Wells Fargo’s stock gains as third-quarter earnings top estimates by a wide margin

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Wells Fargo & Co.’s stock jumped 3.9% Friday, after the bank swept past earnings estimates for the third quarter, buoyed by higher interest rates and trading revenue.

The bank posted net income of $5.767 billion, or $1.48 a share, for the quarter, up from $3.592 billion, or 86 cents a share, in the year-earlier period. Revenue rose to $20.857 billion from $19.566 billion.

The FactSet consensus was for EPS of $1.24 and revenue of $20.086 billion.

“Our revenue growth from a year ago included both higher net interest income and noninterest income as we benefited from higher rates and the investments we are making in our businesses,” Chief Executive Charlie Scharf said in a statement.

“Expenses declined from a year ago due to lower operating losses. While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining and charge-offs continuing to deteriorate modestly,” he added.

Citi analyst Keith Horwitz said Wells Fargo turned in a “strong quarter” with higher fees on continued robust trading and improve capital market offsetting higher expenses.

Credit costs were lower than expected, but he flagged “early signs of credit deterioration” in the office real estate market as total non-performing assets increased by 17%.

Average loans fell to $943.2 billion in the quarter from $945.5 billion a year ago. Average deposits fell to $1.340 billion from $1.408 billion.

The bank set aside $1.197 billion in provisions for loan losses, up from 784 million a year ago. The number included $333 million allowance stemming from commercial real estate office loans, and higher credit card loan balances. That was partially offset by a lower allowance for auto loans.

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In a sign there’s some pressure on loans amid higher interest rates, Wells Fargo said net charge offs came to $850 million, up from $399 million a year ago. Commercial real estate charge-offs climbed to $93 million after net recoveries a year ago.

Net-interest income rose to $13.105 billion from $12.098 billion a year ago due to higher interest rates.

Noninterest income rose to $7.752 billion from $7.468 billion, driven by higher trading revenue, higher investment banking fees and an increase in fees from wealth and investment management on higher market valuation. That was partly offset by lower mortgage banking income and lower fees from deposits.

Revenue from home lending fell 14% to $840 million from $973 million a year ago, weighed down by lower originations and lower servicing income.

Mortgage rates have climbed steadily as the Federal Reserve has raised interest rates, dampening demand for new loans. Mortgage rates rose for the fifth week in a row according to data released on Thursday, amid concerns over whether the U.S. Federal Reserve will hike interest rates, as well as over the ongoing conflict in Israel and Gaza.

The 30-year fixed-rate mortgage averaged 7.57% as of Oct. 12, according to data released by Freddie Mac 
FMCC,
+0.66%.

Wells Fargo said its credit-card revenue rose 2% to $1.375 billion from $1.349 billion, driven by higher loan balances.

Auto loans fell 15% to $360 million from $423 million, driven by loan spread compression and lower loan balances. Revenue from personal loans rose 14% to $341 million.

The stock
WFC,
+3.07%
has fallen about 4% in the year to date, while the S&P 500
SPX
has gained 13%.

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