||||
Credit Card | 36,061 | 36,021 | 40 | — | 36,061 | 36,021 | 40 | — | |||||||||||||||||||||||||||||||||||||||
Small Business | 13,686 | 17,993 | (4,307) | (24) | 13,686 | 17,993 | (4,307) | (24) | |||||||||||||||||||||||||||||||||||||||
Personal Lending | 5,050 | 5,724 | (674) | (12) | 5,050 | 5,724 | (674) | (12) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 325,918 | 382,815 | (56,897) | (15) | $ | 325,918 | 382,815 | (56,897) | (15) | |||||||||||||||||||||||||||||||||||||
Total deposits | 858,424 | 759,425 | 98,999 | 13 | 858,424 | 759,425 | 98,999 | 13 |
Third quarter 2021 vs. third quarter 2020
Total loans (average) decreased as paydowns exceeded originations. Home Lending loan balances were also impacted by actions taken to temporarily curtail certain non-conforming residential mortgage originations and suspend home equity originations, as well as the resecuritization of loans we purchased from GNMA loan securitization pools. Small Business loan balances were also impacted by a decline in PPP loans.
Total deposits (average) increased driven by higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs,
as well as continued economic uncertainty associated with the COVID-19 pandemic.
First nine months of 2021 vs. first nine months of 2020
Total loans (average and period-end) decreased as paydowns exceeded originations. Home Lending loan balances were also impacted by actions taken to temporarily curtail certain non-conforming residential mortgage originations and suspend home equity originations. Small Business period-end loan balances were also impacted by a decline in PPP loans.
Wells Fargo & Company | 17 |
Earnings Performance (continued)
Total deposits (average and period-end) increased driven by higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs, as well as continued economic uncertainty associated with the COVID-19 pandemic.
Commercial Banking provides 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. Table 5c and Table 5d provide additional information for Commercial Banking.
Table 5c: Commercial Banking – Income Statement and Selected Metrics
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Income Statement | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 1,231 | 1,408 | (177) | (13) | % | $ | 3,687 | 4,695 | (1,008) | (21) | % | |||||||||||||||||||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||
Deposit-related fees | 323 | 309 | 14 | 5 | 965 | 908 | 57 | 6 | |||||||||||||||||||||||||||||||||||||||
Lending-related fees | 132 | 140 | (8) | (6) | 403 | 393 | 10 | 3 | |||||||||||||||||||||||||||||||||||||||
Lease income | 165 | 186 | (21) | (11) | 512 | 573 | (61) | (11) | |||||||||||||||||||||||||||||||||||||||
Other | 225 | 183 | 42 | 23 | 698 | 353 | 345 | 98 | |||||||||||||||||||||||||||||||||||||||
Total noninterest income | 845 | 818 | 27 | 3 | 2,578 | 2,227 | 351 | 16 | |||||||||||||||||||||||||||||||||||||||
Total revenue | 2,076 | 2,226 | (150) | (7) | 6,265 | 6,922 | (657) | (9) | |||||||||||||||||||||||||||||||||||||||
Net charge-offs | 16 | 219 | (203) | (93) | 108 | 509 | (401) | (79) | |||||||||||||||||||||||||||||||||||||||
Change in the allowance for credit losses | (351) | 120 | (471) | NM | (1,224) | 3,166 | (4,390) | NM | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (335) | 339 | (674) | NM | (1,116) | 3,675 | (4,791) | NM | |||||||||||||||||||||||||||||||||||||||
Noninterest expense | 1,396 | 1,623 | (227) | (14) | 4,469 | 4,776 | (307) | (6) | |||||||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense (benefit) | 1,015 | 264 | 751 | 284 | 2,912 | (1,529) | 4,441 | 290 | |||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 254 | 71 | 183 | 258 | 727 | (371) | 1,098 | 296 | |||||||||||||||||||||||||||||||||||||||
Less: Net income from noncontrolling interests | 2 | 1 | 1 | 100 | 5 | 3 | 2 | 67 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 759 | 192 | 567 | 295 | $ | 2,180 | (1,161) | 3,341 | 288 | |||||||||||||||||||||||||||||||||||||
Revenue by Line of Business | |||||||||||||||||||||||||||||||||||||||||||||||
Middle Market Banking | $ | 1,165 | 1,196 | (31) | (3) | $ | 3,475 | 3,918 | (443) | (11) | |||||||||||||||||||||||||||||||||||||
Asset-Based Lending and Leasing | 911 | 1,030 | (119) | (12) | 2,790 | 3,004 | (214) | (7) | |||||||||||||||||||||||||||||||||||||||
Total revenue | $ | 2,076 | 2,226 | (150) | (7) | $ | 6,265 | 6,922 | (657) | (9) | |||||||||||||||||||||||||||||||||||||
Revenue by Product | |||||||||||||||||||||||||||||||||||||||||||||||
Lending and leasing | $ | 1,190 | 1,335 | (145) | (11) | $ | 3,599 | 4,170 | (571) | (14) | |||||||||||||||||||||||||||||||||||||
Treasury management and payments | 713 | 749 | (36) | (5) | 2,114 | 2,472 | (358) | (14) | |||||||||||||||||||||||||||||||||||||||
Other | 173 | 142 | 31 | 22 | 552 | 280 | 272 | 97 | |||||||||||||||||||||||||||||||||||||||
Total revenue | $ | 2,076 | 2,226 | (150) | (7) | $ | 6,265 | 6,922 | (657) | (9) | |||||||||||||||||||||||||||||||||||||
Selected Metrics | |||||||||||||||||||||||||||||||||||||||||||||||
Return on allocated capital | 14.5 | % | 2.9 | 14.0 | % | (9.0) | |||||||||||||||||||||||||||||||||||||||||
Efficiency ratio | 67 | 73 | 71 | 69 | |||||||||||||||||||||||||||||||||||||||||||
Headcount (#) (period-end) | 18,638 | 21,900 | (15) | 18,638 | 21,900 | (15) |
NM – Not meaningful
Third quarter 2021 vs. third quarter 2020
Revenue decreased driven by:
•lower net interest income reflecting lower loan balances and the lower interest rate environment; and
•lower lease income reflecting a reduction in the size of the operating lease asset portfolio;
partially offset by:
•higher income from renewable energy investments; and
•higher deposit-related fees due to higher treasury management fees, driven by an increase in transaction service volumes and repricing.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower spending related to efficiency initiatives, including lower personnel expense from reduced headcount;
•lower lease expense reflecting a reduction in the size of the operating lease asset portfolio;
•lower professional and outside services expense reflecting decreased project-related expense;
•lower occupancy expense; and
•lower expenses allocated from enterprise functions, including lower technology expenses.
18 | Wells Fargo & Company |
First nine months of 2021 vs. first nine months of 2020
Revenue decreased driven by:
•lower net interest income reflecting lower loan balances and the lower interest rate environment; and
•lower lease income reflecting a reduction in the size of the operating lease asset portfolio;
partially offset by:
•higher other noninterest income due to gains on equity securities and higher income from renewable energy investments; and
•higher deposit-related fees due to higher treasury management fees, driven by a lower earnings credit rate due to the lower interest rate environment and repricing.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower spending related to efficiency initiatives, including lower personnel expense from reduced headcount;
•lower lease expense reflecting a reduction in the size of the operating lease asset portfolio; and
•lower professional and outside services expense reflecting decreased project-related expense;
partially offset by:
•higher expenses due to lower allocations of shared expenses with other lines of business.
Table 5d: Commercial Banking – Balance Sheet
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (average) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 118,039 | 134,531 | (16,492) | (12) | % | $ | 118,840 | 149,220 | (30,380) | (20) | % | |||||||||||||||||||||||||||||||||||
Commercial real estate | 46,576 | 52,017 | (5,441) | (10) | 47,444 | 52,818 | (5,374) | (10) | |||||||||||||||||||||||||||||||||||||||
Lease financing and other | 14,007 | 15,345 | (1,338) | (9) | 13,812 | 16,293 | (2,481) | (15) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 178,622 | 201,893 | (23,271) | (12) | $ | 180,096 | 218,331 | (38,235) | (18) | |||||||||||||||||||||||||||||||||||||
Loans by Line of Business: | |||||||||||||||||||||||||||||||||||||||||||||||
Middle Market Banking | $ | 101,523 | 110,289 | (8,766) | (8) | $ | 102,642 | 116,258 | (13,616) | (12) | |||||||||||||||||||||||||||||||||||||
Asset-Based Lending and Leasing | 77,099 | 91,604 | (14,505) | (16) | 77,454 | 102,073 | (24,619) | (24) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 178,622 | 201,893 | (23,271) | (12) | $ | 180,096 | 218,331 | (38,235) | (18) | |||||||||||||||||||||||||||||||||||||
Total deposits | 199,226 | 178,997 | 20,229 | 11 | 193,761 | 176,959 | 16,802 | 9 | |||||||||||||||||||||||||||||||||||||||
Allocated capital | 19,500 | 19,500 | — | — | 19,500 | 19,500 | — | — | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 120,203 | 128,270 | (8,067) | (6) | $ | 120,203 | 128,270 | (8,067) | (6) | |||||||||||||||||||||||||||||||||||||
Commercial real estate | 46,318 | 51,297 | (4,979) | (10) | 46,318 | 51,297 | (4,979) | (10) | |||||||||||||||||||||||||||||||||||||||
Lease financing and other | 14,018 | 15,180 | (1,162) | (8) | 14,018 | 15,180 | (1,162) | (8) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 180,539 | 194,747 | (14,208) | (7) | $ | 180,539 | 194,747 | (14,208) | (7) | |||||||||||||||||||||||||||||||||||||
Loans by Line of Business: | |||||||||||||||||||||||||||||||||||||||||||||||
Middle Market Banking | $ | 102,279 | 105,851 | (3,572) | (3) | $ | 102,279 | 105,851 | (3,572) | (3) | |||||||||||||||||||||||||||||||||||||
Asset-Based Lending and Leasing | 78,260 | 88,896 | (10,636) | (12) | 78,260 | 88,896 | (10,636) | (12) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 180,539 | 194,747 | (14,208) | (7) | $ | 180,539 | 194,747 | (14,208) | (7) | |||||||||||||||||||||||||||||||||||||
Total deposits | 204,853 | 180,948 | 23,905 | 13 | 204,853 | 180,948 | 23,905 | 13 |
Third quarter 2021 vs. third quarter 2020
Total loans (average) decreased driven by lower loan demand, including lower line utilization, and higher paydowns reflecting continued high levels of client liquidity and strength in the capital markets.
Total deposits (average) increased due to higher levels of liquidity and lower investment spending reflecting government stimulus programs and continued economic uncertainty associated with the COVID-19 pandemic.
First nine months of 2021 vs. first nine months of 2020
Total loans (average and period-end) decreased driven by lower loan demand, including lower line utilization, and higher paydowns reflecting continued high levels of client liquidity and strength in the capital markets.
Total deposits (average and period-end) increased due to higher levels of liquidity and lower investment spending reflecting government stimulus programs and continued economic uncertainty associated with the COVID-19 pandemic.
Wells Fargo & Company | 19 |
Earnings Performance (continued)
Corporate and Investment Banking delivers a suite of capital markets, banking, and financial products and services to corporate, commercial real estate, government and institutional clients globally. Products and services include corporate banking, investment banking, treasury management, commercial real
estate lending and servicing, equity and fixed income solutions, as well as sales, trading, and research capabilities. Table 5e and Table 5f provide additional information for Corporate and Investment Banking.
Table 5e: Corporate and Investment Banking – Income Statement and Selected Metrics
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Income Statement | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 1,866 | 1,714 | 152 | 9 | % | $ | 5,428 | 5,698 | (270) | (5) | % | |||||||||||||||||||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||
Deposit-related fees | 286 | 272 | 14 | 5 | 829 | 790 | 39 | 5 | |||||||||||||||||||||||||||||||||||||||
Lending-related fees | 196 | 171 | 25 | 15 | 569 | 506 | 63 | 12 | |||||||||||||||||||||||||||||||||||||||
Investment banking fees | 536 | 428 | 108 | 25 | 1,727 | 1,493 | 234 | 16 | |||||||||||||||||||||||||||||||||||||||
Net gains from trading activities | 85 | 374 | (289) | (77) | 446 | 1,218 | (772) | (63) | |||||||||||||||||||||||||||||||||||||||
Other | 416 | 348 | 68 | 20 | 1,328 | 1,069 | 259 | 24 | |||||||||||||||||||||||||||||||||||||||
Total noninterest income | 1,519 | 1,593 | (74) | (5) | 4,899 | 5,076 | (177) | (3) | |||||||||||||||||||||||||||||||||||||||
Total revenue | 3,385 | 3,307 | 78 | 2 | 10,327 | 10,774 | (447) | (4) | |||||||||||||||||||||||||||||||||||||||
Net charge-offs | (48) | 117 | (165) | NM | (30) | 565 | (595) | NM | |||||||||||||||||||||||||||||||||||||||
Change in the allowance for credit losses | (412) | (238) | (174) | (73) | (1,215) | 4,195 | (5,410) | NM | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (460) | (121) | (339) | NM | (1,245) | 4,760 | (6,005) | NM | |||||||||||||||||||||||||||||||||||||||
Noninterest expense | 1,797 | 1,991 | (194) | (10) | 5,435 | 5,905 | (470) | (8) | |||||||||||||||||||||||||||||||||||||||
Income before income tax expense | 2,048 | 1,437 | 611 | 43 | 6,137 | 109 | 6,028 | NM | |||||||||||||||||||||||||||||||||||||||
Income tax expense | 518 | 355 | 163 | 46 | 1,531 | 48 | 1,483 | NM | |||||||||||||||||||||||||||||||||||||||
Less: Net loss from noncontrolling interests | — | — | — | NM | (2) | — | (2) | NM | |||||||||||||||||||||||||||||||||||||||
Net income | $ | 1,530 | 1,082 | 448 | 41 | $ | 4,608 | 61 | 4,547 | NM | |||||||||||||||||||||||||||||||||||||
Revenue by Line of Business | |||||||||||||||||||||||||||||||||||||||||||||||
Banking: | |||||||||||||||||||||||||||||||||||||||||||||||
Lending | $ | 502 | 422 | 80 | 19 | $ | 1,429 | 1,343 | 86 | 6 | |||||||||||||||||||||||||||||||||||||
Treasury Management and Payments | 372 | 395 | (23) | (6) | 1,095 | 1,296 | (201) | (16) | |||||||||||||||||||||||||||||||||||||||
Investment Banking | 367 | 295 | 72 | 24 | 1,190 | 1,100 | 90 | 8 | |||||||||||||||||||||||||||||||||||||||
Total Banking | 1,241 | 1,112 | 129 | 12 | 3,714 | 3,739 | (25) | (1) | |||||||||||||||||||||||||||||||||||||||
Commercial Real Estate | 942 | 855 | 87 | 10 | 2,868 | 2,595 | 273 | 11 | |||||||||||||||||||||||||||||||||||||||
Markets: | |||||||||||||||||||||||||||||||||||||||||||||||
Fixed Income, Currencies, and Commodities (FICC) | 884 | 1,005 | (121) | (12) | 2,916 | 3,425 | (509) | (15) | |||||||||||||||||||||||||||||||||||||||
Equities | 234 | 312 | (78) | (25) | 692 | 1,010 | (318) | (31) | |||||||||||||||||||||||||||||||||||||||
Credit Adjustment (CVA/DVA) and Other | 58 | 62 | (4) | (6) | 78 | 93 | (15) | (16) | |||||||||||||||||||||||||||||||||||||||
Total Markets | 1,176 | 1,379 | (203) | (15) | 3,686 | 4,528 | (842) | (19) | |||||||||||||||||||||||||||||||||||||||
Other | 26 | (39) | 65 | 167 | 59 | (88) | 147 | 167 | |||||||||||||||||||||||||||||||||||||||
Total revenue | $ | 3,385 | 3,307 | 78 | 2 | $ | 10,327 | 10,774 | (447) | (4) | |||||||||||||||||||||||||||||||||||||
Selected Metrics | |||||||||||||||||||||||||||||||||||||||||||||||
Return on allocated capital | 16.9 | % | 11.6 | 17.2 | % | (0.8) | |||||||||||||||||||||||||||||||||||||||||
Efficiency ratio | 53 | 60 | 53 | 55 | |||||||||||||||||||||||||||||||||||||||||||
Headcount (#) (period-end) | 8,459 | 8,205 | 3 | 8,459 | 8,205 | 3 |
NM – Not meaningful
Third quarter 2021 vs. third quarter 2020
Revenue increased driven by:
•higher net interest income reflecting higher loan balances and higher trading assets, partially offset by lower deposit balances and margins;
•higher investment banking fees due to higher loan syndication fees, advisory fees, and equity underwriting fees; and
•higher other noninterest income due to higher gains from equity securities and higher mortgage banking income
related to higher servicing income and higher gains on the sales of mortgage loans;
partially offset by:
•lower net gains from trading activities due to lower gains on equity products compared with a third quarter 2020 that reflected higher volumes and customer activity due to volatility in the equities markets, lower client trading activity for credit products due to widening credit spreads, and lower asset-backed finance client trading activity due to a decline in demand for CMBS and RMBS products.
20 | Wells Fargo & Company |
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower personnel expense driven by lower incentive compensation; and
•lower expenses allocated from enterprise functions reflecting lower spending due to efficiency initiatives.
First nine months of 2021 vs. first nine months of 2020
Revenue decreased driven by:
•lower net gains from trading activities driven by lower client trading activity for interest rate products, equities, and commodities, partially offset by higher client trading activity for asset-backed finance products; and
•lower net interest income reflecting the lower interest rate environment, lower deposit balances, and lower average trading-related assets;
partially offset by:
•higher investment banking fees due to higher loan syndication fees, advisory fees, and equity underwriting fees;
•higher other noninterest income driven by higher mortgage banking income due to higher servicing income and gains on the sales of mortgage loans, as well as higher income from low income housing investments; and
•higher lending-related fees reflecting increased loan commitment fees.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower operating losses due to lower expense for litigation accruals and customer remediation accruals;
•lower expenses allocated from enterprise functions reflecting lower spending due to efficiency initiatives;
•lower professional and outside services expense reflecting decreased project-related expense; and
•a reduction in business travel and company events due to the impact of the COVID-19 pandemic;
partially offset by:
•higher personnel expense driven by higher incentive compensation.
Wells Fargo & Company | 21 |
Earnings Performance (continued)
Table 5f: Corporate and Investment Banking – Balance Sheet
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (average) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 170,486 | 165,445 | 5,041 | 3 | % | $ | 166,647 | 178,140 | (11,493) | (6) | % | |||||||||||||||||||||||||||||||||||
Commercial real estate | 86,809 | 84,408 | 2,401 | 3 | 85,349 | 82,382 | 2,967 | 4 | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 257,295 | 249,853 | 7,442 | 3 | $ | 251,996 | 260,522 | (8,526) | (3) | |||||||||||||||||||||||||||||||||||||
Loans by Line of Business: | |||||||||||||||||||||||||||||||||||||||||||||||
Banking | $ | 95,911 | 88,936 | 6,975 | 8 | $ | 91,130 | 97,224 | (6,094) | (6) | |||||||||||||||||||||||||||||||||||||
Commercial Real Estate | 110,683 | 109,482 | 1,201 | 1 | 109,073 | 108,428 | 645 | 1 | |||||||||||||||||||||||||||||||||||||||
Markets | 50,701 | 51,435 | (734) | (1) | 51,793 | 54,870 | (3,077) | (6) | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 257,295 | 249,853 | 7,442 | 3 | $ | 251,996 | 260,522 | (8,526) | (3) | |||||||||||||||||||||||||||||||||||||
Trading-related assets: | |||||||||||||||||||||||||||||||||||||||||||||||
Trading account securities | $ | 112,148 | 100,193 | 11,955 | 12 | $ | 107,771 | 110,082 | (2,311) | (2) | |||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements/securities borrowed | 56,758 | 68,818 | (12,060) | (18) | 60,903 | 76,069 | (15,166) | (20) | |||||||||||||||||||||||||||||||||||||||
Derivative assets | 25,191 | 23,640 | 1,551 | 7 | 25,668 | 21,443 | 4,225 | 20 | |||||||||||||||||||||||||||||||||||||||
Total trading-related assets | $ | 194,097 | 192,651 | 1,446 | 1 | $ | 194,342 | 207,594 | (13,252) | (6) | |||||||||||||||||||||||||||||||||||||
Total assets | 524,124 | 503,627 | 20,497 | 4 | 516,401 | 530,082 | (13,681) | (3) | |||||||||||||||||||||||||||||||||||||||
Total deposits | 189,424 | 226,129 | (36,705) | (16) | 191,560 | 243,913 | (52,353) | (21) | |||||||||||||||||||||||||||||||||||||||
Allocated capital | 34,000 | 34,000 | — | — | 34,000 | 34,000 | — | — | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 177,002 | 157,193 | 19,809 | 13 | $ | 177,002 | 157,193 | 19,809 | 13 | |||||||||||||||||||||||||||||||||||||
Commercial real estate | 86,955 | 83,920 | 3,035 | 4 | 86,955 | 83,920 | 3,035 | 4 | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 263,957 | 241,113 | 22,844 | 9 | $ | 263,957 | 241,113 | 22,844 | 9 | |||||||||||||||||||||||||||||||||||||
Loans by Line of Business: | |||||||||||||||||||||||||||||||||||||||||||||||
Banking | $ | 99,683 | 83,128 | 16,555 | 20 | $ | 99,683 | 83,128 | 16,555 | 20 | |||||||||||||||||||||||||||||||||||||
Commercial Real Estate | 112,050 | 108,240 | 3,810 | 4 | 112,050 | 108,240 | 3,810 | 4 | |||||||||||||||||||||||||||||||||||||||
Markets | 52,224 | 49,745 | 2,479 | 5 | 52,224 | 49,745 | 2,479 | 5 | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 263,957 | 241,113 | 22,844 | 9 | $ | 263,957 | 241,113 | 22,844 | 9 | |||||||||||||||||||||||||||||||||||||
Trading-related assets: | |||||||||||||||||||||||||||||||||||||||||||||||
Trading account securities | $ | 114,187 | 100,157 | 14,030 | 14 | $ | 114,187 | 100,157 | 14,030 | 14 | |||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements/securities borrowed | 55,123 | 61,027 | (5,904) | (10) | 55,123 | 61,027 | (5,904) | (10) | |||||||||||||||||||||||||||||||||||||||
Derivative assets | 27,096 | 23,844 | 3,252 | 14 | 27,096 | 23,844 | 3,252 | 14 | |||||||||||||||||||||||||||||||||||||||
Total trading-related assets | $ | 196,406 | 185,028 | 11,378 | 6 | $ | 196,406 | 185,028 | 11,378 | 6 | |||||||||||||||||||||||||||||||||||||
Total assets | 535,385 | 490,373 | 45,012 | 9 | 535,385 | 490,373 | 45,012 | 9 | |||||||||||||||||||||||||||||||||||||||
Total deposits | 191,786 | 212,532 | (20,746) | (10) | 191,786 | 212,532 | (20,746) | (10) |
Third quarter 2021 vs. third quarter 2020
Total deposits (average) decreased reflecting continued actions to manage under the asset cap.
First nine months of 2021 vs. first nine months of 2020
Total assets (period-end) increased reflecting higher loan balances driven by customer usage of lines due to increased corporate spending, and higher trading-related asset balances due to increased customer activity.
Total deposits (average and period-end) decreased reflecting continued actions to manage under the asset cap.
22 | Wells Fargo & Company |
Wealth and Investment Management provides personalized wealth management, investment and retirement products and services to clients across U.S.-based businesses including Wells Fargo Advisors and The Private Bank. We serve clients’
brokerage needs, and deliver financial planning, private banking, credit, and fiduciary services to high-net worth and ultra-high-net worth individuals and families. Table 5g and Table 5h provide additional information for Wealth and Investment Management.
Table 5g: Wealth and Investment Management
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions, unless otherwise noted) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Income Statement | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 637 | 717 | (80) | (11) | % | $ | 1,904 | 2,274 | (370) | (16) | % | |||||||||||||||||||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||||||||||||||||||||||||||
Investment advisory and other asset-based fees | 2,457 | 2,043 | 414 | 20 | 7,145 | 5,951 | 1,194 | 20 | |||||||||||||||||||||||||||||||||||||||
Commissions and brokerage services fees | 458 | 497 | (39) | (8) | 1,526 | 1,560 | (34) | (2) | |||||||||||||||||||||||||||||||||||||||
Other | 66 | 33 | 33 | 100 | 123 | (19) | 142 | 747 | |||||||||||||||||||||||||||||||||||||||
Total noninterest income | 2,981 | 2,573 | 408 | 16 | 8,794 | 7,492 | 1,302 | 17 | |||||||||||||||||||||||||||||||||||||||
Total revenue | 3,618 | 3,290 | 328 | 10 | 10,698 | 9,766 | 932 | 10 | |||||||||||||||||||||||||||||||||||||||
Net charge-offs | (3) | (2) | (1) | (50) | (9) | — | (9) | NM | |||||||||||||||||||||||||||||||||||||||
Change in the allowance for credit losses | (70) | (8) | (62) | NM | (83) | 253 | (336) | NM | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (73) | (10) | (63) | NM | (92) | 253 | (345) | NM | |||||||||||||||||||||||||||||||||||||||
Noninterest expense | 2,917 | 2,742 | 175 | 6 | 8,836 | 8,142 | 694 | 9 | |||||||||||||||||||||||||||||||||||||||
Income before income tax expense | 774 | 558 | 216 | 39 | 1,954 | 1,371 | 583 | 43 | |||||||||||||||||||||||||||||||||||||||
Income tax expense | 195 | 139 | 56 | 40 | 491 | 343 | 148 | 43 | |||||||||||||||||||||||||||||||||||||||
Net income | $ | 579 | 419 | 160 | 38 | $ | 1,463 | 1,028 | 435 | 42 | |||||||||||||||||||||||||||||||||||||
Selected Metrics | |||||||||||||||||||||||||||||||||||||||||||||||
Return on allocated capital | 25.7 | % | 18.4 | 21.8 | % | 15.1 | |||||||||||||||||||||||||||||||||||||||||
Efficiency ratio | 81 | 83 | 83 | 83 | |||||||||||||||||||||||||||||||||||||||||||
Headcount (#) (period-end) | 26,112 | 28,996 | (10) | 26,112 | 28,996 | (10) | |||||||||||||||||||||||||||||||||||||||||
Advisory assets ($ in billions) | $ | 920 | 779 | 141 | 18 | $ | 920 | 779 | 141 | 18 | |||||||||||||||||||||||||||||||||||||
Other brokerage assets and deposits ($ in billions) | 1,171 | 1,076 | 95 | 9 | 1,171 | 1,076 | 95 | 9 | |||||||||||||||||||||||||||||||||||||||
Total client assets ($ in billions) | $ | 2,091 | 1,855 | 236 | 13 | $ | 2,091 | 1,855 | 236 | 13 | |||||||||||||||||||||||||||||||||||||
Annualized revenue per advisor ($ in thousands) (1) | 1,141 | 940 | 201 | 21 | 1,094 | 916 | 178 | 19 | |||||||||||||||||||||||||||||||||||||||
Total financial and wealth advisors (#) (period-end) | 12,552 | 13,793 | (9) | 12,552 | 13,793 | (9) | |||||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (average) | |||||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 82,785 | 79,001 | 3,784 | 5 | $ | 81,810 | 78,327 | 3,483 | 4 | |||||||||||||||||||||||||||||||||||||
Total deposits | 176,570 | 169,441 | 7,129 | 4 | 175,087 | 160,012 | 15,075 | 9 | |||||||||||||||||||||||||||||||||||||||
Allocated capital | 8,750 | 8,750 | — | — | 8,750 | 8,750 | — | — | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 82,824 | 79,472 | 3,352 | 4 | $ | 82,824 | 79,472 | 3,352 | 4 | |||||||||||||||||||||||||||||||||||||
Total deposits | 177,809 | 168,132 | 9,677 | 6 | 177,809 | 168,132 | 9,677 | 6 |
NM – Not meaningful
(1)Represents annualized segment total revenue divided by average total financial and wealth advisors for the period.
Third quarter 2021 vs. third quarter 2020
Revenue increased driven by:
•higher investment advisory and other asset-based fees due to higher market valuations on WIM advisory assets;
partially offset by:
•lower net interest income reflecting the lower interest rate environment, partially offset by higher deposit balances.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense increased due to higher personnel expense driven by higher revenue-related compensation.
Total loans (average) increased primarily due to higher securities-based lending balances.
Wells Fargo & Company | 23 |
Earnings Performance (continued)
First nine months of 2021 vs. first nine months of 2020
Revenue increased driven by:
•higher investment advisory and other asset-based fees due to higher market valuations on WIM advisory assets; and
•higher deferred compensation plan investment results included in other noninterest income (largely offset by personnel expense);
partially offset by:
•lower net interest income reflecting the lower interest rate environment, partially offset by higher deposit balances.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense increased due to:
•higher personnel expense driven by higher revenue-related compensation and higher deferred compensation expense; and
•the reversal of a software licensing liability accrual in the first nine months of 2020;
partially offset by:
•lower professional and outside services expense driven by efficiency initiatives to reduce our spending on consultants and contractors.
Total deposits (average and period-end) increased primarily due to growth in customer balances in both The Private Bank and Wells Fargo Advisors.
WIM Advisory Assets In addition to transactional accounts, WIM offers advisory account relationships to brokerage customers. Fees from advisory accounts are based on a percentage of the market value of the assets as of the beginning of the quarter, which vary across the account types based on the distinct services provided, and are affected by investment performance as well as asset inflows and outflows. Advisory accounts include assets that are financial advisor-directed and separately managed by third-party managers, as well as certain client-directed brokerage assets where we earn a fee for advisory and other services, but do not have investment discretion.
WIM also manages personal trust and other assets for high net worth clients, with fee income earned based on a percentage of the market value of these assets. Table 5h presents advisory assets activity by WIM line of business for the third quarter and first nine months of 2021 and 2020. Management believes that advisory assets is a useful metric because it allows management, investors, and others to assess how changes in asset amounts may impact the generation of certain asset-based fees.
For third quarter 2021 and 2020, the average fee rate by account type ranged from 50 to 120 basis points.
Table 5h: WIM Advisory Assets
Quarter ended | Nine months ended | ||||||||||||||||||||||||||||||||||
(in billions) | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period | |||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||
Client-directed (4) | $ | 201.3 | 9.4 | (11.7) | (2.1) | 196.9 | $ | 186.3 | 31.1 | (33.7) | 13.2 | 196.9 | |||||||||||||||||||||||
Financial advisor-directed (5) | 238.0 | 11.0 | (9.0) | (0.7) | 239.3 | 211.0 | 35.6 | (28.9) | 21.6 | 239.3 | |||||||||||||||||||||||||
Separate accounts (6) | 192.9 | 7.5 | (8.7) | (0.8) | 190.9 | 174.6 | 24.0 | (23.4) | 15.7 | 190.9 | |||||||||||||||||||||||||
Mutual fund advisory (7) | 100.1 | 3.9 | (4.0) | (0.8) | 99.2 | 91.4 | 12.2 | (11.1) | 6.7 | 99.2 | |||||||||||||||||||||||||
Total Wells Fargo Advisors | $ | 732.3 | 31.8 | (33.4) | (4.4) | 726.3 | $ | 663.3 | 102.9 | (97.1) | 57.2 | 726.3 | |||||||||||||||||||||||
The Private Bank (8) | 198.4 | 9.6 | (13.1) | (1.3) | 193.6 | 189.4 | 27.8 | (36.7) | 13.1 | 193.6 | |||||||||||||||||||||||||
Total WIM advisory assets | $ | 930.7 | 41.4 | (46.5) | (5.7) | 919.9 | $ | 852.7 | 130.7 | (133.8) | 70.3 | 919.9 | |||||||||||||||||||||||
September 30, 2020 | |||||||||||||||||||||||||||||||||||
Client directed (4) | $ | 162.2 | 8.8 | (10.2) | 9.5 | 170.3 | $ | 169.4 | 26.2 | (27.6) | 2.3 | 170.3 | |||||||||||||||||||||||
Financial advisor directed (5) | 176.8 | 9.9 | (9.0) | 11.6 | 189.3 | 176.3 | 29.0 | (24.2) | 8.2 | 189.3 | |||||||||||||||||||||||||
Separate accounts (6) | 151.5 | 5.9 | (6.0) | 8.0 | 159.4 | 160.1 | 17.7 | (20.3) | 1.9 | 159.4 | |||||||||||||||||||||||||
Mutual fund advisory (7) | 78.9 | 2.9 | (3.3) | 4.2 | 82.7 | 83.7 | 8.3 | (10.5) | 1.2 | 82.7 | |||||||||||||||||||||||||
Total Wells Fargo Advisors | $ | 569.4 | 27.5 | (28.5) | 33.3 | 601.7 | $ | 589.5 | 81.2 | (82.6) | 13.6 | 601.7 | |||||||||||||||||||||||
The Private Bank (8) | 173.2 | 7.0 | (10.8) | 7.7 | 177.1 | 188.0 | 22.7 | (33.6) | — | 177.1 | |||||||||||||||||||||||||
Total WIM advisory assets | $ | 742.6 | 34.5 | (39.3) | 41.0 | 778.8 | $ | 777.5 | 103.9 | (116.2) | 13.6 | 778.8 | |||||||||||||||||||||||
(1)Inflows include new advisory account assets, contributions, dividends and interest.
