Wells Fargo set aside $1.029 billion in the third quarter to cover loans that may go bad, up from $681 million a year earlier. The bank reported higher profit anyway. Net income was $5.951 billion, up 6 percent, and earnings per share rose to $1.87 from $1.66, according to the results the bank released on October 13.
That 51 percent jump in the bad-loan provision is the line that tends to draw attention to a bank’s quarter. In Wells Fargo’s own account, it is mostly a story about a bigger loan book, not about borrowers falling behind.
What the $1.029 billion pays for
A provision is money a bank puts aside now against losses it expects later. It is an estimate, and it is booked as an expense. Wells Fargo’s earnings release, filed with the Securities and Exchange Commission, says the larger provision reflects a higher reserve for commercial and industrial loans and for auto loans, driven by higher loan balances. A smaller reserve for commercial real estate loans offset part of it.
The loan book did grow. Average loans were $1.0334 trillion, up 11 percent from $928.7 billion a year ago, the release shows. Average deposits rose 11 percent as well, to $1.4829 trillion from $1.3399 trillion.
Actual losses barely moved. Net charge-offs, the loans the bank wrote off as uncollectable, came to $983 million in the quarter, or 0.38 percent of average loans. For consumers alone the rate was 0.70 percent, per the bank’s earnings presentation.
People who have a Wells Fargo mortgage, auto loan, credit card or business line are the ones asking whether a bigger reserve means the bank is tightening up on them. Nothing in the results points to that. A reserve is an accounting estimate of future losses across the whole portfolio. It is not a change to anyone’s rate, limit or terms, and the bank did not announce any in this release.
Wells Fargo’s $983 million in charge-offs is one of the numbers the bank resets every quarter, so the picture on bad loans changes with each report.
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Reserves are bigger even as bad loans shrink
The release puts the allowance for loan credit losses at $14.458 billion, against $14.311 billion a year ago. As a share of total loans, the allowance fell to 1.38 percent from 1.52 percent, because the loan book grew faster than the reserve.
Nonaccrual loans, those on which the bank has stopped counting interest as income because payments are in doubt, fell to $7.060 billion from $7.614 billion. That is 0.67 percent of total loans, down from 0.81 percent.
Chairman and chief executive Charlie Scharf said in the release: “our data shows that our consumer and business customers are doing well.” He added that the bank “will continue to remain vigilant about risk as we build for the long term.”
Credit cards, autos and commercial property
The release gives a segment view. Credit card revenue rose 3 percent, and card earnings were $1.710 billion against $1.663 billion. Auto lending earned $341 million, up 33 percent from $256 million, and Scharf noted that auto originations rose 15 percent. Commercial real estate earnings in the bank’s investment banking arm slipped 1 percent to $1.171 billion from $1.186 billion, which the release attributes mainly to interest rate effects.
Other pieces of the quarter: revenue was $21.870 billion, up 2 percent, and net interest income, the difference between what the bank earns on loans and pays on deposits, rose 5 percent to $12.517 billion. Expenses fell 1 percent to $13.743 billion. The bank’s headcount was down 8 percent from a year ago, part of the efficiency work Scharf credits for funding investment elsewhere. Wells Fargo bought back $2.5 billion of its stock, or 28.6 million shares.
Not every account of the quarter was as upbeat. Insurance-industry site Beinsure, in a roundup of bank results, reported that revenue and net interest income came in below analysts’ estimates. The profit and the provision figures are the bank’s own.
Reading a bank’s loan-loss numbers
Anyone who wants to check the bank’s credit picture for themselves can do it for free. The full release is posted on the SEC’s EDGAR system, linked above, and Wells Fargo’s presentation breaks charge-offs out by consumer and commercial loans. The tables for the allowance, nonaccrual loans and net charge-offs are the ones that show how the reserve compares with actual losses.
The ratios matter more than the dollar totals. The allowance at 1.38 percent of loans, nonaccrual loans at 0.67 percent and charge-offs at 0.38 percent give a read on how much cushion the bank holds and how much of its lending is in trouble. A rising provision paired with falling nonaccrual loans, as here, points to growth, not stress.
These results are preliminary and are subject to the bank’s quarterly report, which carries the final tables. Next quarter’s release will show whether the allowance ratio, now down from 1.52 percent, keeps drifting lower or turns back up.
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This article was produced with AI assistance and reviewed by The Financial Wire’s editorial team.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
