Overview

Wells Fargo & Company is a leading financial services company with approximately $1.9 trillion in assets. The company provides a diverse range of banking, investment, and mortgage products and services through its four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management.

Wells Fargo’s top priority remains building a strong risk and control infrastructure. The company is subject to several regulatory consent orders and actions, which require it to make changes to its business, operations, products, services, and risk management practices. Addressing these regulatory issues is expected to take multiple years, and the company may continue to identify new issues as it strengthens its controls, which could lead to additional regulatory actions.

Financial Performance

In the third quarter of 2024, Wells Fargo generated $5.1 billion in net income and $1.42 in diluted earnings per share, compared to $5.8 billion in net income and $1.48 in diluted EPS in the same period a year ago. For the first nine months of 2024, the company reported $14.6 billion in net income and $3.94 in diluted EPS, compared to $15.7 billion in net income and $3.96 in diluted EPS in the first nine months of 2023.

The decrease in earnings was primarily driven by:

Net Interest Income

• Lower net interest income due to the impact of higher interest rates on interest-bearing liabilities, including a deposit mix shift to higher-yielding deposits, as well as lower loan balances.

Noninterest Income

• Higher noninterest income, driven by increases in deposit-related fees, investment advisory and asset-based fees, commissions and brokerage services fees, investment banking fees, and net gains from trading activities. This was partially offset by losses related to the repositioning of the investment securities portfolio.

Noninterest Expense

• Slightly lower noninterest expense, with decreases in professional and outside services expense offset by higher technology, telecommunications and equipment expense.

Credit Quality

• The allowance for credit losses for loans decreased $349 million from December 31, 2023, reflecting decreases for auto loans, commercial real estate loans, and residential mortgage loans, partially offset by increases for credit card loans.
• Net loan charge-offs in the commercial portfolio increased, primarily due to higher losses in the commercial real estate portfolio. Consumer portfolio net loan charge-offs also increased, driven by higher losses in the credit card portfolio.
• Nonperforming assets decreased 1% from December 31, 2023, driven by a decrease in residential mortgage nonaccrual loans, partially offset by an increase in commercial and industrial nonaccrual loans.

Capital and Liquidity

• Wells Fargo maintained a strong capital position, with a Common Equity Tier 1 ratio of 11.34% under the Standardized Approach, exceeding regulatory minimums.
• The company’s total loss absorbing capacity (TLAC) ratio was 25.29%, above the regulatory minimum of 21.50%.
• The company’s liquidity coverage ratio (LCR) was 127%, exceeding the regulatory minimum of 100%.

Operating Segment Results

Consumer Banking and Lending

• Revenue decreased due to lower net interest income from lower deposit and loan balances.
• Provision for credit losses increased, reflecting an increase in the allowance for credit card loans.
• Noninterest expense decreased, driven by lower operating costs and operating losses, as well as the impact of efficiency initiatives.

Commercial Banking

• Revenue decreased due to lower net interest income reflecting the impact of higher interest rates on deposit costs, partially offset by higher deposit-related fees and other noninterest income.
• Noninterest expense decreased due to lower personnel expense from efficiency initiatives.

Corporate and Investment Banking

• Revenue was relatively flat, with higher noninterest income from increased investment banking fees and net gains from trading activities offset by lower net interest income.
• Noninterest expense increased slightly due to higher technology, telecommunications and equipment expense.

Wealth and Investment Management

• Revenue increased, driven by higher investment advisory and asset-based fees reflecting higher market valuations, as well as higher commissions and brokerage services fees.
• Noninterest expense increased, primarily due to higher revenue-related compensation expense.

Outlook

Wells Fargo continues to face significant regulatory challenges as it works to address the requirements of various consent orders and actions. Addressing these issues is expected to take multiple years, and the company may identify additional areas of concern as it strengthens its risk and control infrastructure, which could lead to further regulatory actions.

The company also faces potential headwinds from regulatory proposals that could impact its revenue, including limits on overdraft fees and reductions in debit card interchange fees. These proposals, if adopted, could have a significant impact on the company’s financial performance.

Despite these challenges, Wells Fargo remains focused on building a stronger, more resilient institution with appropriate risk and control practices. The company’s strong capital and liquidity positions provide a solid foundation to navigate the current environment and position the company for long-term success.