WFC Wells Fargo 10-K 2023-12-31 section summaries

Business overview

At December 31, 2023, Wells Fargo was the fourth-largest U.S. bank holding company by assets. It provided consumer and commercial banking, lending, mortgage, investment, wealth-management, and related financial services across all 50 states, Washington, D.C., and internationally. Its four reportable segments were Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management.

Wells Fargo Bank, N.A. held $1.7T, or 90%, of consolidated assets, concentrating the business in its principal bank subsidiary.

Competition and policy sensitivity

Competition is intense, coming from banks and other established financial institutions as well as online lenders, brokerage and private-equity firms, and financial-services businesses owned by commercial companies. Some competitors may have lower costs or face fewer regulatory constraints. Technological change could broaden the range of financial-services providers and diminish the role of traditional deposit-taking institutions and intermediaries.

Federal fiscal and monetary policy, particularly Federal Reserve actions affecting money and credit supply, interest rates, and reserve requirements, can materially influence loan and deposit availability, Wells Fargo’s business, results, and financial condition.

Regulation, capital and liquidity risks

Wells Fargo and its subsidiaries face extensive federal, state, and foreign oversight. Dodd-Frank and other requirements cover prudential supervision, consumer protection, proprietary-trading restrictions, capital and leverage, liquidity, risk management, stress testing, and recovery and resolution planning. Changes in laws, regulations, or their interpretation could affect earnings and costs, restrict or expand permitted activities, alter competitive conditions, or constrain diversification, acquisitions, and capital distributions.

Capital and liquidity rules include risk-based capital and leverage requirements, supplementary leverage, liquidity coverage and net stable funding ratios, stress-test and capital-planning requirements, and G-SIB surcharges and total loss-absorbing-capacity requirements. Regulators may require changes to capital levels, and future rules or interpretations could change reported capital ratios or risk-adjusted assets. Prompt corrective action may apply if an insured bank falls below capital requirements. These constraints can limit dividends and share repurchases and may require the company to hold excess capital or support subsidiaries.

The Parent’s ability to pay its debt obligations and dividends depends significantly on distributions from subsidiaries, which are subject to regulatory limits and could be restricted if capital requirements bind or regulators identify unsafe or unsound practices. A support agreement may also restrict transfers from an intermediate holding company to the Parent if specified capital or liquidity triggers are breached, or if the Parent’s board authorizes a bankruptcy filing. Such constraints could impair Parent liquidity and its ability to meet obligations or pay shareholders.

Other structural and resolution risks include:

• Transactions between subsidiary banks and affiliates are generally limited to 10% of a bank’s capital and surplus for any one affiliate and 20% in aggregate; qualifying collateral and arm’s-length terms generally apply to affiliate loans.
• The Federal Reserve expects the Parent to serve as a source of financial and managerial strength for subsidiary banks, potentially requiring support when the Parent has limited resources.
• If a national-bank subsidiary’s capital is impaired, the OCC may assess the Parent; if unpaid within three months, it may order a sale of the Parent’s stock in that bank.
• In a bank resolution, U.S. depositors and certain FDIC receiver expenses rank ahead of other general unsecured creditors, including the Parent and claims for deposits payable solely through non-U.S. offices. Insured banks under the same holding company may also be liable for FDIC losses or assistance involving commonly controlled institutions that default or are in danger of default.

Member banks fund the Deposit Insurance Fund through assessments; the FDIC’s long-range plan targets a 2% designated reserve ratio. The FDIC may terminate a bank’s deposit insurance for unsafe or unsound conditions or practices, potentially causing substantial deposit losses and materially harming liquidity and earnings, depending on the affected bank’s size. Privacy and affiliate-marketing restrictions, Sarbanes-Oxley governance, audit and internal-control obligations, and USA PATRIOT Act anti-money-laundering, sanctions, reporting, and customer-due-diligence rules add compliance requirements and costs. Further U.S. or international regulation is unpredictable and could affect costs, compensation, activities, and competition.

Workforce

At year-end 2023, Wells Fargo had approximately 226,000 active employees, 79% in the U.S. During 2023, it invested approximately $200M in employee learning and development and provided tuition reimbursement to approximately 2,600 employees. Its year-end pay-equity review found women earned more than 99 cents per dollar earned by male peers, and racially and ethnically diverse U.S. employees earned more than 99 cents per dollar earned by white peers.

Financial statements and schedules

Wells Fargo’s consolidated financial statements, accompanying notes, and independent auditor’s report are incorporated by reference from its 2023 Annual Report to Shareholders. Financial statement schedules are included in the financial statements or notes, are inapplicable, or are not required.

Notable plans and policies

The filing lists the 2022 Long-Term Incentive Plan and updated award-agreement forms for grants beginning January 23, 2024. It also includes the Wells Fargo Bonus Plan, as amended effective January 1, 2024, and the company’s Mandatory Clawback Policy, effective October 2, 2023. Other listed materials include amendments to deferred compensation and supplemental retirement plans, including amendments effective in 2023.

Signatures

The Form 10-K was signed on February 20, 2024, by Charles W. Scharf, Chief Executive Officer; Michael P. Santomassimo, Chief Financial Officer; and Muneera S. Carr, Chief Accounting Officer.

Wells Fargo — 2023 results and outlook

Consolidated results

Earnings improved substantially in 2023: revenue increased 11% and net income rose 40% from 2022, while diluted EPS increased 48%. Higher net interest income drove revenue growth; noninterest income rose more modestly. Noninterest expense declined 3%, partly because of lower operating losses, offset by higher personnel costs and the FDIC special assessment. The efficiency ratio improved to 67%.

Balance sheet

Assets rose 3%, while loans and deposits each declined 2%. Management attributed lower average deposits to Consumer Banking and Lending, Commercial Banking, and Wealth and Investment Management, partly offset by growth in Corporate and Investment Banking and Corporate. Long-term debt increased 19%.

Credit quality

Credit costs increased materially: provision for credit losses rose to $5.399B, and net charge-offs more than doubled. Commercial losses were driven primarily by office commercial real estate (CRE); consumer losses were concentrated in credit cards. NPAs increased 47%, or $2.7B, mainly because of CRE office nonaccruals, and equaled 0.90% of total loans. Criticized commercial loans increased, led by office and apartment CRE. The loan allowance rose $1.479B during the year.

Capital, liquidity and returns

The company’s binding capital measure, standardized CET1, remained above its stated regulatory minimum plus buffers; TLAC and liquidity coverage also exceeded their minimums. Wells Fargo expected the proposed Basel III capital rule to significantly increase risk-weighted assets and raise capital requirements on a net basis, and said it could respond through balance-sheet and capital optimization.

Regulatory remediation, costs and risks

Strengthening risk management and control infrastructure remains a top priority and is expected to take multiple years. The Federal Reserve’s 2018 consent order and asset cap remain in place pending completion of required enhancements and third-party reviews; the cap limits consolidated assets to the level defined as of December 31, 2017. The company cautioned that delays, repeat issues or new findings could result in further regulatory action, fines, business restrictions, limits on capital distributions, or higher capital and liquidity requirements.

The 2018 CFPB/OCC orders included $1B in civil penalties, and the OCC imposed an additional $250M penalty in 2021 over insufficient progress and loss-mitigation issues. A 2022 CFPB order requires remediation and changes to business practices and imposed a $1.7B civil penalty. The OCC retail-sales-practices order was terminated February 15, 2024; the CFPB order expired in 2021.

Accrued customer-remediation liabilities declined to $819M at year-end 2023 from $2.3B a year earlier, although additional customer harm could be identified and accruals adjusted. The FDIC special assessment resulted in a $1.9B pre-tax expense in 2023, payable over eight quarters beginning June 2024; the estimate could change with final FDIC loss calculations. Proposed CFPB overdraft-fee limits and Federal Reserve debit-interchange reductions would, if adopted as proposed, significantly reduce the associated fee revenue.

Wells Fargo adopted ASU 2018-12 for long-duration insurance contracts retrospectively in Q1 2023, revising prior-period financial statements; prior-period regulatory capital metrics were not revised.

Wells Fargo — FY2023 results

Revenue rose 11.1%, while net income increased substantially, driven chiefly by higher net interest income and lower noninterest expense. Higher interest rates boosted revenue, but also raised funding costs as customer deposits shifted toward interest-bearing products. Credit-loss provision increased, and legal, remediation and regulatory costs remained significant.

Consolidated results

Taxable-equivalent net interest income increased $7.409 billion. Higher rates contributed $12.003 billion, partly offset by a $4.594 billion reduction from volume changes; interest income rose $31.078 billion while interest expense increased $23.669 billion. Net interest margin expanded to 3.06% from 2.63%. Average earning-asset yield increased to 4.95% from 3.16%, while the average cost of interest-bearing liabilities rose to 2.64% from 0.79%. Average interest-bearing deposit cost was 1.74%, compared with 0.26%; average time deposits increased to $132.492 billion from $33.148 billion. Average noninterest-bearing demand deposits declined to $399.737 billion from $505.770 billion.

Noninterest income rose 3%. Trading gains more than doubled to $4.799 billion from $2.116 billion. Offsetting pressures included mortgage banking income, down to $829 million from $1.383 billion, and investment advisory and asset-based fees, down to $8.670 billion from $9.004 billion, reflecting advisory-asset outflows and lower market valuations. Deposit-related fees fell to $4.694 billion from $5.316 billion, partly as the company helped customers avoid overdraft fees. Investment banking fees rose to $1.649 billion from $1.439 billion. Other income declined to $698 million from $1.552 billion, including the fair-value impact on reinsurance liabilities following adoption of ASU 2018-12.

Noninterest expense fell 3%, principally because operating losses declined to $1.183 billion from $6.984 billion as legal and customer-remediation costs came down. The 2022 comparison included CFPB consent-order costs and expanded remediation estimates for historical mortgage, auto and deposit matters. Wells Fargo cautioned that ongoing legal actions and remediation could affect future operating losses. Personnel expense increased to $35.829 billion from $34.340 billion, and technology expense to $3.920 billion from $3.375 billion. Other expense rose to $5.152 billion from $3.182 billion, including a $1.9 billion FDIC special assessment. The effective tax rate declined largely due to discrete benefits from resolving prior-period tax matters.

Segment results

Consumer Banking and Lending revenue increased 6% as higher rates and deposit spreads lifted net interest income, while noninterest income fell 12%, including lower mortgage banking income. Expense reductions helped raise segment net income 46%, despite a 45% increase in provision for credit losses to $3.299 billion and a 64% rise in net charge-offs to $2.784 billion.

Commercial Banking revenue grew 23%, led by a 38% increase in net interest income; treasury management and payments revenue rose to $6.214 billion. Provision was $75 million, versus a $534 million release in 2022. CIB revenue increased 26%, with trading gains of $4.553 billion versus $1.886 billion and higher net interest income and investment banking fees. Its provision rose to $2.007 billion from a $185 million release, including a $1.6 billion allowance increase driven by commercial real estate office loans.

WIM revenue edged lower and net income fell 18.9%. Advisory and other asset-based fees declined to $8.446 billion from $8.847 billion, while commissions and brokerage fees rose to $2.058 billion from $1.931 billion. Higher expenses contributed to an efficiency ratio of 82%, up from 78%.

Selected operating metrics

Higher rates and a more focused Home Lending strategy, including exiting correspondent lending, contributed to the steep fall in mortgage originations. Consumer average deposits fell 8%, and period-end deposits fell 9%, as customers spent balances or moved to higher-yielding alternatives; auto originations declined 26% to $17.2 billion, partly reflecting tighter credit. WIM advisory-asset inflows were outweighed by outflows, but positive market impact of $111.3 billion drove advisory assets higher; total client assets rose to $2.084 trillion from $1.861 trillion.

Corporate developments and risks

Corporate’s net loss improved as legal-action operating losses fell, partly offset by the FDIC assessment and higher severance. Corporate period-end assets increased to $674.075 billion from $601.218 billion, while average assets declined to $619.002 billion from $638.011 billion. Period-end cash and interest-earning bank deposits rose to $211.420 billion from $127.106 billion; available-for-sale debt securities were $118.923 billion versus $102.669 billion, and held-to-maturity securities were $259.748 billion versus $294.141 billion. In Q1 2023, $23.2 billion of HTM securities at fair value was reclassified to AFS in connection with adoption of the portfolio-layer-method accounting standard. Corporate period-end deposits rose to $124.294 billion from $54.371 billion, primarily reflecting CD issuance; management also cited CD and long-term-debt issuance as sources of increased treasury cash.

Rail-car leasing assets, net of accumulated depreciation, were $4.6 billion at year-end, versus $4.7 billion a year earlier. The fleet’s average age was 22 years, and its four largest end-use concentrations accounted for 66% of the fleet. The company warned that changing demand and market conditions could lead to impairment; estimates are sensitive to utilization, rental rates and asset lives. Leases are typically three to five years.

