Wells Fargo & Co. said third-quarter net income rose 4.1% despite surging credit-loss provisions as the company was aided by a $1.2 billion hedging gain.
The San Francisco firm, the fourth-largest U.S. bank by market capitalization, said net income rose to $2.28 billion, or 68 cents a share, from $2.19 billion, or 64 cents a share, a year earlier. Revenue rose 10% to $9.85 billion.
The mean estimates of analysts surveyed by Thomson Financial were for earnings of 70 cents a share on revenue of $10.03 billion.
The latest quarter's results included $490 million in mortgage-related write-downs and reserve increases, a $638 million reduction in the value of mortgage-servicing rights and a $1.2 billion gain from hedging those rights.
Credit-loss provisions jumped 46% to $892 million.
"Given the severe disruption in the credit markets, it was a challenging quarter to be sure," said President and Chief Executive John Stumpf. "Despite that, we had strong growth in revenue and earnings per share."
Return on equity, an important measure of profitability, fell to 19.1% from 20%.
Wells Fargo, the nation's second-largest mortgage lender behind Countrywide Financial Corp. (CFC), stopped making subprime mortgages through brokers during the quarter amid escalating late payments and defaults that have been plaguing the entire mortgage industry. Wells Fargo had already been tightening its credit standards for approving subprime mortgages.
Net charge-offs rose to 1.01% from 0.86% a year earlier and 0.87% in the second quarter, with half the increase coming from increased home-equity weakness. Nonperforming assets rose to 0.88% of loans from 0.68% and 0.79%, respectively.
The value of delinquent loans jumped 30% to $1.26 billion.
Net interest margin, a measure of the difference between the bank's borrowing costs and lending rates, fell 0.24 percentage point to 4.55%.
Average loans rose 15% to $350.7 billion, and average core deposits increased 13% to $306.1 billion.
Earlier, Minneapolis-based U.S. Bancorp (USB), the nation's sixth-largest bank in terms of assets, posted a 2.2% drop in net income amid higher operating costs and credit-loss provisions.
In recent premarket trading, Wells Fargo shares rose 5 cents to $36.
