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 actions and consent orders, which require it to undertake changes to its business, operations, and risk management practices. Addressing these regulatory actions is expected to take multiple years, and the company may continue to identify more issues as it implements its risk and control infrastructure, which could result in additional regulatory actions.

Financial Performance

In the third quarter of 2024, Wells Fargo generated $5.1 billion of net income and diluted earnings per share (EPS) of $1.42, compared to $5.8 billion of net income and diluted EPS of $1.48 in the same period a year ago. The decrease in net income was predominantly due to a $1.4 billion decrease in net interest income, partially offset by a $924 million increase in noninterest income.

For the first nine months of 2024, the company generated $14.6 billion of net income and diluted EPS of $3.94, compared to $15.7 billion of net income and diluted EPS of $3.96 in the same period a year ago. The decrease in net income was predominantly due to a $3.8 billion decrease in net interest income and a $922 million increase in noninterest expense, partially offset by a $3.6 billion increase in noninterest income.

Table 1 provides a summary of the company’s financial performance:

Table 1: Consolidated Financial Highlights

Net Interest Income and Net Interest Margin

Net interest income and net interest margin decreased in both the third quarter and first nine months of 2024, compared to the same periods a year ago, driven by the impact of higher interest rates on interest-bearing liabilities, including a deposit mix shift to interest-bearing deposits, as well as lower loan balances, partially offset by higher interest rates on interest-earning assets.

Noninterest Income

Noninterest income increased in the third quarter and first nine months of 2024, compared to the same periods a year ago, primarily due to:

• Higher deposit-related fees, investment advisory and other asset-based fees, commissions and brokerage services fees, and investment banking fees
• Higher net servicing income and net gains from trading activities
• Higher net gains from equity securities
• Impacts related to the adoption of Accounting Standards Update 2023-02 for renewable energy tax credit investments

Noninterest Expense

Noninterest expense was relatively flat in the third quarter of 2024, compared to the same period a year ago, and increased in the first nine months of 2024, compared to the same period a year ago. The increase was primarily driven by:

• Higher technology, telecommunications and equipment expense
• Higher operating losses, including expenses for customer remediation activities Partially offset by:
• Lower professional and outside services expense

Capital and Liquidity

Wells Fargo maintained a strong capital position, with a Common Equity Tier 1 (CET1) ratio of 11.34% under the Standardized Approach (the company’s binding ratio) as of September 30, 2024. This ratio continued to exceed the regulatory minimum and buffers of 8.90%. The company’s total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 25.29%, which exceeded the regulatory minimum of 21.50%.

The company’s liquidity coverage ratio (LCR) was 127%, which continued to exceed the regulatory minimum of 100%.

Credit Quality

Credit quality reflected the following:

• The allowance for credit losses (ACL) for loans of $14.7 billion at September 30, 2024, decreased $349 million from December 31, 2023.
• The provision for credit losses for loans was $3.2 billion in the first nine months of 2024, compared to $4.1 billion in the same period a year ago. The decrease was driven by lower losses in auto loans, commercial real estate loans, and residential mortgage loans, partially offset by higher losses in credit card loans.
• Nonperforming assets (NPAs) of $8.4 billion at September 30, 2024, decreased $59 million, or 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.
• Criticized loans in the commercial portfolio were $37.6 billion at September 30, 2024, compared to $33.0 billion at December 31, 2023, primarily driven by increases in criticized commercial and industrial loans.

Operating Segment Results

Wells Fargo’s management reporting is organized into four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management. All other business activities are included in Corporate.

Consumer Banking and Lending

• Revenue decreased in both the third quarter and first nine months of 2024, compared to the same periods a year ago, driven by lower net interest income due to lower deposit and loan balances.
• Provision for credit losses reflected an increase in the allowance for credit card loans.
• Noninterest expense decreased due to lower operating costs and lower operating losses, as well as the impact of efficiency initiatives.

Commercial Banking

• Revenue decreased in both the third quarter and first nine months of 2024, compared to the same periods a year ago, driven by 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.
• Provision for credit losses reflected an increase in net charge-offs.
• Noninterest expense decreased due to lower personnel expense reflecting the impact of efficiency initiatives.

Corporate and Investment Banking

• Revenue was relatively flat in the third quarter of 2024, compared to the same period a year ago, and increased in the first nine months of 2024, compared to the same period a year ago, driven by higher noninterest income, partially offset by lower net interest income.
• Provision for credit losses decreased in the third quarter of 2024, compared to the same period a year ago, and increased in the first nine months of 2024, compared to the same period a year ago.
• Noninterest expense increased in both the third quarter and first nine months of 2024, compared to the same periods a year ago, driven by higher operating losses and technology, telecommunications and equipment expense.

Wealth and Investment Management

• Revenue increased in both the third quarter and first nine months of 2024, compared to the same periods a year ago, driven by higher investment advisory and other asset-based fees, commissions and brokerage services fees, and net servicing income.
• Noninterest expense increased in both the third quarter and first nine months of 2024, compared to the same periods a year ago, driven by higher personnel expense and technology, telecommunications and equipment expense.

Outlook

Wells Fargo continues to face challenges in addressing its regulatory actions and building a stronger risk and control infrastructure. The company expects to continue identifying more issues as it implements these improvements, which could result in additional regulatory actions and financial impacts. However, the company remains committed to devoting the necessary resources to operate with strong business practices and controls, maintain the highest level of integrity, and have an appropriate culture in place.

The company also faces potential headwinds from regulatory proposals that could significantly reduce its overdraft and debit card interchange fee revenue. While the ultimate impact of these proposals is uncertain, they could have a material adverse effect on the company’s financial performance if implemented as currently proposed.

Overall, Wells Fargo’s focus on strengthening its risk and control infrastructure, while navigating the regulatory landscape and competitive pressures, will be critical to its long-term success and ability to generate sustainable financial performance for its shareholders.