Balance sheet, securities, loans, and deposits — FY 2023

Balance sheet and securities

Total assets were $1.93T at December 31, 2023, up $51.4B from December 31, 2022.

The combined portfolio’s amortized cost and fair value declined, while net unrealized losses narrowed, mainly reflecting interest-rate changes. AFS securities are carried at fair value; HTM securities are carried at amortized cost, net of allowance. 99% of the combined portfolio was rated AA− or higher at year-end 2023. Holdings were predominantly U.S. Treasury and federal agency debt and agency MBS, alongside state and municipal securities and highly rated CLOs.

Purchases were more than offset by paydowns, maturities, and AFS sales. During 2023, Wells Fargo reclassified $23.2B fair value / $23.9B amortized cost of HTM securities to AFS following adoption of ASU 2022-01. It also transferred $3.7B fair value of AFS securities to HTM for capital-management repositioning, recording $320M pretax unrealized losses at transfer. AFS holdings support liquidity and interest-rate-risk management and may be rebalanced as market conditions, loan demand, prepayments, and deposits change.

Loans

Total loans fell $19.189B (2%). Commercial loans declined $10.089B (2%), as C&I and commercial real estate paydowns exceeded originations and advances. Consumer loans decreased $9.100B (2%): credit-card growth was more than offset by reductions in residential mortgage and auto loans.

Contractual loan maturities were $288.084B within one year, $384.373B within one to five years, $128.382B within five to fifteen years, and $135.843B after fifteen years. For loans maturing after one year, $271.516B were fixed-rate and $377.082B floating/variable-rate. Residential mortgages totaled $260.724B, including $133.194B with maturities beyond fifteen years; $52.230B of credit-card loans were all scheduled within one year.

Deposits and funding

Deposits declined $25.812B (2%) as customers shifted to higher-yielding alternatives and consumer spending contributed to outflows; increased CD issuance partly offset the decline. The mix shifted substantially toward time deposits. Noninterest-bearing demand fell $97.731B (21%), savings declined $60.958B (15%), and time deposits rose $121.792B (184%). Interest-bearing demand increased $8.031B (2%), and interest-bearing deposits in non-U.S. offices rose $3.054B (15%).

Average deposit cost increased to 1.58% in Q4 2023 from 0.46% in Q4 2022, reflecting higher rates and the deposit-mix shift and indicating increased funding costs and competition for deposits. Estimated uninsured or above-FDIC-limit deposits were $505B at year-end 2023, compared with $510B a year earlier. Uninsured time deposits totaled $49.563B at year-end: $14.300B due within three months, $11.708B in three to six months, $22.911B in six to twelve months, and $644M after twelve months.

Wells Fargo uses off-balance-sheet arrangements to meet customer financing needs, manage credit, market and liquidity risks, and diversify funding. These arrangements include unfunded credit commitments, transactions with unconsolidated entities, guarantees, commitments to purchase securities, derivatives, and other commitments.

Unfunded credit commitments are legally binding lending agreements, but actual exposure is generally lower than the contractual amount because commitments may expire unused or be cancelled at the customer’s request. Wells Fargo monitors these commitments by customer and in aggregate, including their size and maturity structure.

The company transacts with special purpose entities, generally in connection with securitizations; these entities are generally variable interest entities. Its guarantees include letters of credit, written options, recourse obligations, clearing and exchange guarantees, and indemnifications. Payments under guarantees are contingent on specified events or changes in underlying assets, liabilities, rates, or indexes. Securities-purchase commitments support customers’ funding, liquidity, and other future needs.

Wells Fargo uses derivatives to manage interest-rate, credit, and foreign-currency risks and to support customers’ risk-management objectives. Derivatives are recorded on the balance sheet at fair value. Their notional amounts generally are not exchanged and are used to calculate payments; the company cautions that notional amount alone is not a meaningful measure of risk. Further details on these exposures are provided in Notes 5, 14, 16, and 17.

Wells Fargo — Risk Management

Governance and principal risks

Wells Fargo’s stated priority remains strengthening its risk and control infrastructure and maturing operational and compliance programs required by the 2018 FRB and CFPB/OCC consent orders. Risk is integrated into strategy and capital planning: Independent Risk Management (IRM) independently challenges management’s plans and risk appetite; the Board reviews the plans and approves the risk framework and annual Statement of Risk Appetite. The CRO reports functionally to the Board Risk Committee and can escalate directly to the Board. The CEO and CRO co-chair the Enterprise Risk & Control Committee.

The three lines of defense are Front Line risk ownership, independent IRM oversight, and Internal Audit validation. Key exposures include cyberattacks and third-party information-security risks; operational, compliance, model and strategic risks; and the evolving effects of climate change. The company describes monitoring, incident response, assessments, training, and vendor security requirements, but this section does not quantify cyber losses or climate-related financial effects.

Loan portfolio

Balances at December 31 ($ billions):

Total loans declined 2.0%. Credit card was the principal growing class, reflecting higher purchase volume and new accounts; auto balances fell as tighter credit reduced originations, while mortgage declines reflected paydowns exceeding originations.

Credit quality and allowance

Commercial nonaccrual growth was concentrated in CRE, particularly office: CRE nonaccruals rose to $4.188B from $958M. Commercial nonaccrual inflows were $6.524B, versus $1.391B; 99% of commercial nonaccrual loans were secured, predominantly by real estate. Consumer nonaccruals declined, mainly due to residential mortgage. Management considered the ACL appropriate, using weighted base and downside economic scenarios plus qualitative adjustments; it cautioned that actual losses could exceed current estimates. The reserve increase mainly reflected CRE—especially office—and credit-card growth, partly offset by lower residential mortgage reserves following adoption of ASU 2022-02.

The charge-off increase reflected CRE/office losses and higher credit-card losses. ACL by portfolio shifted notably: CRE rose to $3.939B from $2.231B and credit card to $4.223B from $3.567B; residential mortgage fell to $652M from $1.096B.

Concentrations and mortgage exposures

C&I and lease balances were $396.811B, versus $401.714B; commitments were $784.854B, versus $790.208B. Criticized C&I and lease balances increased to $14.6B from $12.6B, driven by technology, telecom/media, and retail. CRE declined $5.2B as paydowns exceeded originations and advances. California, New York, Florida, and Texas accounted for 48% of CRE; apartments were 28% and office 21%. Office loans fell to $31.526B from $36.144B, while apartment loans increased to $42.585B from $39.743B. Criticized CRE mortgage loans rose to $17.5B from $11.3B, primarily office and apartments; office conditions were stressed by weaker demand, vacancies, and property operating performance.

First-lien mortgages were 96% of residential mortgage loans, versus 95%. First-lien balances were $249.653B from $255.807B; 30+ day delinquencies improved to 0.61% from 0.69%. Junior-lien balances declined to $11.071B from $13.310B, with delinquencies improving to 2.16% from 2.27%. Residential mortgage lines of credit were $15.0B from $18.3B, with unfunded commitments of $28.6B from $35.5B. Wells Fargo noted that lines entering amortization can experience higher delinquencies and losses.

Non-U.S. loans were $80.0B, about 9% of loans, versus $87.5B; the U.K. was the largest country exposure at $27.8B. Top-20-country exposure totaled $108.342B, including $12.504B sovereign and $95.838B non-sovereign exposure.

Market, interest-rate and liquidity risks

One-day, 99%-confidence Trading General VaR was $37M at year-end 2023, versus $35M in 2022; 2023 average VaR was $35M. Wells Fargo supplements VaR with sensitivity and stress testing.

Estimated next-12-month NII impacts ($ billions) were:

The company generally expects higher rates to benefit NII as assets reprice faster than liabilities, and falling rates to reduce NII. Actual results depend on deposit repricing, customer behavior, funding needs, and other assumptions. Higher rates can also reduce AFS securities’ fair value and AOCI; MSR valuations, mortgage demand, and hedging effectiveness create additional mortgage earnings variability.

Average Q4 liquidity coverage ratio (LCR) was 125%, above the 100% minimum, versus 122% in Q4 2022; Wells Fargo was also compliant with the NSFR at year-end. Q4 average HQLA was $350.063B against $279.903B of projected net cash outflows. Primary liquidity sources rose to $488.746B from $415.012B, including unencumbered liquidity of $450.924B from $368.781B. Available FHLB and Federal Reserve Discount Window borrowing capacity was approximately $485.8B, based on pledged collateral.

Short-term borrowings increased to $89.559B from $51.145B, and long-term debt to $207.588B from $174.870B, including $58.466B of bank-entity long-term debt, versus $39.189B. Key liquidity risks include uninsured or non-operational deposit withdrawals, customer commitments, and higher-cost funding during stress.

Moody’s affirmed Wells Fargo Bank, N.A.’s ratings in November 2023 but changed the outlook to negative for long-term deposits, issuer ratings, and senior unsecured debt, citing potentially weaker U.S. government support capacity for systemically important banks. A downgrade could affect liquidity and operations; certain derivatives could require additional collateral if ratings fell below investment grade.

Wells Fargo — Capital management

Wells Fargo’s capital position strengthened in 2023, with higher regulatory capital and capital ratios and lower Standardized Approach risk-weighted assets (RWAs). At the same time, the company expects proposed Basel III changes to materially increase RWAs and capital requirements.

Capital and risk-weighted assets

Standardized Approach RWAs declined $28.221B, as a $35.201B reduction in credit-risk RWAs more than offset a $6.980B increase in market-risk RWAs. Advanced Approach RWAs increased $1.974B and included $308.513B of operational-risk RWAs.

CET1 capital rose $7.256B, from $133.527B to $140.783B. Major drivers included $17.982B of net income applicable to common stock and $1.784B from changes in accumulated other comprehensive income (AOCI), offset by $4.796B of common dividends and a net $9.799B reduction from common stock issued, repurchased, and stock-compensation-related items.

Capital returns, equity and leverage

Retained earnings increased $13.2B in 2023, primarily reflecting $19.1B of Wells Fargo net income, partly offset by $6.0B of common and preferred dividends. The company repurchased 272 million common shares for $12.0B and issued $1.6B of common stock, substantially all for employee compensation and benefits. It also issued $1.725B of Series EE preferred stock and redeemed all Series Q preferred stock.

At year-end 2023, goodwill was $25.175B; certain identifiable intangible assets other than mortgage servicing rights (MSRs) were $118M; goodwill and other intangibles on investments in consolidated portfolio companies were $878M; and applicable deferred taxes related to goodwill and intangibles were $920M.

At Dec. 31, 2023, the supplementary leverage ratio (SLR) was 7.09%, based on $159.823B of Tier 1 capital and $2,253.933B of total leverage exposure; the Tier 1 leverage ratio was 8.50%. Each insured depository institution exceeded its applicable SLR requirement, and the stated well-capitalized SLR threshold is 6.00%.

Loss-absorbing capacity and regulatory requirements

The stress capital buffer was 2.90% for October 1, 2023–September 30, 2024; the countercyclical buffer was 0.00%. Wells Fargo’s G-SIB surcharge remained 1.50% in 2024. The company sets long-term capital targets above regulatory minimums plus applicable buffers, including the G-SIB surcharge and stress capital buffer, to preserve capacity to invest, serve customers, withstand adverse conditions, access markets, and return capital. Distributions are subject to Federal Reserve capital-plan review, annual CCAR supervisory stress testing, and company-run stress testing.

Repurchase authorization and regulatory developments

On July 25, 2023, the Board authorized up to $30B of common-stock repurchases. This was the company’s only active authorization, with no expiration unless modified or revoked; approximately $26.7B remained at year-end. Repurchase timing and amounts depend on earnings, cash needs, customer activity, capital requirements and targets, stress-test results, share price, market conditions, and regulatory or legal constraints. Wells Fargo may suspend purchases at any time, and purchases from employee benefit plans also reduce the authorization.

The July 2023 proposed Basel III rule would replace the Advanced Approach with an expanded risk-based framework, including more granular credit-risk weights and new market- and operational-risk frameworks. Wells Fargo expects a significant increase in RWAs and a net increase in capital requirements. The proposal would phase in over three years beginning July 1, 2025; the company is considering balance-sheet and capital-optimization actions. Separate proposals concerning the G-SIB surcharge methodology and eligible long-term debt could also affect capital requirements or reduce TLAC ratios.

Wells Fargo Securities, LLC and Wells Fargo Clearing Services, LLC, the company’s principal U.S. broker-dealer subsidiaries, complied with their regulatory minimum net capital requirements at December 31, 2023.

Regulatory Matters

Wells Fargo remains subject to extensive prudential, consumer-protection, derivatives, resolution-planning, and climate-related regulation. These requirements and ongoing regulatory actions could increase compliance costs, constrain the Company’s activities or growth, and adversely affect revenue, earnings, or liquidity.

