Wells Fargo Q2 Profit Up 3%, Matches View

(RTTNews) - Wells Fargo & Co. (WFC), the fourth-largest bank in the U.S. by assets, on Friday reported a 3 percent increase in profit for the second quarter from last year despite lower revenues. The results reflect a decline in provision for credit losses and slightly lower non-interest expenses that helped offset a 39 percent decrease in mortgage banking revenue.

Earnings per share for the quarter matched analysts' expectations, while revenues beat their estimates. The company is the first of the big U.S. banks to report quarterly results.

John Stumpf, chairman and CEO of Wells Fargo said, "By continuing to serve customers we grew loans, increased deposits and deepened our relationships. Our results also reflected strong credit quality driven by an improved economy, especially the housing market, and our continued risk discipline."

Wells Fargo, the largest U.S. mortgage lender, said its credit losses for the second quarter were $717 million, down 38 percent from the year-ago period.

The company released $500 million from the allowance for credit losses in the second quarter, reflecting improved credit performance that was driven primarily by the continued housing recovery.

Wells Fargo continues to expect future reserve releases absent a significant deterioration in the economic environment, but expects a lower level of future releases as the rate of credit improvement slows and the loan portfolio continues to grow.

Wells Fargo's net income applicable to common stock for the second quarter increased to $5.42 billion or $1.01 per share from $5.27 billion or $0.98 per share in the prior-year period.

On average, 29 analysts polled by Thomson Reuters expected the company to report earnings of $1.01 per share for the quarter. Analysts' estimates typically exclude special items.

However, revenue for the quarter declined 1 percent to $21.07 billion from $21.38 billion in the prior-year period. Analysts' had a consensus revenue estimate for the quarter of $20.82 billion.

Net interest income for the quarter edged up less than 1 percent from the year-ago period to $10.79 billion. Non-interest income declined 3 percent from last year to $10.28 billion, primarily on lower mortgage banking revenue.

Mortgage banking revenue for the quarter declined 39 percent from last year to $1.72 billion. Wells Fargo has been cutting jobs at its mortgage unit as higher mortgage interest rates slow down refinancing activity.

Home lending originations in the quarter declined 51 percent from the prior-year quarter to $47 billion, while mortgage applications decreased 57 percent to $72 billion.

Net interest margin for the quarter declined to 3.15 percent from 3.47 percent in the year-ago period. Provision for credit losses fell 67 percent from the year-ago period to $217 million. Non-interest expense declined less than 1 percent from the previous-year quarter to $12.19 billion.

Segment-wise, Community Banking segment net income increased 6 percent from the year-ago period to $3.43 billion. However, revenue decreased 3 percent to $12.61 billion, reflecting lower mortgage banking revenue.

This was partly offset by higher net interest income and growth in multiple fee income categories including equity gains, card fees, trust and investment fees, and deposit service charges.

Wholesale Banking net income declined 3 percent from last year to $1.95 billion. Revenue also decreased 3 percent to $5.95 billion, as strong loan and deposit growth, increased asset management fees and the gain on the insurance office divestiture were more than offset by lower PCI resolution income and market sensitive revenue, including lower customer accommodation trading revenue.

Wealth, Brokerage and Retirement segment net income grew 25 percent from the prior-year period to $544 million. Total revenue grew 9 percent to $3.55 billion, reflecting strong growth in both asset-based fees and net interest income along with higher gains on deferred compensation plan investments. This was partly offset by a decrease in brokerage transaction revenue.

WFC closed Thursday's trading at $51.81. In Friday's pre-market trades, the stock is down $0.01 or 0.02 percent to $51.80.