Michael P. Santomassimo
Senior Executive Vice President, Chief Financial Officer at Wells Fargo & Company
Thank you, Charlie, and good morning, everyone. We are pleased with the results in the third quarter. We again saw good growth in non-interest income across most businesses and expenses were well controlled. Net income for the third quarter was $5.1 billion or $1.42 per diluted common share. Some of the proceeds into securities with yields approximately 130 basis points higher than the securities we sold. The estimated earn back period for this repositioning is a little over two years. Without the impact of the investment securities portfolio repositioning, earnings per share would have been $1.52. When looking at our results compared with a year-ago, I'd remind you that our third quarter results last year included $349 million or $0.09 per share of discrete tax benefits.
Turning to slide four, net interest income declined $233 million or 2% from the second quarter. $128 million of this decline was due to the increased pricing on sweep deposits in advisory brokerage accounts in wealth and investment management that we highlighted on last quarter's call. This was the lowest linked quarter decline in net interest income since third quarter 2023 as customer migration to higher yielding deposit products continued to slow and the pace of deposit pricing increases also decelerated. Deposit costs were up 7 basis points in the third quarter with approximately half of this increase driven by the pricing increase on sweep deposits in advisory brokerage accounts.
The third quarter increase in deposit costs was lower than the 10 basis point increase in the second quarter and the 16 basis point rise in the first quarter. In response to the Federal Reserve rate cut in September, we have reduced rates on promotional deposit offers in our consumer businesses. Pricing on sweep deposits in advisory brokerage accounts, which are aligned to money market funds will continue to move in line with Fed rate cuts. Commercial deposit pricing has responded quickly to Federal Reserve rate reductions just as it did when rates were rising. We are continuously monitoring competitive conditions and deposit trends and will adjust pricing tenor and new balance requirements based on our observations.
We highlight loans and deposits on slide five. Average loans were down from both the second quarter and a year ago, with continued growth in credit card loan balances more than offset by declines in most other categories. I will highlight specific drivers when discussing our operating segment results. Average deposits increased $1.4 billion from a year-ago and growth in our customer deposits enabled us to reduce higher cost corporate treasury deposits. Average deposits were down $4.8 billion in the second quarter. This decline was driven by an $18.5 billion reduction in higher cost corporate treasury deposits, while customer deposits grew $13.7 billion from the second quarter. All else equal, a reduction in corporate treasury deposits is a positive for net interest income in the current environment.
Turning to non-interest income on slide six. We had strong growth in non-interest income, up 12% from year-ago. As Charlie highlighted, this growth reflects the benefits of the investments we've been making in our businesses as well as market conditions. We grew non-interest income across most categories, including double-digit increases year-over-year in many of our largest fee generating activities, including investment advisory, net gains from trading activities, deposit related fees and investment banking. We also benefited from improved results in our venture capital investments. I will highlight the specific drivers of non-interest income growth when discussing our operating segment results.
Turning to expenses on slide seven. Non-interest expense declined from both the second quarter and a year-ago. The impact of our efficiency initiatives helps reduce salaries in professional and outside services expense compared with a year ago. These declines were partially offset by higher revenue related compensation, predominantly in wealth and investment management as well as higher technology and equipment expense. Operating losses declined from a year ago and from the higher levels we had in the first half of this year.
Turning to credit quality on slide eight. Net loan charge-offs decreased 8 basis points from the second quarter to 49 basis points of average loans. The decline was driven by lower commercial net loan charge-offs, which were down $145 million from the second-quarter to 24 basis points of average loans with lower losses in both our commercial real estate and commercial and industrial portfolios. While losses in the commercial real estate office portfolio declined in the third quarter, market fundamentals remain weak and we still expect commercial real estate office losses to be lumpy as we continue to actively work with our clients.
Consumer net loan charge-offs declined $45 million from the second quarter to 83 basis points of average loans, driven by lower losses in the credit card portfolio. Non-performing assets decreased 3% in the second quarter, driven by lower commercial real estate non-accrual loans, commercial real estate office non-accruals declined $164 million, which included paydowns and net loan charge-offs.
Moving to slide nine. Our allowance for credit losses for loans was down $50 million from the second quarter with modest declines across most asset classes, largely offset by an increase in allowance for credit card loans driven by higher balances. Our allowance coverage for loans has been relatively stable over the past year as credit trends remain within our expectations. Our allowance coverage for our corporate investment banking commercial real estate office portfolio has also been relatively stable at approximately 11% since third quarter of 2023.
Turning to capital and liquidity on slide 10. Our capital position remains strong and our CET1 ratio of 11.3% continue to be well above our new CET1 regulatory minimum plus buffers of 9.8%, which became effective in the fourth quarter. The increase in our CET1 ratio from the second quarter included a benefit of 28 basis points from higher accumulated other comprehensive income due to lower interest rates and tighter mortgage backed security spreads. With the $3.5 billion of common stock repurchased in the third quarter, our share repurchases during the first three quarters of this year were $6 billion higher than in the same period a year ago and diluted average shares outstanding declined 7% from a year ago.
