It’s been a banner earnings season for U.S. banks.
Wells Fargo’s fourth-quarter 2024 financial results were no different, with the lender posting strong guidance and better earnings than were expected by Wall Street.
But, as the bank’s leadership stressed on the Wednesday (Jan. 15) investor call, the quarter was a pivotal one for a different reason than just financials: it marked a significant turning point in the bank’s commitment to risk management and compliance.
“Building the right risk and control infrastructure remains our top priority, and we will continue to invest in this important work,” CEO Charlie Scharf told investors.
In September, Wells Fargo signed a formal agreement with the Office of the Comptroller of the Currency (OCC) to rectify deficiencies in the bank’s anti-money laundering (AML) and financial crimes risk management practices.
“Early last year, the OCC terminated a consent order it issued in 2016 regarding sales practices. The closure of this order was an important milestone and is a confirmation that we operate much differently today,” Scharf said, noting that it was the “sixth consent order terminated by our regulators since I joined Wells Fargo.”
With those six regulatory consent orders resolved since 2019, Wells Fargo is looking to make it clear that enhancing its risk management and compliance infrastructure remains the cornerstone of its operational strategy. This is vital as the company seeks to strengthen its governance and ensure adherence to regulatory standards.
However, the company acknowledged it is not yet done with its regulatory work, emphasizing that embedding a robust operational risk culture is still a work in progress.
Read more: Wells Fargo CEO More Confident in Bank’s Compliance Controls
Wells Fargo continues to channel significant resources into compliance. These investments are essential to achieving long-term regulatory goals while also positioning the company for sustainable growth.
“There are three primary areas where we expect to invest: incremental technology expense, including investments in infrastructure and business capabilities; other investments; and expected merit increases in performance-based discretionary compensation,” executives said.
“While we are not done, I’m confident that we will successfully complete the work required in our consent orders and embed an operational risk and compliance mindset into our culture,” said Scharf.
The company said it has been deliberate about rebuilding its internal culture to align with a more compliance-oriented mindset. This includes revamping its incentive structures to avoid past missteps, particularly in branch operations.
Beyond regulatory compliance, Wells Fargo identified cybersecurity as a critical area of risk management. The company emphasized the growing complexity of cyber threats and the importance of being prepared to address them.
“The biggest risk that we have that we spend the most time talking about is cyber at this point … which is why we spend so much time on that and have the level of investment that we have and put the resources into it,” said Scharf.
This shift underscores a broader lesson: compliance and risk management are not at odds with growth. Instead, aligning incentives with a culture of integrity can catalyze both.
See also: Compliance Moved From Cost Center to Growth Engine in 2024
For the full year 2024, the bank noted that over 2.4 million new credit card accounts were opened, contributing to strong spend growth (up $17 billion year over year). Net loan charge-offs were stable year-over-year but increased by 4 basis points compared to Q3 2024, reflecting higher losses in the credit card portfolio.
The company saw significant progress in earnings, supported by strong fee-based revenue growth (up 15%), which offset declines in net interest income (NII). Still, NII grew by $146 million (1%) from Q3 2024, marking the first sequential increase since Q4 2022. This was driven by higher customer deposit balances, which reduced reliance on higher-cost funding sources.
Average deposits increased compared to both Q3 2024 and Q4 2023, reflecting stabilization in migration trends to higher-yielding products and a reduction in corporate treasury CDs.
Non-interest expenses declined by 12% year-over-year, driven by lower FDIC special assessments and severance costs, as well as ongoing efficiency initiatives.
The company’s stock was up around 7% as of reporting on the news of its results.