Prudential and business regulation

As a large, systemically important bank holding company, Wells Fargo is subject to risk-based capital, leverage, liquidity, stress-testing, risk-management, and governance requirements. These include liquidity coverage and net stable funding ratios and total loss-absorbing-capacity requirements; regulators may impose additional systemic-risk reporting or requirements.

CFPB rulemaking and examinations reach mortgages and servicing, fair lending, auto finance, credit cards, other consumer products, and fees. Wells Fargo Bank, N.A., as a registered swap dealer and conditionally registered security-based swap dealer, is also subject to derivatives rules that may raise compliance and transaction costs, limit product offerings or amendments, and reduce customer demand.

Resolution, recovery, and parent-company liquidity

Wells Fargo and the Bank must periodically submit resolution plans. The Company submitted its latest plan to the Federal Reserve and FDIC on June 27, 2023. Deficiencies could result in stricter capital, leverage, or liquidity requirements, restrictions on growth or activities, or required asset and business divestitures. Separate recovery plans are also required, and deficiencies could lead to fines, business restrictions, or divestitures.

The Company’s resolution plan relies on a single-point-of-entry strategy, under which the Parent would enter resolution proceedings; the plan does not bind regulators in an actual failure. The FDIC could instead use its orderly liquidation authority, under which security holders bear losses before taxpayers and creditor rights may differ from bankruptcy, including possible departures from strict claim priority.

Under a support agreement, the Parent transferred significant assets—including most of its cash, deposits, liquid securities, and intercompany loans—to an intermediate holding company (IHC) to support subsidiaries in distress. In normal conditions, subordinated notes, a committed credit line, and dividends are intended to maintain the Parent’s access to cash for debt service, dividends, repurchases, and other obligations. If specified capital or liquidity triggers are breached, or the Parent’s board authorizes bankruptcy, the notes are forgiven, the credit line terminates, and the IHC’s ability to pay Parent dividends is restricted. These mechanisms could materially weaken Parent liquidity and accelerate bankruptcy.

Ongoing regulatory actions and climate-related requirements

The Company remains subject to consent orders and other regulatory actions requiring changes to its business, operations, products, services, or risk management. Under the OCC’s April 2018 consent order, the Bank must continue to provide advance written notice of director and senior executive appointments and obtain OCC non-objection; certain post-termination payments are also restricted.

U.S. and international authorities are developing climate-risk requirements, including U.S. banking guidance, proposed SEC disclosures, California disclosure laws, and the EU Corporate Sustainability Reporting Directive. Evolving or divergent requirements could necessitate changes to business practices, increase costs, reduce revenue or earnings, prompt proceedings, or weaken Wells Fargo’s competitive position.

Critical accounting policies and estimation risks

Wells Fargo identifies six critical accounting policies involving significant management judgment: the allowance for credit losses (ACL), residential mortgage servicing rights (MSRs), fair value of financial instruments, income taxes, legal-action liabilities, and goodwill impairment. Changes in assumptions, economic conditions, or case outcomes can materially affect reported values and results.

Allowance for credit losses

The ACL covers loans, unfunded commitments, held-to-maturity (HTM) and available-for-sale (AFS) debt securities, and other specified credit exposures. For loans and HTM securities, estimates reflect expected losses over the remaining contractual term, using historical experience, current conditions, and economic forecasts. AFS debt-security ACLs are based on discounted cash flows and capped at the difference between fair value and amortized cost.

The loan forecast currently spans two years, followed by a reversion toward long-term average economic variables over a period reviewed quarterly that may last up to two years. Estimates also depend on scenario selection and weighting—including GDP, unemployment, and collateral prices—as well as credit ratings, models, collateral values, contractual life, and qualitative overlays. Accordingly, changes in assumptions or economic conditions can materially change credit-loss provisions and net income.

A hypothetical scenario assigning 100% weight to a more severe downside forecast would have increased the loan ACL by $6.2B at December 31, 2023. This is a sensitivity analysis, not management’s expected loss estimate, and excludes qualitative factors that could increase or decrease the result. Management considered the reported year-end loan ACL appropriate; actual losses and ACL levels may vary with portfolio balances and credit quality, forecasts, and effects across portfolios and geographies.

Residential MSRs and fair value

Residential MSRs are carried at fair value, with changes in MSR value and related economic hedges flowing through earnings. Valuation depends on assumptions that may be unobservable, particularly mortgage prepayment and default rates, discount rates, and servicing costs. Higher prepayment or discount-rate assumptions reduce MSR fair value; lower assumptions increase it. Market changes can be rapid and significant, and servicing standards, foreclosure rules, and servicing costs can also affect values. The estimates are periodically benchmarked against independent appraisals.

These figures are before derivative netting adjustments. Level 3 represented less than 1% of total assets and total liabilities in both years. Reduced market liquidity or limited observable pricing may require internal-model adjustments, increase reliance on unobservable inputs and management judgment, and affect whether instruments are classified as Level 2 or Level 3.

Income taxes and legal actions

Tax expense and deferred tax assets depend on interpretations of complex tax laws, timing assumptions, and judgments about whether tax benefits are more likely than not to be realized. Quarterly reassessments and the resolution of tax disputes can materially affect results.

Legal accruals are recorded when a loss is probable and estimable, using the best estimate in a range or, if no estimate is better than another, the low end. Outcomes remain unpredictable: actual losses may materially exceed accruals or the estimated range, and some probable or reasonably possible losses may not yet be estimable.

Goodwill impairment

Wells Fargo recorded no goodwill impairment as of December 31, 2023. Aggregate reporting-unit fair value exceeded the company’s market capitalization; the company cited factors including a potential control premium and short-term market volatility. Each reporting unit’s fair value substantially exceeded carrying value, except Consumer Lending, where fair value still exceeded carrying value by more than 10%. Consumer Lending held $7.1B of goodwill and was the reporting unit most sensitive to valuation assumptions.

The company plans to maintain a more focused home-lending strategy in the near term, while its credit-card business forecasts higher loan balances from growth in new products and services. Material changes to these plans or forecasts, or a significant increase in the discount rate, could trigger impairment of Consumer Lending goodwill. Broader risks include weaker revenue generation, materially higher credit losses or other expenses, and adverse regulatory actions.

Goodwill is tested annually in the fourth quarter, or more often if macroeconomic or business conditions warrant. Reporting-unit fair value is based on equally weighted income and market approaches. The income approach uses discounted cash flows and assumptions about economic conditions, balance-sheet changes, future business activity, terminal value, and discount rates. The market approach uses comparable-company valuation multiples and includes a control premium; both approaches require significant management judgment.

Accounting developments

• ASU 2023-02 — adopted January 1, 2024: Wells Fargo applied the modified retrospective method and elected proportional amortization for eligible renewable-energy tax-credit investments previously accounted for under the equity method. It continued using proportional amortization for low-income housing tax-credit investments. Investment-cost amortization and related tax credits and benefits are recorded net in income tax expense. Adoption increased opening total assets and total liabilities by approximately $2 billion; the effect on retained earnings was insignificant. Prior periods were not restated.

• ASU 2023-07 — effective December 31, 2024; early adoption permitted: This standard affects disclosures, not the consolidated financial statements. Wells Fargo was evaluating changes to segment disclosures, including significant segment expenses and “other segment items” for each reportable segment, as well as disclosure of the chief operating decision maker’s title and how that person uses segment profit or loss to assess performance and allocate resources.

• ASU 2023-09 — effective January 1, 2025; early adoption permitted: This standard affects annual income-tax disclosures only, and Wells Fargo was evaluating its impact. It may require more detail in effective-tax-rate reconciliations, including jurisdictional detail for significant reconciling items; identification of states and local jurisdictions driving the state-and-local tax effect; income taxes paid, net of refunds, disaggregated by federal, state, and non-U.S. taxes and significant jurisdictions; and domestic versus non-U.S. pretax income or loss.

• Other standards: ASU 2022-03, regarding fair-value measurement of equity securities subject to contractual sale restrictions, and ASU 2023-08, regarding crypto-asset accounting and disclosure, were not expected to materially affect Wells Fargo’s consolidated financial statements.

Forward-Looking Statements and Risks

Wells Fargo’s forward-looking statements address expected financial performance and growth; noninterest expense and efficiency; credit quality, loan losses and the allowance for credit losses; net interest income and margin; lending and portfolio risk; capital and liquidity; mortgage activities and exposures; legal and regulatory outcomes; dividends, share repurchases and other capital allocation; returns, taxes, ESG commitments and business strategy. These statements rely on current assumptions, are uncertain and are not guarantees; actual results may differ materially.

Key risks include economic or market deterioration, including declines in housing and commercial real estate prices, higher unemployment, U.S. fiscal issues, geopolitical events and slower global growth. Wells Fargo’s ability to satisfy regulatory capital and liquidity requirements, or to raise capital on favorable terms, is also uncertain. Changes in interest rates, asset and liability mix, or deposit levels could affect net interest income and margins, mortgage originations, mortgage servicing rights and loans held for sale. Market disruption could weaken mortgage demand and funding availability, increase funding costs, reduce asset values or lead to securities impairments. Falling equity markets could also reduce investment-banking and brokerage and wealth-management fees.

Other material uncertainties include regulatory or legislative changes and Wells Fargo’s ability to meet expense and efficiency targets amid business cycles, business changes, acquisitions, litigation and regulatory costs. Mortgage servicing, loan modification and foreclosure issues could create customer harm and related legal, operational, compliance, retention, staffing and reputational effects. Existing or new regulatory matters and litigation could result in costs, fines, penalties or business restrictions. Operational failures—including cybersecurity incidents or failures by third-party service providers—could also adversely affect results. Tax changes, Federal Reserve fiscal or monetary policy, and the execution of business plans present additional risks.

Future dividends and share repurchases depend on earnings, cash needs, financial condition, customer activity, capital requirements and the target capital structure, as well as supervisory stress-test results, stock-market conditions and applicable legal and regulatory requirements. Distributions may require Federal Reserve approval or be subject to Federal Reserve conditions. Management may provide forward-looking non-GAAP targets, including return on average tangible common equity, that cannot be reconciled to GAAP without unreasonable effort because forecast inputs are unavailable and could be significant to future results. Wells Fargo undertakes no general obligation to update forward-looking statements, except as required by law.

Principal risk factors

Economic, credit and interest-rate exposure

Wells Fargo’s results depend on lending and related fee income, leaving it exposed to weaker U.S. and global conditions, reduced loan demand, borrower stress, and higher defaults, charge-offs and credit-loss provisions. Credit risk may be amplified by concentrations in loan type, industry, borrower or geography. California is the company’s largest banking state by loans; deterioration in its economy or real estate could materially increase losses. As one of the largest U.S. commercial and commercial real estate (CRE) lenders, Wells Fargo is also exposed to CRE refinancing at higher rates, falling property values and changing demand, particularly continued weakness in office demand. Consumer real-estate lines of credit may see higher delinquencies as they reach end-of-draw periods and begin amortizing. The allowance for credit losses relies on complex forecasts and may not cover future losses.

Interest-rate and yield-curve movements affect net interest income and margin, earnings, and other comprehensive income. Funding costs may rise faster than asset yields, or asset yields may fall faster than funding costs; low rates can also reduce returns as higher-yielding assets mature, while prolonged high rates may weaken loan demand and increase borrower stress. Rate changes affect mortgage originations and mortgage servicing rights in opposing but imperfect ways. Wells Fargo uses scenario analysis, derivatives and portfolio adjustments, but does not hedge all exposure; actual movements, basis risk or ineffective hedges may cause losses, including unrealized securities losses. A substantial portfolio references SOFR or other benchmarks, creating transition, systems, hedge, funding, legal and compliance risks if benchmarks change or cease.

Market volatility can affect securities values, trading, venture and private-equity investments, and fee businesses such as asset management, brokerage, underwriting and advisory. High volatility may increase trading losses; low volatility may reduce customer activity. Fair-value changes in marketable equity securities affect earnings, and investment gains and losses can vary materially between periods. Clearing derivatives also exposes the company to central-counterparty loss sharing and client defaults not fully covered by collateral.

Liquidity, capital and regulatory constraints

Customer deposits are Wells Fargo’s primary, relatively low-cost funding source. Confidence shocks, rapid withdrawals—particularly of uninsured or non-operational deposits—deposit competition, market disruption, collateral demands, large credit-line draws or reduced access to secured funding could raise costs or weaken liquidity. The February 2018 Federal Reserve consent order caps consolidated assets, as defined by the order, at the December 31, 2017 level until specified conditions are met; operating under the cap can constrain earning assets, affect net interest income and require deposit reductions. Severe funding pressure could require common-stock issuance or dividend reductions.

