Wells Fargo (WFC) -) shares powered higher Friday after the consumer-focused lender posted better-than-expected third quarter earnings thanks to a solid jump in net interest income linked to higher rates.
Wells Fargo is expected to post a bottom line of $5.8 billion, $1.48 per share, up 13.8% from the same period last year and well ahead of the Street consensus forecast of $1.24 per share.
Group revenues also impressed, rising 7% to $20.86 billion, topping analysts' estimates of $20.2 billion, while net interest income was up 8.3% at $13.105 billion. The group also forecast that pace, which measures the difference between cash flow from loans set against payouts on deposits, would rise by around 16% for the full year, up from its prior forecast of 14%.
"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," said CEO Charlie Scharf. "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."
The bank's profits were also hit by the payment of $1.8 billion to the Federal Deposit Insurance Corporation in August as it helped replenish the government's deposit insurance fund, which was drained of around $16 billion following the collapse of Silicon Valley Bank and Signature Bank and the sale of First Republic.
Wells Fargo said at the time of the payment in early August that it "expects a significant increase in its risk-weighted assets and a net increase in its capital requirements" following rule changes that require U.S. lenders to set aside larger amounts of cash in order to absorb potential losses in their loan portfolios under the so-called Basel III endgame capital requirements.
"While proposed bank capital rules include higher capital requirements, we are starting from a strong capital position and returning excess capital to shareholders remains a priority,” Scharf said.
The bank's exposure to the commercial real estate sector will also be in focus on the earnings call, after it set aside $949 million in the second quarter to cover potential losses, even as revenues from its holdings rose to $1.33 billion
Wells Fargo shares were marked 3.5% higher in late morning trading Friday to change hands at $41.16 each a move that would nudge the stock into positive territory for the past six months.
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