Turning to our operating segment results, starting with Consumer Banking and lending on slide 11. Consumer Small and Business Banking revenue declined 5% from a year ago, driven by lower deposit balances and the impact of customers migrating to higher yielding deposit products. However, the pace of migration continued to slow. The slight increase in home lending revenue from a year ago was driven by higher mortgage banking fees. Credit card revenue declined 2% from year ago as lower fee revenue more than offset higher net interest income. Auto revenue decreased 24% from a year ago, driven by lower loan balances and continued loan spreads compression. The decline in personal lending revenue from a year ago was also driven by lower loan balances and loan spread compression.
Turning to some key business drivers on slide 12. Retail mortgage originations declined 14% from a year ago, reflecting the progress we've made on simplifying the home lending business, but grew 4% from the second quarter. We also continued to make progress on reducing the size of our servicing business. The amount of third party mortgage loan service was down 16% from a year ago. Since we announced our new strategy early last year, we reduced headcount in home lending by 46%. The size of our auto portfolio continue to decline with period-end loan balances down 14% from a year ago, driven by previous credit tightening actions. Origination volume in the third quarter was stable year-over-year, and grew 11% from the second quarter. Debit card spending increased $2.3 billion or 2% from a year ago and credit card spending was up 10% from a year ago, with growth in all categories except fuel. Payment rates were modestly lower than a year ago, but remained above pre-pandemic levels.
Turning to commercial Banking results on slide 13. Middle market banking revenue was down 1% from a year ago, driven by lower net interest income, reflecting higher deposit costs, partially offset by growth in treasury management fees. Asset based lending and leasing revenue decreased 4% from a year ago, driven by lower net interest income and lease income, partially offset by improved results from equity investments. Average loan balances in the third quarter were down 1% compared with year-ago. Loan demand remained weak as many clients remain cautious about investing in inventory buildup and capital expenditures due to economic uncertainty, high borrowing costs.
Turning to corporate investment banking on slide 14. Banking revenues down 5% from a year ago, driven by higher deposit costs and lower loan balances. Commercial real estate revenue decreased 1% from a year ago, reflecting the impact of lower loan balances, partially offset by higher capital markets revenue. Markets revenue increased 6% from a year ago, driven by strong performance in rates, structured products and municipals, partially offset by lower revenue in equities. Average loans declined 6% from a year ago, driven by continued reductions in our commercial real estate portfolio and lower loan balances in banking as clients continue to access capital markets funding.
On slide 15, Wealth and Investment Management revenue increased 5% compared with a year ago due to higher asset based fees driven by increased market valuations as well as higher brokerage transaction activity, partially offset by lower net interest income driven by the increased pricing on sweep deposits in advisory brokerage accounts. As a reminder, the majority of win advisory assets are priced at the beginning of the quarter, so fourth quarter results will reflect market valuations as of October 1st, which were up from both a year ago and from July 1st.
Slide 16 highlights our corporate results. Revenue declined a year ago driven by net losses on debt securities related to the repositioning of the investment securities portfolio, partially offset by improved results from our venture capital investments.
Turning to our 2024 outlook for net interest income and non-interest expense on slide 17. We currently expect fourth quarter 2024 net interest income to be roughly in-line with the third quarter of 2024, which would imply an approximately 9% decline in full year 2024 net interest income compared with 2023. Based on this expectation, we believe we are close to the trough. However, exactly when the securities will be influenced by a variety of factors, including the pace of Fed rate changes, deposit mix from pricing, and day count.
Turning to expenses. We still expect full year 2024 non-interest expense to be approximately $54 billion, which has not changed from our guidance last quarter. As a reminder, we have outstanding litigation, regulatory, and customer remediation matters that could impact operating losses during the remainder of the year.
In summary, we had solid results in the third quarter, which demonstrated the progress we're making to transform Wells Fargo and improve our returns. We grew non-interest income by 12% from a year ago with growth across most businesses. We achieved this double digit growth even with the $447 million loss we took to reposition the investment securities portfolio, which will start to benefit our results in the fourth quarter. While this growth in non-interest income was more than offset by an expected decline in net interest income, the investments we have made in our businesses to drive better fee income and diversify our revenue were evident. We continue to make progress on our efficiency initiatives with expenses down from a year ago and headcount down for 17 consecutive quarters. Our results also reflected our credit discipline and strong capital position, which has enabled us to return more than $23 billion to shareholders over the past year through common stock dividends and share repurchases. And while we are pleased with the progress we've made, we are even more excited about the additional opportunity we have throughout all the businesses to continue to improve our results.
We will now take your questions.