The parent holding company relies substantially on subsidiary dividends and distributions for debt service and shareholder dividends. Law, regulation, supervisory action, contracts and resolution-planning triggers can restrict those transfers; subsidiary creditors have priority over the Parent in liquidation. Under the single-point-of-entry resolution strategy, the Parent could enter resolution while subsidiaries continue operating, but the strategy is not binding in an actual failure. The Support Agreement may place assets at the intermediate holding company for subsidiary support and, following specified triggers, restrict distributions to the Parent, terminate a committed credit line or forgive subordinated notes. Parent security holders could suffer substantial or total losses. Rating downgrades may raise borrowing and collateral costs or limit market access.

Capital, leverage, liquidity, total loss-absorbing capacity, stress-testing and capital-planning requirements may constrain dividends, buybacks, lending, growth and other activities, or require additional capital. Changes to rules, risk-weighted-asset methods or the company’s risk profile may increase costs or require business and balance-sheet changes. Deficiencies in recovery or resolution plans could prompt further restrictions or higher requirements.

Wells Fargo faces extensive consumer-protection, derivatives, financial-crime, sanctions, privacy and data-protection requirements. Violations or failure to meet supervisory expectations can bring fines, restrictions, higher costs, required operational changes and reputational harm. Multiple consent orders remain in effect, including the 2018 asset-cap order, 2018 CFPB and OCC orders, a 2021 OCC Home Lending order and a 2022 CFPB order concerning auto lending, consumer deposits and mortgage lending. In September 2021, the OCC assessed a $250 million civil money penalty over insufficient progress under its 2018 order and Home Lending loss-mitigation activities. Compliance may take years; delays or new issues could trigger escalating consequences and divert resources from growth.

Operational, conduct and strategic risks

Outages, infrastructure failures, surges in transaction volume, natural disasters and vendor or third-party disruptions could impair services and cause customer, financial, regulatory and reputational harm. Wells Fargo has experienced intermittent online and mobile service interruptions, posting delays and sign-in problems; technology upgrades are costly and may themselves disrupt operations. Cyber threats—including ransomware, phishing, credential attacks, fraud and state-sponsored activity—could disrupt business, expose data and generate losses, remediation costs, litigation or penalties. The company expects to devote significant resources to cybersecurity and resilience, but investigations can take time and insurance may not cover all losses.

Risk controls, models, data and AI may not identify exposures or predict outcomes reliably. Human error, misconduct, fraud, weak data aggregation or validation, model deficiencies and inaccurate or biased AI outputs could impair decisions and reporting, increase costs, affect capital requirements or lead to regulatory action. The risk framework also depends on effective controls and a consistent risk culture.

Customer remediation, including matters involving past automobile collateral-protection insurance and unused portions of guaranteed auto protection agreements, may result in costs, lost customers, litigation and regulatory action. Wells Fargo’s sales-practices history, customer-harm issues and public profile heighten reputation risk across businesses sharing its brand. Strategic and efficiency initiatives may consume resources, distract management or fail to deliver expected benefits; divestitures can cause losses or attrition, while acquisitions may entail regulatory conditions, dilution, integration costs and unrealized synergies.

Climate-related extreme weather may disrupt operations and impair customer finances or collateral; transition, regulation, changing customer behavior and uncertain climate data may also affect costs, revenue and risk decisions. Legal proceedings may result in losses exceeding accruals and may impose business restrictions, admissions or criminal pleas. Mortgage banking is exposed to rate-sensitive origination and servicing income, dependence on GSE and government programs, loan repurchase and reimbursement claims, servicing failures and foreclosure costs. Wells Fargo also faces competition from banks, nonbanks, digital currencies and alternative payment providers, as well as risks in attracting and retaining talent and potential union activity.

Reporting and controls

Accounting changes and uncertain estimates—including credit-loss allowances, legal liabilities, goodwill impairment and fair values—could materially affect reported results or require restatement. Material weaknesses in internal control or auditor-independence issues could require remediation, undermine confidence or constrain capital raising. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, under the COSO 2013 framework; no fourth-quarter 2023 change materially affected, or was reasonably likely to materially affect, internal control over financial reporting. KPMG audited internal control. Management cautioned that controls provide reasonable, not absolute, assurance and may become inadequate or inconsistently applied.

Independent Auditor’s Report

The auditor concluded that Wells Fargo’s internal control over financial reporting was effective in all material respects as of December 31, 2023, and issued an unqualified opinion on the consolidated financial statements for 2023, 2022, and 2021. The report is dated February 20, 2024. It identifies no material weakness or qualification of the financial-statement opinion.

The auditor cautioned that internal controls provide reasonable, not absolute, assurance and may not prevent or detect every misstatement.

Wells Fargo — FY2023 financial results

Revenue grew 11.1% year over year, led by higher net interest income as interest rates increased. The resulting rise in interest expense—particularly on deposits—partly offset that benefit. Provision for credit losses increased, while lower operating losses helped reduce noninterest expense. Net income and diluted EPS rose year over year.

Consolidated results

Trading and securities gains supported noninterest income, increasing to $4.368B from $1.461B. Mortgage banking income declined to $829M from $1.383B. The reduction in noninterest expense was largely attributable to lower operating losses, although personnel expense increased.

Comprehensive income

FY2023 other comprehensive income included a $1.271B net gain on debt securities. FY2022 comprehensive income was significantly affected by debt-securities losses.

Balance sheet

Mortgage servicing rights were separately presented; no separate “other intangible assets” line was presented. Deposits and loans declined year over year, while the allowance for loan losses increased.

Debt securities had material differences between carrying amounts and fair values:

Cash flows and shareholder distributions

Common shares reported in the statement of equity fell from 3,833.8M at December 31, 2022, to 3,598.9M at December 31, 2023. Wells Fargo repurchased 272.1M shares for $11.851B in cash and paid $4.789B in common dividends during FY2023.

Accounting changes

Wells Fargo adopted ASU 2022-02 in FY2023, recording a $323M cumulative-effect adjustment to retained earnings, and also adopted ASU 2018-12.

Significant accounting policies, estimates and risk judgments

Wells Fargo’s accounting estimates are sensitive to economic and market conditions; outcomes worse than assumed could materially affect results and financial condition. Key judgment areas include credit-loss allowances, residential mortgage servicing rights (MSRs), financial-instrument valuations, legal liabilities, income taxes and goodwill impairment.

Accounting changes and notable effects

• ASU 2022-02: Adopted January 1, 2023, eliminating troubled-debt-restructuring accounting and the requirement to use discounted cash flow (DCF) to measure the allowance for credit losses (ACL) on those loans. Applying the current expected credit loss approach reduced the ACL by $429 million pre-tax and increased retained earnings by $323 million after tax. Wells Fargo discontinued DCF measurement for consumer loans and certain commercial loans previously modified as TDRs, while retaining it for certain nonaccruing, non-collateral-dependent commercial loans.
• ASU 2022-01: Adopted prospectively January 1, 2023, with no opening-equity adjustment; it expanded the ability to hedge interest-rate risk in portfolios of financial assets. In January 2023, Wells Fargo transferred fixed-rate securities with $23.2 billion fair value and $23.9 billion amortized cost from held-to-maturity (HTM) to available-for-sale (AFS), and designated swaps with $20.1 billion notional as fair-value hedges. The transfer generated approximately $566 million of unrealized losses, net of deferred taxes, in OCI.
• ASU 2018-12: Retrospective adoption changed the accounting for long-duration insurance contracts and market risk benefits, which are Level 3 fair-value liabilities sensitive to markets, policyholder behavior and mortality assumptions. Adoption reduced retained earnings by $738 million after tax and increased AOCI by $20 million. Revised historical results were:

The adoption increased noninterest income by $583 million in FY2022 and $674 million in FY2021. Beginning in Q1 2023, Wells Fargo used derivatives where feasible to economically hedge interest-rate and equity-market volatility; its reinsurance business is no longer entering into new contracts. ASU 2021-08, adopted prospectively in 2023, had no material impact.

Credit, lending and securities policies

The ACL estimates lifetime expected credit losses on loans, unfunded commitments and specified other financial assets. Estimates use a two-year initial forecast period with weighted economic scenarios, followed by reversion toward long-term averages over up to two years. Commercial estimates use borrower risk ratings and probability of default, loss severity and exposure at default; consumer models incorporate factors such as delinquency, FICO scores, loan-to-value ratios, home prices and unemployment. Management also applies qualitative adjustments for risks not adequately captured by models. Changes in assumptions, portfolio quality, model performance or judgment can change the ACL and provision.

AFS-security ACLs are assessed security by security and capped at the amount fair value is below amortized cost; they cannot be negative. Most HTM securities use an expected-loss approach similar to loans. Specified government-backed or high-credit-quality assets generally have no ACL when expected losses are zero. Purchased credit-deteriorated assets are recorded at purchase price plus an acquisition-date ACL; subsequent changes in expected losses affect provision.

Loans are generally placed on nonaccrual when collection becomes uncertain or at specified delinquency thresholds. Credit-card loans are not placed on nonaccrual and are generally charged off at 180 days past due. Commercial and consumer charge-off timing varies by product and circumstances; these are policy thresholds, not reported loss results. Collateral-dependent assets are measured using collateral value or net realizable value when Wells Fargo intends to sell.

AFS securities are carried at fair value, with unrealized gains and losses generally in AOCI; HTM securities are carried at amortized cost, net of ACL. If Wells Fargo intends to sell, or is more likely than not required to sell, an impaired AFS security before cost recovery, impairment is recognized in earnings. Transfers between AFS and HTM affect OCI or earnings under the applicable classification rules; HTM-to-AFS transfers are expected only in limited circumstances.

Trading, derivatives and other valuation policies

Trading instruments and derivatives are carried at fair value; trading changes are generally recognized in noninterest income, while related interest is included in net interest income. Cash-flow-hedge fair-value changes initially enter OCI and are reclassified to earnings when the hedged transaction affects earnings. If a forecast transaction is no longer probable, accumulated hedge gains or losses are immediately reclassified to noninterest income. Counterparty exposure is managed through credit limits, monitoring, master netting arrangements and collateral; fair values include credit valuation adjustments.

Trading-related income rose substantially in FY2023, including a sharp improvement in credit trading results:

FY2023 trading gains by risk type were $2.124B foreign exchange (FY2022: $1.168B), $1.106B equity ($883M), $753M credit (a $736M loss), $372M commodity ($345M) and $444M interest rate ($456M).

At year-end, trading assets were $135.465B (2022: $136.757B) and trading liabilities were $46.517B ($40.116B). Trading derivative assets, net of balance-sheet netting, were $17.921B ($22.226B); gross assets were $71.990B ($77.148B). Derivative liabilities, net of netting, were $17.441B ($18.466B); gross liabilities were $77.807B ($77.698B).

Other policies and disclosures

Residential MSRs remain at fair value, with changes in mortgage-banking noninterest income; commercial MSRs use lower-of-cost-or-market accounting and are tested for impairment by risk-based strata. Goodwill is tested annually or more often if warranted; impairment is charged to other noninterest expense and cannot be reversed. Customer-relationship intangibles are amortized over lives of up to 10 years.

Deposits and most borrowings are recorded at amortized cost, except instruments for which the fair-value option is elected. Securitized assets leave the consolidated balance sheet only when the transfer qualifies as a sale and the special-purpose entity is not consolidated. Wells Fargo’s qualified Cash Balance Plan is frozen; pension measurements depend on actuarial assumptions, and net actuarial amounts outside a 5% corridor are generally amortized over the estimated remaining participation period (17 years at December 31, 2023). Premises and equipment depreciation and amortization was $1.3 billion in FY2023, compared with $1.2 billion in FY2022 and $1.4 billion in FY2021.

FY2023 HTM-to-AFS transfers were $23.919B, versus none in FY2022, following adoption of ASU 2022-01. AFS-to-HTM transfers were $3.687B in FY2023 (FY2022: $50.132B; FY2021: $55.993B). Wells Fargo reported no material subsequent events requiring recognition or disclosure in its FY2023 financial statements.

Portfolio size and valuation

Wells Fargo’s debt securities portfolio shifted toward available-for-sale (AFS) and away from held-to-maturity (HTM) securities during 2023. AFS securities are carried at fair value, with net unrealized gains and losses recorded in AOCI, net of ACL and taxes; HTM securities are carried at amortized cost, net of ACL.

AFS amortized cost includes a $46M portfolio-level fair-value hedge basis adjustment. The aggregate fair-value shortfall narrowed year over year as unrealized losses decreased, while total amortized cost declined.

Interest income and realized results

Interest income from debt securities rose in 2023, led by higher AFS and HTM income. Net realized gains on AFS securities fell substantially; Wells Fargo reported no realized gains or losses on HTM securities in the periods shown.

