Wells Fargo & Company (NYSE:WFC) shares opened higher Friday after the bank reported its third-quarter earnings — beating earnings expectations despite a 31% drop in year-over-year profit.
The bank reported a profit of $3.53 billion, $0.85 per share, for the three months ended September 30, down from $5.12 billion, $1.17 per share, a year earlier. The dip was due in part to increased costs associated connected to a fake accounts scandal, as well as steps the bank took to boost its loan loss reserves with a potential recession looming, according to media reports.
Wells Fargo also reported earnings of $1.30 per share, which topped Street expectations of $1.09, and operating losses of $2 billion.
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Shares of the bank were up about 2.5% on the New York Stock Exchange.
"Our top priority remains strengthening our risk and control infrastructure which includes addressing open historical issues and issues that are identified as we advance this work," CEO Charlie Scharf said in a statement. "We remain at risk of setbacks as we work to complete the work and put these issues behind us and expenses this quarter reflect our ongoing efforts."
In terms of risk, the bank put released $784 million for credit losses in the quarter, down from $1.4 billion in the same period a year ago, a difference which the bank attributed to government stimulus received last year to aid economic recovery during the pandemic.
Another consideration is interest rates, which the Federal Reserve hiked by 150 basis points during the third quarter. Higher interest rates allow banks to earn more from loans.
“Wells Fargo is positioned well as we will continue to benefit from higher rates and ongoing disciplined expense management,” Chief Executive Charlie Scharf said, in a statement. “Both consumer and business customers remain in a strong financial condition, and we continue to see historically low delinquencies and high payment rates across our portfolios.”
Accordingly, Wells Fargo's average loans rose to $945.5 billion in the period from $854 billion a year earlier.
Looking ahead, Wells Fargo upped its guidance, projecting that net interest income will rise 24% in 2022, up from its previous guidance of 20%.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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