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(Sharecast News) - Wells Fargo reported stronger-than-expected third-quarter earnings on Tuesday, buoyed by robust loan growth, improving credit performance, and a rebound in investment banking and wealth management revenues.
Net income rose to $5.59bn, or $1.66 per diluted share, up from $5.11bn, or $1.42 a share, a year earlier.
Total revenue increased 5% to $21.44bn, exceeding Wall Street expectations of $21.16bn.
The results marked Wells Fargo's first full quarter since the US Federal Reserve lifted its $1.95trn asset cap in June, ending a seven-year restriction imposed after its fake accounts scandal.
Freed from that constraint, the bank raised its medium-term return on tangible common equity target to 17% to 18%, up from 15%, reflecting growing confidence in its expansion strategy.
"The momentum we are building across our businesses drove strong financial results in the third quarter," said chairman and chief executive Charlie Scharf.
"Revenue grew with higher net interest income and strong, broad-based growth in fee-based income across both our consumer and commercial businesses."
The bank posted its highest linked-quarter loan growth in more than three years, with total average loans reaching $928.7bn.
Net interest income rose to $11.95bn, slightly below analyst estimates, while fee-based income outperformed across investment banking, trading, and wealth management.
Investment banking revenue surged 25% year-on-year to $840m, bolstered by a resurgence in dealmaking that saw Wells Fargo advise on major transactions including Union Pacific's $85bn takeover of Norfolk Southern and Sycamore Partners' $23.7bn acquisition of Walgreens Boots Alliance.
Credit quality improved further, with provisions for credit losses falling sharply to $681m from $1.07bn a year earlier.
Operating expenses rose 6% year-on-year to $13.85bn, partly reflecting $296m in severance costs, but the bank maintained an efficiency ratio of 65%, broadly in line with forecasts.
Return on equity reached 12.8%, beating the 12% consensus estimate, while return on tangible common equity held steady at 15.2%.
The bank returned $6.1bn to shareholders through the repurchase of 74.6 million shares and lifted its common dividend by 12.5%.
Scharf said the US economy "has been resilient and the financial health of our clients and customers remains strong," citing rising debit and credit card spending and solid auto loan growth.
"I'm excited about the continued progress we are making on our strategic priorities.
"I am more optimistic than ever about our path forward as we continue to leverage our strong franchise to position us for long-term growth."
At 1033 EDT (1533 BST), shares in Well Fargo & Company were up 4.73% at $82.65.
Reporting by Josh White for Sharecast.com.