Loss positions, maturities, and yields

At year-end 2023, HTM federal agency MBS had $209.170B of amortized cost and $178.388B of fair value, a $30.782B net unrealized loss. HTM’s total net unrealized loss was $35.392B, concentrated in agency MBS and municipal securities.

AFS gross unrealized losses were $6.949B; $6.855B related to securities continuously in a loss position for 12 months or more, with fair value of $101.051B. For securities in a loss position for less than 12 months, losses fell to $94M on fair value of $9.538B, from $4.082B on fair value of $57.567B at year-end 2022. The bank stated that it did not intend to sell these loss-position securities and was more likely than not not required to sell them before recovery of amortized cost.

These long-dated amounts include substantial MBS; actual expected maturities may differ because borrowers can prepay. Weighted-average pre-tax yields, based on amortized cost, were 2.97% for AFS and 2.87% for HTM.

Portfolio activity and credit quality

HTM purchases were $4.319B in 2023 versus $3.105B in 2022. Transfers from AFS to HTM were $3.687B versus $50.132B. The 2023 figure excludes a $23.2B fair-value transfer from HTM to AFS in Q1 related to adoption of ASU 2022-01. AFS-to-HTM transfers carried pre-tax unrealized losses in AOCI of $320M in 2023, compared with $4.5B in 2022.

At year-end 2023, 99% of both AFS fair value and HTM amortized cost was investment grade, and 99% of each portfolio was rated AA- or higher. Other HTM securities totaled $3.052B of amortized cost and were 64% investment grade, compared with 63% in 2022. Past-due, nonaccrual, PCD securities, and net charge-offs were insignificant.

Wells Fargo equity securities

Total equity securities declined to $57.336B at December 31, 2023, from $64.414B at December 31, 2022. Trading securities—customer-accommodation positions economically hedged with equity derivatives—drove the decline, while non-trading holdings increased.

Equity securities by type

Federal Reserve Bank stock was $3.5B in both years; Federal Home Loan Bank stock increased to $1.7B from $1.4B.

Non-trading equity-security gains and losses

Non-trading equity securities produced a $441M net loss in 2023, an improvement from a $806M loss in 2022, after $6.427B of gains in 2021.

Equity-method investee earnings or losses are excluded from this net-gains measure and reported in other noninterest income.

Impairment write-downs on nonmarketable securities not carried at fair value remained substantial, though they declined from 2022. Net unrealized gains and net realized gains on sales also decreased over the three-year period.

Measurement-alternative investments

Measurement-alternative investments recorded a $493M net loss in 2023, versus a $1.064B loss in 2022 and $4.916B of gains in 2021. The main negative item in 2023 was impairment write-downs.

For investments still held at year-end, cumulative gross unrealized gains rose each year, as did cumulative impairment write-downs.

Some impairment and gain/loss amounts include venture-capital and private-equity investments in consolidated portfolio companies that are not presented as equity securities on the consolidated balance sheet.

Loans and credit quality

Loan balances at December 31

Total loans declined 2.0%. Credit card was the main growing category, up about 12.8%; auto declined about 11.0%. Securities-based loans included in other consumer were $18.3B, down from $19.4B. Non-U.S. commercial loans declined to $79.828B from $87.270B. C&I and lease-financing loans to non-bank financial-sector borrowers increased to 16% of total loans from 15%. California residential mortgages were 12% of total loans in both years; no CRE state or property-type concentration reached 10%. Interest-only mortgages were about 2% of loans, substantially all prime or near-prime at origination; Wells Fargo said it does not offer option ARMs or negative-amortization mortgages.

Loan purchases were $1.646B in 2023 versus $745M in 2022. Sales and net transfers from held-for-investment loans to held-for-sale were $4.230B versus $4.317B.

Unfunded commitments

The consumer decline largely reflects a fourth-quarter 2023 change that made certain securities-based lines discretionary, removing them from reported commitments; it should not be interpreted solely as reduced demand or exposure. The 2023 presentation also excludes discretionary amounts requiring approval before funding, and prior periods were revised to conform.

Allowance and credit-loss activity

The $3.841B increase in provision reflected deterioration in commercial CRE, primarily office loans, and higher credit-card balances; the residential mortgage allowance declined in connection with adoption of ASU 2022-02. Gross charge-offs included $2.009B on credit cards (about $1.9B revolving and $100M converted to term loans), $832M on auto and $593M on CRE, compared with $21M of CRE charge-offs in 2022. Adoption of ASU 2022-02 reduced the beginning 2023 allowance by $429M.

Delinquencies, criticized loans and nonaccruals

Commercial nonaccruals rose primarily because of CRE, a key credit risk despite lower overall commercial balances. Residential mortgages made up $2.047B of nonaccrual loans without a related allowance, versus $2.316B.

Consumer credit trends were mixed. Credit-card balances with updated FICO below 620 increased to $5.053B from $4.178B; auto balances below 620 declined to $6.382B from $7.912B. Credit-card 90+ day delinquencies rose to $743M from $455M, while auto 90+ day delinquencies eased to $111M from $122M. Other-consumer 90+ day delinquencies increased to $56M from $40M. Consumer mortgage loans in foreclosure totaled $837M versus $1.0B, including $660M of government-insured or guaranteed loans versus $771M. Residential mortgage 90+ day past-due balances declined to $604M from $900M; government-insured or guaranteed balances were $2.6B versus $3.2B. Mortgage balances with LTV above 100% rose to $448M from $157M, though the filing notes loss exposure is generally limited to the amount above 100% LTV. The bank monitors consumer credit principally through delinquency, FICO and mortgage LTV, and commercial credit through borrower and collateral ratings.

Modifications and legacy TDR disclosures

In 2023, modifications for borrowers experiencing financial difficulty totaled $897M for commercial loans (0.17% of commercial loans) and $1.291B for consumer loans (0.33%). Commercial modifications included $430M of C&I and $467M of CRE, with no principal forgiveness; average interest-rate reductions were 15.17% for C&I and 3.50% for CRE. Consumer modifications included $764M of residential mortgages and $459M of credit cards; average rate reductions were 1.65% and 21.63%, respectively. Residential mortgage trial-payment loans not yet included in modification disclosures were $109M at year-end.

Subsequent defaults on 2023 consumer modifications totaled $280M, primarily residential mortgage payment-delay modifications. The reported modified-consumer payment-performance balance was $1.287B, including $427M 30+ days past due and $98M of gross charge-offs. Commercial modification defaults were insignificant; the reported performance balance was $791M, including $103M 30+ days past due and $47M of gross charge-offs. Commercial modifications carried $233M of additional lending commitments, substantially all C&I.

Wells Fargo adopted ASU 2022-02 in January 2023, eliminating TDR accounting and reporting guidance, so current modification disclosures are not directly comparable with prior TDR disclosures. TDR balances were $9.2B at year-end 2022. TDR modifications totaled $2.883B in 2022 versus $2.864B in 2021; related charge-offs were $23M versus $77M, and weighted-average interest-rate reductions were 10.02% versus 10.84%. Defaulted TDRs totaled $277M in 2022 versus $251M in 2021: commercial defaults declined to $69M from $167M, while consumer defaults rose to $208M from $84M, driven chiefly by residential mortgage defaults of $142M versus $13M. Defaults are measured at 90 days past due for commercial loans and 60 days for consumer loans.

Mortgage banking income

Wells Fargo’s mortgage banking noninterest income contracted sharply in FY2023. FY2021 results were unusually high, reflecting substantial and volatile mortgage-sale and related hedge gains.

Servicing results also reflected significant fair-value and hedge movements. Net servicing fees are reduced by cash-flow realization and other servicing costs; valuation-input changes and economic hedge results then affect net servicing income.

The sharp FY2022 valuation gains and offsetting hedge losses illustrate the volatility of these items. Residential MSRs are economically hedged against interest-rate changes, but hedge results can be substantial.

Mortgage servicing rights

Residential MSRs measured at fair value declined to $7.468B at FY2023 year-end from $9.310B at FY2022 year-end. In FY2023, net additions were $(741)M—originations and purchases added $161M, while sales and other changes reduced value by $902M. Total fair-value changes were $(1.101)B: $86M of gains from valuation inputs and assumptions were more than offset by $1.187B of reductions from collection or realization of expected cash flows.

FY2023 valuation-input and assumption changes included a $228M gain from market-rate effects, a $(149)M change from discount rates, a $(14)M change from servicing and foreclosure costs, and a $21M change from prepayment estimates and other factors.

Commercial MSRs carried at amortized cost were $1.040B at FY2023 year-end, compared with $1.170B a year earlier; their estimated fair values were $1.6B and $2.1B, respectively.

The sensitivity estimates are hypothetical, generally nonlinear, and calculated independently; they do not assume multiple valuation inputs change together.

Servicing portfolio and advances

The managed servicing portfolio contracted to $1.498T at December 31, 2023 from $1.664T a year earlier. The figures below distinguish loans serviced for others at unpaid principal balance (UPB) from owned loans serviced at carrying value.

Servicer advances, net of the allowance for uncollectible amounts, fell to $2.1B at FY2023 year-end from $2.5B in FY2022. Reimbursement on advances for others is generally senior to investor cash payments and typically comes from trust, GSE, insurer, or borrower cash flows; Wells Fargo remains exposed to amounts not reimbursable under servicing agreements or insurance limitations.

Other assets

Other assets increased 3.9% year over year, primarily reflecting higher accounts receivable, partly offset by declines in “Other” and corporate/bank-owned life insurance.

Corporate- and bank-owned life insurance is recorded at cash surrender value. Accounts receivable primarily includes derivatives clearinghouse and trade-date receivables and servicer advances, and is recorded at amortized cost.

Goodwill and other intangible assets

Consolidated goodwill was essentially unchanged; its small increase reflected foreign-currency translation. Customer relationship and other intangible assets declined in net carrying value.

Wells Fargo adopted ASU 2018-12, relating to long-duration insurance contracts, in Q1 2023; the filing refers readers to Note 1 for details.

Leasing activity

Lessor revenue

Total leasing revenue increased 5.8% in 2023, after rising from $1.679B in 2021 to $1.869B in 2022. Interest income on lease financing drove the increase, while noninterest lease income declined.

For context, 2021 interest income was $683M; noninterest income was $996M, including $101M of variable lease-financing revenue, $995M of fixed operating-lease revenue, $64M of variable operating-lease revenue, and $(164)M of other lease-related revenue. The 2021 other-lease figure included asset-disposition gains and losses and impairments.

Lessor portfolio, costs, and collections

Net investment in lease financing grew to $16.423B at December 31, 2023, from $14.908B a year earlier. The portfolio included $640M of leveraged leases, down from $789M.

Operating-lease depreciation expense was $453M in 2023, down from $477M in 2022 and $604M in 2021. Lease expense was $697M in 2023, compared with $750M in 2022 and $867M in 2021. A weakening in demand for coal-product rail cars led to a $268M impairment in 2021; no material rail-car impairment was recorded in 2022 or 2023. The rail-car leasing business is reported within Corporate.

Scheduled collections on direct financing and sales-type leases totaled $15.142B at year-end 2023; operating-lease collections totaled $1.906B.

Wells Fargo as lessee

Substantially all of Wells Fargo’s own leases are operating leases. At year-end 2023, right-of-use assets and lease liabilities were both lower than in 2022.

Total lease costs were $1.244B in 2021, including $1.048B of fixed operating-lease expense, $289M of variable expense, and $(93)M of other gains/income.

Year-end 2023 operating-lease payments totaled $4.490B before $430M of imputed interest, producing the $4.060B lease liability.

The weighted-average remaining lease term was 6.5 years and the weighted-average discount rate was 3.0%. Leases predominantly expire within 15 years, although the longest extends to 2105. An additional $691M of leases, predominantly real estate, had not commenced at year-end; they are expected to start in 2025 and have terms of 1–20 years.

Other balance-sheet development disclosed

Time deposits increased sharply to $192.267B at December 31, 2023, from $66.887B in 2022. Deposits over $250,000 rose to $57.489B from $9.133B. Contractual maturities of time deposits were $163.235B in 2024, $22.565B in 2025, $1.962B in 2026, $1.582B in 2027, $2.579B in 2028, and $344M thereafter. Demand-deposit overdrafts classified as loan balances were $225M, down from $339M.

Long-term debt

Wells Fargo’s long-term debt carrying value was $207.588B at December 31, 2023, up $32.718B (18.7%) from $174.870B at December 31, 2022. Carrying values include unamortized discounts and premiums and hedge-basis adjustments, except for debt subject to the fair value option.