(2)Outflows include closed advisory account assets, withdrawals and client management fees.
(3)Market impact reflects gains and losses on portfolio investments.
(4)Investment advice and other services are provided to client, but decisions are made by the client and the fees earned are based on a percentage of the advisory account assets, not the number and size of transactions executed by the client.
(5)Professionally managed portfolios with fees earned based on respective strategies and as a percentage of certain client assets.
(6)Professional advisory portfolios managed by Wells Fargo Asset Management or third-party asset managers. Fees are earned based on a percentage of certain client assets.
(7)Program with portfolios constructed of load-waived, no-load and institutional share class mutual funds. Fees are earned based on a percentage of certain client assets.
(8)Discretionary and non-discretionary portfolios held in personal trusts, investment agency, or custody accounts with fees earned based on a percentage of client assets.
24 | Wells Fargo & Company |
Corporate includes corporate treasury and enterprise functions, net of allocations (including funds transfer pricing, capital, liquidity and certain expenses), in support of the reportable operating segments, as well as our investment portfolio and affiliated venture capital and private equity businesses. In addition, Corporate includes all restructuring charges related to our efficiency initiatives. See Note 19 (Restructuring Charges) to
Financial Statements in this Report for additional information on restructuring charges. Corporate also includes certain lines of business that management has determined are no longer consistent with the long-term strategic goals of the Company, as well as results for previously divested businesses. Table 5i,
Table 5j, and Table 5k provide additional information for Corporate.
Table 5i: Corporate – Income Statement and Selected Metrics
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions, unless otherwise noted) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Income Statement | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | (427) | (268) | (159) | (59) | % | $ | (1,121) | 671 | (1,792) | NM | ||||||||||||||||||||||||||||||||||||
Noninterest income | 1,752 | 1,921 | (169) | (9) | 6,496 | 3,224 | 3,272 | 101 | % | ||||||||||||||||||||||||||||||||||||||
Total revenue | 1,325 | 1,653 | (328) | (20) | 5,375 | 3,895 | 1,480 | 38 | |||||||||||||||||||||||||||||||||||||||
Net charge-offs | (10) | 28 | (38) | NM | 59 | 169 | (110) | (65) | |||||||||||||||||||||||||||||||||||||||
Change in the allowance for credit losses | 1 | (107) | 108 | 101 | (5) | 140 | (145) | NM | |||||||||||||||||||||||||||||||||||||||
Provision for credit losses | (9) | (79) | 70 | 89 | 54 | 309 | (255) | (83) | |||||||||||||||||||||||||||||||||||||||
Noninterest expense | 1,140 | 1,528 | (388) | (25) | 3,371 | 3,470 | (99) | (3) | |||||||||||||||||||||||||||||||||||||||
Income before income tax expense (benefit) | 194 | 204 | (10) | (5) | 1,950 | 116 | 1,834 | NM | |||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 110 | (632) | 742 | 117 | 58 | (611) | 669 | 109 | |||||||||||||||||||||||||||||||||||||||
Less: Net income from noncontrolling interests (1) | 281 | 184 | 97 | 53 | 1,038 | 81 | 957 | NM | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (197) | 652 | (849) | NM | $ | 854 | 646 | 208 | 32 | |||||||||||||||||||||||||||||||||||||
Selected Metrics | |||||||||||||||||||||||||||||||||||||||||||||||
Headcount (#) (period-end) (2) | 86,328 | 84,314 | 2 | 86,328 | 84,314 | 2 | |||||||||||||||||||||||||||||||||||||||||
Wells Fargo Asset Management assets under management ($ in billions) | $ | 588 | 607 | (19) | (3) | $ | 588 | 607 | (19) | (3) |
NM – Not meaningful
(1)Reflects results attributable to noncontrolling interests predominantly associated with the Company’s consolidated venture capital investments.
(2)Beginning in first quarter 2021, employees who were notified of displacement remained as headcount in their respective operating segment rather than included in Corporate.
Third quarter 2021 vs. third quarter 2020
Revenue decreased driven by:
•lower equity method investment income compared with a third quarter 2020 that included $228 million of equity method investment income related to a change in the accounting measurement model for certain nonmarketable equity securities from our affiliated venture capital business;
•lower net interest income driven by lower loan balances; and
•lower gains on debt securities in our investment portfolio;
partially offset by:
•higher realized and unrealized gains on securities in our affiliated venture capital and private equity businesses.
Noninterest expense decreased due to:
•lower restructuring charges;
partially offset by:
•higher incentive compensation expense; and
•higher operating losses driven by a $250 million operating loss associated with the September 2021 OCC enforcement action.
First nine months of 2021 vs. first nine months of 2020
Revenue increased driven by:
•higher unrealized gains on nonmarketable equity securities in our affiliated venture capital and private equity businesses, higher realized gains on the sales of equity securities, as well as impairment of equity securities in first quarter 2020 due to the market impact of the COVID-19 pandemic;
•higher gains on deferred compensation plan investments (largely offset by personnel expense); and
•a gain on the sale of our student loan portfolio and a modest gain on the sale of our Canadian equipment finance business;
partially offset by:
•lower net interest income reflecting the lower interest rate environment, unfavorable hedge ineffectiveness accounting results, and lower loan balances;
•higher valuation losses related to the retained litigation risk, including the timing and amount of final settlement, associated with shares of Visa Class B common stock that we previously sold; and
•lower gains on debt securities in our investment portfolio.
Provision for credit losses decreased driven by an improving economic environment and lower provision associated with the sale of our student loan portfolio.
Noninterest expense decreased due to:
•lower restructuring charges;
partially offset by:
•higher incentive compensation expense, including the impact of higher market valuations on stock-based compensation;
•higher deferred compensation expense; and
•a write-down of goodwill in 2021 related to the sale of our student loan portfolio.
Corporate includes our rail car leasing business, which had long-lived operating lease assets (as a lessor) of $5.4 billion, which was net of $1.9 billion of accumulated depreciation, as of
Wells Fargo & Company | 25 |
Earnings Performance (continued)
September 30, 2021. The average age of our rail cars is 21 years and the rail cars are typically leased under short-term leases of 3 to 5 years. Our three largest concentrations, which represented 55% of our rail car fleet as of September 30, 2021, were rail cars used for the transportation of agricultural grain, coal, and cement/sand products. Impairment may result in the future based on changing economic and market conditions affecting the long-term demand and utility of specific types of rail cars. Our assumptions for impairment are sensitive to estimated utilization and rental rates, as well as the estimated economic life of the leased asset. For additional information on the accounting
for impairment of operating lease assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
In addition, Corporate includes assets under management (AUM) and assets under administration (AUA) for Institutional Retirement and Trust (IRT) client assets of $20 billion and $565 billion, respectively, at September 30, 2021, which we continue to administer at the direction of the buyer pursuant to a transition services agreement. The transition services agreement terminates in February 2022.
Table 5j: Corporate – Balance Sheet
Quarter ended Sep 30, | Nine months ended Sep 30, | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (average) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash, cash equivalents, and restricted cash | $ | 250,414 | 215,342 | 35,072 | 16 | % | $ | 242,853 | 170,682 | 72,171 | 42 | % | |||||||||||||||||||||||||||||||||||
Available-for-sale debt securities | 172,035 | 211,180 | (39,145) | (19) | 185,847 | 226,356 | (40,509) | (18) | |||||||||||||||||||||||||||||||||||||||
Held-to-maturity debt securities | 260,167 | 175,748 | 84,419 | 48 | 238,591 | 166,588 | 72,003 | 43 | |||||||||||||||||||||||||||||||||||||||
Equity securities | 13,254 | 12,034 | 1,220 | 10 | 11,894 | 13,198 | (1,304) | (10) | |||||||||||||||||||||||||||||||||||||||
Total loans | 9,765 | 21,178 | (11,413) | (54) | 10,021 | 21,404 | (11,383) | (53) | |||||||||||||||||||||||||||||||||||||||
Total assets | 762,067 | 702,662 | 59,405 | 8 | 748,236 | 662,709 | 85,527 | 13 | |||||||||||||||||||||||||||||||||||||||
Total deposits | 37,302 | 67,976 | (30,674) | (45) | 41,796 | 85,466 | (43,670) | (51) | |||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data (period-end) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash, cash equivalents, and restricted cash | $ | 241,423 | 220,026 | 21,397 | 10 | $ | 241,423 | 220,026 | 21,397 | 10 | |||||||||||||||||||||||||||||||||||||
Available-for-sale debt securities | 173,237 | 208,543 | (35,306) | (17) | 173,237 | 208,543 | (35,306) | (17) | |||||||||||||||||||||||||||||||||||||||
Held-to-maturity debt securities | 261,583 | 181,744 | 79,839 | 44 | 261,583 | 181,744 | 79,839 | 44 | |||||||||||||||||||||||||||||||||||||||
Equity securities | 14,022 | 11,010 | 3,012 | 27 | 14,022 | 11,010 | 3,012 | 27 | |||||||||||||||||||||||||||||||||||||||
Total loans | 9,589 | 21,935 | (12,346) | (56) | 9,589 | 21,935 | (12,346) | (56) | |||||||||||||||||||||||||||||||||||||||
Total assets | 751,155 | 696,424 | 54,731 | 8 | 751,155 | 696,424 | 54,731 | 8 | |||||||||||||||||||||||||||||||||||||||
Total deposits | 37,507 | 62,178 | (24,671) | (40) | 37,507 | 62,178 | (24,671) | (40) |
Third quarter 2021 vs. third quarter 2020
Total assets (average) increased due to:
•an increase in cash, cash equivalents, and restricted cash managed by corporate treasury as a result of an increase in deposits from the reportable operating segments;
•an increase in held-to-maturity debt securities related to portfolio rebalancing to manage liquidity and interest rate risk; and
•an increase in equity securities related to our affiliated venture capital business;
partially offset by:
•a decline in available-for-sale debt securities related to portfolio rebalancing to manage liquidity and interest rate risk; and
•a decline in loans due to the sale of our student loan portfolio.
Total deposits (average) decreased reflecting actions taken to manage under the asset cap.
First nine months of 2021 vs. first nine months of 2020
Total assets (average and period-end) increased due to:
•an increase in cash, cash equivalents, and restricted cash managed by corporate treasury as a result of an increase in deposits from the reportable operating segments;
•an increase in held-to-maturity debt securities related to portfolio rebalancing to manage liquidity and interest rate risk; and
•in increase in period-end equity securities related to our affiliated venture capital business;
partially offset by:
•a decline in available-for-sale debt securities related to portfolio rebalancing to manage liquidity and interest rate risk;
•a decline in average equity securities due to the transition from equity securities to derivative instruments for economic hedges of the deferred compensation plan liabilities in second quarter 2020 and a reduction in Federal Home Loan Bank stock, partially offset by higher balances in our affiliated venture capital business; and
•a decline in loans due to the sale of our student loan portfolio.
Total deposits (average and period-end) decreased reflecting actions taken to manage under the asset cap.
26 | Wells Fargo & Company |
Wells Fargo Asset Management (WFAM) Assets Under Management We earn investment advisory and other asset-based fees from managing and administering assets through WFAM, which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts. Generally, we earn fees from AUM where we have discretionary management authority over the investments and generate fees as a percentage of the market value of the AUM. WFAM assets under management consist of equity, alternative, balanced, fixed income, money
market, and stable value, and include client assets that are managed or sub-advised on behalf of other Wells Fargo lines of business. Table 5k presents WFAM AUM activity for the third quarter and first nine months of 2021 and 2020. Management believes that AUM is a useful metric because it allows management, investors, and others to assess how changes in asset amounts may impact the generation of certain asset-based fees.
Table 5k: WFAM Assets Under Management
Quarter ended | Nine months ended | ||||||||||||||||||||||||||||||||||
(in billions) | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period | |||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||
Money market funds (4) | $ | 199.7 | — | (6.0) | — | 193.7 | $ | 197.4 | — | (3.7) | — | 193.7 | |||||||||||||||||||||||
Other assets managed | 403.8 | 18.3 | (26.1) | (2.2) | 393.8 | 405.6 | 64.2 | (84.9) | 8.9 | 393.8 | |||||||||||||||||||||||||
Total WFAM assets under management | $ | 603.5 | 18.3 | (32.1) | (2.2) | 587.5 | $ | 603.0 | 64.2 | (88.6) | 8.9 | 587.5 | |||||||||||||||||||||||
September 30, 2020 | |||||||||||||||||||||||||||||||||||
Money market funds (4) | $ | 201.9 | 19.2 | — | — | 221.1 | $ | 130.6 | 90.5 | — | — | 221.1 | |||||||||||||||||||||||
Other assets managed | 376.4 | 23.2 | (24.1) | 10.3 | 385.8 | 378.2 | 76.3 | (79.2) | 10.5 | 385.8 | |||||||||||||||||||||||||
Total WFAM assets under management | $ | 578.3 | 42.4 | (24.1) | 10.3 | 606.9 | $ | 508.8 | 166.8 | (79.2) | 10.5 | 606.9 | |||||||||||||||||||||||
(1)Inflows include new managed account assets, contributions, dividends and interest.
(2)Outflows include closed managed account assets, withdrawals and client management fees.
(3)Market impact reflects gains and losses on portfolio investments.
(4)Money Market funds activity is presented on a net inflow or net outflow basis, because the gross flows are not meaningful nor used by management as an indicator of performance.
Wells Fargo & Company | 27 |
Balance Sheet Analysis |
At September 30, 2021, our assets totaled $1.95 trillion, up $2.0 billion from December 31, 2020.
The following discussion provides additional information about the major components of our consolidated balance sheet. See the “Capital Management” section in this Report for information on changes in our equity.
Available-for-Sale and Held-to-Maturity Debt Securities
Table 6: Available-for-Sale and Held-to-Maturity Debt Securities
September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Amortized cost, net (1) | Net unrealized gains | Fair value | Weighted average expected maturity (yrs) | Amortized cost, net (1) | Net unrealized gains | Fair value | Weighted average expected maturity (yrs) | |||||||||||||||||||||||||||||||||||||||
Available-for-sale (2) | 182,699 | 2,858 | 185,557 | 5.1 | 215,533 | 4,859 | 220,392 | 4.5 | |||||||||||||||||||||||||||||||||||||||
Held-to-maturity (3) | 262,493 | 1,529 | 264,022 | 6.4 | 205,720 | 6,587 | 212,307 | 4.5 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 445,192 | 4,387 | 449,579 | n/a | 421,253 | 11,446 | 432,699 | n/a | ||||||||||||||||||||||||||||||||||||||
(1)Represents amortized cost of the securities, net of the allowance for credit losses of $21 million and $28 million related to available-for-sale debt securities and $75 million and $41 million related to held-to-maturity debt securities at September 30, 2021, and December 31, 2020.
(2)Available-for-sale debt securities are carried on the consolidated balance sheet at fair value.
(3)Held-to-maturity debt securities are carried on the consolidated balance sheet at amortized cost, net of the allowance for credit losses.
Table 6 presents a summary of our portfolio of investments in available-for-sale (AFS) and held-to-maturity (HTM) debt securities. See the “Balance Sheet Analysis – Available-for-Sale and Held-to-Maturity Debt Securities” section in our 2020 Form 10-K for information on our investment management objectives and practices and the “Risk Management – Asset/Liability Management” section in this Report for information on liquidity and interest rate risk.
The amortized cost, net of the allowance for credit losses, of AFS and HTM debt securities increased from December 31, 2020. Purchases of AFS debt securities were partially offset by runoff and sales. Purchases of HTM debt securities, including securitizations of LHFS, were partially offset by runoff. In addition, we transferred $41.3 billion of AFS debt securities to HTM debt securities in the first nine months of 2021 due to actions taken to reposition the overall portfolio for capital management purposes.
The total net unrealized gains on AFS and HTM debt securities decreased from December 31, 2020, driven by higher interest rates.
At September 30, 2021, 96% of the combined AFS and HTM debt securities portfolio was rated AA- or above. Ratings are
based on external ratings where available and, where not available, based on internal credit grades. See Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for additional information on AFS and HTM debt securities, including a summary of debt securities by security type.
Loan Portfolios
Table 7 provides a summary of total outstanding loans by portfolio segment. Commercial loans increased compared with December 31, 2020, predominantly due to an increase in the commercial and industrial loan portfolio, driven by higher loan demand resulting in increased originations and loan draws, partially offset by paydowns and PPP loan forgiveness. Consumer loans decreased from December 31, 2020, predominantly driven by a decrease in the residential mortgage – first lien portfolio due to loan paydowns as a result of the low interest rate environment and the transfer of $13.5 billion of first lien mortgage loans to loans held for sale (LHFS) substantially all of which related to the sales of loans purchased from GNMA loan securitization pools in prior periods, partially offset by originations of $51.3 billion.
Table 7: Loan Portfolios
(in millions) | September 30, 2021 | December 31, 2020 | ||||||||||||
Commercial | $ | 484,937 | 478,417 | |||||||||||
Consumer | 377,890 | 409,220 | ||||||||||||
Total loans | $ | 862,827 | 887,637 | |||||||||||
Change from prior year-end | $ | (24,810) | (74,628) |
Average loan balances and a comparative detail of average loan balances is included in Table 1 under “Earnings Performance – Net Interest Income” earlier in this Report. Additional information on total loans outstanding by portfolio segment and class of financing receivable is included in the “Risk Management – Credit Risk Management” section in this Report. Period-end balances and other loan related information are in Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
See the “Balance Sheet Analysis – Loan Portfolios” section in our 2020 Form 10-K for additional information regarding contractual loan maturities and the distribution of loans to changes in interest rates.
28 | Wells Fargo & Company |
Deposits
Deposits increased from December 31, 2020, reflecting:
•higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs, as well as continued economic uncertainty associated with the COVID-19 pandemic;
partially offset by:
•actions taken to manage under the asset cap resulting in declines in time deposits, such as brokered certificates of
deposit (CDs), and interest-bearing deposits in non-U.S. offices.
Table 8 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report.
Table 8: Deposits
($ in millions) | Sep 30, 2021 | % of total deposits | Dec 31, 2020 | % of total deposits | % Change | ||||||||||||||||||||||||
Noninterest-bearing demand deposits | $ | 529,051 | 36 | % | $ | 467,068 | 33 | % | 13 | ||||||||||||||||||||
Interest-bearing demand deposits | 454,170 | 31 | 447,446 | 32 | 2 | ||||||||||||||||||||||||
Savings deposits | 426,535 | 29 | 404,935 | 29 | 5 | ||||||||||||||||||||||||
Time deposits | 32,291 | 2 | 49,775 | 4 | (35) | ||||||||||||||||||||||||
Interest-bearing deposits in non-U.S. offices | 28,332 | 2 | 35,157 | 2 | (19) | ||||||||||||||||||||||||
Total deposits | $ | 1,470,379 | 100 | % | $ | 1,404,381 | 100 | % | 5 |
Off-Balance Sheet Arrangements |
In the ordinary course of business, we engage in financial transactions that are not recorded on the consolidated balance sheet, or may be recorded on the consolidated balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to lend and purchase debt and equity securities, transactions with unconsolidated entities, guarantees, derivatives, and other commitments. These transactions are designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity risks, and/or (3) diversify our funding sources.
Commitments to Lend
We enter into commitments to lend to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we enter into commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments are not funded. For additional information, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Transactions with Unconsolidated Entities
In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For additional information, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.
Guarantees and Other Arrangements
Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby and direct pay letters of credit, written options, recourse obligations, exchange and clearing house guarantees, indemnifications, and other types of similar arrangements. For additional information, see Note 11 (Guarantees and Other Commitments) to Financial Statements in this Report.
Commitments to Purchase Debt and Equity Securities
We enter into commitments to purchase securities under resale agreements. We also may enter into commitments to purchase debt and equity securities to provide capital for customers’ funding, liquidity or other future needs. For additional information, see Note 11 (Guarantees and Other Commitments) to Financial Statements in this Report.
Derivatives
We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. Derivatives are recorded on the consolidated balance sheet at fair value, and volume can be measured in terms of the notional amount, which is generally not exchanged, but is used only as the basis on which interest and other payments are determined. The notional amount is not recorded on the consolidated balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. For additional information, see Note 14 (Derivatives) to Financial Statements in this Report.
Wells Fargo & Company | 29 |
Risk Management |
Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, shareholders, regulators and other stakeholders. For additional information about how we manage risk, see the “Risk Management” section in our 2020 Form 10-K. The discussion that follows supplements our discussion of the management of certain risks contained in the “Risk Management” section in our 2020 Form 10-K.
Credit Risk Management
We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk exists with many of our assets and exposures such as debt security holdings, certain derivatives, and loans.
The Board’s Risk Committee has primary oversight responsibility for credit risk. A Credit Subcommittee of the Risk Committee assists the Risk Committee in providing oversight of credit risk. At the management level, Credit Risk, which is part of IRM, has oversight responsibility for credit risk. Credit Risk reports to the CRO and supports periodic reports related to credit risk provided to the Board’s Risk Committee or its Credit Subcommittee.
Loan Portfolio
Our loan portfolios represent the largest component of assets on our consolidated balance sheet for which we have credit risk. Table 9 presents our total loans outstanding by portfolio segment and class of financing receivable.
Table 9: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
(in millions) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Commercial: | |||||||||||
Commercial and industrial | $ | 326,425 | 318,805 | ||||||||
Real estate mortgage | 121,985 | 121,720 | |||||||||
Real estate construction | 21,129 | 21,805 | |||||||||
Lease financing | 15,398 | 16,087 | |||||||||
Total commercial | 484,937 | 478,417 | |||||||||
Consumer: | |||||||||||
Residential mortgage – first lien | 242,935 | 276,674 | |||||||||
Residential mortgage – junior lien | 18,026 | 23,286 | |||||||||
Credit card | 36,061 | 36,664 | |||||||||
Auto | 53,827 | 48,187 | |||||||||
Other consumer | 27,041 | 24,409 | |||||||||
Total consumer | 377,890 | 409,220 | |||||||||
Total loans | $ | 862,827 | 887,637 |
We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans we hold including:
•Loan concentrations and related credit quality;
•Counterparty credit risk;
•Economic and market conditions;
•Legislative or regulatory mandates;
•Changes in interest rates;
•Merger and acquisition activities; and
•Reputation risk.
Our credit risk management oversight process is governed centrally, but provides for direct management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process.
A key to our credit risk management is adherence to a well-controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans.
Credit Quality Overview Credit quality in third quarter 2021 reflected continued improvement in the economic environment. In particular:
•Nonaccrual loans were $7.0 billion at September 30, 2021, down from $8.7 billion at December 31, 2020. Commercial nonaccrual loans decreased to $3.0 billion at September 30, 2021, compared with $4.8 billion at December 31, 2020, and consumer nonaccrual loans increased slightly to $4.0 billion at September 30, 2021, compared with $3.9 billion at December 31, 2020. Nonaccrual loans represented 0.82% of total loans at September 30, 2021, compared with 0.98% at December 31, 2020.
•Net loan charge-offs as a percentage of our average commercial and consumer loan portfolios were 0.03% and 0.23% in the third quarter and 0.07% and 0.31% in the first nine months of 2021, respectively, compared with 0.29% and 0.30% in the third quarter and 0.33% and 0.44% in the first nine months of 2020.
•Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $121 million and $394 million in our commercial and consumer portfolios, respectively, at September 30, 2021, compared with $78 million and $612 million at December 31, 2020.
•Our provision for credit losses for loans was $(1.4) billion and $(3.7) billion in the third quarter and first nine months of 2021, respectively, compared with $751 million and $14.1 billion for the same periods a year ago.
•The ACL for loans decreased to $14.7 billion, or 1.70% of total loans, at September 30, 2021, compared with $19.7 billion, or 2.22%, at December 31, 2020.
Additional information on our loan portfolios and our credit quality trends follows.
30 | Wells Fargo & Company |
COVID-Related Lending Accommodations During 2020, we provided accommodations to customers in response to the COVID-19 pandemic, including payment deferrals, and other expanded assistance for mortgage, credit card, auto, small business, personal and commercial lending customers. With the exception of residential mortgage-related accommodation programs, the COVID-related lending accommodations instituted during 2020 were no longer offered as of December 31, 2020. Residential mortgage accommodation programs, which continued during the first nine months of 2021, offered payment deferrals for up to a total of 18 months.
Table 10 summarizes the unpaid principal balance (UPB) of consumer loans that received accommodations under loan modification programs established to assist customers with the economic impact of the COVID-19 pandemic (COVID-related modifications) and that remained in a deferral period as of September 30, 2021.
Based on guidance in the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) issued by federal banking regulators in April 2020 (the Interagency Statement), both of which we elected to apply, loan modifications related to COVID-19 and that meet certain other criteria are exempt from troubled debt restructuring (TDR) classification. Additionally, our election to apply the TDR relief provided by the CARES Act and the Interagency Statement impacts our regulatory capital ratios as these loan modifications
related to COVID-19 are not adjusted to a higher risk-weighting normally required with TDR classification. At September 30, 2021, substantially all residential mortgage loans that were in a deferral period, excluding those that were government insured/guaranteed, met the criteria for TDR relief and were therefore not classified as TDRs. For additional information regarding the TDR relief provided by the CARES Act and the clarifying TDR accounting guidance from the Interagency Statement, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of charge-offs, delinquencies, and nonaccrual status for those customers who would have otherwise moved into past due or nonaccrual status. Customer loans that are not further modified upon exit from the deferral period may be placed on nonaccrual status or charged-off in accordance with our policies if customers are unable to resume making payments in accordance with the contractual terms of their agreement. As of September 30, 2021, substantially all of our consumer loans were current after exiting the deferral period. For additional information about our COVID-related modifications, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
Table 10: Consumer Loan Modifications Related to COVID-19
($ in millions) | Unpaid principal balance of modified loans still in deferral period at Sep 30, 2021 | % of loan class (1) | % current at Sep 30, 2021 after exit from deferral period (2) | |||||||||||
Consumer: | ||||||||||||||
Residential mortgage – first lien (3) | $ | 5,042 | 2 | % | 93 | |||||||||
Residential mortgage – junior lien (3) | 789 | 4 | 88 | |||||||||||
All other consumer (4) | 65 | * | 92 | |||||||||||
Subtotal | 5,896 | 2 | ||||||||||||
Residential mortgage – first lien (government insured/guaranteed) (5) | 7,265 | 3 | ||||||||||||
Total consumer | $ | 13,161 | ||||||||||||
*Less than 1%.
(1)Based on total loans outstanding at September 30, 2021.
(2)Represents the UPB of loans that exited the deferral period and had a balance that was less than 30 days past due as of September 30, 2021.
(3)For residential mortgage loans still in active COVID-related accommodation programs as of September 30, 2021, 97% of first lien and 89% of junior lien mortgage loans had a loan-to-value ratio that was 80% or lower.
(4)Includes credit card, auto, and other consumer loans (including personal lines/loans).
(5)Represents residential mortgage – first lien loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) that were primarily repurchased from GNMA loan securitization pools. For additional information on GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in this Report. FHA/VA loans are entitled to payment deferrals of scheduled principal and interest up to a total of 18 months.
Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, Fair Isaac Corporation (FICO) scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our significant portfolios. See Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information for each of the following portfolios.
COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. We
generally subject commercial and industrial loans and lease financing to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized segmented among special mention, substandard, doubtful and loss categories.
We had $13.5 billion of the commercial and industrial loans and lease financing portfolio internally classified as criticized in accordance with regulatory guidance at September 30, 2021, compared with $19.3 billion at December 31, 2020. The change was driven by decreases in the oil, gas and pipelines, retail, transportation services, and entertainment and recreation industries, as these industries continue to recover from the effects of the COVID-19 pandemic.
The majority of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and debt securities, as well as long-lived assets, such as equipment and other business assets.
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Risk Management – Credit Risk Management (continued)
Generally, the primary source of repayment for this portfolio is the operating cash flows of customers, with the collateral securing this portfolio representing a secondary source of repayment.
The portfolio increased at September 30, 2021, compared with December 31, 2020, driven by higher loan demand resulting
in increased originations and loan draws, partially offset by paydowns and PPP loan forgiveness. Table 11 provides our commercial and industrial loans and lease financing by industry. The industry categories are based on the North American Industry Classification System.
Table 11: Commercial and Industrial Loans and Lease Financing by Industry
September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Nonaccrual loans | Total portfolio | % of total loans | Total commitments (1) | Nonaccrual loans | Total portfolio | % of total loans | Total commitments (1) | |||||||||||||||||||||||||||||||||||||||
Financials except banks | $ | 140 | 134,060 | 16 | % | $ | 227,615 | $ | 160 | 117,726 | 13 | % | $ | 206,999 | |||||||||||||||||||||||||||||||||
Technology, telecom and media | 75 | 21,226 | 2 | 60,607 | 144 | 23,061 | 3 | 56,500 | |||||||||||||||||||||||||||||||||||||||
Real estate and construction | 87 | 20,900 | 2 | 51,882 | 133 | 23,113 | 3 | 51,526 | |||||||||||||||||||||||||||||||||||||||
Equipment, machinery and parts manufacturing | 29 | 17,503 | 2 | 43,111 | 81 | 18,158 | 2 | 41,332 | |||||||||||||||||||||||||||||||||||||||
Retail | 36 | 17,181 | 2 | 40,071 | 94 | 17,393 | 2 | 41,669 | |||||||||||||||||||||||||||||||||||||||
Materials and commodities | 40 | 13,225 | 2 | 35,454 | 39 | 12,071 | 1 | 33,879 | |||||||||||||||||||||||||||||||||||||||
Food and beverage manufacturing | 7 | 12,637 | 1 | 30,898 | 17 | 12,401 | 1 | 28,908 | |||||||||||||||||||||||||||||||||||||||
Health care and pharmaceuticals | 28 | 12,821 | 1 | 29,960 | 145 | 15,322 | 2 | 32,154 | |||||||||||||||||||||||||||||||||||||||
Oil, gas and pipelines | 280 | 8,725 | 1 | 28,988 | 953 | 10,471 | 1 | 30,055 | |||||||||||||||||||||||||||||||||||||||
Auto related | 56 | 9,290 | 1 | 24,881 | 79 | 11,817 | 1 | 25,034 | |||||||||||||||||||||||||||||||||||||||
Commercial services | 77 | 9,537 | 1 | 24,328 | 107 | 10,284 | 1 | 24,442 | |||||||||||||||||||||||||||||||||||||||
Utilities | 67 | 7,025 | * | 21,972 | 2 | 5,031 | * | 18,564 | |||||||||||||||||||||||||||||||||||||||
Diversified or miscellaneous | 4 | 6,792 | * | 18,608 | 7 | 5,437 | * | 14,717 | |||||||||||||||||||||||||||||||||||||||
Insurance and fiduciaries | 1 | 4,071 | * | 18,105 | 2 | 3,297 | * | 14,334 | |||||||||||||||||||||||||||||||||||||||
Entertainment and recreation | 26 | 8,451 | * | 16,764 | 263 | 9,884 | 1 | 17,551 | |||||||||||||||||||||||||||||||||||||||
Transportation services | 431 | 8,319 | * | 15,951 | 573 | 9,236 | 1 | 15,531 | |||||||||||||||||||||||||||||||||||||||
Banks | — | 15,444 | 2 | 15,815 | — | 12,789 | 1 | 13,842 | |||||||||||||||||||||||||||||||||||||||
Agribusiness | 51 | 5,333 | * | 11,082 | 81 | 6,314 | * | 11,642 | |||||||||||||||||||||||||||||||||||||||
Government and education | 4 | 5,303 | * | 10,941 | 9 | 5,464 | * | 11,065 | |||||||||||||||||||||||||||||||||||||||
Other (2) | 23 | 3,980 | * | 19,050 | 68 | 5,623 | * | 23,315 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 1,462 | 341,823 | 40 | % | $ | 746,083 | $ | 2,957 | 334,892 | 33 | % | $ | 713,059 |
*Less than 1%.
(1)Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit.
(2)No other single industry had total loans in excess of $3.3 billion and $3.8 billion at September 30, 2021, and December 31, 2020, respectively.
Loans to financials except banks, our largest industry concentration, is predominantly comprised of loans to investment firms, financial vehicles, and nonbank creditors. We had $94.7 billion and $80.0 billion of loans originated by our Asset Backed Finance (ABF) and Financial Institution Group (FIG) lines of business at September 30, 2021, and December 31, 2020, respectively. These loans include: (i) loans to customers related to their subscription or capital calls, (ii) loans to nonbank lenders collateralized by commercial loans, and (iii) loans to originators or servicers of financial assets collateralized by residential real estate or other consumer loans such as credit cards, auto loans and leases, student loans and other financial assets eligible for the securitization market. These ABF and FIG loans are limited to a percentage of the value of the underlying financial assets considering underlying credit risk, asset duration, and ongoing performance. These ABF and FIG loans may also have other features to manage credit risk such as cross-collateralization, credit enhancements, and contractual re-margining of collateral supporting the loans. In addition, loans to financials except banks included collateralized loan obligations (CLOs) in loan form, all of which were rated AA or above, of $7.7 billion and $7.9 billion at September 30, 2021, and December 31, 2020, respectively.
