(Bloomberg) — Wells Fargo & Co. beat analysts’ expectations for third-quarter profit as Chief Executive Officer Charlie Scharf makes progress on his turnaround efforts, but shares declined as expenses were higher than anticipated and loans fell.

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The bank reported net income rose to $5.1 billion, padded by a $1.7 billion reserve release, according to a statement Thursday. Still, the firm took a $250 million charge related to its latest regulatory order, which drove costs higher than analysts expected.

The mixed results are a reminder that challenges remain for Scharf, who took the helm of Wells Fargo in 2019. The bank has been cutting jobs and slashing costs as Scharf seeks to boost the firm’s profitability after years of scandals. Non-interest expenses fell nearly 13%, though analysts had expected a 14% drop.

“The significant deficiencies that existed when I arrived must remain our top priority,” Scharf said in the statement. “We are a different company today and the operational and cultural changes we’ve made are enabling us to execute with significantly greater discipline than we have in the past.”

Shares of Wells Fargo dropped 2.17% to $45.05 at 9:51 a.m. in New York.

Average loans fell 8% from the prior year, Wells Fargo said. The biggest U.S. banks have been struggling with weak loan growth as consumers and businesses, bolstered by massive government stimulus programs during the pandemic, refrained from borrowing. The rise of the delta variant has also delayed a return to normal and slowed economic activity.

Headcount fell to 253,871 as of the end of September from 259,196 in June. Wells Fargo no longer has the largest workforce of any U.S. bank after rival JPMorgan Chase & Co.’s staff increased to 265,790 in the third quarter. The San Francisco-based firm also cut branches by 8%, another part of Scharf’s cost-cutting measures.

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Last year, the biggest U.S. banks set aside billions of dollars in anticipation of credit losses as the pandemic dragged on the economy. As the outlook has improved, firms have been releasing those reserves. Wells Fargo has $14.7 billion set aside, down 28% from a year ago.

During the quarter, Wells Fargo was hit with a new regulatory action and a $250 million fine over its lack of progress addressing long-standing problems — a topic that is sure to come up on the bank’s analyst call. The firm is also still under a Federal Reserve-imposed asset cap, which limits its balance sheet. Period-end assets were $1.95 trillion, up from $1.92 trillion.

Also in Wells Fargo’s results:

  • Loans dropped 14% in the firm’s consumer unit and 12% in commercial banking compared to the prior year; net interest income, a measure of how much the bank profits from lending, fell 5%

  • The bank reported revenue of $18.8 billion, exceeding analysts’ expectations but lower than a year ago

  • Net charge-offs fell 65% in the quarter, a sign of a strengthening U.S. economy

(Updates with shares, additional earnings details starting in fifth paragraph.)

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