The increase reflected higher parent senior debt and bank-entity debt. Parent senior debt rose to $128.288B from $111.852B, primarily as FixFloat notes increased to $77.958B from $60.752B; fixed-rate senior notes were $42.384B, versus $43.749B. Parent subordinated debt declined to $18.841B from $21.379B, while junior subordinated debt was $1.183B versus $1.170B.

Bank-entity debt increased as FHLB floating-rate advances rose to $38.000B from $27.000B; these advances are secured by pledged assets. Bank senior debt was $47.078B, compared with $27.401B, including $6.506B of fixed-rate notes (none in 2022), $1.416B of floating-rate notes (versus $0.117B) and $1.137B of structured notes (versus $0.262B). Bank subordinated debt declined to $3.416B from $4.305B; other bank debt was $7.558B versus $7.082B, primarily related to unfunded LIHTC investment commitments.

Contractual maturities

A total of $129.720B is contractually due during 2024–2028. Most debt is redeemable at Wells Fargo’s option before its contractual maturity.

Debt is issued in multiple currencies, predominantly U.S. dollars, and is generally unsecured, with both fixed- and floating-rate terms. A majority is in hedge-accounting relationships; stated contractual rates exclude the effects of associated derivatives. Structured notes may be linked to securities, indices or baskets, and some maturities may accelerate depending on referenced values; a major portion of these notes consists of zero-coupon instruments.

Wells Fargo was in compliance with all financial and operational covenants at December 31, 2023. Certain agreements may restrict mergers or sales of subsidiary banks, and the issuance of capital stock or convertible securities by certain subsidiary banks.

Preferred stock

Preferred stock ranks senior to common stock for dividends and in liquidation, and generally carries no voting rights. On or after the applicable redemption date, it may be redeemed at its liquidation preference plus accrued and unpaid dividends. Redemptions and other capital actions may require regulatory approval or be subject to conditions.

In July 2023, Wells Fargo issued $1.725B of Series EE preferred stock and, in September 2023, redeemed Series Q for $1.725B. The exchange kept total preferred liquidation preference unchanged but replaced Series Q’s 5.85% fixed-to-floating rate with Series EE’s 7.625% fixed-reset rate. Series EE is first redeemable on September 15, 2028.

Notable series include:

Series L’s liquidation preference and carrying value were $3.968B and $3.200B, respectively, at both December 31, 2023 and December 31, 2022. Its dividends were $298M in each of 2023, 2022, and 2021.

Wells Fargo is authorized to issue 20 million preferred shares and 4 million separate preference shares; no preference shares had been issued. If issued, preference shares would have one vote per share.

Common shares

At December 31, 2023, Wells Fargo had 9.0 billion common shares authorized.

Stock-based compensation

At year-end 2023, unrecognized compensation cost was $1.1B for RSRs, expected to be recognized over 2.4 years, and $38M for PSAs, expected over 1.6 years. Another 101M shares were available for grant.

Restricted share rights

Weighted-average grant-date fair value was $44.15 for FY2023 grants and $43.07 for year-end nonvested RSRs. Fair value of RSRs vested was $954M in FY2023, compared with $1.0B in FY2022 and $902M in FY2021.

Performance share awards

PSAs are based on three-year performance criteria, with vesting ranging from zero to 150% of target.

Weighted-average grant-date fair value was $44.33 for FY2023 grants and $36.51 for year-end nonvested PSAs. Final vesting for awards whose performance period ended December 31, 2023 was expected in Q1 2024. Wells Fargo had issued no stock options in the prior three years and had none outstanding at year-end 2023.

Employee Stock Ownership Plan

Wells Fargo redeemed all ESOP preferred shares for common shares in October 2022. In October 2023, the 401(k) Plan fully repaid its loans to the company, releasing the remaining reserve shares for allocation to participants.

The FY2023 dividends on unreleased shares were paid after release but before allocation to participants.

Legal actions

Wells Fargo accrues legal losses when they are probable and reasonably estimable, using the best estimate within a range or, if no estimate is better than another, the low end. Actual resolution costs may differ materially from accrued amounts.

At December 31, 2023, the high end of reasonably possible losses in excess of accrued probable and estimable losses was approximately $1.7 billion. The company cautioned that outcomes are unpredictable, some losses may not yet be estimable, and actual losses could exceed both accruals and the disclosed range. It did not expect the proceedings, individually or collectively, to materially adversely affect consolidated financial condition, though an unfavorable outcome could materially affect results in a particular period.

Notable proceedings and developments

• Interchange litigation: A damages-class settlement requires defendants to pay approximately $6.2 billion in total—approximately $5.3 billion remaining from the 2012 settlement and $900 million in additional funding. Wells Fargo’s allocated share of the additional funding is approximately $94.5 million. The Second Circuit affirmed the damages settlement on March 15, 2023. Equitable-relief claims and certain opt-out and direct actions remain pending; the equitable-relief class was certified in 2021. Merchant claims also remain among the proceedings described.
• RMBS trustee litigation: A district court dismissed Phoenix Light’s claims and some Commerzbank claims in 2022. Phoenix Light dismissed its appeal in May 2023, ending its case; Commerzbank’s appeal, filed in 2022, remained pending. Wells Fargo agreed in November 2023 to resolve IKB’s claims. Other similar investor actions and National Credit Union Administration actions had previously been settled.
• Hiring-practices matters: DOJ and SEC investigations into diversity-related hiring practices closed without action. A putative securities-fraud class action and shareholder derivative suits concerning related alleged disclosures remain pending.
• 401(k) plan matters: Wells Fargo entered an agreement resolving the Department of Labor’s review of certain transactions involving the plan’s Employee Stock Ownership Plan feature. Plan participants filed a putative ERISA class action in September 2022 concerning some of those transactions.
• Advisory-account cash sweep: The SEC is investigating cash-sweep options offered to investment advisory clients when accounts are opened.
• Other matters: Seminole Tribe-related trust litigation remains pending. The complaint alleges excessive fees and imprudent investment in administering a minor’s trust.

Derivatives: use, exposure and risk management

Wells Fargo uses derivatives to manage interest-rate, foreign-exchange, commodity, equity and credit risks, and to accommodate customers and support trading. It generally seeks to offset customer-derivative exposures with other financial contracts. Notional amounts are contractual bases for calculating cash flows, not amounts exchanged or stand-alone measures of risk. Counterparty exposure is managed through credit limits, enforceable master netting arrangements and collateral; netting’s effectiveness depends on legal enforceability and counterparty performance.

Fair values and netting

Hedge-accounting and other derivative results

Fair-value hedge results reflect changes in both derivatives and hedged items, so they should not be read as stand-alone economic losses or exposures.

Interest-rate fair-value hedge results included a $3.487B loss associated with hedged items, partly offset by $1.135B of gains in debt securities. For non-designated derivatives, FY2023 results included losses of $321M on interest-rate contracts, $177M on equity contracts and $824M on foreign-exchange contracts, partly offset by $13M of credit-contract gains. These derivatives include mortgage-banking and economic hedges and instruments that mitigate foreign-currency and lending-credit exposures; results are recorded in relevant noninterest-income and expense lines.

At year-end 2023, Wells Fargo expected $698M pretax of deferred net cash-flow hedge losses in OCI to be reclassified into net interest income over the next 12 months. Forecast cash flows were hedged for up to approximately nine years.

Positions designated as fair-value hedges

The designated AFS securities and deposits positions increased materially in scale year over year.

Sold credit protection and contingent collateral

Wells Fargo may have to perform on sold protection if a referenced obligor defaults, including through bankruptcy or missed principal or interest payments. The filing’s estimated maximum exposure assumes related interests and collateral fall to zero and excludes recovery on the referenced obligation and offsets from collateral held or economic hedges. The company also manages this exposure with posted collateral and purchased credit derivatives on identical or similar reference positions. “Non-investment grade” includes positions without an external investment-grade rating or whose underlying assets otherwise carry higher performance risk.

Any below-investment-grade rating triggers the maximum collateral requirement.

Fair-value measurements and valuation risk

Wells Fargo’s recurring fair-value assets increased to $331.371B before derivative netting at year-end 2023, while recurring liabilities increased to $109.798B. After derivative netting, assets were $276.223B and liabilities were $47.654B. (Amounts in $B.)

Level 3 recurring fair-value assets declined, but liabilities rose; net Level 3 exposure after derivative netting fell by about half. MSRs were the largest Level 3 asset. (Amounts in $B.)

FY2023 Level 3 MSRs recorded $1.101B of net losses, versus $2.001B of net gains in FY2022. Net Level 3 derivative losses were $2.915B in FY2023, including $2.062B on interest-rate contracts and $801M on equity contracts. Level 3 net derivative liabilities included interest-rate contracts of $3.501B versus $2.411B; equity-contract liabilities were $1.020B versus $1.000B under discounted-cash-flow valuation and $454M versus $224M under option models.

Valuations rely on a mix of quoted prices, vendor inputs and internal models. Level 3 estimates use significant unobservable inputs. For residential MSRs, assumptions include discount rates, prepayments, housing-price volatility and servicing costs; at year-end 2023, discount rates ranged from 8.9%–13.9% (9.4% weighted average), prepayment rates from 7.3%–24.3% (8.9% weighted average), and cost to service from $52–$527 per loan ($105 weighted average). Higher discount or prepayment rates and servicing costs generally reduce MSR values. Loan and debt valuations also depend on assumptions such as defaults, loss severity, prepayments and discount rates.

Wells Fargo describes controls over model and vendor risk that include independent model validation, benchmarking and back-testing, review of unusual movements, vendor oversight, price comparisons, variance analysis and instrument-level investigation. Substantially all trading debt securities use internal trader prices subject to independent price verification; substantially all available-for-sale debt securities use vendor prices. Certain structured notes are valued using discounted cash-flow models incorporating Wells Fargo’s own credit spread. In Q1 2022, the company transferred $8.9B of nonmarketable equity securities and $1.4B of related economic-hedging derivative assets out of Level 3 after electing portfolio-level fair-value measurement, concluding the previously significant instrument-level inputs no longer remained significant at the portfolio level.

Nonrecurring fair value and fair-value-option effects

Nonrecurring fair-value assets were broadly stable, although losses on assets still held at year-end remained substantial. (Amounts in $B.)

Major 2023 balances included $4.440B of nonmarketable equity securities (including $2.354B Level 3), $2.509B of other assets, $1.662B of loans and $623M of loans held for sale. FY2023 nonrecurring fair-value losses were $2.271B, versus $2.417B in FY2022; FY2021 had $3.291B of gains. FY2023 losses included $1.422B on loans ($716M commercial and $706M consumer), $718M on nonmarketable equity securities, $122M on other assets and $9M on loans held for sale. The company adopted ASU 2018-12 on long-duration insurance contracts in Q1 2023.

Wells Fargo uses the fair value option for certain residential mortgage loans held for sale (LHFS), customer market-making loans and certain structured debt to better align accounting with economic hedges and risk management. At year-end 2023, LHFS fair value was $2.892B versus $3.119B contractual unpaid principal at maturity, a $227M shortfall; in 2022, the figures were $4.220B and $4.614B, a $394M shortfall. Fair-value-option long-term debt was carried at $(2.308)B versus $(2.864)B aggregate unpaid principal in 2023, compared with $(1.346)B versus $(1.775)B in 2022. Fair-value-option interest-bearing deposits were $(1.297)B versus $1.298B principal in 2023.

Fair-value-option effects included in earnings, excluding amounts recorded in net interest income, included $230M of FY2023 mortgage-banking noninterest income from LHFS, versus a $681M loss in FY2022 and a $1.972B gain in FY2021. FY2023 also included a $22M trading loss from fair-value changes on interest-bearing deposits and an $81M trading loss on long-term debt, compared with a $52M gain on long-term debt in FY2022. For interest-bearing deposits and long-term debt measured at fair value, own instrument-specific credit changes are recorded in OCI; other fair-value changes are recorded in earnings.

Financial instruments not carried at recurring fair value

Estimated fair value was below carrying value for total financial assets at year-end 2023. The estimates exclude $1.2T of deposits with no defined or contractual maturity ($1.3T in 2022), among other specified items, and are not a measure of the company’s overall underlying fair value. (Amounts in $B.)

The held-to-maturity securities valuation shortfall narrowed year over year, while the net-loan shortfall widened. These estimates relied heavily on Level 3 valuations: Level 3 assets totaled $827.758B, including $818.358B of loans, and Level 3 liabilities totaled $64.400B at year-end 2023. Loan commitments and letters of credit were excluded; their estimated fair value, measured as deferred fees plus the allowance for unfunded commitments, was $575M versus $737M in 2022.

Mortgage securitizations and servicing

Mortgage transfers into GSE/GNMA-related securitizations declined sharply, particularly residential transfers. Most residential transfers are agency or GNMA securitizations; because the loans are measured at fair value on a recurring basis, they generally generate no gain or loss.

