Wells Fargo & Co. reported Wednesday returning to profitability at $2.03 billion during the third quarter despite the continuing impact of the COVID-19 pandemic on its operations.
When including a preferred stock dividend payment of $315 million, net income was $1.72 billion.
By comparison, the bank had a $2.38 billion loss during the second quarter and $4.04 billion in net income a year ago.
The bank, however, missed analysts' earnings projections, in large part because it took a combined $2.37 billion in pre-tax charges. Those charges included $718 million in restructuring, representing primarily employee severance expenses, and $961 million in customer remediation accruals.
Diluted earnings were 42 cents, compared with a loss of 66 cents in the second quarter and diluted earnings of 92 cents a year ago.
The average earnings forecast was 47 cents by 12 analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.
Wells Fargo typically serves as a bellwether for financial stocks each quarter because it is among the first, along with Citigroup and JPMorgan Chase & Co., to file its report.
The main factor in the second-quarter loss was Wells Fargo taking a stunning $8.4 billion loan-loss provision on top of a $3.83 billion provision in the first quarter.
For the third quarter, the provision was $769 million.
The provision is designed to help banks absorb losses on loans they expect won't be repaid on time. It is a short-term measuring stick for how a bank expects its loan portfolio and revenue stream to perform as customers struggle to make monthly payments.
The second-quarter loss was Wells Fargo's first since the Great Recession of 2008 as it was taking over a collapsing Wachovia Corp. The board of directors drastically reduced during the third quarter the quarterly dividend from 51 cents to 10 cents.
Scharf, who will finish his first year as chief executive on Oct. 21, said the return to profitability "reflects the impact of aggressive monetary and fiscal stimulus on the U.S. economy."
"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."
Scharf said that given the continuing presence of COVID-19 and another round of federal fiscal stimulus is uncertain, "the trajectory of the economic recovery remains unclear ... but we remain strong with our capital and liquidity levels well above regulatory minimums."
The third-quarter profit was larger in part because Wells Fargo's income-tax expense was $645 million, compared with an income-tax expense of $1.3 billion a year ago. The benefit came mostly from the federal corporate tax-rate cut that went into effect in 2017.
Wells Fargo reported $9.37 billion in loan revenue, down 19.4% year over year and down 5.2% from the second quarter.
Fee income was at $9.49 billion, down 8.6% from a year ago, but up 19.3% from the second quarter.
Trust and investment fees were down 1% at $3.51 billion. Mortgage banking fees surged 241% to $1.59 billion, reflecting the appeal of lower mortgage rates for home purchases and refinancing. Deposit-related fees were town 12% to just under $1.3 billion, and card fees were off 11% at $912 million.
Non-performing assets were at $8.18 billion as of Sept. 30, up from $7.8 billion on June 30 and $5.98 billion on Sept. 30, 2019.
Net charge-offs were at $683 million on Sept. 30, compared with $1.11 billion on June 30 and $645 million on Sept. 30, 2019.