Wells Fargo sees drop in Q3 home lending income

The bank also set aside more money for anticipated losses from commercial real estate loans

Wells Fargo sees drop in Q3 home lending income

Wells Fargo has kicked off the earnings season, reporting a noticeable increase in net income despite the stress hitting the banking system.

The bank posted a 29% gain in net interest income in the second quarter. This represents a $4.9 billion increase from Q2 2022, Wells disclosed in its financial report. Its total revenue increased 20% to revenue of $20.5 billion.

"Our strong net interest income continued to benefit from higher interest rates, and we remained focused on controlling expenses," explained Wells Fargo CEO Charlie Scharf.

Wells Fargo, which downsized its home lending unit early this year, originated $7.8 billion of mortgage loans in the second quarter, up 18.2% from the previous quarter. However, the bank's home lending earnings were down 13% to $847 million during the quarter compared to $972 million in the second quarter of 2022.  The decline was due to loan spread compression and lower mortgage banking income driven by lower originations.

Read next: Wells Fargo lays off 500 mortgage staff as downsizing continues

Wells has also set aside an additional $994 million for expected losses from commercial real estate office loans. The company's provision for credit losses in the second quarter was $1.7 billion, compared to just $580 million a year ago.

"As expected, net loan charge-offs increased from the first quarter," Scharf said. "Commercial charge-offs increased driven by a small number of borrowers in commercial banking, with little signs of systemic weakness across the portfolio, and higher losses in commercial real estate, primarily in the office portfolio.

"We had a $949 million increase in the allowance for credit losses, primarily for commercial real estate office loans, as well as for higher credit card loan balances. While we haven't seen significant losses in our office portfolio to date, we are reserving for the weakness that we expect to play out in that market over time."

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