Continuing involvement recognized at settlement also fell with lower transfer volumes. Securities recognized in residential securitizations were $0 in FY2023, compared with $2.062B in FY2022 and $23.188B in FY2021; commercial securities were $94M, $189M and $173M, respectively. Residential servicing rights recognized were $157M, $966M and $1.636B; commercial servicing rights were $73M, $128M and $166M. Trading securities temporarily held for market-making and sold around settlement are excluded from those amounts; they totaled $6.0B in FY2023, $19.0B in FY2022 and $40.7B in FY2021.

The prepayment assumption incorporates expected defaults and is influenced by mortgage rates and borrower behavior.

At December 31, 2023, GSE/GNMA loans subject to an unexercised unilateral repurchase option had $1.0B of recognized assets and related liabilities, up from $743M a year earlier. Repurchased loans were $293M in FY2023, versus $2.2B in FY2022 and $4.6B in FY2021. The related repurchase/recourse liability was $229M at year-end 2023 versus $167M in 2022, against maximum exposure of $13.6B and $13.8B, respectively. Exposure includes contractual representation-and-warranty indemnification and other recourse. A loan and liability may need to be recognized once a repurchase option becomes exercisable, regardless of Wells Fargo’s intent to exercise it.

GSE/GNMA loans serviced were $592.5B at year-end 2023 versus $704.5B in 2022; related delinquent loans and foreclosed assets declined to $3.4B from $4.6B.

Resecuritizations and VIE exposure

Wells Fargo primarily resecuritizes agency mortgage-backed securities to meet customers’ investment and risk-management needs. Securities transferred to resecuritization VIEs were $12.7B in FY2023, $17.0B in FY2022 and $39.6B in FY2021; amounts retained at settlement were $239M, $428M and $607M. Related VIE assets were $110.4B at year-end 2023 versus $112.0B in 2022, and Wells Fargo held securities of $984M versus $793M. Wells Fargo generally does not consolidate these VIEs because decision-making is shared with third parties and it has no significant economic interest beyond market-making.

Commercial real estate was the largest unconsolidated VIE exposure category, with maximum exposure of $6.288B at year-end 2023 versus $6.332B in 2022, predominantly from loans. Maximum exposure is a severe hypothetical estimate, not expected loss; it does not account for recoveries or economic hedges.

Tax-credit VIE equity investments were $19.7B at year-end 2023 versus $18.7B in 2022; loans to these VIEs were $2.1B versus $2.0B. Maximum exposure increased to $30.6B from $28.0B, including unfunded equity and lending commitments of $8.7B versus $7.3B. Affordable-housing unfunded commitments were predominantly expected to be funded within three years; the associated liability, included in long-term debt, was $4.9B versus $4.8B.

Consolidated VIEs

Commercial and industrial loan-and-lease VIEs accounted for $7.579B of total VIE assets in 2023 versus $7.148B in 2022; carrying-value loans were $4.880B versus $4.802B, other assets $203M versus $190M, and liabilities $(115)M versus $(129)M. “Other” VIE assets were $232M versus $72M, with no liabilities versus $(72)M. These trusts include dealer floor-plan loan securitizations in which Wells Fargo acts as servicer and residual-interest holder and controls key decisions. Consolidated VIE assets are restricted to settling VIE liabilities, and certain VIE liabilities are nonrecourse to Wells Fargo.

Wholly owned trust preferred security VIEs are not consolidated because their sole assets are receivables from Wells Fargo. Wells Fargo fully guarantees their obligations, and the issued securities are reported as long-term junior subordinated debt on its consolidated balance sheet.

Guarantees and other commitments

Guarantees

At December 31, 2023, guarantees had a total carrying value of $192M, compared with $141M a year earlier, while maximum exposure to loss rose to $55.911B from $45.713B. Wells Fargo describes maximum exposure as a remote-loss scenario: it assumes the value of its interests and related collateral falls to zero and excludes economic hedges and collateral. It is not an estimate of expected loss; the company considers carrying value more representative of current exposure. Of total maximum exposure, $19.914B was classified as non-investment grade, down from $20.268B.

The rise in exchange and clearing-house guarantees reflects, in part, Wells Fargo’s 2023 sponsorship of clients in the Fixed Income Clearing Corporation’s sponsored-repo service. The bank takes a secured interest in client collateral and recorded no liability because it considers a loss remote. Recourse arrangements relate mainly to commercial real estate mortgage loans sold or securitized. Some contracts limit Wells Fargo’s share to 33.33% of actual losses on a pro-rata basis after borrower default. Maximum exposure is based on covered outstanding principal or contractual caps; the bank considers loss of the full balance remote and may recover amounts through collateral.

For third-party clearing-agent indemnifications, estimated maximum exposure was $7M, with $27M of related collateral, at year-end 2023, compared with $157M and $1.3B, respectively, at year-end 2022.

Other contingent exposures

Written options are a separate, actively managed contingent exposure. Maximum exposure, measured at notional value, increased to $34.0B at December 31, 2023, from $23.4B in 2022; $31.9B of the 2023 amount was due to expire within three years, compared with $21.3B in 2022. Their fair value shifted to a $178M asset from a $15M liability. The asset may reflect deferred premiums. Wells Fargo manages option risk through offsetting trades, short positions and, for certain contracts, pledged collateral.

Merchant-processing maximum exposure was approximately $761.9B at year-end 2023, measured as total merchant transaction volume processed in the preceding four months—the typical charge-back lifecycle. This volume is not an estimate of likely loss; related losses, including those of the joint venture, were insignificant. Wells Fargo may mitigate risk by withholding payments or requiring collateral.

Other commitments

Equity-security purchase commitments were predominantly for Federal Reserve Bank stock and renewable-energy investments. These commitments are excluded from the filing’s table of unfunded credit commitments.

Parent guarantee

The Parent fully and unconditionally guarantees principal, interest and other amounts on securities issued by its wholly owned Wells Fargo Finance LLC. Guaranteed liabilities were $834M at December 31, 2023, compared with $948M in 2022; the guarantee ranks equally with the Parent’s other unsecured, unsubordinated debt. Because Parent assets consist primarily of equity in subsidiaries, its ability to meet claims depends on funds received from those subsidiaries. If a subsidiary becomes insolvent, its creditors generally have priority claims on that subsidiary’s assets.

Securities financing

Wells Fargo uses securities-financing transactions to support trading positions, short-sale coverage, customer financing, and securities settlement. Collateral is primarily high-quality, liquid U.S. Treasury and government-agency securities, alongside less-liquid equities, corporate debt, and asset-backed securities. Collateral and monitoring generally limit credit risk, but the activities remain exposed to counterparty failure, collateral-value declines, and liquidity risk.

Recognized assets and liabilities

Most transactions subject to master netting agreements do not qualify for balance-sheet netting. Collateral received is not recognized as an asset, and pledged collateral is not offset against the related liability.

Repurchase and securities-lending obligations by collateral

Gross repurchase obligations increased to $100.506B from $46.089B, driven especially by agency mortgage-backed securities (MBS). Securities-lending obligations declined to $5.554B from $8.965B.

Equity collateral generally consists of exchange-traded securities received through margin lending or securities borrowing and then repledged.

Maturity profile

The maturity mix shifted toward longer-dated repurchase agreements: balances due within 30 days and in 30–90 days increased substantially year over year.

Overnight/continuous securities lending can be terminated without notice. Overnight repurchase agreements require both parties to elect to roll, while continuous repurchase agreements can be terminated by either party.

Risk management

Key risks include a counterparty failing to return securities, collateral falling below the repurchase obligation and requiring additional collateral, and counterparties accelerating repayment. Wells Fargo describes its mitigations as using liquid collateral, underwriting and monitoring counterparties, monitoring collateral values, and maintaining settlement controls.

Pledged assets and collateral

At December 31, 2023, Wells Fargo had $832.045B of pledged assets at carrying value, up 88.3% from $441.917B a year earlier. These assets support securities and other collateralized financing, deposits, derivatives, FHLB borrowings and letters of credit, and potential borrowing from the Federal Reserve or FHLB discount windows.

The largest year-over-year change was in pledged held-to-maturity securities, which rose to $246.218B from $17.477B. Pledged loans also increased, to $445.092B from $343.289B.

Collateral received

The fair value of collateral received that Wells Fargo had the right to sell or repledge was $216.6B at December 31, 2023, compared with $136.6B a year earlier. The bank sold or repledged $103.3B of this collateral during 2023, versus $59.1B in 2022. Such collateral is received through resale agreements, securities borrowing, customer margin loans and derivatives, and can support repurchase agreements, securities lending, derivatives and short sales.

Scope and presentation

The pledged-assets table reports carrying values of recognized balance-sheet assets. Assets pledged in transactions involving VIEs are excluded; those assets may be used only to settle the VIEs’ liabilities. Amounts for pledged assets that counterparties may sell or repledge are presented parenthetically on the consolidated balance sheet.

Wells Fargo operating segments — FY2023

Wells Fargo reports four operating segments—Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking (CIB), and Wealth and Investment Management (WIM)—plus Corporate and reconciling items. Segment results reflect management allocations, including funds-transfer pricing, shared revenue and expenses, and taxable-equivalent adjustments; these adjustments are eliminated in consolidated results.

Consolidated results

Revenue increased 11.1% and net income increased 40.0%. Higher revenue and lower noninterest expense supported earnings growth, partly offset by the larger provision for credit losses. In Q3 2023, the company sold investments in certain private-equity funds, with minimal impact on net income.

Segment results

Consumer Banking and Lending revenue grew 5.9%, Commercial Banking revenue grew 23.2%, and CIB revenue grew 25.9%; WIM revenue declined 0.9%. Credit-loss provision developments differed across businesses: Commercial Banking recorded a $75 million provision, compared with a $534 million benefit in FY2022, while CIB recorded a $2.007 billion provision, compared with a $185 million benefit. Corporate includes treasury and enterprise functions, investment and private-equity/venture-capital holdings, businesses no longer aligned with long-term strategy, and previously divested businesses. Reconciling items primarily reflect taxable-equivalent adjustments eliminated in consolidation.

Period-end balance trends

Consumer Banking and Lending combines consumer and small-business products; Commercial Banking serves private, family-owned and certain public companies. CIB serves corporate, commercial real-estate, government and institutional clients, while WIM serves affluent through ultra-high-net-worth clients through advisors, branches and digital channels.

Wells Fargo — 2023 financial results and developments

Revenue

Revenue grew 11.1% in 2023, led by a 16.5% increase in net interest income; noninterest income rose 2.7%. Trading gains rebounded, while several fee categories declined.

Noninterest income was unusually high in 2021, including $6.427B of net gains on equity securities and $4.956B of mortgage banking income; equity securities then recorded $(806)M of net losses in 2022. Card interchange and network revenue is reported net of card rewards and rebates, which cost $2.6B in 2023, $2.2B in 2022, and $1.6B in 2021. Trailing commissions were $904M, $989M, and $1.2B, respectively. Advisory and asset-management fees are sensitive to client asset values, assets under management and administration, and service volumes; the company also cited its 2021 sales of Corporate Trust Services and Wells Fargo Asset Management as affecting these fees.

Segment revenue

Growth was strongest in Commercial Banking and Corporate and Investment Banking; Wealth and Investment Management revenue edged lower. Consolidated revenue also reflects taxable-equivalent adjustments and related eliminations.

Expenses, losses, and regulatory assessment

The sharp reduction in operating losses followed elevated 2022 legal-action losses and customer-remediation costs. Operating-loss components were:

Wells Fargo cautioned that legal and remediation losses are inherently unpredictable and may vary significantly, including because of matters outside its control. Remediation accruals may change as new information emerges and regulatory reviews continue.

The increase in Regulatory Charges and Assessments expense predominantly reflected FDIC deposit-assessment expense. In November 2023, the company recognized the full estimated $1.9B pretax FDIC special assessment related to losses from bank failures in the first half of 2023. Payment is scheduled over eight quarters beginning in June 2024; the estimate may change as the FDIC determines actual fund losses and evaluates updates to reported uninsured deposits. The restructuring accrual fell to zero at year-end 2023 from $166M at year-end 2022.

Pension and other postretirement benefit plans

Wells Fargo’s qualified Cash Balance defined-benefit plan has been frozen to new benefit accruals since July 1, 2009, although investment credits continue. At year-end 2023, plan assets exceeded the benefit obligation by $508 million, up from a $459 million surplus in 2022. The increase reflected, among other factors, a $653 million actual return on plan assets in 2023, compared with a $1.998 billion loss in 2022. The qualified-plan obligation recorded a $191 million actuarial loss in 2023, versus a $2.256 billion actuarial gain in 2022, reflecting the sensitivity of valuations to year-end assumptions, particularly discount rates.