Oil, gas and pipelines loans included $6.1 billion and $7.5 billion of senior secured loans outstanding at September 30, 2021, and December 31, 2020, respectively. Oil, gas and
pipelines nonaccrual loans decreased at September 30, 2021, compared with December 31, 2020, driven by loan paydowns.
We continue to perform escalated credit monitoring for certain industries that we consider to be directly and most adversely affected by the COVID-19 pandemic.
Our commercial and industrial loans and lease financing portfolio also includes non-U.S. loans of $74.7 billion and $63.8 billion at September 30, 2021, and December 31, 2020, respectively. Significant industry concentrations of non-U.S. loans at September 30, 2021, and December 31, 2020, respectively, included:
•$45.6 billion and $36.2 billion in the financials except banks category;
•$15.2 billion and $12.8 billion in the banks category; and
•$1.5 billion and $1.6 billion in the oil, gas and pipelines category.
COMMERCIAL REAL ESTATE (CRE) We generally subject CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized segmented among special mention, substandard, doubtful and loss categories. We had $15.2 billion of CRE mortgage loans classified as criticized at September 30, 2021, compared with $12.0 billion at December 31, 2020, and $2.3 billion of CRE construction loans classified as criticized at September 30, 2021,
32 | Wells Fargo & Company |
compared with $1.6 billion at December 31, 2020. The increase in criticized CRE mortgage and construction loans was driven by the hotel/motel, apartment, institutional, and office property types and reflected the economic impact of the COVID-19 pandemic. Due to uncertainty in the recovery from the economic impacts of the COVID-19 pandemic, the credit quality of certain property types within our CRE loan portfolio, such as retail, hotel/motel, office buildings, and shopping centers, could continue to be adversely affected.
The total CRE loan portfolio decreased $411 million from December 31, 2020, driven by a decrease in CRE construction
loans predominantly related to hotel/motel and apartments property types, partially offset by an increase in CRE mortgage loans. The CRE loan portfolio included $8.5 billion of non-U.S. CRE loans at September 30, 2021. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of CRE loans are in California, New York, Florida and Texas, which combined represented 49% of the total CRE portfolio. The largest property type concentrations are office buildings at 25% and apartments at 20% of the portfolio.
Table 12 summarizes CRE loans by state and property type with the related nonaccrual totals at September 30, 2021.
Table 12: CRE Loans by State and Property Type
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
Real estate mortgage | Real estate construction | Total | % of total loans | ||||||||||||||||||||||||||||||||||||||
($ in millions) | Nonaccrual loans | Total portfolio | Nonaccrual loans | Total portfolio | Nonaccrual loans | Total portfolio | |||||||||||||||||||||||||||||||||||
By state: | |||||||||||||||||||||||||||||||||||||||||
California | $ | 239 | 30,706 | 3 | 4,158 | 242 | 34,864 | 4 | % | ||||||||||||||||||||||||||||||||
New York | 156 | 12,903 | 2 | 2,106 | 158 | 15,009 | 2 | ||||||||||||||||||||||||||||||||||
Florida | 117 | 8,790 | 1 | 1,582 | 118 | 10,372 | 1 | ||||||||||||||||||||||||||||||||||
Texas | 305 | 8,628 | — | 1,080 | 305 | 9,708 | 1 | ||||||||||||||||||||||||||||||||||
Washington | 88 | 3,776 | 5 | 1,059 | 93 | 4,835 | * | ||||||||||||||||||||||||||||||||||
Arizona | 52 | 4,259 | — | 320 | 52 | 4,579 | * | ||||||||||||||||||||||||||||||||||
Georgia | 15 | 4,184 | — | 333 | 15 | 4,517 | * | ||||||||||||||||||||||||||||||||||
North Carolina | 10 | 3,386 | — | 869 | 10 | 4,255 | * | ||||||||||||||||||||||||||||||||||
New Jersey | 47 | 2,643 | — | 1,110 | 47 | 3,753 | * | ||||||||||||||||||||||||||||||||||
Illinois | 16 | 3,155 | — | 460 | 16 | 3,615 | * | ||||||||||||||||||||||||||||||||||
Other (1) | 493 | 39,555 | 9 | 8,052 | 502 | 47,607 | 6 | ||||||||||||||||||||||||||||||||||
Total | $ | 1,538 | 121,985 | 20 | 21,129 | 1,558 | 143,114 | 17 | % | ||||||||||||||||||||||||||||||||
By property: | |||||||||||||||||||||||||||||||||||||||||
Office buildings | $ | 166 | 32,987 | 1 | 3,219 | 167 | 36,206 | 4 | % | ||||||||||||||||||||||||||||||||
Apartments | 14 | 21,095 | — | 7,853 | 14 | 28,948 | 3 | ||||||||||||||||||||||||||||||||||
Industrial/warehouse | 96 | 16,005 | 1 | 1,753 | 97 | 17,758 | 2 | ||||||||||||||||||||||||||||||||||
Retail (excluding shopping center) | 138 | 13,026 | 3 | 90 | 141 | 13,116 | 2 | ||||||||||||||||||||||||||||||||||
Hotel/motel | 297 | 10,559 | — | 1,554 | 297 | 12,113 | 1 | ||||||||||||||||||||||||||||||||||
Shopping center | 593 | 9,810 | — | 902 | 593 | 10,712 | 1 | ||||||||||||||||||||||||||||||||||
Institutional | 63 | 4,558 | 1 | 2,626 | 64 | 7,184 | * | ||||||||||||||||||||||||||||||||||
Mixed use properties | 94 | 5,440 | — | 793 | 94 | 6,233 | * | ||||||||||||||||||||||||||||||||||
Collateral pool | — | 2,904 | — | 191 | — | 3,095 | * | ||||||||||||||||||||||||||||||||||
1-4 family structure | — | 8 | — | 1,328 | — | 1,336 | * | ||||||||||||||||||||||||||||||||||
Other | 77 | 5,593 | 14 | 820 | 91 | 6,413 | * | ||||||||||||||||||||||||||||||||||
Total | $ | 1,538 | 121,985 | 20 | 21,129 | 1,558 | 143,114 | 17 | % |
* Less than 1%.
(1)Includes 40 states; no state in Other had loans in excess of $3.7 billion.
NON-U.S. LOANS Our classification of non-U.S. loans is based on whether the borrower’s primary address is outside of the United States. At September 30, 2021, non-U.S. loans totaled $83.2 billion, representing approximately 10% of our total consolidated loans outstanding, compared with $72.9 billion, or approximately 8% of our total consolidated loans outstanding, at December 31, 2020. Non-U.S. loans were approximately 4% of our total consolidated assets at both September 30, 2021, and December 31, 2020.
COUNTRY RISK EXPOSURE Our country risk monitoring process incorporates centralized monitoring of economic, political, social, legal, and transfer risks in countries where we do or plan to do business, along with frequent dialogue with our customers, counterparties and regulatory agencies. We establish exposure limits for each country through a centralized oversight process
based on customer needs, and through consideration of the relevant and distinct risk of each country. We monitor exposures closely and adjust our country limits in response to changing conditions. We evaluate our individual country risk exposure based on our assessment of the borrower’s ability to repay, which gives consideration for allowable transfers of risk, such as guarantees and collateral, and may be different from the reporting based on the borrower’s primary address.
Our largest single country exposure outside the U.S. at September 30, 2021, was the United Kingdom, which totaled $36.4 billion, or approximately 2% of our total assets, and included $9.7 billion of sovereign claims. Our United Kingdom sovereign claims arise from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.
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Risk Management – Credit Risk Management (continued)
Table 13 provides information regarding our top 20 exposures by country (excluding the U.S.), based on our assessment of risk, which gives consideration to the country of any guarantors and/or underlying collateral. With respect to Table 13:
•Lending and deposits exposure includes outstanding loans, unfunded credit commitments, and deposits with non-U.S. banks. These balances are presented prior to the deduction
of allowance for credit losses or collateral received under the terms of the credit agreements, if any.
•Securities exposure represents debt and equity securities of non-U.S. issuers. Long and short positions are netted, and net short positions are reflected as negative exposure.
•Derivatives and other exposure represents foreign exchange contracts, derivative contracts, securities resale agreements, and securities lending agreements.
Table 13: Select Country Exposures
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Lending and deposits | Securities | Derivatives and other | Total exposure | ||||||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Sovereign | Non-sovereign | Sovereign | Non-sovereign | Sovereign | Non-sovereign | Sovereign | Non- sovereign (1) | Total | ||||||||||||||||||||||||||||||||||||||||||||
Top 20 country exposures: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | $ | 9,704 | 23,643 | — | 867 | — | 2,219 | 9,704 | 26,729 | 36,433 | |||||||||||||||||||||||||||||||||||||||||||
Canada | 2 | 17,052 | (8) | 480 | 4 | 715 | (2) | 18,247 | 18,245 | ||||||||||||||||||||||||||||||||||||||||||||
Cayman Islands | — | 6,881 | — | — | — | 103 | — | 6,984 | 6,984 | ||||||||||||||||||||||||||||||||||||||||||||
Japan | 19 | 927 | 5,761 | 81 | — | 10 | 5,780 | 1,018 | 6,798 | ||||||||||||||||||||||||||||||||||||||||||||
Ireland | 305 | 5,165 | — | 155 | — | 63 | 305 | 5,383 | 5,688 | ||||||||||||||||||||||||||||||||||||||||||||
Luxembourg | — | 4,747 | — | 131 | — | 74 | — | 4,952 | 4,952 | ||||||||||||||||||||||||||||||||||||||||||||
Guernsey | — | 4,145 | — | — | — | 37 | — | 4,182 | 4,182 | ||||||||||||||||||||||||||||||||||||||||||||
China | — | 3,296 | (8) | 443 | 5 | 28 | (3) | 3,767 | 3,764 | ||||||||||||||||||||||||||||||||||||||||||||
Germany | — | 3,093 | 4 | 424 | — | 222 | 4 | 3,739 | 3,743 | ||||||||||||||||||||||||||||||||||||||||||||
Bermuda | — | 3,438 | — | 64 | (1) | 99 | (1) | 3,601 | 3,600 | ||||||||||||||||||||||||||||||||||||||||||||
South Korea | — | 2,105 | — | 252 | 2 | 14 | 2 | 2,371 | 2,373 | ||||||||||||||||||||||||||||||||||||||||||||
Netherlands | — | 1,996 | 54 | 219 | — | 96 | 54 | 2,311 | 2,365 | ||||||||||||||||||||||||||||||||||||||||||||
France | 128 | 1,876 | — | 256 | 80 | 10 | 208 | 2,142 | 2,350 | ||||||||||||||||||||||||||||||||||||||||||||
Australia | — | 1,178 | — | 302 | — | 2 | — | 1,482 | 1,482 | ||||||||||||||||||||||||||||||||||||||||||||
Switzerland | — | 1,191 | — | 12 | 1 | 209 | 1 | 1,412 | 1,413 | ||||||||||||||||||||||||||||||||||||||||||||
Chile | — | 1,200 | — | 164 | — | 1 | — | 1,365 | 1,365 | ||||||||||||||||||||||||||||||||||||||||||||
India | — | 1,258 | — | 105 | — | 1 | — | 1,364 | 1,364 | ||||||||||||||||||||||||||||||||||||||||||||
Brazil | — | 1,313 | — | — | 8 | 1 | 8 | 1,314 | 1,322 | ||||||||||||||||||||||||||||||||||||||||||||
Singapore | — | 958 | — | 54 | — | 99 | — | 1,111 | 1,111 | ||||||||||||||||||||||||||||||||||||||||||||
Qatar | — | 904 | — | — | — | — | — | 904 | 904 | ||||||||||||||||||||||||||||||||||||||||||||
Total top 20 country exposures | $ | 10,158 | 86,366 | 5,803 | 4,009 | 99 | 4,003 | 16,060 | 94,378 | 110,438 |
(1)Total non-sovereign exposure comprised $51.4 billion exposure to financial institutions and $43.0 billion to non-financial corporations at September 30, 2021.
RESIDENTIAL MORTGAGE LOANS Our residential mortgage loan portfolio is comprised of 1-4 family first and junior lien mortgage loans. Residential mortgage – first lien loans comprised 93% of the total residential mortgage loan portfolio at September 30, 2021, compared with 92% at December 31, 2020.
The residential mortgage loan portfolio includes some loans with adjustable-rate features and some with an interest-only feature as part of the loan terms. Interest-only loans were approximately 3% of total loans at both September 30, 2021, and December 31, 2020. We believe our origination process appropriately addresses our adjustable-rate mortgage (ARM) reset risk across our residential mortgage loans and our ACL for loans considers this risk. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans.
The residential mortgage – junior lien portfolio consists of residential mortgage lines of credit and loans that are subordinate in rights to an existing lien on the same property. It is not unusual for these lines and loans to have draw periods, interest-only payments, balloon payments, adjustable rates and similar features. Junior lien loan products are primarily amortizing payment loans with fixed interest rates and repayment periods between five to 30 years. We continuously monitor the credit performance of our residential mortgage – junior lien portfolio for trends and factors that influence the frequency and severity of losses, such as junior lien performance when the first lien loan is delinquent.
Our residential mortgage lines of credit (both first and junior lien) generally have draw periods of 10, 15 or 20 years with variable interest rate and payment options available during the draw period of (1) interest-only or (2) 1.5% of outstanding principal balance plus accrued interest. As of September 30, 2021, lines of credit in a draw period primarily used the interest-only option. The lines that enter their amortization period may experience higher delinquencies and higher loss rates than the ones in their draw or term period. We have considered this increased risk in our ACL estimate.
During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment schedule with repayment terms of up to 30 years based on the balance at time of conversion. Certain lines and loans have been structured with a balloon payment, which requires full repayment of the outstanding balance at the end of the term period. The conversion of lines or loans to fully amortizing or balloon payoff may result in a significant payment increase, which can affect some borrowers’ ability to repay the outstanding balance.
In anticipation of our residential mortgage line of credit borrowers reaching the end of their contractual commitment, we have created a program to inform, educate and help these borrowers transition from interest-only to fully-amortizing payments or full repayment. We monitor the performance of the
34 | Wells Fargo & Company |
borrowers moving through the program in an effort to refine our ongoing program strategy.
We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our residential mortgage portfolio as part of our credit risk management process. Our underwriting and periodic review of this portfolio includes original appraisals adjusted for the change in Home Price Index (HPI) or estimates from automated valuation models (AVMs) to support property values. Additional information about appraisals, AVMs, and our policy for their use can be found in Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Residential Mortgage Loans” section in our 2020 Form 10-K.
Part of our credit monitoring includes tracking delinquency, current FICO scores and loan/combined loan to collateral values (LTV/CLTV) on the entire residential mortgage loan portfolio. CLTV represents the ratio of the total loan balance of first and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. Excluding government insured/guaranteed loans, these credit risk indicators on the residential mortgage portfolio were:
•Loans 30 days or more delinquent at September 30, 2021, totaled $3.5 billion, or 1% of residential mortgage loans, compared with $4.7 billion, or 2%, at December 31, 2020;
•Lines of credit in their draw period that were 30 days or more past due were $329 million, or 2% of such lines, at September 30, 2021, and $381 million, or 2%, at December 31, 2020, compared with amortizing lines of credit that were 30 days or more past due of $337 million, or 6% of such lines, at September 30, 2021, and $378 million, or 5%, at December 31, 2020;
•Loans with FICO scores lower than 640 totaled $4.1 billion, or 2% of residential mortgage loans, at September 30, 2021, compared with $5.6 billion, or 2%, at December 31, 2020; and
•Loans with a LTV/CLTV greater than 100% totaled $583 million at September 30, 2021, or less than 1% of residential mortgage loans, compared with $1.6 billion, or 1%, at December 31, 2020.
With respect to residential mortgage – junior lien loans that had a CLTV greater than 100%:
•Such loans totaled 2% of the junior lien portfolio at September 30, 2021, compared with 3% at December 31, 2020; and
•3% were 30 days or more delinquent at both September 30, 2021, and December 31, 2020.
Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies. For additional information regarding credit quality indicators, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
We continue to modify residential mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. For additional information on our modification programs, see the “Risk Management – Credit Risk Management – Residential Mortgage Loans” section in our 2020 Form 10-K. For additional information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in this Report.
Residential Mortgage – First Lien Portfolio Our residential mortgage – first lien portfolio decreased $33.7 billion from December 31, 2020, driven by loan paydowns as a result of the low interest rate environment and the transfer of $13.5 billion of first lien mortgage loans to loans held for sale (LHFS) substantially all of which related to the sales of loans purchased from GNMA loan securitization pools in prior periods, partially offset by originations of $51.3 billion.
Table 14 shows certain delinquency and loss information for the residential mortgage – first lien portfolio and lists the top five states by outstanding balance.
Table 14: Residential Mortgage – First Lien Portfolio Performance
Outstanding balance | % of total loans | % of loans 30 days or more past due | Net loan charge-off rate quarter ended (1) | ||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2021 | Dec 31, 2020 | |||||||||||||||||||||||||||||||||||||||
California (2) | $ | 98,513 | 104,260 | 11.42 | % | 11.75 | 0.83 | 1.00 | (0.02) | (0.03) | |||||||||||||||||||||||||||||||||||||
New York | 29,835 | 31,028 | 3.46 | 3.50 | 1.19 | 1.40 | (0.02) | 0.01 | |||||||||||||||||||||||||||||||||||||||
New Jersey | 10,315 | 12,073 | 1.20 | 1.36 | 1.79 | 1.92 | (0.03) | (0.03) | |||||||||||||||||||||||||||||||||||||||
Florida | 9,843 | 10,623 | 1.14 | 1.20 | 1.90 | 2.56 | (0.02) | 0.01 | |||||||||||||||||||||||||||||||||||||||
Washington | 8,310 | 9,094 | 0.96 | 1.02 | 0.49 | 0.66 | (0.02) | (0.01) | |||||||||||||||||||||||||||||||||||||||
Other (3) | 68,774 | 79,356 | 7.97 | 8.94 | 1.48 | 1.60 | (0.03) | 0.02 | |||||||||||||||||||||||||||||||||||||||
Total | 225,590 | 246,434 | 26.15 | 27.77 | 1.16 | 1.34 | (0.02) | — | |||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed loans (4) | 17,345 | 30,240 | 2.01 | 3.41 | |||||||||||||||||||||||||||||||||||||||||||
Total first lien mortgage portfolio | $ | 242,935 | 276,674 | 28.16 | 31.18 |
(1)Quarterly net charge-offs as a percentage of average respective loans are annualized.
(2)Our residential mortgage loans to borrowers in California are located predominantly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 4% of total loans.
(3)Consists of 45 states; no state in Other had loans in excess of $7.1 billion and $7.8 billion at September 30, 2021, and December 31, 2020, respectively.
(4)Represents loans, substantially all of which were repurchased from GNMA loan securitization pools, where the repayment of the loans is predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). For additional information on GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in this Report.
Wells Fargo & Company | 35 |
Risk Management – Credit Risk Management (continued)
Residential Mortgage – Junior Lien Portfolio Our residential mortgage – junior lien portfolio decreased $5.3 billion from December 31, 2020, driven by loan paydowns.
Table 15 shows certain delinquency and loss information for the residential mortgage – junior lien portfolio and lists the top five states by outstanding balance.
Table 15: Residential Mortgage – Junior Lien Portfolio Performance
Outstanding balance | % of total loans | % of loans 30 days or more past due | Net loan charge-off rate quarter ended (1) | ||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2021 | Dec 31, 2020 | |||||||||||||||||||||||||||||||||||||||
California | $ | 4,687 | 6,237 | 0.54 | % | 0.70 | 2.62 | 2.20 | (0.70) | (0.46) | |||||||||||||||||||||||||||||||||||||
New Jersey | 1,846 | 2,258 | 0.21 | 0.25 | 2.92 | 2.84 | (0.33) | (0.06) | |||||||||||||||||||||||||||||||||||||||
Florida | 1,634 | 2,119 | 0.19 | 0.24 | 2.69 | 3.06 | (0.36) | (0.35) | |||||||||||||||||||||||||||||||||||||||
Pennsylvania | 1,116 | 1,377 | 0.13 | 0.16 | 2.20 | 2.30 | (0.24) | (0.62) | |||||||||||||||||||||||||||||||||||||||
Virginia | 1,050 | 1,355 | 0.12 | 0.15 | 2.36 | 2.41 | (0.23) | (0.15) | |||||||||||||||||||||||||||||||||||||||
Other (2) | 7,693 | 9,940 | 0.89 | 1.12 | 2.55 | 2.31 | (0.77) | (0.43) | |||||||||||||||||||||||||||||||||||||||
Total junior lien mortgage portfolio | $ | 18,026 | 23,286 | 2.08 | % | 2.62 | 2.59 | 2.41 | (0.61) | (0.39) |
(1)Quarterly net charge-offs as a percentage of average respective loans are annualized.
(2)Consists of 45 states; no state in Other had loans in excess of $1.1 billion and $1.3 billion at September 30, 2021, and December 31, 2020, respectively.
The outstanding balance of residential mortgage lines of credit was $24.5 billion at September 30, 2021. The unfunded credit commitments for these lines of credit totaled $47.9 billion at September 30, 2021.
On a monthly basis, we monitor the payment characteristics of borrowers in our residential mortgage – first and junior lien lines of credit portfolios. In September 2021, excluding borrowers with COVID-related loan modification payment deferrals:
•Approximately 44% of these borrowers paid only the minimum amount due and approximately 51% paid more than the minimum amount due. The rest were either delinquent or paid less than the minimum amount due.
•For the borrowers with an interest-only payment feature, approximately 29% paid only the minimum amount due and approximately 66% paid more than the minimum amount due.
CREDIT CARD, AUTO and OTHER CONSUMER LOANS Table 16 shows the outstanding balance of our credit card, auto and other consumer loan portfolios. For information regarding credit quality indicators for these portfolios, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 16: Credit Card, Auto, and Other Consumer Loans
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
($ in millions) | Outstanding balance | % of total loans | Outstanding balance | % of total loans | ||||||||||||||||||||||
Credit card | $ | 36,061 | 4.18 | % | $ | 36,664 | 4.13 | % | ||||||||||||||||||
Auto | 53,827 | 6.24 | 48,187 | 5.43 | ||||||||||||||||||||||
Other consumer (1) | 27,041 | 3.13 | 24,409 | 2.75 | ||||||||||||||||||||||
Total | $ | 116,929 | 13.55 | % | $ | 109,260 | 12.31 | % |
(1)Other consumer loans primarily include securities-based loans.
Credit Card Our credit card portfolio totaled $36.1 billion at September 30, 2021, compared with $36.7 billion at December 31, 2020.
Auto Our auto portfolio totaled $53.8 billion at September 30, 2021, compared with $48.2 billion at December 31, 2020. The increase in the outstanding balance at September 30, 2021, compared with December 31, 2020, was driven by strong consumer demand for automobiles.
Other Consumer Other consumer loans, which include revolving credit and installment loans, totaled $27.0 billion at September 30, 2021, compared with $24.4 billion at December 31, 2020, driven by an increase in margin loans.
36 | Wells Fargo & Company |
NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) For information about when we generally place loans on nonaccrual status, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K. Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of nonaccrual loans for those customers who would have otherwise moved into nonaccrual status. For additional
information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in this Report.
Table 17 summarizes nonperforming assets (NPAs) for each of the last four quarters.
Table 17: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Balance | % of total loans | Balance | % of total loans | Balance | % of total loans | Balance | % of total loans | ||||||||||||||||||||||||||||||||||||||||||
Nonaccrual loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 1,274 | 0.39 | % | $ | 1,691 | 0.53 | % | $ | 2,223 | 0.70 | % | $ | 2,698 | 0.85 | % | ||||||||||||||||||||||||||||||||||
Real estate mortgage | 1,538 | 1.26 | 1,598 | 1.32 | 1,703 | 1.41 | 1,774 | 1.46 | ||||||||||||||||||||||||||||||||||||||||||
Real estate construction | 20 | 0.09 | 45 | 0.20 | 55 | 0.26 | 48 | 0.22 | ||||||||||||||||||||||||||||||||||||||||||
Lease financing | 188 | 1.22 | 215 | 1.37 | 249 | 1.58 | 259 | 1.61 | ||||||||||||||||||||||||||||||||||||||||||
Total commercial | 3,020 | 0.62 | 3,549 | 0.74 | 4,230 | 0.89 | 4,779 | 1.00 | ||||||||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien (1) | 3,093 | 1.27 | 2,852 | 1.17 | 2,859 | 1.12 | 2,957 | 1.07 | ||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien (1) | 702 | 3.89 | 713 | 3.63 | 747 | 3.51 | 754 | 3.24 | ||||||||||||||||||||||||||||||||||||||||||
Auto | 206 | 0.38 | 221 | 0.43 | 181 | 0.37 | 202 | 0.42 | ||||||||||||||||||||||||||||||||||||||||||
Other consumer | 37 | 0.14 | 36 | 0.14 | 38 | 0.15 | 36 | 0.15 | ||||||||||||||||||||||||||||||||||||||||||
Total consumer | 4,038 | 1.07 | 3,822 | 1.02 | 3,825 | 1.00 | 3,949 | 0.97 | ||||||||||||||||||||||||||||||||||||||||||
Total nonaccrual loans | 7,058 | 0.82 | 7,371 | 0.86 | 8,055 | 0.93 | 8,728 | 0.98 | ||||||||||||||||||||||||||||||||||||||||||
Foreclosed assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed (2) | 15 | 15 | 16 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||
Non-government insured/guaranteed | 106 | 114 | 124 | 141 | ||||||||||||||||||||||||||||||||||||||||||||||
Total foreclosed assets | 121 | 129 | 140 | 159 | ||||||||||||||||||||||||||||||||||||||||||||||
Total nonperforming assets | $ | 7,179 | 0.83 | % | $ | 7,500 | 0.88 | % | $ | 8,195 | 0.95 | % | $ | 8,887 | 1.00 | % | ||||||||||||||||||||||||||||||||||
Change in NPAs from prior quarter | $ | (321) | $ | (695) | $ | (692) | $ | 709 |
(1)Residential mortgage loans predominantly insured by the FHA or guaranteed by the VA are not placed on nonaccrual status because they are insured or guaranteed.
(2)Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. Both principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. Receivables related to the foreclosure of certain government guaranteed real estate mortgage loans are excluded from this table and included in Accounts Receivable in Other Assets. For additional information on foreclosed assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
Commercial nonaccrual loans decreased $1.8 billion from December 31, 2020, predominantly due to a decline in commercial and industrial nonaccrual loans, driven by a decrease in oil, gas, and pipeline nonaccrual loans, primarily as a result of paydowns. For additional information on commercial and industrial nonaccrual loans, see the “Risk Management – Credit Risk Management – Commercial and Industrial Loans and Lease Financing” section in this Report.
Consumer nonaccrual loans increased $89 million from December 31, 2020, predominantly driven by an increase in residential mortgage – first lien nonaccrual loans as customers exited from accommodation programs provided in response to the COVID-19 pandemic. Customers requiring further payment assistance after exiting from these programs may have been modified or may be eligible to receive modifications.
Wells Fargo & Company | 37 |
Risk Management – Credit Risk Management (continued)
Table 18 provides an analysis of the changes in nonaccrual loans. Typically, changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status in accordance with our policies, offset by reductions for loans that are paid down, charged off, sold, foreclosed, or are no longer
classified as nonaccrual as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities.
Table 18: Analysis of Changes in Nonaccrual Loans
Quarter ended | |||||||||||||||||||||||||||||
(in millions) | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | ||||||||||||||||||||||||
Commercial nonaccrual loans | |||||||||||||||||||||||||||||
Balance, beginning of period | $ | 3,549 | 4,230 | 4,779 | 4,398 | 4,285 | |||||||||||||||||||||||
Inflows | 481 | 560 | 773 | 1,696 | 1,316 | ||||||||||||||||||||||||
Outflows: | |||||||||||||||||||||||||||||
Returned to accruing | (203) | (287) | (177) | (99) | (166) | ||||||||||||||||||||||||
Foreclosures | (4) | (3) | (6) | (37) | — | ||||||||||||||||||||||||
Charge-offs | (105) | (145) | (202) | (367) | (382) | ||||||||||||||||||||||||
Payments, sales and other | (698) | (806) | (937) | (812) | (655) | ||||||||||||||||||||||||
Total outflows | (1,010) | (1,241) | (1,322) | (1,315) | (1,203) | ||||||||||||||||||||||||
Balance, end of period | 3,020 | 3,549 | 4,230 | 4,779 | 4,398 | ||||||||||||||||||||||||
Consumer nonaccrual loans | |||||||||||||||||||||||||||||
Balance, beginning of period | 3,822 | 3,825 | 3,949 | 3,624 | 3,320 | ||||||||||||||||||||||||
Inflows | 745 | 563 | 454 | 792 | 696 | ||||||||||||||||||||||||
Outflows: | |||||||||||||||||||||||||||||
Returned to accruing | (222) | (200) | (152) | (208) | (160) | ||||||||||||||||||||||||
Foreclosures | (18) | (16) | (19) | (5) | (4) | ||||||||||||||||||||||||
Charge-offs | (21) | (17) | (26) | (36) | (36) | ||||||||||||||||||||||||
Payments, sales and other | (268) | (333) | (381) | (218) | (192) | ||||||||||||||||||||||||
Total outflows | (529) | (566) | (578) | (467) | (392) | ||||||||||||||||||||||||
Balance, end of period | 4,038 | 3,822 | 3,825 | 3,949 | 3,624 | ||||||||||||||||||||||||
Total nonaccrual loans | $ | 7,058 | 7,371 | 8,055 | 8,728 | 8,022 |
We believe exposure to loss on nonaccrual loans is mitigated by the following factors at September 30, 2021:
•96% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 94% are secured by real estate and 95% have a combined LTV (CLTV) ratio of 80% or less.
•77% of commercial nonaccrual loans were current on interest and 75% of commercial nonaccrual loans were current on both principal and interest, but were on nonaccrual status because the full or timely collection of interest or principal had become uncertain.
•of the $1.0 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $685 million were current.
•the remaining risk of loss of all nonaccrual loans has been considered in developing our allowance for loan losses.
We continue to work with our customers experiencing financial difficulty to determine if they can qualify for a loan modification. Under our proprietary modification programs, customers may be required to provide updated documentation, and some programs require completion of payment during trial periods to demonstrate sustained performance before the loan can be removed from nonaccrual status.
38 | Wells Fargo & Company |
Table 19 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.
Table 19: Foreclosed Assets
Quarter ended | |||||||||||||||||||||||||||||
(in millions) | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | ||||||||||||||||||||||||
Summary by loan segment | |||||||||||||||||||||||||||||
Government insured/guaranteed | $ | 15 | 15 | 16 | 18 | 22 | |||||||||||||||||||||||
Commercial | 61 | 63 | 64 | 70 | 39 | ||||||||||||||||||||||||
Consumer | 45 | 51 | 60 | 71 | 95 | ||||||||||||||||||||||||
Total foreclosed assets | $ | 121 | 129 | 140 | 159 | 156 | |||||||||||||||||||||||
Analysis of changes in foreclosed assets | |||||||||||||||||||||||||||||
Balance, beginning of period | $ | 129 | 140 | 159 | 156 | 195 | |||||||||||||||||||||||
Net change in government insured/guaranteed (1) | — | (1) | (2) | (4) | (9) | ||||||||||||||||||||||||
Additions to foreclosed assets (2) | 101 | 96 | 88 | 114 | 60 | ||||||||||||||||||||||||
Reductions: | |||||||||||||||||||||||||||||
Sales | (123) | (104) | (107) | (104) | (88) | ||||||||||||||||||||||||
Write-downs and gains (losses) on sales | 14 | (2) | 2 | (3) | (2) | ||||||||||||||||||||||||
Total reductions | (109) | (106) | (105) | (107) | (90) | ||||||||||||||||||||||||
Balance, end of period | $ | 121 | 129 | 140 | 159 | 156 |
(1)Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from FHA or VA.
(2)Includes loans moved into foreclosed assets from nonaccrual status and repossessed autos.
Foreclosed assets at September 30, 2021, included $47 million of foreclosed residential real estate, of which 33% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining amount of foreclosed assets has been written down to estimated net realizable value. Of the $121 million in foreclosed assets at September 30, 2021, 66% have been in the foreclosed assets portfolio for one year or less.
As part of our actions to support customers during the COVID-19 pandemic, we have temporarily suspended certain mortgage foreclosure activities, which has affected the amount of our foreclosed assets. For additional information on loans in process of foreclosure, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Wells Fargo & Company | 39 |
Risk Management – Credit Risk Management (continued)
TROUBLED DEBT RESTRUCTURINGS (TDRs) Table 20 provides information regarding the recorded investment of loans modified in TDRs. TDRs decreased from December 31, 2020, predominantly related to commercial and industrial loans and residential mortgage – first lien loans. The decrease in commercial and industrial loans was primarily due to paydowns in the oil, gas, and pipelines industry. The decrease in residential
mortgage – first lien loans was due to paydowns and a $773 million transfer from residential mortgage – first lien loans to LHFS, substantially all of which related to the sales of loans purchased from GNMA loan securitization pools in 2020. The amount of our TDRs at September 30, 2021, would have otherwise been higher without the TDR relief provided by the CARES Act and Interagency Statement.
