Wells Fargo (WFC) - Get Wells Fargo & Company Report posted third-quarter earnings that missed analysts' forecasts as low interest rates resulted in a drop in net interest income, and on higher-than-expected pandemic-related operational costs.
The San Francisco-based bank reported net income of $2.04 billion, or 42 cents a share, for the third quarter, vs. $4.61 billion, or 92 cents a share, in the comparable year-earlier quarter. Analysts polled by FactSet had been looking for earnings of 44 cents a share.
Net interest income was $9.4 billion, down $2.3 billion and below analysts' forecasts of $9.6 billion. Non-interest income was $9.5 billion, down $891 million. Average deposits rang in at $1.4 trillion, up $107.7 billion, or 8% from a year earlier.
Revenue came in at $18.9 billion, down from $22 billion in the third quarter of 2019 though above FactSet estimates of $18 billion.
The net income figure included $1.2 billion of operating losses, "largely due to customer remediation accruals," the bank said, as well as $718 million in "severance-related restructuring charges."
The earnings followed the likes of Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report and Bank of America (BAC) - Get Bank of America Corp Report - the former smashing records on surging trading volumes and the latter beating on profit but missing on revenue.
A drop in both consumer and business lending also impacted results, the bank said. On a year-over-year basis, commercial loans were down $30 billion, reflecting lower loan demand as well as loan pay-downs, Wells Fargo said.
On the consumer side, loans were down $4.8 billion year over year though up $15.8 billion for the quarter, driven by increases in consumer real estate loans.
“Strong mortgage banking fees, higher equity markets, and declining sequential charge-offs positively impacted our results, while historically low interest rates reduced our net interest income and our expenses continued to remain elevated," CEO Charlie Scharf said in a statement.
“Our top priority continues to be the implementation of our risk, control, and regulatory work, but we are also taking targeted actions to improve the experience for our customers, clients, communities and employees. We expect that these actions will also improve our operational and financial performance,” Scharf said.
Nonperforming assets increased $378 million, or 5%, from the second quarter to $8.2 billion. Non-accrual loans increased $417 million to $8 billion due to a $304 million increase in consumer non-accrual loans driven by home and auto loans, and a $113 million increase in commercial real estate mortgage and lease financing loans.
While credit results improved in the third quarter as consumer delinquencies remained low, payment deferral activities instituted in response to the Covid-19 pandemic "could delay the recognition of delinquencies and net write-offs on loans, the bank said.
Shares of Well Fargo were down 3.19% at $23.25 in trading on Wednesday.