Wells Fargo made no Cash Balance Plan contribution in 2023 and does not expect a required contribution in 2024. The nonqualified pension and other postretirement plans have no minimum required contributions beyond amounts needed to fund benefit payments.

Benefit costs and actuarial assumptions

No Cash Balance Plan settlement loss was recognized in 2023. The filing’s narrative reports a $221 million settlement loss in 2022, while its 2022 benefit-cost table reports $226 million for the qualified-plan settlement loss. The Canada Pension Plan was fully settled through an annuity contract in June 2022; this resulted in a $29 million plan settlement and a $5 million settlement loss.

For postretirement health benefits, the assumed health-cost increase used for the 2024 obligation measurement is approximately 16.50%, declining to 4.50% in 2033. The 2023 cost measurement began at 13.90%, declining to 4.50% in 2032. These estimates are exposed to changes in medical-cost inflation and utilization.

Investments, expected payments, and defined-contribution plans

The Cash Balance Plan’s target allocation is 75%–85% fixed income, 10%–20% equities, and 0%–10% real estate, private equity, and other investments. Its fixed-income strategy generally seeks to match the interest-rate sensitivity of plan liabilities. Long-duration fixed-income assets had an approximately 10-year duration at December 31, 2023, compared with 9 years in 2022. Plan investment risk and performance are reviewed quarterly. Some investments are valued using NAV practical-expedient measures or valuation models; different assumptions or methods could produce different fair values, and measured values may not represent net realizable or future values.

Defined-contribution plan expense was $1.0 billion in both 2023 and 2022, down from $1.1 billion in 2021.

Income taxes

Wells Fargo’s FY2023 income tax expense increased from FY2022, while its effective tax rate declined to 12.0%, primarily reflecting tax credits and changes in prior-year unrecognized tax benefits.

Tax credits reduced the effective tax rate by 7.1 percentage points in FY2023, compared with 8.0 points in FY2022 and 3.6 points in FY2021. Each year included $1.2B of low-income housing tax credit (LIHTC) proportional amortization expense, net of tax. Changes in prior-year unrecognized tax benefits reduced the rate by 4.6 points ($1.009B) in FY2023, 3.2 points ($503M) in FY2022, and 0.4 points ($122M) in FY2021. State and local taxes increased the rate by 3.9 points ($855M) in FY2023 and 3.7 points ($581M) in FY2022. Nondeductible expenses were $214M in FY2023, versus $560M in FY2022 and $368M in FY2021; the FY2021 amount included nondeductible goodwill impairment. All three years included nondeductible litigation and regulatory accruals.

Deferred tax position

Significant deferred tax asset components were NOL and tax-credit carryforwards of $4.369B ($5.513B at year-end 2022), allowance for credit losses of $3.648B ($3.393B), employee benefits of $3.201B ($2.799B), and net unrealized debt-security losses of $2.784B ($3.193B). Major deferred tax liabilities included mark-to-market items of $12.571B ($11.081B), leasing and fixed assets of $2.794B ($2.792B), and mortgage servicing rights of $1.552B ($2.153B).

The $222M valuation allowance relates to deferred tax assets in certain state and non-U.S. jurisdictions where realization is considered more likely than not not to occur, due to limited taxable income sources, carryback restrictions, or unavailable tax-planning strategies. Wells Fargo considers its remaining deferred tax assets more likely than not to be realized. The $4.369B carryforward balance comprised $3.978B of U.S. federal tax credits, $309M of state NOLs and credits, and $82M of non-U.S. NOLs and credits. Most carryforwards expire in varying amounts through 2043; U.S. federal corporate alternative minimum tax credits do not expire.

Unrecognized tax benefits and other developments

Unrecognized tax benefits declined to $4.114B at December 31, 2023, from $5.437B a year earlier. FY2023 additions were $246M for current-year positions and $352M for prior-year positions; reductions included $765M for prior-year positions, $389M from statute expirations, and $767M from settlements. Approximately $2.3B of the year-end balance would affect the effective tax rate if recognized; the remaining $1.8B relates to temporary differences.

Examinations or appeals could reduce gross unrecognized tax benefits by up to $1.2B within the next 12 months. Major open examinations cover U.S. tax years 2015–2020, California 2015–2020, New York State 2017–2019, and New York City 2015–2019.

Accrued interest and penalties shifted from a $436M expense at December 31, 2022, to a $29M benefit at December 31, 2023. Wells Fargo recognized related net tax benefits of $325M in FY2023 and $385M in FY2022. The company intends to keep certain other undistributed non-U.S. earnings permanently reinvested abroad and considers the related tax liability insignificant.

Earnings and dividends per common share

Wells Fargo’s net income and earnings applicable to common shareholders rebounded in FY2023 from FY2022, though both remained below FY2021 levels. Diluted and basic EPS followed the same pattern. Dividends declared per common share increased in each year shown.

FY2023 net income rose 40.0% year over year, and net income applicable to common stock increased 43.1%.

Wells Fargo adopted ASU 2018-12 for long-duration insurance contracts in Q1 2023; this section does not quantify its impact on EPS.

Other comprehensive income

Wells Fargo’s OCI swung to a gain in 2023, primarily because debt-securities losses were substantially smaller than in 2022. The figures below are in billions, except where noted.

The small differences between total OCI and OCI attributable to Wells Fargo reflect noncontrolling interests.

OCI components, net of tax

The 2023 derivatives-and-hedging gain included $16 million from fair value hedges and $395 million from cash flow hedges.

Accumulated other comprehensive income (loss)

AOCI improved to an $11.580 billion deficit at December 31, 2023, from a $13.362 billion deficit at December 31, 2022. The 2023 balance comprised:

Debt-securities AOCI improved from a $9.835 billion loss at year-end 2022. It includes after-tax unrealized losses on securities transferred from available-for-sale to held-to-maturity of $3.5 billion at December 31, 2023, compared with $3.7 billion at December 31, 2022. Those losses are amortized from AOCI into earnings over the same period as the related unamortized premiums and discounts. Wells Fargo adopted the long-duration insurance-contract accounting standard, ASU 2018-12, in the first quarter of 2023.

Regulatory capital and leverage

Wells Fargo and its insured depository institutions were considered well-capitalized at December 31, 2023. Capital ratios improved year over year in each approach and entity comparison; risk-weighted assets (RWA) declined for the Company under the Standardized Approach and for the Bank under both approaches.

The Company’s minimum SLR is 5.00%; the Bank must maintain 6.00% to qualify as well-capitalized. The Tier 1 leverage minimum is 4.00%.

Minimum risk-based capital requirements

Company requirements include a 1.50% G-SIB surcharge and a 2.90% stress capital buffer under the Standardized Approach, versus a 2.50% capital conservation buffer under the Advanced Approach. The Bank has a 2.50% conservation buffer under both approaches; the G-SIB surcharge does not apply to it.

Capital distributions, affiliate restrictions and restricted cash

Parent dividends and share repurchases are subject to the Federal Reserve’s capital plan rule and annual CCAR process, as well as applicable capital minimums. National-bank dividends without prior OCC approval are generally limited by retained net income. At year-end, Bank subsidiaries could have paid an additional $4.1B in dividends without prior approval, but Wells Fargo chose to retain more subsidiary capital to meet internal targets; nonbank subsidiaries could have paid an additional $26.5B without prior approval.

The Support Agreement may restrict intermediate holding-company dividends to the Parent if specified capital or liquidity triggers are breached, or if the Parent’s board authorizes a bankruptcy filing. Transactions between a bank and nonbank affiliates are limited to 10% of bank capital and surplus per affiliate and 20% in aggregate; credit extensions may require collateral.

Parent-only financial results

These statements reflect Wells Fargo & Company’s holding-company finances, including flows with subsidiaries, rather than the consolidated operating performance of the Wells Fargo group.

Higher subsidiary dividends and interest income supported FY2023 parent-only earnings, despite the loss in equity in undistributed subsidiary income.

The substantial year-over-year increase in comprehensive income primarily reflected the reversal in equity in subsidiaries’ other comprehensive income.

Parent-only balance sheet

The investments in subsidiaries include indirect ownership of bank subsidiaries with equity of $166.3B in 2023 and $163.9B in 2022.

Cash flows and capital allocation

During FY2023, the parent provided $5.420B in capital notes and term loans to subsidiaries and collected $1.730B of principal. Financing outflows included $11.851B of common-stock repurchases and $4.789B of common dividends. The parent issued $19.070B of long-term debt and repaid $9.311B; short-term borrowings and subsidiary indebtedness declined by a net $14.238B.

The company adopted ASU 2018-12, targeted improvements to accounting for long-duration insurance contracts, in Q1 2023.

Independent Auditor’s Report

The auditor issued an unqualified opinion that Wells Fargo’s consolidated financial statements for FY2023, FY2022, and FY2021 fairly present the company’s financial position, results of operations, and cash flows in accordance with U.S. GAAP. The auditor also gave an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2023.

The report identifies three critical audit matters (CAMs) involving complex or judgment-sensitive estimates. These matters do not qualify or modify the overall audit opinions.

• Allowance for credit losses (ACL): The ACL was $15.1B at December 31, 2023. Estimation depends on credit-loss models, borrower risk ratings, probability-of-default and loss-severity assumptions, economic forecasts and scenario weightings, and qualitative adjustments. For individually assessed commercial loans, estimates also use discounted cash flow or collateral fair-value methods. Audit complexity centered on model performance and assumptions, forecast periods and scenarios, qualitative adjustments, and the valuation of individually evaluated commercial real estate loans. These judgments make the estimate sensitive to credit conditions and economic assumptions; the report does not identify an impairment or audit adjustment.

• Residential mortgage servicing rights (MSRs): Residential MSRs had a fair value of $7.5B at December 31, 2023, associated with an underlying servicing portfolio of $560B. Wells Fargo carries these MSRs at fair value and recognizes periodic changes in earnings. Valuation uses projected net servicing cash flows and is especially sensitive to unobservable assumptions about prepayments (including borrower defaults), discount rates, and servicing costs. Mortgage rates, market conditions, and servicing standards can therefore affect both the reported asset value and earnings.

• Goodwill impairment: Goodwill totaled $25.2B at December 31, 2023; the Consumer Lending reporting unit held $7.1B of allocated goodwill. Annual impairment testing compares each reporting unit’s fair value with its carrying value using income and market approaches. The audit focused on Consumer Lending forecasts—including assumptions about future balance-sheet changes and business activity—and the discount rate, which can affect whether goodwill is impaired.

For these matters, audit procedures included testing relevant controls, evaluating data and assumptions, comparing forecasts with historical results and external information, and using specialized credit-risk and valuation expertise.

Wells Fargo quarterly financial data

Unaudited; amounts in dollars. Q4 2023 results are compared with Q4 2022 unless otherwise noted.

Income and earnings

Revenue increased 2.2%, as a 16.8% rise in noninterest income more than offset a 4.9% decline in net interest income. Higher interest income was outweighed by interest expense, which more than doubled year over year. Net interest income also declined sequentially for a third quarter, from $13.336B in Q1 2023 to $12.771B in Q4.

Noninterest income

Trading gains and mortgage banking improved substantially year over year, while card fees declined.

Noninterest expense

Noninterest expense declined 2.5% year over year, reflecting the unusually high operating-loss charge in Q4 2022. However, expense rose from $13.113B in Q3 2023; elevated “other” expense contributed to the sequential increase.

Sequential trends and share counts

From Q3 to Q4 2023, revenue declined from $20.857B to $20.478B, net interest income from $13.105B to $12.771B, and net income applicable to common stock from $5.450B to $3.160B; diluted EPS fell from $1.48 to $0.86. The provision for credit losses was $1.197B in Q3 and $1.713B in Q2, compared with $1.282B in Q4.

The lower average share count partly supported per-share growth relative to net-income growth. Q4 2023 included a $100M income tax benefit, compared with a $29M benefit in Q4 2022.

The section is a glossary of abbreviations used elsewhere in the filing. Its terms cover:

• Credit, balance-sheet and accounting measures: ACL, CECL, CET1, AOCI, OCI, HTM, AFS, CRE, NPA, DPD, PCD, TDR, FASB, GAAP, LOCOM, ASC and ASU.
• Liquidity, capital and regulation: LCR, NSFR, HQLA, RWAs, SLR, TLAC, CCAR, G-SIB, CFPB, FDIC, FHLB, FRB, BCBS, OCC and SEC.
• Mortgages and housing: ARM, LHFS, MBS, RMBS, MSR, FICO, FHA, FNMA, FHLMC, GNMA, VA, GSE, LTV and AVM.
• Investments, entities and risk: CLO, NAV, OTC, SPE, VIE and VaR.
• Other company, market and performance terms: BHC, CD, ESOP, ROTCE, ROA, ROE, S&P, SOFR and WIM.