Table 20: TDR Balances
(in millions) | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | ||||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||||||||
Commercial and industrial | $ | 917 | 1,225 | 1,331 | 1,933 | 2,082 | |||||||||||||||||||||||
Real estate mortgage | 604 | 645 | 652 | 774 | 805 | ||||||||||||||||||||||||
Real estate construction | 4 | 15 | 21 | 15 | 21 | ||||||||||||||||||||||||
Lease financing | 11 | 9 | 9 | 9 | 9 | ||||||||||||||||||||||||
Total commercial TDRs | 1,536 | 1,894 | 2,013 | 2,731 | 2,917 | ||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||
Residential mortgage – first lien | 8,280 | 8,841 | 9,446 | 9,764 | 9,420 | ||||||||||||||||||||||||
Residential mortgage – junior lien | 1,021 | 1,097 | 1,174 | 1,237 | 1,298 | ||||||||||||||||||||||||
Credit card | 336 | 368 | 411 | 458 | 494 | ||||||||||||||||||||||||
Auto | 182 | 196 | 156 | 176 | 156 | ||||||||||||||||||||||||
Other consumer | 60 | 63 | 67 | 67 | 190 | ||||||||||||||||||||||||
Trial modifications | 89 | 77 | 81 | 90 | 91 | ||||||||||||||||||||||||
Total consumer TDRs | 9,968 | 10,642 | 11,335 | 11,792 | 11,649 | ||||||||||||||||||||||||
Total TDRs | $ | 11,504 | 12,536 | 13,348 | 14,523 | 14,566 | |||||||||||||||||||||||
TDRs on nonaccrual status | $ | 3,233 | 3,711 | 3,800 | 4,456 | 4,163 | |||||||||||||||||||||||
TDRs on accrual status: | |||||||||||||||||||||||||||||
Government insured/guaranteed | 3,145 | 3,431 | 3,708 | 3,721 | 3,467 | ||||||||||||||||||||||||
Non-government insured/guaranteed | 5,126 | 5,394 | 5,840 | 6,346 | 6,936 | ||||||||||||||||||||||||
Total TDRs | $ | 11,504 | 12,536 | 13,348 | 14,523 | 14,566 |
40 | Wells Fargo & Company |
In those situations where principal is forgiven, the entire amount of such forgiveness is immediately charged off. When we delay the timing on the repayment of a portion of principal (principal forbearance), we charge off the amount of forbearance if that amount is not considered fully collectible. The allowance for loan losses for TDRs was $301 million and $565 million at September 30, 2021, and December 31, 2020, respectively. As part of our actions to support customers during the COVID-19 pandemic, we have provided borrowers relief in the form of loan modifications. Under the CARES Act and the Interagency Statement, loan modifications related to the COVID-19 pandemic will not be classified as TDRs if they meet certain eligibility criteria. For additional information on the CARES Act
and the Interagency Statement, see the “Risk Management – Credit Risk Management – Credit Quality Overview – COVID-Related Lending Accommodations” section in this Report.
For information on our nonaccrual policies when a restructuring is involved, see the “Risk Management – Credit Risk Management – Troubled Debt Restructurings (TDRs)” section in our 2020 Form 10-K.
Table 21 provides an analysis of the changes in TDRs. Loans modified more than once as a TDR are reported as inflows only in the period they are first modified. In addition to foreclosures, sales and transfers to held for sale, we may remove loans from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.
Table 21: Analysis of Changes in TDRs
Quarter ended | |||||||||||||||||||||||||||||
(in millions) | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | ||||||||||||||||||||||||
Commercial TDRs | |||||||||||||||||||||||||||||
Balance, beginning of period | $ | 1,894 | 2,013 | 2,731 | 2,917 | 2,629 | |||||||||||||||||||||||
Inflows (1) | 104 | 336 | 155 | 486 | 866 | ||||||||||||||||||||||||
Outflows | |||||||||||||||||||||||||||||
Charge-offs | (46) | (45) | (49) | (72) | (77) | ||||||||||||||||||||||||
Foreclosure | — | — | (5) | — | — | ||||||||||||||||||||||||
Payments, sales and other (2) | (416) | (410) | (819) | (600) | (501) | ||||||||||||||||||||||||
Balance, end of period | 1,536 | 1,894 | 2,013 | 2,731 | 2,917 | ||||||||||||||||||||||||
Consumer TDRs | |||||||||||||||||||||||||||||
Balance, beginning of period | 10,642 | 11,335 | 11,792 | 11,649 | 9,367 | ||||||||||||||||||||||||
Inflows (1) | 267 | 495 | 633 | 1,226 | 2,805 | ||||||||||||||||||||||||
Outflows | |||||||||||||||||||||||||||||
Charge-offs | (30) | (36) | (43) | (57) | (58) | ||||||||||||||||||||||||
Foreclosure | (17) | (15) | (14) | (5) | (7) | ||||||||||||||||||||||||
Payments, sales and other (2) | (906) | (1,133) | (1,024) | (1,020) | (458) | ||||||||||||||||||||||||
Net change in trial modifications (3) | 12 | (4) | (9) | (1) | — | ||||||||||||||||||||||||
Balance, end of period | 9,968 | 10,642 | 11,335 | 11,792 | 11,649 | ||||||||||||||||||||||||
Total TDRs | $ | 11,504 | 12,536 | 13,348 | 14,523 | 14,566 |
(1)Inflows include loans that modify, even if they resolve within the period, as well as gross advances on term loans that modified in a prior period and net advances on revolving TDRs that modified in a prior period.
(2)Other outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held for sale. Occasionally, loans that have been refinanced or restructured at market terms qualify as new loans, which are also included as other outflows.
(3)Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved.
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Risk Management – Credit Risk Management (continued)
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Loans 90 days or more past due are still accruing if they are (1) well-secured and in the process of collection or (2) residential mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due.
Table 22 reflects loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 22: Loans 90 Days or More Past Due and Still Accruing
(in millions) | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | ||||||||||||||||||||||||
Total: | $ | 5,598 | 4,703 | 6,273 | 7,041 | 11,698 | |||||||||||||||||||||||
Less: FHA insured/VA guaranteed (1) | 5,083 | 3,966 | 5,406 | 6,351 | 11,041 | ||||||||||||||||||||||||
Total, not government insured/guaranteed | $ | 515 | 737 | 867 | 690 | 657 | |||||||||||||||||||||||
By segment and class, not government insured/guaranteed: Commercial: | |||||||||||||||||||||||||||||
Commercial and industrial | $ | 46 | 165 | 55 | 39 | 61 | |||||||||||||||||||||||
Real estate mortgage | 75 | 105 | 128 | 38 | 47 | ||||||||||||||||||||||||
Real estate construction | — | 7 | 86 | 1 | — | ||||||||||||||||||||||||
Total commercial | 121 | 277 | 269 | 78 | 108 | ||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||
Residential mortgage – first lien | 68 | 73 | 85 | 135 | 97 | ||||||||||||||||||||||||
Residential mortgage – junior lien | 13 | 12 | 15 | 19 | 28 | ||||||||||||||||||||||||
Credit card | 238 | 271 | 394 | 365 | 297 | ||||||||||||||||||||||||
Auto | 60 | 43 | 46 | 65 | 50 | ||||||||||||||||||||||||
Other consumer | 15 | 61 | 58 | 28 | 77 | ||||||||||||||||||||||||
Total consumer | 394 | 460 | 598 | 612 | 549 | ||||||||||||||||||||||||
Total, not government insured/guaranteed | $ | 515 | 737 | 867 | 690 | 657 |
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
Loans 90 days or more past due and still accruing, excluding government insured/guaranteed loans, at September 30, 2021, were down from December 31, 2020, due to decreases in delinquent consumer loans driven by strong payment performance, partially offset by increases in delinquent commercial real estate mortgage loans. Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies for customers who would have otherwise moved into past due status.
Loans 90 days or more past due and still accruing whose repayments are predominantly insured by the FHA or guaranteed by the VA for mortgages at September 30, 2021, were down from December 31, 2020, due to the sales of loans purchased from GNMA loan securitization pools in prior periods.
42 | Wells Fargo & Company |
NET CHARGE-OFFS Table 23 presents net loan charge-offs for third quarter 2021 and the previous four quarters.
Table 23: Net Loan Charge-offs
Quarter ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 46 | 0.06 | % | $ | 81 | 0.10 | % | $ | 88 | 0.11 | % | $ | 111 | 0.14 | % | $ | 274 | 0.33 | % | |||||||||||||||||||||||||||||||||||||||||||||
Real estate mortgage | (10) | (0.03) | (5) | (0.02) | 46 | 0.16 | 162 | 0.53 | 56 | 0.18 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate construction | 1 | — | (1) | — | — | — | — | — | (2) | (0.03) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lease financing | 1 | 0.03 | 5 | 0.12 | 15 | 0.40 | 35 | 0.83 | 28 | 0.66 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total commercial | 38 | 0.03 | 80 | 0.07 | 149 | 0.13 | 308 | 0.26 | 356 | 0.29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | (14) | (0.02) | (19) | (0.03) | (24) | (0.04) | (3) | — | (1) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | (28) | (0.61) | (31) | (0.60) | (19) | (0.35) | (24) | (0.39) | (14) | (0.22) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit card | 158 | 1.77 | 256 | 3.01 | 236 | 2.71 | 190 | 2.09 | 245 | 2.71 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Auto | 26 | 0.20 | 45 | 0.35 | 52 | 0.44 | 51 | 0.43 | 31 | 0.25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other consumer | 79 | 1.22 | 50 | 0.80 | 119 | 1.97 | 62 | 0.88 | 66 | 0.80 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total consumer | 221 | 0.23 | 301 | 0.32 | 364 | 0.37 | 276 | 0.26 | 327 | 0.30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 259 | 0.12 | % | $ | 381 | 0.18 | % | $ | 513 | 0.24 | % | $ | 584 | 0.26 | % | $ | 683 | 0.29 | % | |||||||||||||||||||||||||||||||||||||||||||||
(1)Quarterly net charge-offs as a percentage of average respective loans are annualized.
The decrease in commercial net loan charge-offs in third quarter 2021, compared with the prior quarter, was due to higher recoveries in the commercial and industrial portfolio driven by the oil, gas, and pipeline industry.
The decrease in consumer net loan charge-offs in third quarter 2021, compared with the prior quarter, was driven by lower losses in credit card and auto, partially offset by an increase in other consumer losses.
The COVID-19 pandemic may continue to impact the credit quality of our loan portfolio. Although the potential impacts were considered in our allowance for credit losses for loans, payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of loan charge-offs. For additional information on customer accommodations in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in this Report.
ALLOWANCE FOR CREDIT LOSSES We maintain an allowance for credit losses (ACL) for loans, which is management’s estimate of the expected life-time credit losses in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value or held for sale. Additionally, we maintain an ACL for debt securities classified as either AFS or HTM, other financial assets measured at amortized cost, net investments in leases, and other off-balance sheet credit exposures.
We apply a disciplined process and methodology to establish our ACL each quarter. The process for establishing the ACL for loans takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific characteristics. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools. For additional information on our ACL, see the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K. For additional information on our ACL for loans, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report, and for additional information on our ACL for debt securities, see the “Balance Sheet Analysis – Available-For-Sale and Held-To-Maturity Debt Securities” section and Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
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Risk Management – Credit Risk Management (continued)
Table 24 presents the allocation of the ACL for loans by loan portfolio segment and class for the most recent quarter and last four year ends.
Table 24: Allocation of the ACL for Loans (1)
Sep 30, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ACL | Loans as % of total loans | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 5,193 | 38 | % | $ | 7,230 | 36 | % | $ | 3,600 | 37 | % | $ | 3,628 | 37 | % | $ | 3,752 | 35 | % | |||||||||||||||||||||||||||||||||||||||
Real estate mortgage | 2,422 | 14 | 3,167 | 14 | 1,236 | 13 | 1,282 | 13 | 1,374 | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||
Real estate construction | 470 | 2 | 410 | 2 | 1,079 | 2 | 1,200 | 2 | 1,238 | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Lease financing | 480 | 2 | 709 | 2 | 330 | 2 | 307 | 2 | 268 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total commercial | 8,565 | 56 | 11,516 | 54 | 6,245 | 54 | 6,417 | 54 | 6,632 | 53 | |||||||||||||||||||||||||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | 1,197 | 29 | 1,600 | 31 | 692 | 30 | 750 | 30 | 1,085 | 30 | |||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | 201 | 2 | 653 | 3 | 247 | 3 | 431 | 3 | 608 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||
Credit card | 3,356 | 4 | 4,082 | 4 | 2,252 | 4 | 2,064 | 4 | 1,944 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||
Auto | 901 | 6 | 1,230 | 5 | 459 | 5 | 475 | 5 | 1,039 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other consumer | 485 | 3 | 632 | 3 | 561 | 4 | 570 | 4 | 652 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total consumer | 6,140 | 44 | 8,197 | 46 | 4,211 | 46 | 4,290 | 46 | 5,328 | 47 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 14,705 | 100 | % | $ | 19,713 | 100 | % | $ | 10,456 | 100 | % | $ | 10,707 | 100 | % | $ | 11,960 | 100 | % | |||||||||||||||||||||||||||||||||||||||
Components: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | $ | 13,517 | 18,516 | 9,551 | 9,775 | 11,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for unfunded credit commitments | 1,188 | 1,197 | 905 | 932 | 956 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | $ | 14,705 | 19,713 | 10,456 | 10,707 | 11,960 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of allowance for loan losses to total net loan charge-offs (2) | 13.14x | 5.63 | 3.46 | 3.56 | 3.76 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses as a percentage of total loans | 1.57 | % | 2.09 | 0.99 | 1.03 | 1.15 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses for loans as a percentage of total loans | 1.70 | 2.22 | 1.09 | 1.12 | 1.25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses for loans as a percentage of total nonaccrual loans | 208 | 226 | 196 | 165 | 156 |
(1)Disclosure is not comparative due to our adoption of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) on January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
(2)Total net loan charge-offs are annualized for the quarter ended September 30, 2021.
The ratios for the allowance for loan losses and the ACL for loans presented in Table 24 may fluctuate from period to period due to such factors as the mix of loan types in the portfolio, borrower credit strength, and the value and marketability of collateral.
The ACL for loans decreased $5.0 billion, or 25%, from December 31, 2020, reflecting better portfolio credit quality and improvements in current and forecasted economic conditions. Total provision for credit losses for loans was $(1.4) billion in third quarter 2021, compared with $751 million in the same period a year ago, reflecting lower net charge-offs and improvements in current and forecasted economic conditions. The detail of the changes in the ACL for loans by portfolio segment (including charge-offs and recoveries by loan class) is included in Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
We consider multiple economic scenarios to develop our estimate of the ACL for loans. The scenarios generally include a base scenario, along with an optimistic (upside) and one or more pessimistic (downside) scenarios. In our estimate of the ACL for loans at September 30, 2021, we weighted the base scenario and the downside scenarios. The base scenario assumed economic improvements in the near term with a return to normalized levels near the end of 2022. The downside scenarios assumed economic conditions ranging from a mild recession to a more
severe recession, reflecting continued economic impacts from the COVID-19 pandemic.
Additionally, we consider qualitative factors that represent risks inherent in our processes and assumptions such as economic environmental factors, modeling assumptions and performance, and other subjective factors, including industry trends and emerging risk assessments. We also considered the significant uncertainty related to the duration and severity of the economic impacts from the COVID-19 pandemic and the incremental risks to our loan portfolio.
The forecasted key economic variables used in our estimate of the ACL for loans at September 30 and June 30, 2021, are presented in Table 25.
44 | Wells Fargo & Company |
Table 25: Forecasted Key Economic Variables
4Q 2021 | 2Q 2022 | 4Q 2022 | |||||||||||||||
Weighted blend of economic scenarios: | |||||||||||||||||
U.S. unemployment rate (1): | |||||||||||||||||
June 30, 2021 | 5.6 | % | 6.2 | 6.9 | |||||||||||||
September 30, 2021 | 5.2 | 6.2 | 6.6 | ||||||||||||||
U.S. real GDP (2): | |||||||||||||||||
June 30, 2021 | 1.0 | (0.4) | 0.6 | ||||||||||||||
September 30, 2021 | 3.1 | (0.2) | 0.6 | ||||||||||||||
Home price index (3): | |||||||||||||||||
June 30, 2021 | 2.8 | (6.5) | (5.2) | ||||||||||||||
September 30, 2021 | 10.1 | (1.2) | (6.5) | ||||||||||||||
Commercial real estate asset prices (3): | |||||||||||||||||
June 30, 2021 | 7.8 | (11.9) | (10.4) | ||||||||||||||
September 30, 2021 | 4.1 | (3.3) | (7.7) |
(1)Quarterly average.
(2)Percent change from the preceding period, seasonally adjusted annualized rate.
(3)Percent change year over year of national average; outlook differs by geography and property type.
Future amounts of the ACL for loans will be based on a variety of factors, including loan balance changes, portfolio credit quality and mix changes, and changes in general economic conditions and expectations (including for unemployment and GDP), among other factors. We observed economic improvements in the first nine months of 2021; however, there remained significant uncertainty related to the length and severity of the economic impact of the COVID-19 pandemic and the impact of other factors that may influence the level of eventual losses and corresponding requirements for future amounts of the ACL, including the impact of economic stimulus programs and customer accommodation activity. The COVID-19 pandemic could continue to impact the recognition of credit losses in our loan portfolios and may result in increases or decreases in our ACL.
We believe the ACL for loans of $14.7 billion at September 30, 2021, was appropriate to cover expected credit losses, including unfunded credit commitments, at that date. The entire allowance is available to absorb credit losses from the total loan portfolio. The ACL for loans is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the ACL for loans to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Our process for determining the ACL is discussed in the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES For information on our repurchase liability, see the “Risk Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses” section in our 2020 Form 10-K.
RISKS RELATING TO SERVICING ACTIVITIES In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed mortgage securitizations, GNMA-guaranteed mortgage securitizations of FHA-insured/VA-guaranteed mortgages and private label mortgage securitizations, as well as for unsecuritized loans owned by institutional investors.
As a servicer, we are required to advance certain delinquent payments of principal and interest on mortgage loans we service. The amount and timing of reimbursement of advances of delinquent payments vary by investor and the applicable servicing agreements. Due to payment deferrals provided as a result of the COVID-19 pandemic, the amount of our servicing advances of principal and interest remained elevated. The amount of these advances may increase if additional payment deferrals are provided. Payment deferrals also delay the collection of contractually specified servicing fees, resulting in lower net servicing income.
Upon transfer as servicer, we retain the option to repurchase loans from GNMA loan securitization pools, which becomes exercisable when three scheduled loan payments remain unpaid by the borrower. We generally repurchase these loans for cash and as a result, our total consolidated assets do not change. As a result of the COVID-19 pandemic, our repurchases of these loans were elevated in 2020 but returned to more normalized levels in the first nine months of 2021. These repurchased loan balances were $20.4 billion and $34.8 billion at September 30, 2021, and December 31, 2020, respectively, which included $17.0 billion and $29.9 billion, respectively, in our held for investment loan portfolio, with the remainder in loans held for sale.
Repurchased loans that regain current status or are otherwise modified in accordance with applicable servicing guidelines may be included in future GNMA loan securitization pools. However, in accordance with guidance issued by GNMA, certain loans repurchased after June 30, 2020, are ineligible for inclusion in future GNMA loan securitization pools until the borrower has timely made six consecutive payments. This requirement may delay our ability to resell loans into the securitization market.
For additional information about the risks related to our servicing activities, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in our 2020 Form 10-K. For additional information on mortgage banking activities, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report.
Asset/Liability Management
Asset/liability management involves evaluating, monitoring and managing interest rate risk, market risk, liquidity and funding. For information on our oversight of asset/liability risks, see the “Risk Management – Asset/Liability Management” section in our 2020 Form 10-K.
INTEREST RATE RISK Interest rate risk is created in our role as a financial intermediary for customers based on investments such as loans and other extensions of credit and debt securities. Interest rate risk can have a significant impact to our earnings. We are subject to interest rate risk because:
•assets and liabilities may mature or reprice at different times. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase;
•assets and liabilities may reprice at the same time but by different amounts;
•short-term and long-term market interest rates may change by different amounts. For example, the shape of the yield curve may affect yield for new loans and funding costs differently;
•the remaining maturity for various assets or liabilities may shorten or lengthen as interest rates change. For example, if long-term mortgage interest rates increase sharply, MBS held in the debt securities portfolio may pay down at a
Wells Fargo & Company | 45 |
Risk Management – Asset/Liability Management (continued)
slower rate than anticipated, which could impact portfolio income; or
•interest rates may have a direct or indirect effect on loan demand, collateral values, credit losses, mortgage origination volume, and the fair value of MSRs and other financial instruments.
We assess interest rate risk by comparing outcomes under various net interest income simulations using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. These simulations require assumptions regarding drivers of earnings and balance sheet composition such as loan originations, prepayment speeds on loans and debt securities, deposit flows and mix, as well as pricing strategies.
Our most recent simulations, as presented in Table 26, estimate net interest income sensitivity over the next 12 months using instantaneous movements across the yield curve with both lower and higher interest rates relative to our base scenario. Steeper and flatter scenarios measure non-parallel changes in the yield curve, with long-term interest rates defined as all tenors three years and longer (e.g., 10-year U.S. Treasury securities) and short-term interest rates defined as all tenors less than three years. Where applicable, U.S. dollar interest rates are floored at 0.00%. The following describes the simulation assumptions for the scenarios presented in Table 26:
•Simulations are dynamic and reflect anticipated changes to our assets and liabilities.
•Other macroeconomic variables that could be correlated with the changes in interest rates are held constant.
•Mortgage prepayment and origination assumptions vary across scenarios and reflect only the impact of the higher or lower interest rates.
•Our base scenario deposit forecast incorporates mix changes consistent with the base interest rate trajectory. Deposit mix is modeled to be the same as in the base scenario across the alternative scenarios. In higher interest rate scenarios, customer activity that shifts balances into higher-yielding products could reduce expected net interest income.
•We hold the size of the projected debt and equity securities portfolios constant across scenarios.
Table 26: Net Interest Income Sensitivity
($ in billions) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Parallel Shift: | |||||||||||
+100 bps shift in interest rates | $ | 7.4 | 6.7 | ||||||||
-100 bps shift in interest rates | (2.9) | (2.7) | |||||||||
Steeper yield curve: | |||||||||||
+50 bps shift in long-term interest rates | 1.2 | 1.3 | |||||||||
Flatter yield curve: | |||||||||||
+50 bps shift in short-term interest rates | 2.7 | 2.2 | |||||||||
-50 bps shift in long-term interest rates | (1.2) | (1.4) |
The interest rate sensitivity included in Table 26 indicates that we would expect to benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities resulting in lower net interest income.
The sensitivity results above do not capture noninterest income or expense impacts. Our interest rate sensitive noninterest income and expense are predominantly driven by
mortgage banking activities, and may move in the opposite direction of our net interest income. See the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in our 2020 Form 10-K for additional information. For additional information on our trading assets and liabilities, see Note 2 (Trading Activities) to Financial Statements in this Report.
We use the debt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to manage our interest rate exposures. See Note 1 (Summary of Significant Accounting Policies), Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) and Note 14 (Derivatives) to Financial Statements in our 2020 Form 10-K for additional information.
MORTGAGE BANKING INTEREST RATE AND MARKET RISK We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity and interest rate risks. For additional information on mortgage banking interest rate and market risk, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report and the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in our 2020 Form 10-K.
Hedging the various sources of interest rate risk in mortgage banking is a complex process that requires sophisticated modeling and constant monitoring. There are several potential risks to earnings from mortgage banking related to origination volumes and mix, valuation of MSRs and associated hedging results, the relationship and degree of volatility between short-term and long-term interest rates, and changes in servicing and foreclosures costs. While we attempt to balance our mortgage banking interest rate and market risks, the financial instruments we use may not perfectly correlate with the values and income being hedged.
MARKET RISK Market risk is the risk of possible economic loss from adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity and commodity prices, and the risk of possible loss due to counterparty exposure. This applies to implied volatility risk, basis risk, and market liquidity risk. It also includes price risk in the trading book, mortgage servicing rights and the hedge effectiveness risk associated with the mortgage book, and impairment of private equity investments. For information on our oversight of market risk, see the “Risk Management – Asset/Liability Management – Market Risk” section in our 2020 Form 10-K.
MARKET RISK – TRADING ACTIVITIES We engage in trading activities to accommodate the investment and risk management activities of our customers and to execute economic hedging to manage certain balance sheet risks. These trading activities predominantly occur within our CIB businesses and to a lesser extent other businesses of the Company. Debt securities held for trading, equity securities held for trading, trading loans and trading derivatives are financial instruments used in our trading activities, and all are carried at fair value. Income earned on the financial instruments used in our trading activities include net interest income, changes in fair value and realized gains and losses. Net interest income earned from our trading activities is reflected in the interest income and interest expense components of our consolidated statement of income. Changes in fair value of the financial instruments used in our trading activities are reflected in net gains from trading activities. For additional information on the financial instruments used in our trading activities and the income from these trading activities,
46 | Wells Fargo & Company |
see Note 2 (Trading Activities) to Financial Statements in this Report.
Value-at-risk (VaR) is a statistical risk measure used to estimate the potential loss from adverse moves in the financial markets. The Company uses VaR metrics complemented with sensitivity analysis and stress testing in measuring and monitoring market risk. For additional information on our monitoring activities, sensitivity analysis and stress testing, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in our 2020 Form 10-K.
Trading VaR is the measure used to provide insight into the market risk exhibited by the Company’s trading positions. The Company calculates Trading VaR for risk management purposes to establish line of business and Company-wide risk limits.
Trading VaR is calculated based on all trading positions on our consolidated balance sheet.
Table 27 shows the Company’s Trading General VaR by risk category. The decrease in average Company Trading General VaR for the quarter ended September 30, 2021, compared with the same period a year ago, was driven by a greater presence of market volatility dropping out of the 12-month historical lookback window used to calculate average Company Trading General VaR for the quarter ended September 30, 2021. Market volatility present in average Company Trading General VaR for the quarter ended September 30, 2020, was driven by the impact of the COVID-19 pandemic, in particular, changes in interest rate curves and a significant widening of credit spreads.
Table 27: Trading 1-Day 99% General VaR by Risk Category
Quarter ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Period end | Average | Low | High | Period end | Average | Low | High | Period end | Average | Low | High | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company Trading General VaR Risk Categories | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit | $ | 19 | 18 | 13 | 26 | 14 | 21 | 12 | 30 | 98 | 85 | 59 | 104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate | 12 | 9 | 5 | 15 | 7 | 7 | 4 | 22 | 145 | 155 | 114 | 201 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 27 | 28 | 22 | 39 | 29 | 37 | 25 | 56 | 21 | 17 | 9 | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodity | 6 | 6 | 2 | 20 | 28 | 7 | 2 | 28 | 5 | 5 | 2 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange | 1 | 0 | 0 | 1 | 0 | 1 | 0 | 1 | 1 | 1 | 1 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diversification benefit (1) | (35) | (28) | (38) | (30) | (121) | (110) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company Trading General VaR | 30 | 33 | 40 | 43 | 149 | 153 |
(1)The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.
MARKET RISK – EQUITY SECURITIES We are directly and indirectly affected by changes in the equity markets. We make and manage direct investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. For additional information, see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in our 2020 Form 10-K.
We also have marketable equity securities that include investments relating to our venture capital activities. The fair value changes in these marketable equity securities are recognized in net income. For additional information, see Note 6 (Equity Securities) to Financial Statements in this Report.
Changes in equity market prices may also indirectly affect our net income by (1) the value of third-party assets under management and, hence, fee income, (2) borrowers whose ability to repay principal and/or interest may be affected by the stock market, or (3) brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.
LIQUIDITY RISK AND FUNDING In the ordinary course of business, we enter into contractual obligations that may require future cash payments, including funding for customer loan requests, customer deposit maturities and withdrawals, debt service, leases for premises and equipment, and other cash commitments. The objective of effective liquidity management is to ensure that we can meet our contractual obligations and other cash commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To help achieve this objective, we monitor both
the consolidated company and the Parent on a stand-alone basis to ensure that the Parent is a source of strength for its regulated, deposit-taking banking subsidiaries. The Parent acts as a source of funding for the Company through the issuance of long-term debt and equity, and WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), provides funding support for the ongoing operational requirements of the Parent and certain of its direct and indirect subsidiaries. For additional information on liquidity risk and funding management, see the “Risk Management – Liquidity Risk and Funding” section in our 2020 Form 10-K. For additional information on the IHC, see the “Regulatory Matters – ‘Living Will’ Requirements and Related Matters” section in our 2021 Second Quarter Report on Form 10-Q.
Liquidity Standards We are subject to a rule, issued by the FRB, OCC and Federal Deposit Insurance Corporation (FDIC), that establishes a quantitative minimum liquidity requirement consistent with the liquidity coverage ratio (LCR) established by the Basel Committee on Banking Supervision (BCBS). The rule requires a covered banking organization to hold high-quality liquid assets (HQLA) in an amount equal to or greater than its projected net cash outflows during a 30-day stress period. Our HQLA under the rule predominantly consists of central bank deposits, government debt securities, and mortgage-backed securities of federal agencies. The LCR applies to the Company on a consolidated basis and to our insured depository institutions (IDIs) with total assets of $10 billion or more. In addition, rules issued by the FRB impose enhanced liquidity risk management standards on large bank holding companies (BHCs), such as Wells Fargo.
Wells Fargo & Company | 47 |
Risk Management – Asset/Liability Management (continued)
The FRB, OCC and FDIC have also issued a rule implementing a stable funding requirement, known as the net stable funding ratio (NSFR), which requires a covered banking organization, such as Wells Fargo, to maintain a minimum amount of stable funding, including common equity, long-term debt and most types of deposits, in relation to its assets, derivative exposures and commitments over a one-year horizon period. The NSFR applies to the Company on a consolidated basis and to our IDIs with total assets of $10 billion or more. As of September 30, 2021, we were compliant with the NSFR requirement.
Liquidity Coverage Ratio As of September 30, 2021, the consolidated Company, Wells Fargo Bank, N.A., and Wells Fargo National Bank West exceeded the minimum LCR requirement of 100%, which is calculated as HQLA divided by projected net cash outflows, as each is defined under the LCR rule. Table 28 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.
Table 28: Liquidity Coverage Ratio
Average for Quarter ended | |||||||||||||||||
(in millions, except ratio) | Sep 30, 2021 | Jun 30, 2021 | Sep 30, 2020 | ||||||||||||||
HQLA (1): | |||||||||||||||||
Eligible cash | $ | 244,260 | 248,404 | 210,715 | |||||||||||||
Eligible securities (2) | 138,525 | 137,718 | 213,358 | ||||||||||||||
Total HQLA | 382,785 | 386,122 | 424,073 | ||||||||||||||
Projected net cash outflows | 320,782 | 314,678 | 317,064 | ||||||||||||||
LCR | 119 | % | 123 | 134 | |||||||||||||
(1)Excludes excess HQLA at certain subsidiaries that is not transferable to other Wells Fargo entities.
(2)Net of applicable haircuts required under the LCR rule.
Liquidity Sources We maintain liquidity in the form of cash, cash equivalents and unencumbered high-quality, liquid debt securities. These assets make up our primary sources of liquidity. Our primary sources of liquidity are substantially the same in composition as HQLA under the LCR rule; however, our primary sources of liquidity will generally exceed HQLA calculated under the LCR rule due to the applicable haircuts to HQLA and the exclusion of excess HQLA at our subsidiary IDIs required under the LCR rule. Our primary sources of liquidity are presented in Table 29, which also includes encumbered securities that are not included as available HQLA in the calculation of the LCR.
Our cash is predominantly on deposit with the Federal Reserve. Debt securities included as part of our primary sources of liquidity are comprised of U.S. Treasury and federal agency debt, and MBS issued by federal agencies within our debt securities portfolio. We believe these debt securities provide quick sources of liquidity through sales or by pledging to obtain financing, regardless of market conditions. Some of these debt securities are within our HTM portfolio and, as such, are not intended for sale but may be pledged to obtain financing.
Table 29: Primary Sources of Liquidity
September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
(in millions) | Total | Encumbered | Unencumbered | Total | Encumbered | Unencumbered | |||||||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 241,178 | — | 241,178 | 236,376 | — | 236,376 | ||||||||||||||||||||||||||||
Debt securities of U.S. Treasury and federal agencies | 62,565 | 3,326 | 59,239 | 70,756 | 5,370 | 65,386 | |||||||||||||||||||||||||||||
Federal agency mortgage-backed securities (1) | 281,492 | 47,348 | 234,144 | 258,668 | 49,156 | 209,512 | |||||||||||||||||||||||||||||
Total | $ | 585,235 | 50,674 | 534,561 | 565,800 | 54,526 | 511,274 |
(1)Included in encumbered securities at September 30, 2021, were securities with a fair value of $2.0 billion, which were purchased in September 2021, but settled in October 2021.
In addition to our primary sources of liquidity shown in
Table 29, liquidity is also available through the sale or financing of other debt securities including trading and/or AFS debt securities, as well as through the sale, securitization or financing of loans, to the extent such debt securities and loans are not encumbered. As of September 30, 2021, we also maintained approximately $208.3 billion of available borrowing capacity at various Federal Home Loan Banks and the Federal Reserve Discount Window.
Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 170% and 158% of total loans at September 30, 2021, and December 31, 2020, respectively. Additional funding is provided by long-term debt and short-term borrowings. Table 30 shows selected information for short-term borrowings, which generally mature in less than 30 days. We pledge certain financial instruments that we own to collateralize repurchase agreements and other securities financings. For additional information, see the “Pledged Assets” section of Note 12 (Pledged Assets and Collateral) to Financial Statements in this Report.
48 | Wells Fargo & Company |
Table 30: Short-Term Borrowings
Quarter ended | |||||||||||||||||||||||||||||
(in millions) | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | ||||||||||||||||||||||||
Balance, period end | |||||||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 29,445 | 33,708 | 46,871 | 46,362 | 44,055 | |||||||||||||||||||||||
Other short-term borrowings | 12,535 | 11,927 | 12,049 | 12,637 | 11,169 | ||||||||||||||||||||||||
Total | $ | 41,980 | 45,635 | 58,920 | 58,999 | 55,224 | |||||||||||||||||||||||
Average daily balance for period | |||||||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 32,489 | 36,526 | 47,358 | 46,069 | 46,504 | |||||||||||||||||||||||
Other short-term borrowings | 11,410 | 11,979 | 11,724 | 11,235 | 10,788 | ||||||||||||||||||||||||
Total | $ | 43,899 | 48,505 | 59,082 | 57,304 | 57,292 | |||||||||||||||||||||||
Maximum month-end balance for period | |||||||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase (1) | $ | 33,247 | 33,708 | 47,050 | 46,879 | 49,148 | |||||||||||||||||||||||
Other short-term borrowings (2) | 12,535 | 12,563 | 12,049 | 12,637 | 11,169 |
(1)Maximum month-end balance in each of the last five quarters was in August, June and February 2021, and November and July 2020.
(2)Maximum month-end balance in each of the last five quarters was in September, April and March 2021, and December and September 2020.
Long-Term Debt We access domestic and international capital markets for long-term funding (generally greater than one year) through issuances of registered debt securities, private placements and asset-backed secured funding. We issue long-term debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. Proceeds from securities issued were used for general corporate purposes, and, unless otherwise specified in the applicable prospectus or prospectus supplement, we expect the
proceeds from securities issued in the future will be used for the same purposes. Depending on market conditions and our liquidity position, we may redeem or repurchase, and subsequently retire, our outstanding debt securities in privately negotiated or open market transactions, by tender offer, or otherwise. Table 31 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 2021 and the following years thereafter, as of September 30, 2021.
Table 31: Maturity of Long-Term Debt
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
(in millions) | Remaining 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||||||||||||||||||||
Wells Fargo & Company (Parent Only) | |||||||||||||||||||||||||||||||||||||||||
Senior notes | $ | 1,524 | 13,197 | 8,092 | 12,062 | 14,797 | 70,046 | 119,718 | |||||||||||||||||||||||||||||||||
Subordinated notes | — | — | 3,689 | 750 | 1,094 | 22,347 | 27,880 | ||||||||||||||||||||||||||||||||||
Junior subordinated notes | — | — | — | — | — | 1,373 | 1,373 | ||||||||||||||||||||||||||||||||||
Total long-term debt – Parent | 1,524 | 13,197 | 11,781 | 12,812 | 15,891 | 93,766 | 148,971 | ||||||||||||||||||||||||||||||||||
Wells Fargo Bank, N.A. and other bank entities (Bank) | |||||||||||||||||||||||||||||||||||||||||
Senior notes | 1 | 28 | 4 | 3 | 189 | 228 | 453 | ||||||||||||||||||||||||||||||||||
Subordinated notes | — | — | 1,056 | — | 166 | 4,169 | 5,391 | ||||||||||||||||||||||||||||||||||
Junior subordinated notes | — | — | — | — | — | 385 | 385 | ||||||||||||||||||||||||||||||||||
Securitizations and other bank debt | 1,211 | 1,553 | 1,088 | 643 | 146 | 1,468 | 6,109 | ||||||||||||||||||||||||||||||||||
Total long-term debt – Bank | 1,212 | 1,581 | 2,148 | 646 | 501 | 6,250 | 12,338 | ||||||||||||||||||||||||||||||||||
Other consolidated subsidiaries | |||||||||||||||||||||||||||||||||||||||||
Senior notes | 114 | 189 | 503 | 106 | 427 | 334 | 1,673 | ||||||||||||||||||||||||||||||||||
Total long-term debt – Other consolidated subsidiaries | 114 | 189 | 503 | 106 | 427 | 334 | 1,673 | ||||||||||||||||||||||||||||||||||
Total long-term debt | $ | 2,850 | 14,967 | 14,432 | 13,564 | 16,819 | 100,350 | 162,982 |
Wells Fargo & Company | 49 |
Risk Management – Asset/Liability Management (continued)
Credit Ratings Investors in the long-term capital markets, as well as other market participants, generally will consider, among other factors, a company’s debt rating in making investment decisions. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, our debt securities do not contain credit rating covenants.
On July 12, 2021, Moody’s Investors Service (Moody’s) upgraded the senior debt rating of the Company to A1 from A2
as a result of revisions to its bank ratings methodology. On September 28, 2021, S&P Global Ratings affirmed the Company’s ratings and retained the stable ratings outlook.
See the “Risk Factors” section in our 2020 Form 10-K for additional information regarding our credit ratings and the potential impact a credit rating downgrade would have on our liquidity and operations, as well as Note 14 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.
The credit ratings of the Parent and Wells Fargo Bank, N.A., as of September 30, 2021, are presented in Table 32.
Table 32: Credit Ratings as of September 30, 2021
Wells Fargo & Company | Wells Fargo Bank, N.A. | ||||||||||||||||||||||||||||
Senior debt | Short-term borrowings | Long-term deposits | Short-term borrowings | ||||||||||||||||||||||||||
Moody’s | A1 | P-1 | Aa1 | P-1 | |||||||||||||||||||||||||
S&P Global Ratings | BBB+ | A-2 | A+ | A-1 | |||||||||||||||||||||||||
Fitch Ratings | A+ | F1 | AA | F1+ | |||||||||||||||||||||||||
DBRS Morningstar | AA (low) | R-1 (middle) | AA | R-1 (high) |
FEDERAL HOME LOAN BANK MEMBERSHIP The Federal Home Loan Banks (the FHLBs) are a group of cooperatives that lending institutions use to finance housing and economic development in local communities. We are a member of the FHLBs based in Dallas, Des Moines and San Francisco. FHLB members are required to maintain a minimum investment in capital stock of the applicable FHLB. The board of directors of each FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment in any of the FHLBs depends entirely upon the occurrence of a future event, the amount of any future investment in the capital stock of the FHLBs is not determinable.
50 | Wells Fargo & Company |
Capital Management |
We have an active program for managing capital through a comprehensive process for assessing the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily fund our capital needs through the retention of earnings net of both dividends and share repurchases, as well as through the issuance of preferred stock and long- and short-term debt. Retained earnings at September 30, 2021, increased $13.0 billion from December 31, 2020, predominantly as a result of $15.8 billion of Wells Fargo net income, partially offset by $2.6 billion of common and preferred stock dividends. During the first nine months of 2021, we issued $957 million of common stock, substantially all of which was issued in connection with employee compensation and benefits. During the first nine months of 2021, we repurchased 167 million shares of common stock at a cost of $7.5 billion. For additional information about capital planning, see the “Capital Planning and Stress Testing” section below.
In the first nine months of 2021, we issued $5.8 billion of preferred stock and redeemed $6.7 billion of preferred stock. For additional information, see Note 16 (Preferred Stock) to Financial Statements in this Report.
Regulatory Capital Requirements
The Company and each of our IDIs are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital rules establish risk-adjusted ratios relating regulatory capital to different categories of assets and off-balance sheet exposures as discussed below.
RISK-BASED CAPITAL AND RISK-WEIGHTED ASSETS The Company is subject to rules issued by federal banking regulators to implement Basel III capital requirements for U.S. banking organizations. The rules contain two frameworks for calculating capital requirements, a Standardized Approach and an Advanced Approach applicable to certain institutions, including Wells Fargo. Our capital adequacy is assessed based on the lower of our risk-based capital ratios calculated under the two approaches. The Company is required to satisfy the risk-based capital ratio requirements to avoid restrictions on capital distributions and discretionary bonus payments. Table 33 and Table 34 present the risk-based capital requirements applicable to the Company on a fully phased-in basis under the Standardized Approach and Advanced Approach, respectively, as of September 30, 2021.
Table 33: Risk-Based Capital Requirements – Standardized Approach

Table 34: Risk-Based Capital Requirements – Advanced Approach

In addition to the risk-based capital requirements described in Table 33 and Table 34, if the FRB determines that a period of excessive credit growth is contributing to an increase in systemic risk, a countercyclical buffer of up to 2.50% could be added to the risk-based capital ratio requirements under federal banking regulations.
The capital conservation buffer is applicable to certain institutions, including Wells Fargo, under the Advanced Approach and is intended to absorb losses during times of economic or financial stress.
The stress capital buffer is calculated based on the decrease in a BHC’s risk-based capital ratios under the severely adverse scenario in the FRB’s annual supervisory stress test and related Comprehensive Capital Analysis and Review (CCAR), plus four quarters of planned common stock dividends. Because the stress capital buffer is calculated annually based on data that can differ over time, our stress capital buffer, and thus our risk-based capital ratio requirements under the Standardized Approach, are subject to change in future periods. The Company’s stress capital buffer for the period October 1, 2020, through September 30, 2021, was 2.50%. On August 5, 2021, the FRB confirmed that the Company's stress capital buffer for the period October 1, 2021, through September 30, 2022, is 3.10%.
As a global systemically important bank (G-SIB), we are also subject to the FRB’s rule implementing an additional capital surcharge of between 1.00-4.50% on the risk-based capital ratio requirements of G-SIBs. Under the rule, we must annually calculate our surcharge under two methods and use the higher of the two surcharges. The first method (method one) considers our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with the methodology developed by the BCBS and the Financial Stability Board (FSB). The second method (method two) uses similar inputs, but replaces substitutability with use of short-term wholesale funding and will generally result in higher surcharges than under method one. Because the G-SIB capital surcharge is calculated annually based on data that can differ over time, the amount of the surcharge is subject to change in future years. We expect our G-SIB capital surcharge to decrease by 50 basis points to 1.50% beginning in first quarter 2022, subject to finalization in fourth quarter 2021.
The Basel III capital requirements for calculating CET1 and tier 1 capital, along with risk-weighted assets (RWAs), are fully phased-in. However, the requirements for determining tier 2 and total capital are still in accordance with transition requirements
Wells Fargo & Company | 51 |
Capital Management (continued)
and are scheduled to be fully phased-in beginning January 1, 2022.
Under the risk-based capital rules, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total RWAs.
The tables that follow provide information about our risk-based capital and related ratios as calculated under Basel III capital rules. Although we report certain capital amounts and ratios in accordance with transition requirements for bank regulatory reporting purposes, we manage our capital on a fully
phased-in basis. For information about our capital requirements calculated in accordance with transition requirements, see
Note 23 (Regulatory Capital Requirements and Other Restrictions) to Financial Statements in this Report.
Table 35 summarizes our CET1, tier 1 capital, total capital, RWAs and capital ratios on a fully phased-in basis at September 30, 2021, and December 31, 2020. Fully phased-in total capital amounts and ratios are considered non-GAAP financial measures that are used by management, bank regulatory agencies, investors and analysts to assess and monitor the Company’s capital position. See Table 36 for information regarding the calculation and components of our CET1, tier 1 capital, total capital and RWAs, as well as a corresponding reconciliation to GAAP financial measures for our fully phased-in total capital amounts.
Table 35: Capital Components and Ratios (Fully Phased-In)
September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
(in millions, except ratios) | Required Capital Ratios (1) | Advanced Approach | Standardized Approach | Advanced Approach | Standardized Approach | ||||||||||||||||||||||||||||||
Common Equity Tier 1 | (A) | $ | 141,585 | 141,585 | 138,297 | 138,297 | |||||||||||||||||||||||||||||
Tier 1 Capital | (B) | 160,615 | 160,615 | 158,196 | 158,196 | ||||||||||||||||||||||||||||||
Total Capital | (C) | 187,416 | 197,613 | 186,803 | 196,529 | ||||||||||||||||||||||||||||||
Risk-Weighted Assets | (D) | 1,138,635 | 1,218,911 | 1,158,355 | 1,193,744 | ||||||||||||||||||||||||||||||
Common Equity Tier 1 Capital Ratio | (A)/(D) | 9.00 | % | 12.43 | 11.62 | * | 11.94 | 11.59 | * | ||||||||||||||||||||||||||
Tier 1 Capital Ratio | (B)/(D) | 10.50 | 14.11 | 13.18 | * | 13.66 | 13.25 | * | |||||||||||||||||||||||||||
Total Capital Ratio | (C)/(D) | 12.50 | 16.46 | 16.21 | * | 16.14 | * | 16.47 | |||||||||||||||||||||||||||
*Denotes the binding ratio based on the lower calculation under the Advanced and Standardized Approaches.
(1)Represents the minimum ratios required to avoid restrictions on capital distributions and discretionary bonus payments. The required ratios were the same under both the Standardized and Advanced Approaches at September 30, 2021.
52 | Wells Fargo & Company |
Table 36 provides information regarding the calculation and composition of our risk-based capital under the Advanced and Standardized Approaches at September 30, 2021, and December 31, 2020.
Table 36: Risk-Based Capital Calculation and Components
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
(in millions) | Advanced Approach | Standardized Approach | Advanced Approach | Standardized Approach | ||||||||||||||||||||||
Total equity (1) | $ | 191,071 | 191,071 | 185,712 | 185,712 | |||||||||||||||||||||
Effect of accounting policy changes (1) | — | — | 208 | 208 | ||||||||||||||||||||||
Total equity (as reported) | 191,071 | 191,071 | 185,920 | 185,920 | ||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||
Preferred stock | (20,270) | (20,270) | (21,136) | (21,136) | ||||||||||||||||||||||
Additional paid-in capital on preferred stock | 120 | 120 | 152 | 152 | ||||||||||||||||||||||
Unearned ESOP shares | 875 | 875 | 875 | 875 | ||||||||||||||||||||||
Noncontrolling interests | (2,043) | (2,043) | (1,033) | (1,033) | ||||||||||||||||||||||
Total common stockholders’ equity | $ | 169,753 | 169,753 | 164,778 | 164,778 | |||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||
Goodwill | (26,191) | (26,191) | (26,392) | (26,392) | ||||||||||||||||||||||
Certain identifiable intangible assets (other than MSRs) | (281) | (281) | (342) | (342) | ||||||||||||||||||||||
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | (2,120) | (2,120) | (1,965) | (1,965) | ||||||||||||||||||||||
Applicable deferred taxes related to goodwill and other intangible assets (2) | 886 | 886 | 856 | 856 | ||||||||||||||||||||||
CECL transition provision (3) | 463 | 463 | 1,720 | 1,720 | ||||||||||||||||||||||
Other | (925) | (925) | (358) | (358) | ||||||||||||||||||||||
Common Equity Tier 1 | $ | 141,585 | 141,585 | 138,297 | 138,297 | |||||||||||||||||||||
Preferred stock | 20,270 | 20,270 | 21,136 | 21,136 | ||||||||||||||||||||||
Additional paid-in capital on preferred stock | (120) | (120) | (152) | (152) | ||||||||||||||||||||||
Unearned ESOP shares | (875) | (875) | (875) | (875) | ||||||||||||||||||||||
Other | (245) | (245) | (210) | (210) | ||||||||||||||||||||||
Total Tier 1 capital | (A) | $ | 160,615 | 160,615 | 158,196 | 158,196 | ||||||||||||||||||||
Long-term debt and other instruments qualifying as Tier 2 | 22,753 | 22,753 | 24,387 | 24,387 | ||||||||||||||||||||||
Qualifying allowance for credit losses (4) | 4,368 | 14,565 | 4,408 | 14,134 | ||||||||||||||||||||||
Other | (320) | (320) | (188) | (188) | ||||||||||||||||||||||
Total Tier 2 capital (fully phased-in) | (B) | $ | 26,801 | 36,998 | 28,607 | 38,333 | ||||||||||||||||||||
Effect of Basel III transition requirements | 26 | 26 | 131 | 131 | ||||||||||||||||||||||
Total Tier 2 capital (Basel III transition requirements) | $ | 26,827 | 37,024 | 28,738 | 38,464 | |||||||||||||||||||||
Total qualifying capital (fully phased-in) | (A)+(B) | $ | 187,416 | 197,613 | 186,803 | 196,529 | ||||||||||||||||||||
Total Effect of Basel III transition requirements | 26 | 26 | 131 | 131 | ||||||||||||||||||||||
Total qualifying capital (Basel III transition requirements) | $ | 187,442 | 197,639 | 186,934 | 196,660 | |||||||||||||||||||||
Risk-Weighted Assets (RWAs)(5): | ||||||||||||||||||||||||||
Credit risk (6) | $ | 742,147 | 1,164,248 | 752,999 | 1,125,813 | |||||||||||||||||||||
Market risk | 54,663 | 54,663 | 67,931 | 67,931 | ||||||||||||||||||||||
Operational risk | 341,825 | — | 337,425 | — | ||||||||||||||||||||||
Total RWAs | $ | 1,138,635 | 1,218,911 | 1,158,355 | 1,193,744 | |||||||||||||||||||||
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period total equity was revised to conform with the current period presentation. Prior period risk-based capital and certain other regulatory related metrics were not revised.
(2)Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(3)At September 30, 2021, the impact of the CECL transition provision issued by federal banking regulators on our regulatory capital was an increase in capital of $463 million, reflecting a $991 million (post-tax) increase in capital recognized upon our initial adoption of CECL, offset by 25% of the $5.8 billion increase in our ACL under CECL from January 1, 2020, through September 30, 2021.
(4)Under the Advanced Approach the allowance for credit losses that exceeds expected credit losses is eligible for inclusion in tier 2 capital, to the extent the excess allowance does not exceed 0.60% of Advanced credit RWAs, and under the Standardized Approach, the allowance for credit losses is includable in tier 2 capital up to 1.25% of Standardized credit RWAs, in each case with any excess allowance for credit losses being deducted from the respective total RWAs.
(5)RWAs calculated under the Advanced Approach utilize a risk-sensitive methodology, which relies upon the use of internal credit models based upon our experience with internal rating grades. Advanced Approach also includes an operational risk component, which reflects the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.
(6)Includes an increase of $132 million under the Standardized Approach and a decrease of $1.4 billion under the Advanced Approach related to the impact of the CECL transition provision on our excess allowance for credit losses as of September 30, 2021. See footnote (4) to this table.
Wells Fargo & Company | 53 |
Capital Management (continued)
Table 37 presents the changes in CET1 for the nine months ended September 30, 2021.
Table 37: Analysis of Changes in Common Equity Tier 1
(in millions) | ||||||||
Common Equity Tier 1 at December 31, 2020 | $ | 138,297 | ||||||
Net income applicable to common stock | 14,786 | |||||||
Common stock dividends | (1,637) | |||||||
Common stock issued, repurchased, and stock compensation-related items | (6,614) | |||||||
Changes in cumulative other comprehensive income | (1,371) | |||||||
Goodwill | 201 | |||||||
Certain identifiable intangible assets (other than MSRs) | 61 | |||||||
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | (155) | |||||||
Applicable deferred taxes related to goodwill and other intangible assets (1) | 30 | |||||||
CECL transition provision (2) | (1,257) | |||||||
Other | (756) | |||||||
Change in Common Equity Tier 1 | 3,288 | |||||||
Common Equity Tier 1 at September 30, 2021 | $ | 141,585 |
(1)Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(2)At September 30, 2021, the impact of the CECL transition provision issued by federal banking regulators on our regulatory capital was an increase in capital of $463 million, reflecting a $991 million (post-tax) increase in capital recognized upon our initial adoption of CECL, offset by 25% of the $5.8 billion increase in our ACL under CECL from January 1, 2020, through September 30, 2021.
Table 38 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the nine months ended September 30, 2021.
Table 38: Analysis of Changes in RWAs
(in millions) | Advanced Approach | Standardized Approach | ||||||
RWAs at December 31, 2020 | $ | 1,158,355 | 1,193,744 | |||||
Net change in credit risk RWAs (1) | (10,852) | 38,435 | ||||||
Net change in market risk RWAs | (13,268) | (13,268) | ||||||
Net change in operational risk RWAs | 4,400 | — | ||||||
Total change in RWAs | (19,720) | 25,167 | ||||||
RWAs at September 30, 2021 | $ | 1,138,635 | 1,218,911 |
(1)Includes an increase of $132 million under the Standardized Approach and a decrease of $1.4 billion under the Advanced Approach related to the impact of the CECL transition provision on our excess allowance for credit losses. See Table 36 for additional information.
54 | Wells Fargo & Company |
TANGIBLE COMMON EQUITY We also evaluate our business based on certain ratios that utilize tangible common equity. 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 MSRs) and goodwill and other intangibles on nonmarketable equity securities, net of applicable deferred taxes. The ratios are (i) tangible book value per common share, which represents tangible common equity divided by common shares outstanding; and (ii) return on average tangible common equity (ROTCE),
which represents our annualized earnings as a percentage of tangible common equity. The methodology of determining tangible common equity may differ among companies. Management believes that tangible book value per common share and return on average tangible common equity, which utilize tangible common equity, are useful financial measures because they enable management, investors, and others to assess the Company’s use of equity.
Table 39 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.
Table 39: Tangible Common Equity
Balance at period end | Average balance | |||||||||||||||||||||||||||||||||||||
Quarter ended | Quarter ended | Nine months ended | ||||||||||||||||||||||||||||||||||||
(in millions, except ratios) | Sep 30, 2021 | Jun 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Jun 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | ||||||||||||||||||||||||||||||
Total equity | $ | 191,071 | 193,127 | 181,727 | 194,041 | 190,968 | 181,377 | 191,379 | 184,435 | |||||||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||||||||
Preferred stock | (20,270) | (20,820) | (21,098) | (21,403) | (21,108) | (21,098) | (21,449) | (21,411) | ||||||||||||||||||||||||||||||
Additional paid-in capital on preferred stock | 120 | 136 | 159 | 145 | 138 | 158 | 143 | 145 | ||||||||||||||||||||||||||||||
Unearned ESOP shares | 875 | 875 | 875 | 875 | 875 | 875 | 875 | 1,052 | ||||||||||||||||||||||||||||||
Noncontrolling interests | (2,043) | (1,865) | (859) | (1,845) | (1,313) | (761) | (1,427) | (730) | ||||||||||||||||||||||||||||||
Total common stockholders’ equity | (A) | 169,753 | 171,453 | 160,804 | 171,813 | 169,560 | 160,551 | 169,521 | 163,491 | |||||||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||||||||
Goodwill | (26,191) | (26,194) | (26,387) | (26,192) | (26,213) | (26,388) | (26,262) | (26,386) | ||||||||||||||||||||||||||||||
Certain identifiable intangible assets (other than MSRs) | (281) | (301) | (366) | (290) | (310) | (378) | (310) | (401) | ||||||||||||||||||||||||||||||
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | (2,120) | (2,256) | (2,019) | (2,169) | (2,208) | (2,045) | (2,198) | (2,040) | ||||||||||||||||||||||||||||||
Applicable deferred taxes related to goodwill and other intangible assets (1) | 886 | 875 | 842 | 882 | 873 | 838 | 873 | 828 | ||||||||||||||||||||||||||||||
Tangible common equity | (B) | $ | 142,047 | 143,577 | 132,874 | 144,044 | 141,702 | 132,578 | 141,624 | 135,492 | ||||||||||||||||||||||||||||
Common shares outstanding | (C) | 3,996.9 | 4,108.0 | 4,132.5 | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||||||
Net income applicable to common stock | (D) | N/A | N/A | N/A | $ | 4,787 | 5,743 | 2,901 | $ | 14,786 | (955) | |||||||||||||||||||||||||||
Book value per common share | (A)/(C) | $ | 42.47 | 41.74 | 38.91 | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||
Tangible book value per common share | (B)/(C) | 35.54 | 34.95 | 32.15 | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||||||
Return on average common stockholders’ equity (ROE) (annualized) | (D)/(A) | N/A | N/A | N/A | 11.05 | % | 13.59 | 7.19 | 11.66 | % | (0.78) | |||||||||||||||||||||||||||
Return on average tangible common equity (ROTCE) (annualized) | (D)/(B) | N/A | N/A | N/A | 13.18 | 16.26 | 8.71 | 13.96 | (0.94) |
(1)Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
LEVERAGE REQUIREMENTS As a BHC, we are required to maintain a supplementary leverage ratio (SLR) to avoid restrictions on capital distributions and discretionary bonus payments and maintain a minimum tier 1 leverage ratio. Table 40 presents the leverage requirements applicable to the Company as of September 30, 2021.
Table 40: Leverage Requirements Applicable to the Company

In addition, our IDIs are required to maintain an SLR of at least 6.00% to be considered well capitalized under applicable regulatory capital adequacy rules and maintain a minimum tier 1 leverage ratio of 4.00%.
The FRB and OCC have proposed amendments to the SLR rules. For information regarding the proposed amendments to the SLR rules, see the “Capital Management – Leverage Requirements” section in our 2020 Form 10-K.
At September 30, 2021, the Company’s SLR was 6.94%, and each of our IDIs exceeded their applicable SLR requirements. Table 41 presents information regarding the calculation and components of the Company’s SLR and tier 1 leverage ratio.
Wells Fargo & Company | 55 |
Capital Management (continued)
Table 41: Leverage Ratios for the Company
(in millions, except ratios) | Quarter ended September 30, 2021 | |||||||
Tier 1 capital | (A) | $ | 160,615 | |||||
Total average assets | 1,950,164 | |||||||
Less: Goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities) | 28,814 | |||||||
Total adjusted average assets | 1,921,350 | |||||||
Plus adjustments for off-balance sheet exposures: | ||||||||
Derivatives (1) | 70,638 | |||||||
Repo-style transactions (2) | 3,668 | |||||||
Other (3) | 317,978 | |||||||
Total off-balance sheet exposures | 392,284 | |||||||
Total leverage exposure | (B) | $ | 2,313,634 | |||||
Supplementary leverage ratio | (A)/(B) | 6.94 | % | |||||
Tier 1 leverage ratio (4) | 8.36 | % |
(1)Adjustment represents derivatives and collateral netting exposures as defined for supplementary leverage ratio determination purposes.
(2)Adjustment represents counterparty credit risk for repo-style transactions where Wells Fargo & Company is the principal counterparty facing the client.
(3)Adjustment represents credit equivalent amounts of other off-balance sheet exposures not already included as derivatives and repo-style transactions exposures.
(4)The tier 1 leverage ratio consists of tier 1 capital divided by total average assets, excluding goodwill and certain other items as determined under the rule.
TOTAL LOSS ABSORBING CAPACITY As a G-SIB, we are required to have a minimum amount of equity and unsecured long-term debt for purposes of resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). U.S. G-SIBs are required to have a minimum amount of TLAC (consisting of CET1 capital and additional tier 1 capital issued directly by the top-tier or covered BHC plus eligible external long-term debt) to avoid restrictions on capital distributions and discretionary bonus payments, as well as a minimum amount of eligible unsecured long-term debt. The components used to calculate our minimum TLAC and eligible unsecured long-term debt requirements as of September 30, 2021, are presented in Table 42.
Table 42: Components Used to Calculate TLAC and Eligible Unsecured Long-Term Debt Requirements
TLAC requirement Greater of: | ||||||||||||||
18.00% of RWAs | 7.50% of total leverage exposure (the denominator of the SLR calculation) | |||||||||||||
+ | + | |||||||||||||
TLAC buffer (equal to 2.50% of RWAs + method one G-SIB capital surcharge + any countercyclical buffer) | External TLAC leverage buffer (equal to 2.00% of total leverage exposure) | |||||||||||||
Minimum amount of eligible unsecured long-term debt Greater of: | ||||||||||||||
6.00% of RWAs | 4.50% of total leverage exposure | |||||||||||||
+ | ||||||||||||||
Greater of method one and method two G-SIB capital surcharge | ||||||||||||||
The FRB and OCC have proposed amendments to the TLAC and eligible unsecured long-term debt requirements. For information regarding these proposed amendments, see the “Capital Management – Total Loss Absorbing Capacity” section in our 2020 Form 10-K.
Table 43 provides our TLAC and eligible unsecured long-term debt and related ratios as of September 30, 2021, and December 31, 2020.
Table 43: TLAC and Eligible Unsecured Long-Term Debt
($ in millions) | TLAC (1) | Regulatory Minimum (2) | Eligible Unsecured Long-term Debt | Regulatory Minimum | ||||||||||||||||||||||
September 30, 2021 | ||||||||||||||||||||||||||
Total eligible amount | $ | 288,605 | 124,338 | |||||||||||||||||||||||
Percentage of RWAs (3) | 23.68 | % | 21.50 | 10.20 | 8.00 | |||||||||||||||||||||
Percentage of total leverage exposure | 12.47 | 9.50 | 5.37 | 4.50 | ||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||
Total eligible amount | $ | 307,226 | 140,703 | |||||||||||||||||||||||
Percentage of RWAs (3) | 25.74 | % | 22.00 | 11.79 | 8.00 | |||||||||||||||||||||
Percentage of total leverage exposure (4) | 15.64 | 9.50 | 7.16 | 4.50 |
(1)TLAC ratios are calculated using the CECL transition provision issued by federal banking regulators.
(2)Represents the minimum required to avoid restrictions on capital distributions and discretionary bonus payments.
(3)Our minimum TLAC and eligible unsecured long-term debt requirements are calculated based on the greater of RWAs determined under the Standardized and Advanced Approaches.
(4)Total leverage exposure at December 31, 2020, reflected an interim final rule issued by the FRB that temporarily allowed a bank holding company to exclude on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of its total leverage exposure.
OTHER REGULATORY CAPITAL AND LIQUIDITY MATTERS For information regarding the U.S. implementation of the Basel III LCR and NSFR, see the “Risk Management – Asset/ Liability Management – Liquidity Risk and Funding – Liquidity Standards” section in this Report.
Capital Planning and Stress Testing
Our planned long-term capital structure is designed to meet regulatory and market expectations. We believe that our long-term targeted capital structure enables us to invest in and grow our business, satisfy our customers’ financial needs in varying environments, access markets, and maintain flexibility to return capital to our shareholders. Our long-term targeted capital structure also considers capital levels sufficient to exceed capital requirements including the G-SIB capital surcharge. Accordingly, we currently target a long-term CET1 capital ratio that is 100 basis points above our regulatory requirement plus an incremental buffer of 25 to 50 basis points. Our capital targets are subject to change based on various factors, including changes to the regulatory capital framework and expectations for large banks promulgated by bank regulatory agencies, changes to the regulatory requirements for our capital ratios, planned capital actions, changes in our risk profile and other factors.
The FRB capital plan rule establishes capital planning and other requirements that govern capital distributions, including dividends and share repurchases, by certain BHCs, including Wells Fargo. The FRB assesses, among other things, the overall financial condition, risk profile, and capital adequacy of BHCs when evaluating their capital plans.
Federal banking regulators also require large BHCs and banks to conduct their own stress tests to evaluate whether the institution has sufficient capital to continue to operate during periods of adverse economic and financial conditions.
56 | Wells Fargo & Company |
Securities Repurchases
From time to time the Board authorizes the Company to repurchase shares of our common stock. Although we announce when the Board authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Various factors determine the amount of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations, including under the FRB’s capital plan rule. Due to the various factors that may impact the
amount of our share repurchases and the fact that we tend to be in the market regularly to satisfy repurchase considerations under our capital plan, our share repurchases occur at various price levels. We may suspend share repurchase activity at any time.
At September 30, 2021, we had remaining Board authority to repurchase approximately 500 million shares, subject to regulatory and legal conditions. For additional information about share repurchases during third quarter 2021, see Part II, Item 2 in this Report.
Regulatory Matters |
The U.S. financial services industry is subject to significant regulation and regulatory oversight initiatives. This regulation and oversight may continue to impact how U.S. financial services companies conduct business and may continue to result in increased regulatory compliance costs.
For a discussion of certain consent orders applicable to the Company, see the “Overview” section in this Report. For a discussion of other significant regulations and regulatory oversight initiatives that have affected or may affect our business, see the “Regulatory Matters” and “Risk Factors” sections in our 2020 Form 10-K and the “Regulatory Matters” section in our 2021 First and Second Quarter Reports on Form 10-Q.
Wells Fargo & Company | 57 |
Critical Accounting Policies |
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Six of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:
•the allowance for credit losses;
•the valuation of residential MSRs;
•the fair value of financial instruments;
•income taxes;
•liability for contingent litigation losses; and
•goodwill impairment.
Management has discussed these critical accounting policies and the related estimates and judgments with the Board’s Audit Committee. For additional information on these policies, see the “Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
Current Accounting Developments |
The following significant accounting update has been issued by the Financial Accounting Standards Board (FASB) and is applicable to us, but is not yet effective:
•Accounting Standards Update (ASU or Update) 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts and subsequent related updates
ASU 2018-12 See the “Current Accounting Developments” section in our 2020 Form 10-K for information on the effective date and our assessment of the expected financial statement impact upon adoption.
