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Wells Fargo Quietly Cautions on Potential Loan Losses to Come

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Wells Fargo WFC posted third-quarter results that didn't quite meet analysts' expectations thanks to lower interest rates hitting how much it collects in interest income, though the bank also warned that it's keeping a watchful eye on non-performing assets and how that may impact earnings going forward. 

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. 

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.

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