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Wells Fargo Beats on Earnings but Misses Revenue Forecasts

Wells Fargo posts better-than-expected fourth-quarter earnings though revenue falls steeply as a drop in consumer and business lending is offset by home lending.

Wells Fargo  (WFC) - Get Wells Fargo & Company Report posted better-than-expected fourth-quarter earnings but the stock slumped in premarket trading after revenue came in below forecasts.

The San Francisco-based bank reported net income of $2.99 billion, or 64 cents a share, for the fourth quarter, vs. $2.87 billion, or 60 cents a share, in the comparable year-earlier period. Analysts polled by FactSet had been looking for earnings of 58 cents a share.

Revenue was $17.93 billion, down from $19.86 billion in the fourth quarter of 2019. Analysts polled by FactSet had been expecting revenue of $19.347 billion. 

Net interest income was $9.275 billion, down $17 million, while non-interest income was $8.65 billion, roughly unchanged. Average deposits were $205.8 billion, down 20%.

“Although our financial performance improved and we earned $3 billion in the fourth quarter, our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us,” CEO Charlie Scharf said in a statement.

Wells Fargo in February 2020 agreed to pay $3 billion to settle criminal charges and a civil action stemming from its widespread mistreatment of customers in its community bank over a 14-year period.

A drop in consumer and business lending due to the Covid-19 pandemic and corresponding economic downturn was partially offset by an increase in home lending, the bank said.

Consumer and small business banking slipped 8% to $4.70 billion from $5.1 billion, while home lending rose 2% to almost $2 billion from $1.96 billion. 

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Nonperforming assets, meanwhile, increased 9% $8.89 billion from $5.65 billion, while non-accrual loans rose to $8.73 billion from $5.65 billion "... predominantly due to increases in the commercial real estate, residential mortgage and lease financing portfolios, partially offset by a decrease in the commercial and industrial portfolio," the bank said.

Net charge-offs remained low at $584 million, down almost a quarter from a year earlier. So far, the government’s expanded unemployment, stimulus checks, small business relief and loan deferral programs have staved off widespread loan losses, but bank executives caution they could still be coming.

Overall, the bank’s earnings included a $781 million restructuring charge, a $757 million reserve release due to the sale of its student-loan portfolio and a $321 million hit due to the “impact of customer remediation accruals.”

Wells Fargo is among several other big U.S. banks given the green light to resume share buybacks in the first quarter of 2021 by the Federal Reserve. 

The U.S. central bank lifted its buyback ban for the most profitable lenders, deeming that their capital buffers are sufficient to withstand potentially hundreds of billions of dollars in loan losses related to the Covid-19 pandemic and economic downturn.

Along those lines, the company’s board approved an increase in the bank's authority to repurchase common stock by an additional 500 million shares, bringing the total authorized amount to 667 million common shares.

Shares of Wells Fargo fell in premarket trading on Friday following the earnings release. They were down 5.21% at $32.94 in regular trading.

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