Other Accounting Developments
The following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:
•ASU 2020-06 – Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
•ASU 2021-05 – Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments
•ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
58 | Wells Fargo & Company |
Forward-Looking Statements |
This document contains forward-looking statements. In addition, we may make forward-looking statements in our other documents filed or furnished with the Securities and Exchange Commission, and our management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. In particular, forward-looking statements include, but are not limited to, statements we make about: (i) the future operating or financial performance of the Company, including our outlook for future growth; (ii) our noninterest expense and efficiency ratio; (iii) future credit quality and performance, including our expectations regarding future loan losses, our allowance for credit losses, and the economic scenarios considered to develop the allowance; (iv) our expectations regarding net interest income and net interest margin; (v) loan growth or the reduction or mitigation of risk in our loan portfolios; (vi) future capital or liquidity levels, ratios or targets; (vii) the performance of our mortgage business and any related exposures; (viii) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (ix) future common stock dividends, common share repurchases and other uses of capital; (x) our targeted range for return on assets, return on equity, and return on tangible common equity; (xi) expectations regarding our effective income tax rate; (xii) the outcome of contingencies, such as legal proceedings; (xiii) environmental, social and governance related goals or commitments; and (xiv) the Company’s plans, objectives and strategies.
Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:
•current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;
•the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions;
•our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;
•current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses,
including rules and regulations relating to bank products and financial services;
•developments in our mortgage banking business, including the extent of the success of our mortgage loan modification efforts, the amount of mortgage loan repurchase demands that we receive, any negative effects relating to our mortgage servicing, loan modification or foreclosure practices, and the effects of regulatory or judicial requirements or guidance impacting our mortgage banking business and any changes in industry standards;
•our ability to realize any efficiency ratio or expense target as part of our expense management initiatives, including as a result of business and economic cyclicality, seasonality, changes in our business composition and operating environment, growth in our businesses and/or acquisitions, and unexpected expenses relating to, among other things, litigation and regulatory matters;
•the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;
•significant turbulence or a disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for mortgage loans, a reduction in the availability of funding or increased funding costs, and declines in asset values and/or recognition of impairments of securities held in our debt securities and equity securities portfolios;
•the effect of a fall in stock market prices on our investment banking business and our fee income from our brokerage and wealth management businesses;
•negative effects from the retail banking sales practices matter and from other instances where customers may have experienced financial harm, including on our legal, operational and compliance costs, our ability to engage in certain business activities or offer certain products or services, our ability to keep and attract customers, our ability to attract and retain qualified employees, and our reputation;
•resolution of regulatory matters, litigation, or other legal actions, which may result in, among other things, additional costs, fines, penalties, restrictions on our business activities, reputational harm, or other adverse consequences;
•a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber attacks;
•the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
•fiscal and monetary policies of the Federal Reserve Board;
•changes to U.S. tax guidance and regulations, as well as the effect of discrete items on our effective income tax rate;
•our ability to develop and execute effective business plans and strategies; and
•the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and
Wells Fargo & Company | 59 |
Forward-Looking Statements (continued)
financial condition of the Company, market conditions, capital requirements (including under Basel capital standards), common stock issuance requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company’s Board of Directors, and may be subject to regulatory approval or conditions.
For additional information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.1
Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
1 We do not control this website. Wells Fargo has provided this link for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of this website. |
Forward-looking Non-GAAP Financial Measures. From time to time management may discuss forward-looking non-GAAP financial measures, such as forward-looking estimates or targets for return on average tangible common equity. We are unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures because we are unable to provide, without unreasonable effort, a meaningful or accurate calculation or estimation of amounts that would be necessary for the reconciliation due to the complexity and inherent difficulty in forecasting and quantifying future amounts or when they may occur. Such unavailable information could be significant to future results.
60 | Wells Fargo & Company |
Risk Factors |
An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. For a discussion of risk factors that could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company, we refer you to the “Risk Factors” section in our 2020 Form 10-K.
Wells Fargo & Company | 61 |
Controls and Procedures |
Disclosure Controls and Procedures |
The Company’s management evaluated the effectiveness, as of September 30, 2021, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021.
Internal Control Over Financial Reporting |
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during third quarter 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
62 | Wells Fargo & Company |
Financial Statements
Wells Fargo & Company and Subsidiaries | |||||||||||||||||||||||
Consolidated Statement of Income (Unaudited) | |||||||||||||||||||||||
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Interest income | |||||||||||||||||||||||
Debt securities | $ | 2,354 | 2,446 | $ | 6,865 | 8,864 | |||||||||||||||||
Loans held for sale | 172 | 239 | 696 | 685 | |||||||||||||||||||
Loans (1) | 7,057 | 7,965 | 21,353 | 26,508 | |||||||||||||||||||
Equity securities | 146 | 101 | 415 | 423 | |||||||||||||||||||
Other interest income | 105 | 60 | 244 | 889 | |||||||||||||||||||
Total interest income | 9,834 | 10,811 | 29,573 | 37,369 | |||||||||||||||||||
Interest expense | |||||||||||||||||||||||
Deposits | 99 | 314 | 303 | 2,641 | |||||||||||||||||||
Short-term borrowings | (7) | (12) | (28) | 262 | |||||||||||||||||||
Long-term debt | 745 | 1,038 | 2,483 | 3,515 | |||||||||||||||||||
Other interest expense | 88 | 92 | 298 | 350 | |||||||||||||||||||
Total interest expense | 925 | 1,432 | 3,056 | 6,768 | |||||||||||||||||||
Net interest income | 8,909 | 9,379 | 26,517 | 30,601 | |||||||||||||||||||
Noninterest income | |||||||||||||||||||||||
Deposit and lending-related fees | 1,781 | 1,651 | 5,101 | 4,913 | |||||||||||||||||||
Investment advisory and other asset-based fees (2) | 2,882 | 2,505 | 8,432 | 7,265 | |||||||||||||||||||
Commissions and brokerage services fees (2) | 525 | 568 | 1,741 | 1,795 | |||||||||||||||||||
Investment banking fees | 547 | 441 | 1,685 | 1,379 | |||||||||||||||||||
Card fees | 1,078 | 912 | 3,104 | 2,601 | |||||||||||||||||||
Mortgage banking | 1,259 | 1,590 | 3,921 | 2,286 | |||||||||||||||||||
Net gains on trading and securities | 1,244 | 1,274 | 4,852 | 1,726 | |||||||||||||||||||
Other (1) | 609 | 996 | 2,283 | 3,209 | |||||||||||||||||||
Total noninterest income | 9,925 | 9,937 | 31,119 | 25,174 | |||||||||||||||||||
Total revenue | 18,834 | 19,316 | 57,636 | 55,775 | |||||||||||||||||||
Provision for credit losses | (1,395) | 769 | (3,703) | 14,308 | |||||||||||||||||||
Noninterest expense | |||||||||||||||||||||||
Personnel | 8,690 | 8,624 | 27,066 | 25,863 | |||||||||||||||||||
Technology, telecommunications and equipment | 741 | 791 | 2,400 | 2,261 | |||||||||||||||||||
Occupancy | 738 | 851 | 2,243 | 2,437 | |||||||||||||||||||
Operating losses | 540 | 1,219 | 1,056 | 2,902 | |||||||||||||||||||
Professional and outside services | 1,417 | 1,760 | 4,255 | 5,042 | |||||||||||||||||||
Advertising and promotion | 153 | 144 | 375 | 462 | |||||||||||||||||||
Restructuring charges | 1 | 718 | 10 | 718 | |||||||||||||||||||
Other | 1,023 | 1,122 | 3,228 | 3,143 | |||||||||||||||||||
Total noninterest expense | 13,303 | 15,229 | 40,633 | 42,828 | |||||||||||||||||||
Income (loss) before income tax expense | 6,926 | 3,318 | 20,706 | (1,361) | |||||||||||||||||||
Income tax expense (benefit) (1) | 1,521 | (83) | 3,867 | (1,731) | |||||||||||||||||||
Net income before noncontrolling interests | 5,405 | 3,401 | 16,839 | 370 | |||||||||||||||||||
Less: Net income from noncontrolling interests | 283 | 185 | 1,041 | 84 | |||||||||||||||||||
Wells Fargo net income (1) | $ | 5,122 | 3,216 | $ | 15,798 | 286 | |||||||||||||||||
Less: Preferred stock dividends and other | 335 | 315 | 1,012 | 1,241 | |||||||||||||||||||
Wells Fargo net income (loss) applicable to common stock (1) | $ | 4,787 | 2,901 | $ | 14,786 | (955) | |||||||||||||||||
Per share information (1) | |||||||||||||||||||||||
Earnings (loss) per common share | $ | 1.18 | 0.70 | $ | 3.60 | (0.23) | |||||||||||||||||
Diluted earnings (loss) per common share | 1.17 | 0.70 | 3.57 | (0.23) | |||||||||||||||||||
Average common shares outstanding | 4,056.3 | 4,123.8 | 4,107.1 | 4,111.4 | |||||||||||||||||||
Diluted average common shares outstanding | 4,090.4 | 4,132.2 | 4,140.0 | 4,111.4 |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)In first quarter 2021, trust and investment management fees and asset-based brokerage fees were combined into a single line item for investment advisory and other asset-based fees, and brokerage commissions and other brokerage services fees were combined into a single line item for commissions and brokerage services fees. Prior period balances have been revised to conform with the current period presentation.
The accompanying notes are an integral part of these statements.
Wells Fargo & Company | 63 |
Wells Fargo & Company and Subsidiaries | |||||||||||||||||||||||
Consolidated Statement of Comprehensive Income (Unaudited) | |||||||||||||||||||||||
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Net income before noncontrolling interests (1) | $ | 5,405 | 3,401 | 16,839 | 370 | ||||||||||||||||||
Other comprehensive income (loss), after tax: | |||||||||||||||||||||||
Net change in debt securities | (468) | 5 | (1,689) | 920 | |||||||||||||||||||
Net change in derivatives and hedging activities | 38 | (14) | 101 | 126 | |||||||||||||||||||
Defined benefit plans adjustments | (121) | (15) | 248 | (416) | |||||||||||||||||||
Net change in foreign currency translation adjustments | (64) | 72 | (31) | (70) | |||||||||||||||||||
Other comprehensive income (loss), after tax | (615) | 48 | (1,371) | 560 | |||||||||||||||||||
Total comprehensive income before noncontrolling interests (1) | 4,790 | 3,449 | 15,468 | 930 | |||||||||||||||||||
Less: Other comprehensive loss from noncontrolling interests | (2) | — | — | (1) | |||||||||||||||||||
Less: Net income from noncontrolling interests | 283 | 185 | 1,041 | 84 | |||||||||||||||||||
Wells Fargo comprehensive income (1) | $ | 4,509 | 3,264 | 14,427 | 847 |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
The accompanying notes are an integral part of these statements.
64 | Wells Fargo & Company |
Wells Fargo & Company and Subsidiaries | |||||||||||
Consolidated Balance Sheet | |||||||||||
(in millions, except shares) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Assets | (Unaudited) | ||||||||||
Cash and due from banks | $ | 25,509 | 28,236 | ||||||||
Interest-earning deposits with banks | 241,178 | 236,376 | |||||||||
Total cash, cash equivalents, and restricted cash | 266,687 | 264,612 | |||||||||
Federal funds sold and securities purchased under resale agreements | 67,807 | 65,672 | |||||||||
Debt securities: | |||||||||||
Trading, at fair value | 94,943 | 75,095 | |||||||||
Available-for-sale, at fair value (includes amortized cost of $182,699 and $215,533, net of allowance for credit losses) | 185,557 | 220,392 | |||||||||
Held-to-maturity, at amortized cost, net of allowance for credit losses (fair value $264,022 and $212,307) | 262,493 | 205,720 | |||||||||
Loans held for sale (includes $17,781 and $18,806 carried at fair value) | 24,811 | 36,384 | |||||||||
Loans | 862,827 | 887,637 | |||||||||
Allowance for loan losses | (13,517) | (18,516) | |||||||||
Net loans | 849,310 | 869,121 | |||||||||
Mortgage servicing rights (includes $6,862 and $6,125 carried at fair value) | 8,148 | 7,437 | |||||||||
Premises and equipment, net | 8,599 | 8,895 | |||||||||
Goodwill | 26,191 | 26,392 | |||||||||
Derivative assets | 27,060 | 25,846 | |||||||||
Equity securities (includes $35,556 and $34,009 carried at fair value) | 66,526 | 60,008 | |||||||||
Other assets | 66,769 | 87,337 | |||||||||
Total assets (1) | $ | 1,954,901 | 1,952,911 | ||||||||
Liabilities | |||||||||||
Noninterest-bearing deposits | $ | 529,051 | 467,068 | ||||||||
Interest-bearing deposits | 941,328 | 937,313 | |||||||||
Total deposits | 1,470,379 | 1,404,381 | |||||||||
Short-term borrowings | 41,980 | 58,999 | |||||||||
Derivative liabilities | 12,976 | 16,509 | |||||||||
Accrued expenses and other liabilities (includes $25,524 and $22,441 carried at fair value) | 75,513 | 74,360 | |||||||||
Long-term debt | 162,982 | 212,950 | |||||||||
Total liabilities (2) | 1,763,830 | 1,767,199 | |||||||||
Equity | |||||||||||
Wells Fargo stockholders’ equity: | |||||||||||
Preferred stock | 20,270 | 21,136 | |||||||||
Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares | 9,136 | 9,136 | |||||||||
Additional paid-in capital | 60,134 | 60,197 | |||||||||
Retained earnings | 175,709 | 162,683 | |||||||||
Cumulative other comprehensive income (loss) | (1,177) | 194 | |||||||||
Treasury stock – 1,484,890,493 shares and 1,337,799,931 shares | (74,169) | (67,791) | |||||||||
Unearned ESOP shares | (875) | (875) | |||||||||
Total Wells Fargo stockholders’ equity | 189,028 | 184,680 | |||||||||
Noncontrolling interests | 2,043 | 1,032 | |||||||||
Total equity | 191,071 | 185,712 | |||||||||
Total liabilities and equity | $ | 1,954,901 | 1,952,911 |
(1)Our consolidated assets at September 30, 2021, and December 31, 2020, included the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Debt securities, $515 million and $967 million; Loans, $4.0 billion and $10.9 billion; All other assets, $334 million and $310 million; and Total assets, $4.9 billion and $12.1 billion, respectively.
(2)Our consolidated liabilities at September 30, 2021, and December 31, 2020, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Long-term debt, $166 million and $203 million; All other liabilities, $589 million and $900 million; and Total liabilities, $755 million and $1.1 billion, respectively.
The accompanying notes are an integral part of these statements.
Wells Fargo & Company | 65 |
Wells Fargo & Company and Subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Changes in Equity – Quarter ended September 30 (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wells Fargo stockholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ and shares in millions) | Shares | Amount | Shares | Amount | Additional paid-in capital | Retained earnings | Cumulative other comprehensive income (loss) | Treasury stock | Unearned ESOP shares | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance June 30, 2021 | 5.6 | $ | 20,820 | 4,108.0 | $ | 9,136 | 60,018 | 171,765 | (564) | (69,038) | (875) | 1,865 | 193,127 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 5,122 | 283 | 5,405 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | (613) | (2) | (615) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | (103) | (103) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued | 3.1 | (22) | 160 | 138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (114.2) | (5,291) | (5,291) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock redeemed (1) | (0.1) | (1,800) | 38 | (38) | (1,800) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock issued | — | 1,250 | (23) | 1,227 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | 10 | (821) | (811) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | (297) | (297) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock incentive compensation expense | 139 | 139 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change in deferred compensation and related plans | (48) | — | (48) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change | (0.1) | (550) | (111.1) | — | 116 | 3,944 | (613) | (5,131) | — | 178 | (2,056) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance September 30, 2021 | 5.5 | $ | 20,270 | 3,996.9 | $ | 9,136 | 60,134 | 175,709 | (1,177) | (74,169) | (875) | 2,043 | 191,071 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance June 30, 2020 (2) | 5.5 | $ | 21,098 | 4,119.6 | $ | 9,136 | 59,923 | 158,466 | (798) | (69,050) | (875) | 735 | 178,635 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (2) | 3,216 | 185 | 3,401 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 48 | — | 48 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | (60) | (60) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued | 13.0 | (343) | 668 | 325 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (0.1) | (3) | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock redeemed | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock issued | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | 3 | (417) | (414) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | (315) | (315) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock incentive compensation expense | 136 | 136 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change in deferred compensation and related plans | (27) | 1 | (26) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change (2) | — | — | 12.9 | — | 112 | 2,141 | 48 | 666 | — | 125 | 3,092 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance September 30, 2020 (2) | 5.5 | $ | 21,098 | 4,132.5 | $ | 9,136 | 60,035 | 160,607 | (750) | (68,384) | (875) | 860 | 181,727 |
(1)Represents the impact of the redemption of Preferred Stock, Series O and Series X, in third quarter 2021. For additional information, see Note 16 (Preferred Stock).
(2)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
The accompanying notes are an integral part of these statements.
66 | Wells Fargo & Company |
Wells Fargo & Company and Subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Changes in Equity – Nine months ended September 30 (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wells Fargo stockholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ and shares in millions) | Shares | Amount | Shares | Amount | Additional paid-in capital | Retained earnings | Cumulative other comprehensive income (loss) | Treasury stock | Unearned ESOP shares | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2020 (1) | 5.5 | $ | 21,136 | 4,144.0 | $ | 9,136 | 60,197 | 162,683 | 194 | (67,791) | (875) | 1,032 | 185,712 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 15,798 | 1,041 | 16,839 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | (1,371) | — | (1,371) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | (30) | (30) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued | 19.6 | — | (103) | 1,060 | 957 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (166.7) | (7,452) | (7,452) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock redeemed (2) | (0.2) | (6,676) | 86 | (86) | (6,676) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock released by ESOP | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock converted to common shares | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock issued | 0.2 | 5,810 | (54) | 5,756 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | 20 | (1,657) | (1,637) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | (926) | (926) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock incentive compensation expense | 863 | 863 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change in deferred compensation and related plans | (978) | 14 | (964) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change | — | (866) | (147.1) | — | (63) | 13,026 | (1,371) | (6,378) | — | 1,011 | 5,359 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance September 30, 2021 | 5.5 | $ | 20,270 | 3,996.9 | $ | 9,136 | 60,134 | 175,709 | (1,177) | (74,169) | (875) | 2,043 | 191,071 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2019 | 7.5 | $ | 21,549 | 4,134.4 | $ | 9,136 | 61,049 | 166,697 | (1,311) | (68,831) | (1,143) | 838 | 187,984 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative effect from change in accounting policies (1) | 708 | 708 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance January 1, 2020 (1) | 7.5 | 21,549 | 4,134.4 | 9,136 | 61,049 | 167,405 | (1,311) | (68,831) | (1,143) | 838 | 188,692 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (1) | 286 | 84 | 370 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | 561 | (1) | 560 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | (61) | (61) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued | 63.9 | 207 | (1,200) | 3,362 | 2,369 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased | (75.5) | (3,412) | (3,412) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock redeemed (3) | (1.9) | (2,215) | 17 | (272) | (2,470) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock released by ESOP | (19) | 268 | 249 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock converted to common shares | (0.2) | (249) | 9.7 | (243) | 492 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock issued | 0.1 | 2,013 | (45) | 1,968 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends | 41 | (4,643) | (4,602) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | (969) | (969) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock incentive compensation expense | 437 | 437 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change in deferred compensation and related plans | (1,409) | 5 | (1,404) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change (1) | (2.0) | (451) | (1.9) | — | (1,014) | (6,798) | 561 | 447 | 268 | 22 | (6,965) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance September 30, 2020 (1) | 5.5 | $ | 21,098 | 4,132.5 | $ | 9,136 | 60,035 | 160,607 | (750) | (68,384) | (875) | 860 | 181,727 |
(1)We adopted Accounting Standards Update (ASU) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) effective January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2020. In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Represents the impact of the redemption of Preferred Stock, Series I, Series P and Series W, in first quarter 2021; Preferred Stock, Series N, in second quarter 2021; and Preferred Stock, Series O and Series X, in third quarter 2021. For additional information, see Note 16 (Preferred Stock).
(3)Represents the impact of the redemption of the remaining Preferred Stock, Series K, and partial redemption of Preferred Stock, Series T, in first quarter 2020.
The accompanying notes are an integral part of these statements.
Wells Fargo & Company | 67 |
Wells Fargo & Company and Subsidiaries | |||||||||||
Consolidated Statement of Cash Flows (Unaudited) | |||||||||||
Nine months ended September 30, | |||||||||||
(in millions) | 2021 | 2020 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income before noncontrolling interests (1) | $ | 16,839 | 370 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Provision for credit losses | (3,703) | 14,308 | |||||||||
Changes in fair value of MSRs and LHFS carried at fair value | (1,158) | 4,434 | |||||||||
Depreciation, amortization and accretion (1) | 6,090 | 6,137 | |||||||||
Stock-based compensation | 1,858 | 1,337 | |||||||||
Deferred income tax benefit (1) | (2,689) | (1,570) | |||||||||
Other net (gains) losses (2) | (10,304) | 6,739 | |||||||||
Originations and purchases of loans held for sale (2) | (123,983) | (135,618) | |||||||||
Proceeds from sales of and paydowns on loans originally classified as held for sale (2) | 78,356 | 99,642 | |||||||||
Net change in: | |||||||||||
Debt and equity securities, held for trading (2) | 7,638 | 47,322 | |||||||||
Derivative assets and liabilities | (4,639) | (5,823) | |||||||||
Other assets | 16,736 | (9,482) | |||||||||
Other accrued expenses and liabilities (1) | 2,617 | (2,980) | |||||||||
Net cash provided (used) by operating activities | (16,342) | 24,816 | |||||||||
Cash flows from investing activities: | |||||||||||
Net change in: | |||||||||||
Federal funds sold and securities purchased under resale agreements | (2,135) | 32,836 | |||||||||
Available-for-sale debt securities: | |||||||||||
Proceeds from sales | 14,568 | 40,709 | |||||||||
Prepayments and maturities | 61,080 | 59,393 | |||||||||
Purchases | (84,576) | (54,010) | |||||||||
Held-to-maturity debt securities: | |||||||||||
Paydowns and maturities | 60,613 | 22,767 | |||||||||
Purchases | (59,480) | (41,758) | |||||||||
Equity securities, not held for trading: | |||||||||||
Proceeds from sales and capital returns | 2,706 | 10,344 | |||||||||
Purchases | (4,480) | (6,518) | |||||||||
Loans: | |||||||||||
Loans originated by banking subsidiaries, net of principal collected | 8,292 | 33,296 | |||||||||
Proceeds from sales of loans originally classified as held for investment | 26,388 | 6,828 | |||||||||
Purchases of loans | (313) | (1,036) | |||||||||
Principal collected on nonbank entities’ loans | 7,642 | 7,150 | |||||||||
Loans originated by nonbank entities | (8,242) | (8,703) | |||||||||
Proceeds from sales of foreclosed assets and short sales | 566 | 967 | |||||||||
Other, net | 1,154 | (223) | |||||||||
Net cash provided by investing activities | 23,783 | 102,042 | |||||||||
Cash flows from financing activities: | |||||||||||
Net change in: | |||||||||||
Deposits | 66,482 | 60,589 | |||||||||
Short-term borrowings | (17,019) | (49,288) | |||||||||
Long-term debt: | |||||||||||
Proceeds from issuance | 1,143 | 37,901 | |||||||||
Repayment | (44,739) | (61,151) | |||||||||
Preferred stock: | |||||||||||
Proceeds from issuance | 5,756 | 1,968 | |||||||||
Redeemed | (6,675) | (2,470) | |||||||||
Cash dividends paid | (867) | (910) | |||||||||
Common stock: | |||||||||||
Proceeds from issuance | 214 | 513 | |||||||||
Stock tendered for payment of withholding taxes | (277) | (326) | |||||||||
Repurchased | (7,452) | (3,412) | |||||||||
Cash dividends paid | (1,603) | (4,454) | |||||||||
Net change in noncontrolling interests | (76) | (67) | |||||||||
Other, net | (253) | (231) | |||||||||
Net cash used by financing activities | (5,366) | (21,338) | |||||||||
Net change in cash, cash equivalents, and restricted cash | 2,075 | 105,520 | |||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 264,612 | 141,250 | |||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 266,687 | 246,770 | ||||||||
Supplemental cash flow disclosures: | |||||||||||
Cash paid for interest | $ | 3,407 | 7,099 | ||||||||
Cash paid for income taxes, net (2) | 3,114 | 2,171 |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Prior period balances have been revised to conform with the current period presentation.
The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.
68 | Wells Fargo & Company |
Notes to Financial Statements
-See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial Statements and related Notes.
Note 1: Summary of Significant Accounting Policies |
Wells Fargo & Company is a diversified financial services company. We provide banking, investment and mortgage products and services, as well as consumer and commercial finance, through banking locations and offices, the internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia, and in countries outside the U.S. When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us,” we mean Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company. We also hold a majority interest in a real estate investment trust, which has publicly traded preferred stock outstanding.
Our accounting and reporting policies conform with U.S. generally accepted accounting principles (GAAP) and practices in the financial services industry. For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K).
To prepare the financial statements in conformity with GAAP, management must make estimates based on assumptions about future economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that affect the reported amounts of assets and liabilities at the date of the financial statements, income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates in several areas, including:
•allowance for credit losses (Note 4 (Loans and Related Allowance for Credit Losses));
•valuations of residential mortgage servicing rights (MSRs) (Note 8 (Securitizations and Variable Interest Entities) and Note 9 (Mortgage Banking Activities));
•valuations of financial instruments (Note 15 (Fair Values of Assets and Liabilities));
•liabilities for contingent litigation losses (Note 13 (Legal Actions));
•income taxes; and
•goodwill impairment (Note 10 (Intangible Assets)).
Actual results could differ from those estimates.
These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 2020 Form 10-K.
Change in Accounting Policies
In second quarter 2021, we elected to change our accounting method for low-income housing tax credit (LIHTC) investments from the equity method of accounting to the proportional amortization method. Under the proportional amortization method, the investments are carried at amortized cost and amortized in proportion to the tax credits received. The amortization of the investments and the related tax impacts are recognized in income tax expense. Previously, we recognized the amortization of the investments in other noninterest income and the related tax impacts were recognized in income tax expense. We determined that the proportional amortization method is preferable because it better aligns the financial statement presentation with the economic impact of these investments, which generate tax credits over the lives of the investments. Adoption of the proportional amortization method was applied retrospectively, to the earliest period presented, which resulted in a cumulative-effect adjustment to reduce retained earnings by $283 million as of January 1, 2020.
In second quarter 2021, we also elected to change the presentation of investment tax credits related to solar energy investments, which are accounted for under the deferral method. We reclassified the investment tax credits on our consolidated balance sheet from accrued expenses and other liabilities to a reduction of the carrying value of the investment balances. We also reclassified the investment tax credits, which are recognized over time, from income tax expense to interest income for solar energy leases or noninterest income for solar energy equity investments. We determined that this presentation is preferable because it better reflects the financial statement presentation of the investment tax credits as an integral component of the investments. The change in accounting policy was adopted retrospectively to January 1, 2020.
Table 1.1 presents the impact of the accounting policy changes for LIHTC investments and solar energy investments to our consolidated statement of income and consolidated balance sheet. There was no material impact to the consolidated statement of cash flows.
Wells Fargo & Company | 69 |
Note 1: Summary of Significant Accounting Policies (continued)
Table 1.1: Impact of the Accounting Policy Changes for LIHTC Investments and Solar Energy Investments
Quarter ended September 30, 2020 | Nine months ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
Effect of accounting policy changes ($) | Effect of accounting policy changes ($) | ||||||||||||||||||||||||||||||||||||||||
($ in millions, except per share amounts) | As reported | LIHTC | Solar | As revised | As reported | LIHTC | Solar | As revised | |||||||||||||||||||||||||||||||||
Selected Income Statement Data | |||||||||||||||||||||||||||||||||||||||||
Interest income – loans | $ | 7,954 | — | 11 | 7,965 | 26,467 | — | 41 | 26,508 | ||||||||||||||||||||||||||||||||
Noninterest income | 9,494 | 370 | 73 | 9,937 | 23,855 | 1,109 | 210 | 25,174 | |||||||||||||||||||||||||||||||||
Income tax expense (benefit) (1) | 645 | (554) | (174) | (83) | (3,113) | 1,031 | 351 | (1,731) | |||||||||||||||||||||||||||||||||
Net income (loss) | 2,035 | 924 | 257 | 3,216 | 309 | 79 | (102) | 286 | |||||||||||||||||||||||||||||||||
Earnings (loss) per common share | 0.42 | 0.22 | 0.06 | 0.70 | (0.23) | 0.02 | (0.02) | (0.23) | |||||||||||||||||||||||||||||||||
Diluted earnings (loss) per common share | 0.42 | 0.22 | 0.06 | 0.70 | (0.23) | 0.02 | (0.02) | (0.23) | |||||||||||||||||||||||||||||||||
At December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
Effect of accounting policy changes ($) | |||||||||||||||||||||||||||||||||||||||||
As reported | LIHTC | Solar | As revised | ||||||||||||||||||||||||||||||||||||||
Selected Balance Sheet Data | |||||||||||||||||||||||||||||||||||||||||
Equity securities | $ | 62,260 | (275) | (1,977) | 60,008 | ||||||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | 76,404 | (62) | (1,982) | 74,360 | |||||||||||||||||||||||||||||||||||||
Retained earnings | 162,890 | (207) | — | 162,683 |
(1)The quarterly income tax expense (benefit) varies based on the income (loss) before income tax expense (benefit) and the estimated annual effective income tax rate applied to each quarter.
Accounting Standards Adopted in 2021
In 2021, we adopted the following new accounting guidance:
•Accounting Standards Update (ASU or Update) 2021-01 – Reference Rate Reform (Topic 848): Scope
•ASU 2020-08 – Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs
•ASU 2020-01 – Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Financial Accounting Standards Board (FASB) Emerging Issues Task Force)
•ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
ASU 2021-01 clarifies the scope of Topic 848 to include derivatives affected by changes in interest rates for margining, discounting, or contract price alignment as part of the market-wide transition to new reference rates (commonly referred to as the “discounting transition”), even if they do not reference the London Interbank Offered Rate or another rate that is expected to be discontinued as a result of reference rate reform. The Update also clarifies other aspects of the relief provided in Accounting Standards Codification (ASC) 848. We adopted this Update in first quarter 2021 on a prospective basis, and the guidance will be followed until the Update terminates on December 31, 2022. The Update did not have a material impact on our consolidated financial statements.
ASU 2020-08 clarifies the accounting for purchased callable debt securities carried at a premium and was issued to correct an unintended application of ASU 2017-08 – Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which requires amortization of such premiums to the earliest call date, but was not clear for the method to be used for instruments with multiple call dates. The Update now specifies that such premiums are amortized to the next call date and requires reassessment throughout the life of the instruments with multiple call dates. We adopted this Update in first quarter
2021. The Update did not have a material impact on our consolidated financial statements.
ASU 2020-01 clarifies the accounting for equity securities upon transition between the measurement alternative and equity method. The Update also clarifies for forward contracts and options to purchase equity securities an entity need not consider whether upon settlement of the forward contract or option if the equity securities would be accounted for by the equity method or the fair value option. We adopted this Update in first quarter 2021. The Update did not have a material impact on our consolidated financial statements.
ASU 2019-12 provides narrow scope simplifications and improvements to the general principles in ASC Topic 740 – Income Taxes related to intraperiod tax allocation, basis differences when there are changes in ownership of foreign investments and interim periods income tax accounting for year to date losses that exceed anticipated annual losses. We adopted this Update in first quarter 2021. The Update did not have a material impact on our consolidated financial statements.
70 | Wells Fargo & Company |
Supplemental Cash Flow Information
Significant noncash activities are presented in Table 1.2.
Table 1.2: Supplemental Cash Flow Information
Nine months ended September 30, | |||||||||||
(in millions) | 2021 | 2020 | |||||||||
Available-for-sale debt securities purchased from securitization of LHFS (1) | $ | 256 | 2,710 | ||||||||
Held-to-maturity debt securities purchased from securitization of LHFS (1) | 17,600 | 9,016 | |||||||||
Transfers from loans to LHFS (2) | 14,842 | 4,374 | |||||||||
Transfers from available-for-sale debt securities to held-to-maturity debt securities | 41,298 | 1,236 | |||||||||
(1)Predominantly represents agency mortgage-backed securities purchased upon settlement of the sale and securitization of our conforming residential mortgage loans. See Note 8 (Securitizations and Variable Interest Entities) for additional information.
(2)Prior periods have been revised to conform to the current period presentation.
Subsequent Events
On November 1, 2021, we closed our previously announced agreement to sell our Corporate Trust Services business and our previously announced agreement to sell Wells Fargo Asset Management, which is subject to certain post-closing adjustments and earn-out provisions. We have evaluated the effects of events that have occurred subsequent to September 30, 2021, and, except for the closing of the sales of our Corporate Trust Services business and Wells Fargo Asset Management, there have been no material events that would require recognition in our third quarter 2021 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.
Wells Fargo & Company | 71 |
Note 2: Trading Activities |
Table 2.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.
Table 2.1: Trading Assets and Liabilities
(in millions) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Trading assets: | |||||||||||
Debt securities | $ | 94,943 | 75,095 | ||||||||
Equity securities | 24,277 | 23,032 | |||||||||
Loans held for sale | 2,405 | 1,015 | |||||||||
Gross trading derivative assets | 56,191 | 58,767 | |||||||||
Netting (1) | (30,603) | (34,301) | |||||||||
Total trading derivative assets | 25,588 | 24,466 | |||||||||
Total trading assets | 147,213 | 123,608 | |||||||||
Trading liabilities: | |||||||||||
Short sale | 25,524 | 22,441 | |||||||||
Gross trading derivative liabilities | 43,788 | 53,285 | |||||||||
Netting (1) | (32,164) | (39,444) | |||||||||
Total trading derivative liabilities | 11,624 | 13,841 | |||||||||
Total trading liabilities | $ | 37,148 | 36,282 |
(1)Represents balance sheet netting for trading derivative asset and liability balances, and trading portfolio level counterparty valuation adjustments.
Table 2.2 provides a summary of the net interest income earned from trading securities, and net gains and losses due to the realized and unrealized gains and losses from trading activities.
Net interest income also includes dividend income on trading securities and dividend expense on trading securities we have sold, but not yet purchased.
Table 2.2: Net Interest Income and Net Gains (Losses) on Trading Activities
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Debt securities | $ | 512 | $ | 546 | $ | 1,537 | 1,971 | ||||||||||||||||
Equity securities | 104 | 68 | 300 | 273 | |||||||||||||||||||
Loans held for sale | 12 | 6 | 27 | 24 | |||||||||||||||||||
Total interest income | 628 | 620 | 1,864 | 2,268 | |||||||||||||||||||
Less: Interest expense | 90 | 93 | 305 | 350 | |||||||||||||||||||
Net interest income | 538 | 527 | 1,559 | 1,918 | |||||||||||||||||||
Net gains (losses) from trading activities (1): | |||||||||||||||||||||||
Debt securities | (284) | 214 | (1,621) | 2,898 | |||||||||||||||||||
Equity securities | 771 | 1,381 | 2,780 | (691) | |||||||||||||||||||
Loans held for sale | 9 | 14 | 48 | 26 | |||||||||||||||||||
Derivatives (2) | (404) | (1,248) | (746) | (1,001) | |||||||||||||||||||
Total net gains from trading activities | 92 | 361 | 461 | 1,232 | |||||||||||||||||||
Total trading-related net interest and noninterest income | $ | 630 | $ | 888 | $ | 2,020 | 3,150 |
(1)Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions.
(2)Excludes economic hedging of mortgage banking and asset/liability management activities, for which hedge results (realized and unrealized) are reported with the respective hedged activities.
72 | Wells Fargo & Company |
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities |
Table 3.1 provides the amortized cost, net of the allowance for credit losses (ACL) for debt securities, and fair value by major categories of available-for-sale (AFS) debt securities, which are carried at fair value, and held-to-maturity (HTM) debt securities, which are carried at amortized cost, net of the ACL. The net unrealized gains (losses) for AFS debt securities are reported as a component of cumulative other comprehensive income (OCI), net of the ACL and applicable income taxes. Information on debt securities held for trading is included in Note 2 (Trading Activities).
Outstanding balances exclude accrued interest receivable on AFS and HTM debt securities, which are included in other assets. See Note 7 (Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. The interest income reversed in the third quarter and first nine months of both 2021 and 2020 was insignificant.
Table 3.1: Available-for-Sale and Held-to-Maturity Debt Securities Outstanding
(in millions) | Amortized cost, net (1) | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | $ | 38,273 | 163 | (58) | 38,378 | ||||||||||||||||||
Non-U.S. government securities | 5,787 | — | — | 5,787 | |||||||||||||||||||
Securities of U.S. states and political subdivisions (2) | 19,320 | 373 | (54) | 19,639 | |||||||||||||||||||
Federal agency mortgage-backed securities | 91,981 | 2,433 | (429) | 93,985 | |||||||||||||||||||
Non-agency mortgage-backed securities (3) | 4,366 | 41 | (18) | 4,389 | |||||||||||||||||||
Collateralized loan obligations | 14,450 | 8 | (4) | 14,454 | |||||||||||||||||||
Other debt securities | 8,522 | 416 | (13) | 8,925 | |||||||||||||||||||
Total available-for-sale debt securities | 182,699 | 3,434 | (576) | 185,557 | |||||||||||||||||||
Held-to-maturity debt securities: | |||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | 23,853 | 748 | (414) | 24,187 | |||||||||||||||||||
Securities of U.S. states and political subdivisions | 29,358 | 721 | (209) | 29,870 | |||||||||||||||||||
Federal agency mortgage-backed securities | 187,048 | 2,510 | (2,051) | 187,507 | |||||||||||||||||||
Non-agency mortgage-backed securities | 965 | 45 | (13) | 997 | |||||||||||||||||||
Collateralized loan obligations | 21,269 | 193 | (1) | 21,461 | |||||||||||||||||||
Total held-to-maturity debt securities | 262,493 | 4,217 | (2,688) | 264,022 | |||||||||||||||||||
Total (4) | $ | 445,192 | 7,651 | (3,264) | 449,579 | ||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | $ | 21,954 | 205 | — | 22,159 | ||||||||||||||||||
Non-U.S. government securities | 16,816 | — | (3) | 16,813 | |||||||||||||||||||
Securities of U.S. states and political subdivisions (2) | 19,263 | 224 | (81) | 19,406 | |||||||||||||||||||
Federal agency mortgage-backed securities | 134,838 | 4,260 | (28) | 139,070 | |||||||||||||||||||
Non-agency mortgage-backed securities (3) | 3,745 | 30 | (46) | 3,729 | |||||||||||||||||||
Collateralized loan obligations | 9,058 | 4 | (44) | 9,018 | |||||||||||||||||||
Other debt securities | 9,859 | 399 | (61) | 10,197 | |||||||||||||||||||
Total available-for-sale debt securities | 215,533 | 5,122 | (263) | 220,392 | |||||||||||||||||||
Held-to-maturity debt securities: | |||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | 47,295 | 1,472 | (170) | 48,597 | |||||||||||||||||||
Securities of U.S. states and political subdivisions | 25,860 | 938 | (5) | 26,793 | |||||||||||||||||||
Federal agency mortgage-backed securities | 115,437 | 4,182 | (21) | 119,598 | |||||||||||||||||||
Non-agency mortgage-backed securities | 890 | 51 | (8) | 933 | |||||||||||||||||||
Collateralized loan obligations | 16,238 | 148 | — | 16,386 | |||||||||||||||||||
Total held-to-maturity debt securities | 205,720 | 6,791 | (204) | 212,307 | |||||||||||||||||||
Total (4) | $ | 421,253 | 11,913 | (467) | 432,699 |
(1)Represents amortized cost of the securities, net of the ACL of $21 million and $28 million related to AFS debt securities and $75 million and $41 million related to HTM debt securities at September 30, 2021, and December 31, 2020, respectively.
(2)Includes investments in tax-exempt preferred debt securities issued by investment funds or trusts that predominantly invest in tax-exempt municipal securities. The amortized cost, net of the ACL, and fair value of these types of securities, was $5.2 billion at September 30, 2021, and $5.0 billion at December 31, 2020.
(3)Predominantly consists of commercial mortgage-backed securities at both September 30, 2021, and December 31, 2020.
(4)We held AFS and HTM debt securities from Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) that each exceeded 10% of stockholders’ equity, with an amortized cost of $126.7 billion and $84.0 billion and a fair value of $128.0 billion and $84.7 billion at September 30, 2021, and an amortized cost of $99.8 billion and $88.7 billion and a fair value of $103.2 billion and $91.5 billion at December 31, 2020, respectively.
Wells Fargo & Company | 73 |
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 3.2 details the breakout of purchases of and transfers to HTM debt securities by major category of security.
Table 3.2: Held-to-Maturity Debt Securities Purchases and Transfers
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Purchases of held-to-maturity debt securities (1): | |||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | $ | — | — | $ | — | 3,016 | |||||||||||||||||
Securities of U.S. states and political subdivisions | 1,409 | — | 4,492 | 881 | |||||||||||||||||||
Federal agency mortgage-backed securities | 14,296 | 23,664 | 64,018 | 46,485 | |||||||||||||||||||
Non-agency mortgage-backed securities | 30 | 19 | 114 | 93 | |||||||||||||||||||
Collateralized loan obligations | 839 | — | 8,177 | — | |||||||||||||||||||
Total purchases of held-to-maturity debt securities | 16,574 | 23,683 | 76,801 | 50,475 | |||||||||||||||||||
Transfers from available-for-sale debt securities to held-to-maturity debt securities: | |||||||||||||||||||||||
Securities of U.S. states and political subdivisions | — | 1,236 | — | 1,236 | |||||||||||||||||||
Federal agency mortgage-backed securities | — | — | 41,298 | — | |||||||||||||||||||
Total transfers from available-for-sale debt securities to held-to-maturity debt securities | $ | — | 1,236 | $ | 41,298 | 1,236 |
(1)Inclusive of securities purchased but not yet settled and noncash purchases from securitization of loans held for sale (LHFS).
Table 3.3 shows the composition of interest income, provision for credit losses, and gross realized gains and losses
from sales and impairment write-downs included in earnings related to AFS and HTM debt securities (pre-tax).
Table 3.3: Income Statement Impacts for Available-for-Sale and Held-to-Maturity Debt Securities
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Interest income (1): | |||||||||||||||||||||||
Available-for-sale | $ | 676 | 1,009 | $ | 2,142 | 4,084 | |||||||||||||||||
Held-to-maturity | 1,166 | 891 | 3,186 | 2,809 | |||||||||||||||||||
Total interest income | 1,842 | 1,900 | 5,328 | 6,893 | |||||||||||||||||||
Provision for credit losses: | |||||||||||||||||||||||
Available-for-sale | (5) | 12 | 7 | 140 | |||||||||||||||||||
Held-to-maturity | (3) | 6 | 33 | 19 | |||||||||||||||||||
Total provision for credit losses | (8) | 18 | 40 | 159 | |||||||||||||||||||
Realized gains and losses (2): | |||||||||||||||||||||||
Gross realized gains | 291 | 264 | 443 | 768 | |||||||||||||||||||
Gross realized losses | — | — | (1) | (40) | |||||||||||||||||||
Impairment write-downs | (8) | — | (8) | (15) | |||||||||||||||||||
Net realized gains | $ | 283 | $ | 264 | $ | 434 | 713 |
(1)Excludes interest income from trading debt securities, which is disclosed in Note 2 (Trading Activities).
(2)Realized gains and losses relate to AFS debt securities. There were no realized gains or losses from HTM debt securities in all periods presented.
Credit Quality
We monitor credit quality of debt securities by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the ACL for debt securities. The credit quality indicators that we most closely monitor include credit ratings and delinquency status and are based on information as of our financial statement date.
CREDIT RATINGS Credit ratings express opinions about the credit quality of a debt security. We determine the credit rating of a security according to the lowest credit rating made available by national recognized statistical rating organizations (NRSROs). Debt securities rated investment grade, that is those with ratings similar to BBB-/Baa3 or above, as defined by NRSROs, are generally considered by the rating agencies and market participants to be low credit risk. Conversely, debt securities rated below investment grade, labeled as “speculative grade” by
the rating agencies, are considered to be distinctively higher credit risk than investment grade debt securities. For debt securities not rated by NRSROs, we determine an internal credit grade of the debt securities (used for credit risk management purposes) equivalent to the credit ratings assigned by major credit agencies. Substantially all of our debt securities were rated by NRSROs at September 30, 2021, and December 31, 2020.
Table 3.4 shows the percentage of fair value of AFS debt securities and amortized cost of HTM debt securities determined to be rated investment grade, inclusive of securities rated based on internal credit grades.
74 | Wells Fargo & Company |
Table 3.4: Investment Grade Debt Securities
Available-for-Sale | Held-to-Maturity | ||||||||||||||||
($ in millions) | Fair value | % investment grade | Amortized cost | % investment grade | |||||||||||||
September 30, 2021 | |||||||||||||||||
Total portfolio (1) | $ | 185,557 | 99 | % | 262,568 | 99 | % | ||||||||||
Breakdown by category: | |||||||||||||||||
Securities of U.S. Treasury and federal agencies (2) | $ | 132,363 | 100 | % | 210,901 | 100 | % | ||||||||||
Securities of U.S. states and political subdivisions | 19,639 | 99 | 29,372 | 100 | |||||||||||||
Collateralized loan obligations (3) | 14,454 | 100 | 21,309 | 100 | |||||||||||||
All other debt securities (4) | 19,101 | 92 | 986 | 4 | |||||||||||||
December 31, 2020 | |||||||||||||||||
Total portfolio (1) | $ | 220,392 | 99 | % | 205,761 | 99 | % | ||||||||||
Breakdown by category: | |||||||||||||||||
Securities of U.S. Treasury and federal agencies (2) | $ | 161,229 | 100 | % | 162,732 | 100 | % | ||||||||||
Securities of U.S. states and political subdivisions | 19,406 | 99 | 25,870 | 100 | |||||||||||||
Collateralized loan obligations (3) | 9,018 | 100 | 16,255 | 100 | |||||||||||||
All other debt securities (4) | 30,739 | 93 | 904 | 6 |
(1)96% and 92% were rated AA- and above at September 30, 2021, and December 31, 2020, respectively.
(2)Includes federal agency mortgage-backed securities.
(3)99% and 98% were rated AA- and above at September 30, 2021, and December 31, 2020, respectively.
(4)Includes non-U.S. government, non-agency mortgage-backed, and all other debt securities.
DELINQUENCY STATUS AND NONACCRUAL DEBT SECURITIES Debt security issuers that are delinquent in payment of amounts due under contractual debt agreements have a higher probability of recognition of credit losses. As such, as part of our monitoring of the credit quality of the debt security portfolio, we consider whether debt securities we own are past due in payment of principal or interest payments and whether any securities have been placed into nonaccrual status.
Debt securities that are past due and still accruing were insignificant at both September 30, 2021, and December 31, 2020. The carrying value of debt securities in nonaccrual status was insignificant at both September 30, 2021, and December 31, 2020. Charge-offs on debt securities were insignificant in the third quarter and first nine months of both 2021 and 2020.
Purchased debt securities with credit deterioration (PCD) are not considered to be in nonaccrual status, as payments from issuers of these securities remain current. PCD securities were insignificant in the third quarter and first nine months of both 2021 and 2020.
Wells Fargo & Company | 75 |
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Unrealized Losses of Available-for-Sale Debt Securities
Table 3.5 shows the gross unrealized losses and fair value of AFS debt securities by length of time those individual securities in each category have been in a continuous loss position. Debt securities on which we have recorded credit impairment are
categorized as being “less than 12 months” or “12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the amortized cost basis, net of allowance for credit losses.
Table 3.5: Gross Unrealized Losses and Fair Value – Available-for-Sale Debt Securities
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
(in millions) | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | |||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | $ | (58) | 15,082 | — | — | (58) | 15,082 | ||||||||||||||||||||||||||||
Non-U.S. government securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Securities of U.S. states and political subdivisions | (45) | 2,326 | (9) | 494 | (54) | 2,820 | |||||||||||||||||||||||||||||
Federal agency mortgage-backed securities | (389) | 28,889 | (40) | 2,653 | (429) | 31,542 | |||||||||||||||||||||||||||||
Non-agency mortgage-backed securities | (2) | 356 | (16) | 628 | (18) | 984 | |||||||||||||||||||||||||||||
Collateralized loan obligations | (1) | 868 | (3) | 1,283 | (4) | 2,151 | |||||||||||||||||||||||||||||
Other debt securities | (6) | 1,202 | (7) | 685 | (13) | 1,887 | |||||||||||||||||||||||||||||
Total available-for-sale debt securities | $ | (501) | 48,723 | (75) | 5,743 | (576) | 54,466 | ||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Non-U.S. government securities | (3) | 16,812 | — | — | (3) | 16,812 | |||||||||||||||||||||||||||||
Securities of U.S. states and political subdivisions | (51) | 3,681 | (30) | 1,101 | (81) | 4,782 | |||||||||||||||||||||||||||||
Federal agency mortgage-backed securities | (27) | 11,310 | (1) | 316 | (28) | 11,626 | |||||||||||||||||||||||||||||
Non-agency mortgage-backed securities | (28) | 1,366 | (18) | 534 | (46) | 1,900 | |||||||||||||||||||||||||||||
Collateralized loan obligations | (27) | 5,082 | (17) | 1,798 | (44) | 6,880 | |||||||||||||||||||||||||||||
Other debt securities | (16) | 647 | (45) | 1,604 | (61) | 2,251 | |||||||||||||||||||||||||||||
Total available-for-sale debt securities | $ | (152) | 38,898 | (111) | 5,353 | (263) | 44,251 |
We have assessed each debt security with gross unrealized losses included in the previous table for credit impairment. As part of that assessment we evaluated and concluded that we do not intend to sell any of the debt securities, and that it is more likely than not that we will not be required to sell, prior to recovery of the amortized cost basis. We evaluate, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the debt securities’ amortized cost basis. Credit impairment is recorded as an ACL for debt securities.
For descriptions of the factors we consider when analyzing debt securities for impairment as well as methodology and significant inputs used to measure credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 2020 Form 10-K.
76 | Wells Fargo & Company |
Contractual Maturities
Table 3.6 and Table 3.7 show the remaining contractual maturities, amortized cost, net of the ACL, fair value and weighted average effective yields of AFS and HTM debt securities, respectively. The remaining contractual principal
maturities for mortgage-backed securities (MBS) do not consider prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.
Table 3.6: Contractual Maturities – Available-for-Sale Debt Securities
By remaining contractual maturity ($ in millions) | Total | Within one year | After one year through five years | After five years through ten years | After ten years | ||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||
Available-for-sale debt securities (1): | |||||||||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 38,273 | 5 | 18,925 | 17,381 | 1,962 | |||||||||||||||||||||||
Fair value | 38,378 | 5 | 18,934 | 17,362 | 2,077 | ||||||||||||||||||||||||
Weighted average yield | 0.76 | % | 2.00 | 0.34 | 1.13 | 1.44 | |||||||||||||||||||||||
Non-U.S. government securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 5,787 | 5,762 | 25 | — | — | |||||||||||||||||||||||
Fair value | 5,787 | 5,762 | 25 | — | — | ||||||||||||||||||||||||
Weighted average yield | (0.11 | %) | (0.12) | 0.42 | — | — | |||||||||||||||||||||||
Securities of U.S. states and political subdivisions | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 19,320 | 1,207 | 2,472 | 5,329 | 10,312 | |||||||||||||||||||||||
Fair value | 19,639 | 1,208 | 2,513 | 5,327 | 10,591 | ||||||||||||||||||||||||
Weighted average yield | 2.02 | % | 1.37 | 1.45 | 1.41 | 2.55 | |||||||||||||||||||||||
Federal agency mortgage-backed securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 91,981 | 9 | 221 | 2,969 | 88,782 | |||||||||||||||||||||||
Fair value | 93,985 | 9 | 235 | 3,074 | 90,667 | ||||||||||||||||||||||||
Weighted average yield | 2.62 | % | 2.29 | 3.33 | 2.29 | 2.63 | |||||||||||||||||||||||
Non-agency mortgage-backed securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 4,366 | — | — | 148 | 4,218 | |||||||||||||||||||||||
Fair value | 4,389 | — | — | 147 | 4,242 | ||||||||||||||||||||||||
Weighted average yield | 1.99 | % | — | — | 2.28 | 1.98 | |||||||||||||||||||||||
Collateralized loan obligations | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 14,450 | — | 92 | 7,086 | 7,272 | |||||||||||||||||||||||
Fair value | 14,454 | — | 92 | 7,086 | 7,276 | ||||||||||||||||||||||||
Weighted average yield | 1.38 | % | — | 2.17 | 1.37 | 1.39 | |||||||||||||||||||||||
Other debt securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 8,522 | 263 | 2,393 | 2,566 | 3,300 | |||||||||||||||||||||||
Fair value | 8,925 | 264 | 2,478 | 2,606 | 3,577 | ||||||||||||||||||||||||
Weighted average yield | 3.08 | % | 3.27 | 4.23 | 3.23 | 2.11 | |||||||||||||||||||||||
Total available-for-sale debt securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 182,699 | 7,246 | 24,128 | 35,479 | 115,846 | |||||||||||||||||||||||
Fair value | 185,557 | 7,248 | 24,277 | 35,602 | 118,430 | ||||||||||||||||||||||||
Weighted average yield | 1.99 | % | 0.35 | 0.87 | 1.47 | 2.49 |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost without effect for any related hedging derivatives and are shown pre-tax.
Wells Fargo & Company | 77 |
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 3.7: Contractual Maturities – Held-to-Maturity Debt Securities
By remaining contractual maturity ($ in millions) | Total | Within one year | After one year through five years | After five years through ten years | After ten years | ||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||
Held-to-maturity debt securities (1): | |||||||||||||||||||||||||||||
Securities of U.S. Treasury and federal agencies | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 23,853 | 7,661 | 12,409 | — | 3,783 | |||||||||||||||||||||||
Fair value | 24,187 | 7,688 | 13,077 | — | 3,422 | ||||||||||||||||||||||||
Weighted average yield | 2.09 | % | 1.91 | 2.37 | — | 1.57 | |||||||||||||||||||||||
Securities of U.S. states and political subdivisions | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 29,358 | 1,123 | 1,833 | 2,174 | 24,228 | |||||||||||||||||||||||
Fair value | 29,870 | 1,138 | 1,891 | 2,248 | 24,593 | ||||||||||||||||||||||||
Weighted average yield | 2.21 | % | 2.37 | 1.80 | 2.60 | 2.20 | |||||||||||||||||||||||
Federal agency mortgage-backed securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 187,048 | — | — | — | 187,048 | |||||||||||||||||||||||
Fair value | 187,507 | — | — | — | 187,507 | ||||||||||||||||||||||||
Weighted average yield | 2.17 | % | — | — | — | 2.17 | |||||||||||||||||||||||
Non-agency mortgage-backed securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 965 | — | 15 | 18 | 932 | |||||||||||||||||||||||
Fair value | 997 | — | 15 | 20 | 962 | ||||||||||||||||||||||||
Weighted average yield | 3.05 | % | — | 1.56 | 3.65 | 3.06 | |||||||||||||||||||||||
Collateralized loan obligations | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 21,269 | — | — | 9,715 | 11,554 | |||||||||||||||||||||||
Fair value | 21,461 | — | — | 9,833 | 11,628 | ||||||||||||||||||||||||
Weighted average yield | 1.64 | % | — | — | 1.67 | 1.61 | |||||||||||||||||||||||
Total held-to-maturity debt securities | |||||||||||||||||||||||||||||
Amortized cost, net | $ | 262,493 | 8,784 | 14,257 | 11,907 | 227,545 | |||||||||||||||||||||||
Fair value | 264,022 | 8,826 | 14,983 | 12,101 | 228,112 | ||||||||||||||||||||||||
Weighted average yield | 2.13 | % | 1.97 | 2.29 | 1.84 | 2.14 |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost and are shown pre-tax.
78 | Wells Fargo & Company |
Note 4: Loans and Related Allowance for Credit Losses |
Table 4.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include unearned income, net deferred loan fees or costs, and unamortized discounts and premiums. These amounts were less
than 1% of our total loans outstanding at September 30, 2021, and December 31, 2020.
Outstanding balances exclude accrued interest receivable on loans, except for certain revolving loans, such as credit card loans.
See Note 7 (Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. During the first nine months of 2021, we reversed accrued interest receivable of $36 million for our commercial portfolio segment and $143 million for our consumer portfolio segment, compared with $29 million and $161 million, respectively, for the same period a year ago.
Table 4.1: Loans Outstanding
(in millions) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Commercial: | |||||||||||
Commercial and industrial | $ | 326,425 | 318,805 | ||||||||
Real estate mortgage | 121,985 | 121,720 | |||||||||
Real estate construction | 21,129 | 21,805 | |||||||||
Lease financing | 15,398 | 16,087 | |||||||||
Total commercial | 484,937 | 478,417 | |||||||||
Consumer: | |||||||||||
Residential mortgage – first lien | 242,935 | 276,674 | |||||||||
Residential mortgage – junior lien | 18,026 | 23,286 | |||||||||
Credit card | 36,061 | 36,664 | |||||||||
Auto | 53,827 | 48,187 | |||||||||
Other consumer | 27,041 | 24,409 | |||||||||
Total consumer | 377,890 | 409,220 | |||||||||
Total loans | $ | 862,827 | 887,637 |
Our non-U.S. loans are reported by respective class of financing receivable in the table above. Substantially all of our non-U.S. loan portfolio is commercial loans. Table 4.2 presents total non-U.S. commercial loans outstanding by class of financing receivable.
Table 4.2: Non-U.S. Commercial Loans Outstanding
(in millions) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Non-U.S. commercial loans: | |||||||||||
Commercial and industrial | $ | 74,030 | 63,128 | ||||||||
Real estate mortgage | 6,731 | 7,278 | |||||||||
Real estate construction | 1,727 | 1,603 | |||||||||
Lease financing | 668 | 629 | |||||||||
Total non-U.S. commercial loans | $ | 83,156 | 72,638 |
Wells Fargo & Company | 79 |
Note 4: Loans and Related Allowance for Credit Losses (continued)
Loan Purchases, Sales, and Transfers
Table 4.3 presents the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale. The table excludes loans for
which we have elected the fair value option and government insured/guaranteed residential mortgage – first lien loans because their loan activity normally does not impact the ACL.
Table 4.3: Loan Purchases, Sales, and Transfers
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(in millions) | Commercial | Consumer | Total | Commercial | Consumer | Total | |||||||||||||||||||||||||||||
Quarter ended September 30, | |||||||||||||||||||||||||||||||||||
Purchases | $ | 124 | 1 | 125 | 260 | 2 | 262 | ||||||||||||||||||||||||||||
Sales | (621) | — | (621) | (564) | — | (564) | |||||||||||||||||||||||||||||
Transfers (to)/from LHFS | (565) | (11) | (576) | (170) | 8,990 | 8,820 | |||||||||||||||||||||||||||||
Nine months ended September 30, | |||||||||||||||||||||||||||||||||||
Purchases | $ | 306 | 3 | 309 | 1,034 | 5 | 1,039 | ||||||||||||||||||||||||||||
Sales | (959) | (188) | (1,147) | (3,334) | (27) | (3,361) | |||||||||||||||||||||||||||||
Transfers (to)/from LHFS | (1,359) | (47) | (1,406) | (101) | (1,387) | (1,488) |
Commitments to Lend
A commitment to lend is a legally binding agreement to lend to a customer, usually at a stated interest rate, if funded, and for specific purposes and time periods. We generally require a fee to extend such commitments. Certain commitments are subject to loan agreements with covenants regarding the financial performance of the customer or borrowing base formulas on an ongoing basis that must be met before we are required to fund the commitment. We may reduce or cancel consumer commitments, including home equity lines and credit card lines, in accordance with the contracts and applicable law. For unconditionally cancelable commitments at our discretion, we do not recognize an ACL.
We may, as a representative for other lenders, advance funds or provide for the issuance of letters of credit under syndicated loan or letter of credit agreements. Any advances are generally repaid in less than a week and would normally require default of both the customer and another lender to expose us to loss. The unfunded amount of these temporary advance arrangements totaled approximately $85.4 billion at September 30, 2021.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At September 30, 2021, and December 31, 2020, we had $1.5 billion and $1.3 billion, respectively, of outstanding issued commercial letters of credit. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility for different purposes in one of several forms, including a standby letter of credit. See Note 11 (Guarantees and Other Commitments) for additional information on standby letters of credit.
When we enter into commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments are not funded. We manage the potential risk in commitments to lend by limiting the total amount of commitments, both by individual customer and in total, by monitoring the size and maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.
For loans and commitments to lend, we generally require collateral or a guarantee. We may require various types of collateral, including commercial and consumer real estate, autos, other short-term liquid assets such as accounts receivable or inventory and long-lived assets, such as equipment and other business assets. Collateral requirements for each loan or commitment may vary based on the loan product and our assessment of a customer’s credit risk according to the specific credit underwriting, including credit terms and structure.
The contractual amount of our unfunded credit commitments, including unissued standby and commercial letters of credit, is summarized by portfolio segment and class of financing receivable in Table 4.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 4.4: Unfunded Credit Commitments
(in millions) | Sep 30, 2021 | Dec 31, 2020 | |||||||||
Commercial: | |||||||||||
Commercial and industrial | $ | 404,260 | 378,167 | ||||||||
Real estate mortgage | 8,322 | 7,993 | |||||||||
Real estate construction | 17,932 | 15,650 | |||||||||
Total commercial | 430,514 | 401,810 | |||||||||
Consumer: | |||||||||||
Residential mortgage – first lien | 38,872 | 31,530 | |||||||||
Residential mortgage – junior lien | 28,917 | 32,820 | |||||||||
Credit card | 128,004 | 121,096 | |||||||||
Other consumer | 56,389 | 49,179 | |||||||||
Total consumer | 252,182 | 234,625 | |||||||||
Total unfunded credit commitments | $ | 682,696 | 636,435 |
80 | Wells Fargo & Company |
Allowance for Credit Losses
Table 4.5 presents the allowance for credit losses (ACL) for loans, which consists of the allowance for loan losses and the allowance
for unfunded credit commitments. The ACL for loans decreased $5.0 billion from December 31, 2020, due to improvements in current and forecasted economic conditions.
Table 4.5: Allowance for Credit Losses for Loans
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
($ in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Balance, beginning of period | $ | 16,391 | 20,436 | 19,713 | 10,456 | ||||||||||||||||||
Cumulative effect from change in accounting policies (1) | — | — | — | (1,337) | |||||||||||||||||||
Allowance for purchased credit-deteriorated (PCD) loans (2) | — | — | — | 8 | |||||||||||||||||||
Balance, beginning of period, adjusted | 16,391 | 20,436 | 19,713 | 9,127 | |||||||||||||||||||
Provision for credit losses | (1,387) | 751 | (3,743) | 14,149 | |||||||||||||||||||
Interest income on certain impaired loans (3) | (35) | (41) | (112) | (117) | |||||||||||||||||||
Loan charge-offs: | |||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||
Commercial and industrial | (144) | (327) | (452) | (1,260) | |||||||||||||||||||
Real estate mortgage | (5) | (59) | (68) | (134) | |||||||||||||||||||
Real estate construction | (1) | — | (1) | — | |||||||||||||||||||
Lease financing | (7) | (34) | (38) | (66) | |||||||||||||||||||
Total commercial | (157) | (420) | (559) | (1,460) | |||||||||||||||||||
Consumer: | |||||||||||||||||||||||
Residential mortgage – first lien | (10) | (20) | (33) | (63) | |||||||||||||||||||
Residential mortgage – junior lien | (15) | (22) | (46) | (70) | |||||||||||||||||||
Credit card | (258) | (339) | (950) | (1,225) | |||||||||||||||||||
Auto | (107) | (99) | (364) | (413) | |||||||||||||||||||
Other consumer | (107) | (94) | (333) | (372) | |||||||||||||||||||
Total consumer | (497) | (574) | (1,726) | (2,143) | |||||||||||||||||||
Total loan charge-offs | (654) | (994) | (2,285) | (3,603) | |||||||||||||||||||
Loan recoveries: | |||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||
Commercial and industrial | 98 | 53 | 237 | 132 | |||||||||||||||||||
Real estate mortgage | 15 | 3 | 37 | 13 | |||||||||||||||||||
Real estate construction | — | 2 | 1 | 19 | |||||||||||||||||||
Lease financing | 6 | 6 | 17 | 14 | |||||||||||||||||||
Total commercial | 119 | 64 | 292 | 178 | |||||||||||||||||||
Consumer: | |||||||||||||||||||||||
Residential mortgage – first lien | 24 | 21 | 90 | 65 | |||||||||||||||||||
Residential mortgage – junior lien | 43 | 36 | 124 | 101 | |||||||||||||||||||
Credit card | 100 | 94 | 300 | 276 | |||||||||||||||||||
Auto | 81 | 68 | 241 | 194 | |||||||||||||||||||
Other consumer | 28 | 28 | 85 | 84 | |||||||||||||||||||
Total consumer | 276 | 247 | 840 | 720 | |||||||||||||||||||
Total loan recoveries | 395 | 311 | 1,132 | 898 | |||||||||||||||||||
Net loan charge-offs | (259) | (683) | (1,153) | (2,705) | |||||||||||||||||||
Other | (5) | 8 | — | 17 | |||||||||||||||||||
Balance, end of period | $ | 14,705 | 20,471 | 14,705 | 20,471 | ||||||||||||||||||
Components: | |||||||||||||||||||||||
Allowance for loan losses | $ | 13,517 | 19,463 | 13,517 | 19,463 | ||||||||||||||||||
Allowance for unfunded credit commitments | 1,188 | 1,008 | 1,188 | 1,008 | |||||||||||||||||||
Allowance for credit losses | $ | 14,705 | 20,471 | 14,705 | 20,471 | ||||||||||||||||||
Net loan charge-offs (annualized) as a percentage of average total loans | 0.12 | % | 0.29 | 0.18 | 0.38 | ||||||||||||||||||
Allowance for loan losses as a percentage of total loans | 1.57 | 2.12 | 1.57 | 2.12 | |||||||||||||||||||
Allowance for credit losses for loans as a percentage of total loans | 1.70 | 2.22 | 1.70 | 2.22 |
(1)Represents the overall decrease in our ACL for loans as a result of our adoption of CECL on January 1, 2020.
(2)Represents the allowance estimated for purchased credit-impaired (PCI) loans that automatically became PCD loans with the adoption of CECL. For additional information, see Note 1 (Summary of Significant Accounting Policies) in our 2020 Form 10-K.
(3)Loans with an allowance measured by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.
Wells Fargo & Company | 81 |
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 4.6 summarizes the activity in the ACL by our commercial and consumer portfolio segments.
Table 4.6: Allowance for Credit Losses for Loans Activity by Portfolio Segment
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(in millions) | Commercial | Consumer | Total | Commercial | Consumer | Total | |||||||||||||||||||||||||||||
Quarter ended September 30, | |||||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 9,570 | 6,821 | 16,391 | 11,669 | 8,767 | 20,436 | ||||||||||||||||||||||||||||
Provision for credit losses | (949) | (438) | (1,387) | 241 | 510 | 751 | |||||||||||||||||||||||||||||
Interest income on certain loans (1) | (13) | (22) | (35) | (18) | (23) | (41) | |||||||||||||||||||||||||||||
Loan charge-offs | (157) | (497) | (654) | (420) | (574) | (994) | |||||||||||||||||||||||||||||
Loan recoveries | 119 | 276 | 395 | 64 | 247 | 311 | |||||||||||||||||||||||||||||
Net loan charge-offs | (38) | (221) | (259) | (356) | (327) | (683) | |||||||||||||||||||||||||||||
Other | (5) | — | (5) | 6 | 2 | 8 | |||||||||||||||||||||||||||||
Balance, end of period | $ | 8,565 | 6,140 | 14,705 | 11,542 | 8,929 | 20,471 | ||||||||||||||||||||||||||||
Nine months ended September 30, | |||||||||||||||||||||||||||||||||||
Balance, beginning of period | $ | 11,516 | 8,197 | 19,713 | 6,245 | 4,211 | 10,456 | ||||||||||||||||||||||||||||
Cumulative effect from change in accounting policies (2) | — | — | — | (2,861) | 1,524 | (1,337) | |||||||||||||||||||||||||||||
Allowance for purchased credit-deteriorated (PCD) loans (3) | — | — | — | — | 8 | 8 | |||||||||||||||||||||||||||||
Balance, beginning of period, adjusted | 11,516 | 8,197 | 19,713 | 3,384 | 5,743 | 9,127 | |||||||||||||||||||||||||||||
Provision for credit losses | (2,637) | (1,106) | (3,743) | 9,480 | 4,669 | 14,149 | |||||||||||||||||||||||||||||
Interest income on certain loans (1) | (47) | (65) | (112) | (44) | (73) | (117) | |||||||||||||||||||||||||||||
Loan charge-offs | (559) | (1,726) | (2,285) | (1,460) | (2,143) | (3,603) | |||||||||||||||||||||||||||||
Loan recoveries | 292 | 840 | 1,132 | 178 | 720 | 898 | |||||||||||||||||||||||||||||
Net loan charge-offs | (267) | (886) | (1,153) | (1,282) | (1,423) | (2,705) | |||||||||||||||||||||||||||||
Other | — | — | — | 4 | 13 | 17 | |||||||||||||||||||||||||||||
Balance, end of period | $ | 8,565 | 6,140 | 14,705 | 11,542 | 8,929 | 20,471 | ||||||||||||||||||||||||||||
(1)Loans with an allowance measured by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.
(2)Represents the overall decrease in our ACL for loans as a result of our adoption of CECL on January 1, 2020.
(3)Represents the allowance estimated for PCI loans that automatically became PCD loans with the adoption of CECL. For additional information, see Note 1 (Summary of Significant Accounting Policies) in our 2020 Form 10-K.
82 | Wells Fargo & Company |
Credit Quality
We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the ACL for loans. The following sections provide the credit quality indicators we most closely monitor. The credit quality indicators are generally based on information as of our financial statement date, with the exception of updated Fair Isaac Corporation (FICO) scores and updated loan-to-value (LTV)/combined LTV (CLTV). We obtain FICO scores at loan origination and the scores are generally updated at least quarterly, except in limited circumstances, including compliance with the Fair Credit Reporting Act (FCRA). Generally, the LTV and CLTV indicators are updated in the second month of each quarter, with updates no older than June 30, 2021.
COMMERCIAL CREDIT QUALITY INDICATORS We manage a consistent process for assessing commercial loan credit quality.
Commercial loans are generally subject to individual risk assessment using our internal borrower and collateral quality ratings, which is our primary credit quality indicator. Our ratings are aligned to regulatory definitions of pass and criticized categories with the criticized segmented among special mention, substandard, doubtful and loss categories.
Table 4.7 provides the outstanding balances of our commercial loan portfolio by risk category. Credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified in a troubled debt restructuring (TDR). At September 30, 2021, we had $453.9 billion and $31.1 billion of pass and criticized commercial loans, respectively.
Table 4.7: Commercial Loan Categories by Risk Categories and Vintage
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 49,829 | 19,105 | 24,674 | 8,883 | 4,594 | 13,466 | 193,037 | 606 | 314,194 | |||||||||||||||||||||||||||||||||||||||||||
Criticized | 684 | 1,103 | 1,129 | 1,215 | 696 | 922 | 6,463 | 19 | 12,231 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial and industrial | 50,513 | 20,208 | 25,803 | 10,098 | 5,290 | 14,388 | 199,500 | 625 | 326,425 | ||||||||||||||||||||||||||||||||||||||||||||
Real estate mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | 23,100 | 18,119 | 20,763 | 13,879 | 8,351 | 17,837 | 4,685 | 3 | 106,737 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized | 2,314 | 2,140 | 3,267 | 2,389 | 1,115 | 3,516 | 507 | — | 15,248 | ||||||||||||||||||||||||||||||||||||||||||||
Total real estate mortgage | 25,414 | 20,259 | 24,030 | 16,268 | 9,466 | 21,353 | 5,192 | 3 | 121,985 | ||||||||||||||||||||||||||||||||||||||||||||
Real estate construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | 4,057 | 4,404 | 5,572 | 2,739 | 579 | 344 | 1,097 | 2 | 18,794 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized | 609 | 282 | 653 | 349 | 434 | 8 | — | — | 2,335 | ||||||||||||||||||||||||||||||||||||||||||||
Total real estate construction | 4,666 | 4,686 | 6,225 | 3,088 | 1,013 | 352 | 1,097 | 2 | 21,129 | ||||||||||||||||||||||||||||||||||||||||||||
Lease financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | 3,163 | 3,275 | 2,860 | 1,557 | 985 | 2,292 | — | — | 14,132 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized | 214 | 264 | 329 | 230 | 106 | 123 | — | — | 1,266 | ||||||||||||||||||||||||||||||||||||||||||||
Total lease financing | 3,377 | 3,539 | 3,189 | 1,787 | 1,091 | 2,415 | — | — | 15,398 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial loans | $ | 83,970 | 48,692 | 59,247 | 31,241 | 16,860 | 38,508 | 205,789 | 630 | 484,937 | |||||||||||||||||||||||||||||||||||||||||||
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | Prior | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 56,915 | 34,040 | 15,936 | 7,274 | 4,048 | 4,738 | 177,107 | 997 | 301,055 | |||||||||||||||||||||||||||||||||||||||||||
Criticized | 1,404 | 1,327 | 1,357 | 972 | 672 | 333 | 11,534 | 151 | 17,750 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial and industrial | 58,319 | 35,367 | 17,293 | 8,246 | 4,720 | 5,071 | 188,641 | 1,148 | 318,805 | ||||||||||||||||||||||||||||||||||||||||||||
Real estate mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | 22,444 | 26,114 | 18,679 | 11,113 | 11,582 | 14,663 | 5,152 | 6 | 109,753 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized | 2,133 | 2,544 | 1,817 | 1,287 | 1,625 | 2,082 | 479 | — | 11,967 | ||||||||||||||||||||||||||||||||||||||||||||
Total real estate mortgage | 24,577 | 28,658 | 20,496 | 12,400 | 13,207 | 16,745 | 5,631 | 6 | 121,720 | ||||||||||||||||||||||||||||||||||||||||||||
Real estate construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | 5,242 | 6,574 | 4,771 | 1,736 | 477 | 235 | 1,212 | 3 | 20,250 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized | 449 | 452 | 527 | 4 | 113 | 10 | — | — | 1,555 | ||||||||||||||||||||||||||||||||||||||||||||
Total real estate construction | 5,691 | 7,026 | 5,298 | 1,740 | 590 | 245 | 1,212 | 3 | 21,805 | ||||||||||||||||||||||||||||||||||||||||||||
Lease financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass | 3,970 | 3,851 | 2,176 | 1,464 | 1,199 | 1,924 | — | — | 14,584 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized | 308 | 433 | 372 | 197 | 108 | 85 | — | — | 1,503 | ||||||||||||||||||||||||||||||||||||||||||||
Total lease financing | 4,278 | 4,284 | 2,548 | 1,661 | 1,307 | 2,009 | — | — | 16,087 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial loans | $ | 92,865 | 75,335 | 45,635 | 24,047 | 19,824 | 24,070 | 195,484 | 1,157 | 478,417 |
Wells Fargo & Company | 83 |
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 4.8 provides past due information for commercial loans, which we monitor as part of our credit risk management practices; however, delinquency is not a primary credit quality indicator for commercial loans. Payment deferral activities
instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies for customers who otherwise would have moved into past due status.
Table 4.8: Commercial Loan Categories by Delinquency Status
(in millions) | Commercial and industrial | Real estate mortgage | Real estate construction | Lease financing | Total | ||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||
Current-29 days past due (DPD) and still accruing | $ | 324,702 | 120,112 | 21,079 | 15,067 | 480,960 | |||||||||||||||||||||||
30-89 DPD and still accruing | 403 | 260 | 30 | 143 | 836 | ||||||||||||||||||||||||
90+ DPD and still accruing | 46 | 75 | — | — | 121 | ||||||||||||||||||||||||
Nonaccrual loans | 1,274 | 1,538 | 20 | 188 | 3,020 | ||||||||||||||||||||||||
Total commercial loans | $ | 326,425 | 121,985 | 21,129 | 15,398 | 484,937 | |||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||
Current-29 DPD and still accruing | $ | 315,493 | 119,561 | 21,532 | 15,595 | 472,181 | |||||||||||||||||||||||
30-89 DPD and still accruing | 575 | 347 | 224 | 233 | 1,379 | ||||||||||||||||||||||||
90+ DPD and still accruing | 39 | 38 | 1 | — | 78 | ||||||||||||||||||||||||
Nonaccrual loans | 2,698 | 1,774 | 48 | 259 | 4,779 | ||||||||||||||||||||||||
Total commercial loans | $ | 318,805 | 121,720 | 21,805 | 16,087 | 478,417 |
CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique credit risks. Loan delinquency, FICO credit scores and LTV for residential mortgage loans are the primary credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the ACL for the consumer loan portfolio segment.
Many of our loss estimation techniques used for the ACL for loans rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our ACL for consumer loans.
Table 4.9 provides the outstanding balances of our consumer loan portfolio by delinquency status. Payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies for customers who otherwise would have moved into past due status.
Credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified in a TDR. The revolving loans converted to term loans in the credit card loan category represent credit card loans with modified terms that require payment over a specific term.
84 | Wells Fargo & Company |
Table 4.9: Consumer Loan Categories by Delinquency Status and Vintage
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | $ | 50,157 | 44,546 | 28,298 | 8,767 | 15,531 | 68,415 | 5,622 | 1,570 | 222,906 | |||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | 66 | 30 | 41 | 15 | 27 | 524 | 16 | 27 | 746 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | 1 | 8 | 2 | 4 | 6 | 161 | 6 | 15 | 203 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | — | 10 | 1 | 1 | 5 | 57 | 3 | 11 | 88 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | 1 | 17 | 5 | 2 | 2 | 70 | 7 | 20 | 124 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | 136 | 24 | 31 | 44 | 972 | 86 | 230 | 1,523 | ||||||||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed loans (1) | 5 | 170 | 295 | 466 | 516 | 15,893 | — | — | 17,345 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – first lien | 50,230 | 44,917 | 28,666 | 9,286 | 16,131 | 86,092 | 5,740 | 1,873 | 242,935 | ||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | 20 | 21 | 33 | 29 | 24 | 813 | 11,906 | 4,393 | 17,239 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | — | — | — | — | — | 15 | 27 | 41 | 83 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | — | — | — | — | — | 6 | 11 | 22 | 39 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | — | — | — | 1 | — | 3 | 8 | 16 | 28 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | 1 | — | — | 5 | 15 | 26 | 47 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | 35 | 168 | 387 | 590 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – junior lien | 20 | 21 | 34 | 30 | 24 | 877 | 12,135 | 4,885 | 18,026 | ||||||||||||||||||||||||||||||||||||||||||||
Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | — | — | — | — | — | — | 35,347 | 208 | 35,555 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | — | — | — | — | — | — | 156 | 7 | 163 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | — | — | — | — | — | — | 100 | 6 | 106 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | — | — | — | — | — | — | 86 | 6 | 92 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | — | — | — | — | 144 | 1 | 145 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total credit cards | — | — | — | — | — | — | 35,833 | 228 | 36,061 | ||||||||||||||||||||||||||||||||||||||||||||
Auto | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | 22,161 | 14,105 | 9,816 | 3,914 | 1,829 | 1,123 | — | — | 52,948 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | 103 | 165 | 151 | 78 | 48 | 69 | — | — | 614 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | 28 | 54 | 48 | 24 | 14 | 23 | — | — | 191 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | 11 | 22 | 18 | 9 | 5 | 8 | — | — | 73 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | 1 | — | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total auto | 22,303 | 14,346 | 10,034 | 4,025 | 1,896 | 1,223 | — | — | 53,827 | ||||||||||||||||||||||||||||||||||||||||||||
Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | 1,581 | 853 | 841 | 262 | 129 | 146 | 23,017 | 138 | 26,967 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | 2 | 2 | 3 | 2 | 1 | 2 | 13 | 3 | 28 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | 1 | 1 | 2 | 1 | — | 1 | 5 | 1 | 12 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | — | 1 | 2 | 1 | — | 1 | 4 | 1 | 10 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | — | — | — | — | 6 | 2 | 8 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | 1 | 5 | 10 | 16 | ||||||||||||||||||||||||||||||||||||||||||||
Total other consumer | 1,584 | 857 | 848 | 266 | 130 | 151 | 23,050 | 155 | 27,041 | ||||||||||||||||||||||||||||||||||||||||||||
Total consumer loans | $ | 74,137 | 60,141 | 39,582 | 13,607 | 18,181 | 88,343 | 76,758 | 7,141 | 377,890 | |||||||||||||||||||||||||||||||||||||||||||
(continued on following page)
Wells Fargo & Company | 85 |
Note 4: Loans and Related Allowance for Credit Losses (continued)
(continued from previous page)
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | $ | 53,298 | 43,297 | 14,761 | 24,619 | 30,533 | 67,960 | 6,762 | 1,719 | 242,949 | |||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | 111 | 76 | 36 | 67 | 79 | 750 | 52 | 66 | 1,237 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | 88 | 10 | 6 | 12 | 13 | 305 | 56 | 68 | 558 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | 232 | 11 | 5 | 8 | 7 | 197 | 26 | 33 | 519 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | 3 | 4 | 1 | 3 | 5 | 151 | 17 | 29 | 213 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | 3 | 1 | 4 | 11 | 15 | 758 | 21 | 145 | 958 | ||||||||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed loans (1) | 215 | 639 | 904 | 1,076 | 2,367 | 25,039 | — | — | 30,240 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – first lien | 53,950 | 44,038 | 15,717 | 25,796 | 33,019 | 95,160 | 6,934 | 2,060 | 276,674 | ||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | 22 | 39 | 39 | 37 | 31 | 1,115 | 15,366 | 5,434 | 22,083 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | — | — | 1 | 1 | — | 22 | 113 | 160 | 297 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | — | — | 1 | — | — | 11 | 154 | 271 | 437 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | — | — | — | 1 | — | 7 | 45 | 84 | 137 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | — | — | — | 9 | 36 | 77 | 122 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | 1 | 25 | 29 | 155 | 210 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – junior lien | 22 | 39 | 41 | 39 | 32 | 1,189 | 15,743 | 6,181 | 23,286 | ||||||||||||||||||||||||||||||||||||||||||||
Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | — | — | — | — | — | — | 35,612 | 255 | 35,867 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | — | — | — | — | — | — | 243 | 12 | 255 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | — | — | — | — | — | — | 167 | 10 | 177 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | — | — | — | — | — | — | 144 | 10 | 154 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | — | — | — | — | 208 | 3 | 211 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total credit cards | — | — | — | — | — | — | 36,374 | 290 | 36,664 | ||||||||||||||||||||||||||||||||||||||||||||
Auto | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | 19,625 | 14,561 | 6,307 | 3,459 | 2,603 | 697 | — | — | 47,252 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | 120 | 183 | 114 | 80 | 107 | 46 | — | — | 650 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | 32 | 60 | 36 | 25 | 35 | 16 | — | — | 204 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | 13 | 26 | 14 | 9 | 12 | 6 | — | — | 80 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | 1 | — | — | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total auto | 19,790 | 14,831 | 6,471 | 3,573 | 2,757 | 765 | — | — | 48,187 | ||||||||||||||||||||||||||||||||||||||||||||
Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By delinquency status: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Current-29 DPD | 1,406 | 1,383 | 577 | 261 | 59 | 193 | 20,246 | 162 | 24,287 | ||||||||||||||||||||||||||||||||||||||||||||
30-59 DPD | 2 | 7 | 5 | 2 | 1 | 3 | 19 | 10 | 49 | ||||||||||||||||||||||||||||||||||||||||||||
60-89 DPD | 1 | 5 | 3 | 1 | 1 | 1 | 10 | 6 | 28 | ||||||||||||||||||||||||||||||||||||||||||||
90-119 DPD | 1 | 4 | 2 | 1 | — | 1 | 8 | 3 | 20 | ||||||||||||||||||||||||||||||||||||||||||||
120-179 DPD | — | — | — | — | — | — | 10 | 4 | 14 | ||||||||||||||||||||||||||||||||||||||||||||
180+ DPD | — | — | — | — | — | 2 | 3 | 6 | 11 | ||||||||||||||||||||||||||||||||||||||||||||
Total other consumer | 1,410 | 1,399 | 587 | 265 | 61 | 200 | 20,296 | 191 | 24,409 | ||||||||||||||||||||||||||||||||||||||||||||
Total consumer loans | $ | 75,172 | 60,307 | 22,816 | 29,673 | 35,869 | 97,314 | 79,347 | 8,722 | 409,220 | |||||||||||||||||||||||||||||||||||||||||||
(1)Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $6.7 billion and $11.1 billion at September 30, 2021, and December 31, 2020, respectively.
Of the $2.7 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at September 30, 2021, $394 million was accruing, compared with
$2.7 billion past due and $612 million accruing at December 31, 2020.
86 | Wells Fargo & Company |
Table 4.10 provides the outstanding balances of our consumer loan portfolio by FICO score. Substantially all of the scored consumer portfolio has an updated FICO score of 680 and above, reflecting a strong current borrower credit profile. FICO scores are not available for certain loan types or may not be required if we deem it unnecessary due to strong collateral and
other borrower attributes. Loans not requiring a FICO score totaled $17.3 billion and $13.2 billion at September 30, 2021, and December 31, 2020, respectively. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage.
Table 4.10: Consumer Loan Categories by FICO and Vintage
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By FICO: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | $ | 24,509 | 28,900 | 18,666 | 5,804 | 10,712 | 41,687 | 2,792 | 442 | 133,512 | |||||||||||||||||||||||||||||||||||||||||||
760-799 | 17,997 | 10,795 | 6,279 | 1,731 | 2,801 | 11,710 | 1,137 | 249 | 52,699 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | 5,792 | 3,649 | 2,243 | 749 | 1,303 | 6,941 | 707 | 231 | 21,615 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | 1,425 | 933 | 773 | 318 | 478 | 3,874 | 442 | 207 | 8,450 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | 350 | 271 | 210 | 100 | 151 | 1,965 | 204 | 143 | 3,394 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | 69 | 49 | 70 | 40 | 39 | 1,093 | 108 | 87 | 1,555 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | 4 | 18 | 26 | 15 | 41 | 1,229 | 123 | 132 | 1,588 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 79 | 132 | 104 | 63 | 90 | 1,700 | 227 | 382 | 2,777 | ||||||||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed loans (1) | 5 | 170 | 295 | 466 | 516 | 15,893 | — | — | 17,345 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – first lien | 50,230 | 44,917 | 28,666 | 9,286 | 16,131 | 86,092 | 5,740 | 1,873 | 242,935 | ||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | — | — | — | — | — | 214 | 6,095 | 1,484 | 7,793 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | — | — | — | — | — | 128 | 2,381 | 833 | 3,342 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | — | — | — | — | — | 149 | 1,626 | 824 | 2,599 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | — | — | — | — | — | 131 | 944 | 656 | 1,731 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | — | — | — | — | — | 74 | 361 | 368 | 803 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | — | — | — | — | — | 49 | 180 | 211 | 440 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | — | — | — | — | — | 49 | 178 | 246 | 473 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 20 | 21 | 34 | 30 | 24 | 83 | 370 | 263 | 845 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – junior lien | 20 | 21 | 34 | 30 | 24 | 877 | 12,135 | 4,885 | 18,026 | ||||||||||||||||||||||||||||||||||||||||||||
Credit card | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | — | — | — | — | — | — | 4,063 | 1 | 4,064 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | — | — | — | — | — | — | 5,629 | 8 | 5,637 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | — | — | — | — | — | — | 7,960 | 28 | 7,988 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | — | — | — | — | — | — | 8,660 | 53 | 8,713 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | — | — | — | — | — | — | 5,433 | 52 | 5,485 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | — | — | — | — | — | — | 2,085 | 34 | 2,119 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | — | — | — | — | — | — | 1,873 | 51 | 1,924 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | — | — | — | — | — | — | 130 | 1 | 131 | ||||||||||||||||||||||||||||||||||||||||||||
Total credit card | — | — | — | — | — | — | 35,833 | 228 | 36,061 | ||||||||||||||||||||||||||||||||||||||||||||
Auto | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | 3,612 | 2,142 | 1,899 | 803 | 403 | 173 | — | — | 9,032 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | 3,721 | 2,393 | 1,840 | 705 | 304 | 140 | — | — | 9,103 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | 3,642 | 2,386 | 1,741 | 697 | 309 | 166 | — | — | 8,941 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | 3,814 | 2,602 | 1,681 | 639 | 280 | 173 | — | — | 9,189 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | 3,507 | 2,150 | 1,195 | 442 | 203 | 151 | — | — | 7,648 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | 2,349 | 1,319 | 720 | 285 | 146 | 136 | — | — | 4,955 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | 1,652 | 1,322 | 954 | 443 | 241 | 270 | — | — | 4,882 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 6 | 32 | 4 | 11 | 10 | 14 | — | — | 77 | ||||||||||||||||||||||||||||||||||||||||||||
Total auto | 22,303 | 14,346 | 10,034 | 4,025 | 1,896 | 1,223 | — | — | 53,827 | ||||||||||||||||||||||||||||||||||||||||||||
Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | 375 | 201 | 165 | 44 | 12 | 52 | 1,583 | 15 | 2,447 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | 392 | 185 | 144 | 44 | 11 | 25 | 909 | 21 | 1,731 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | 321 | 156 | 143 | 50 | 14 | 21 | 787 | 21 | 1,513 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | 221 | 110 | 121 | 49 | 13 | 18 | 651 | 25 | 1,208 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | 100 | 48 | 65 | 27 | 8 | 9 | 347 | 17 | 621 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | 23 | 14 | 21 | 11 | 4 | 6 | 124 | 11 | 214 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | 9 | 12 | 24 | 13 | 4 | 6 | 118 | 12 | 198 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 143 | 131 | 165 | 28 | 64 | 14 | 1,236 | 33 | 1,814 | ||||||||||||||||||||||||||||||||||||||||||||
FICO not required | — | — | — | — | — | — | 17,295 | — | 17,295 | ||||||||||||||||||||||||||||||||||||||||||||
Total other consumer | 1,584 | 857 | 848 | 266 | 130 | 151 | 23,050 | 155 | 27,041 | ||||||||||||||||||||||||||||||||||||||||||||
Total consumer loans | $ | 74,137 | 60,141 | 39,582 | 13,607 | 18,181 | 88,343 | 76,758 | 7,141 | 377,890 |
(continued on following page)
Wells Fargo & Company | 87 |
Note 4: Loans and Related Allowance for Credit Losses (continued)
(continued from previous page)
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By FICO: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | $ | 29,365 | 28,652 | 9,911 | 17,416 | 22,215 | 40,440 | 3,391 | 493 | 151,883 | |||||||||||||||||||||||||||||||||||||||||||
760-799 | 17,154 | 9,866 | 2,908 | 4,380 | 4,955 | 10,843 | 1,361 | 274 | 51,741 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | 5,274 | 3,290 | 1,189 | 1,829 | 2,106 | 7,001 | 879 | 265 | 21,833 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | 1,361 | 1,084 | 490 | 678 | 831 | 4,403 | 520 | 221 | 9,588 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | 376 | 287 | 148 | 192 | 226 | 2,385 | 241 | 154 | 4,009 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | 55 | 56 | 44 | 56 | 92 | 1,429 | 127 | 106 | 1,965 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | 14 | 29 | 36 | 44 | 66 | 1,789 | 162 | 175 | 2,315 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 136 | 135 | 87 | 125 | 161 | 1,831 | 253 | 372 | 3,100 | ||||||||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed loans (1) | 215 | 639 | 904 | 1,076 | 2,367 | 25,039 | — | — | 30,240 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – first lien | 53,950 | 44,038 | 15,717 | 25,796 | 33,019 | 95,160 | 6,934 | 2,060 | 276,674 | ||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | — | — | — | — | — | 293 | 7,973 | 1,819 | 10,085 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | — | — | — | — | — | 177 | 3,005 | 1,032 | 4,214 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | — | — | — | — | — | 207 | 2,093 | 1,034 | 3,334 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | — | — | — | — | — | 183 | 1,233 | 854 | 2,270 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | — | — | — | — | — | 103 | 503 | 493 | 1,099 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | — | — | — | — | — | 67 | 241 | 299 | 607 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | — | — | — | — | — | 76 | 254 | 374 | 704 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 22 | 39 | 41 | 39 | 32 | 83 | 441 | 276 | 973 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – junior lien | 22 | 39 | 41 | 39 | 32 | 1,189 | 15,743 | 6,181 | 23,286 | ||||||||||||||||||||||||||||||||||||||||||||
Credit card | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | — | — | — | — | — | — | 3,860 | 1 | 3,861 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | — | — | — | — | — | — | 5,438 | 7 | 5,445 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | — | — | — | — | — | — | 7,897 | 29 | 7,926 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | — | — | — | — | — | — | 8,854 | 60 | 8,914 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | — | — | — | — | — | — | 5,657 | 64 | 5,721 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | — | — | — | — | — | — | 2,242 | 46 | 2,288 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | — | — | — | — | — | — | 2,416 | 82 | 2,498 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | — | — | — | — | — | — | 10 | 1 | 11 | ||||||||||||||||||||||||||||||||||||||||||||
Total credit card | — | — | — | — | — | — | 36,374 | 290 | 36,664 | ||||||||||||||||||||||||||||||||||||||||||||
Auto | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | 2,875 | 2,606 | 1,211 | 731 | 452 | 104 | — | — | 7,979 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | 3,036 | 2,662 | 1,122 | 579 | 349 | 81 | — | — | 7,829 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | 3,162 | 2,514 | 1,095 | 576 | 395 | 98 | — | — | 7,840 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | 3,534 | 2,542 | 1,066 | 545 | 400 | 105 | — | — | 8,192 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | 3,381 | 1,948 | 763 | 395 | 334 | 94 | — | — | 6,915 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | 2,208 | 1,165 | 479 | 274 | 276 | 87 | — | — | 4,489 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | 1,581 | 1,357 | 730 | 463 | 533 | 186 | — | — | 4,850 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 13 | 37 | 5 | 10 | 18 | 10 | — | — | 93 | ||||||||||||||||||||||||||||||||||||||||||||
Total auto | 19,790 | 14,831 | 6,471 | 3,573 | 2,757 | 765 | — | — | 48,187 | ||||||||||||||||||||||||||||||||||||||||||||
Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
800+ | 353 | 287 | 94 | 35 | 10 | 71 | 2,249 | 21 | 3,120 | ||||||||||||||||||||||||||||||||||||||||||||
760-799 | 342 | 279 | 93 | 29 | 10 | 34 | 1,110 | 16 | 1,913 | ||||||||||||||||||||||||||||||||||||||||||||
720-759 | 262 | 258 | 107 | 35 | 11 | 30 | 915 | 26 | 1,644 | ||||||||||||||||||||||||||||||||||||||||||||
680-719 | 156 | 213 | 99 | 36 | 11 | 24 | 798 | 31 | 1,368 | ||||||||||||||||||||||||||||||||||||||||||||
640-679 | 71 | 112 | 59 | 21 | 7 | 10 | 415 | 23 | 718 | ||||||||||||||||||||||||||||||||||||||||||||
600-639 | 18 | 36 | 22 | 9 | 4 | 8 | 151 | 13 | 261 | ||||||||||||||||||||||||||||||||||||||||||||
< 600 | 13 | 41 | 30 | 12 | 5 | 7 | 161 | 18 | 287 | ||||||||||||||||||||||||||||||||||||||||||||
No FICO available | 195 | 173 | 83 | 88 | 3 | 16 | 1,248 | 43 | 1,849 | ||||||||||||||||||||||||||||||||||||||||||||
FICO not required | — | — | — | — | — | — | 13,249 | — | 13,249 | ||||||||||||||||||||||||||||||||||||||||||||
Total other consumer | 1,410 | 1,399 | 587 | 265 | 61 | 200 | 20,296 | 191 | 24,409 | ||||||||||||||||||||||||||||||||||||||||||||
Total consumer loans | $ | 75,172 | 60,307 | 22,816 | 29,673 | 35,869 | 97,314 | 79,347 | 8,722 | 409,220 |
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. CLTV refers to the combination of first lien mortgage and junior lien mortgage (including unused line amounts for credit line products) ratios. LTVs and CLTVs are updated quarterly using a cascade approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the
value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties.
88 | Wells Fargo & Company |
Table 4.11 shows the most updated LTV and CLTV distribution of the residential mortgage – first lien and residential mortgage – junior lien loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our ACL. In the event of a default, any loss should be
limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.
Table 4.11: Consumer Loan Categories by LTV/CLTV and Vintage
Term loans by origination year | Revolving loans | Revolving loans converted to term loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | ||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – first lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By LTV: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
0-60% | $ | 17,470 | 21,545 | 16,381 | 5,544 | 11,914 | 62,715 | 4,558 | 1,586 | 141,713 | |||||||||||||||||||||||||||||||||||||||||||
60.01-80% | 32,587 | 22,365 | 11,153 | 2,967 | 3,407 | 6,618 | 848 | 208 | 80,153 | ||||||||||||||||||||||||||||||||||||||||||||
80.01-100% | 98 | 695 | 724 | 250 | 237 | 520 | 218 | 51 | 2,793 | ||||||||||||||||||||||||||||||||||||||||||||
100.01-120% (1) | 2 | 31 | 27 | 5 | 9 | 58 | 47 | 13 | 192 | ||||||||||||||||||||||||||||||||||||||||||||
> 120% (1) | 3 | 12 | 13 | 6 | 3 | 42 | 19 | 4 | 102 | ||||||||||||||||||||||||||||||||||||||||||||
No LTV available | 65 | 99 | 73 | 48 | 45 | 246 | 50 | 11 | 637 | ||||||||||||||||||||||||||||||||||||||||||||
Government insured/guaranteed loans (2) | 5 | 170 | 295 | 466 | 516 | 15,893 | — | — | 17,345 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage – first lien | 50,230 | 44,917 | 28,666 | 9,286 | 16,131 | 86,092 | 5,740 | 1,873 | 242,935 | ||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage – junior lien | |||||||||||||||||||||||||||||||||||||||||||||||||||||
By CLTV: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
0-60% | — | — | — | — | — | 509 | 8,319 | 3,543 | 12,371 | ||||||||||||||||||||||||||||||||||||||||||||
60.01-80% | — | — | — | — | — | 212 | 2,865 | 950 | 4,027 | ||||||||||||||||||||||||||||||||||||||||||||
80.01-100% | — | — | — | — | — | 79 | 735 | 2 |