Wells Fargo Second Quarter Results Meet Expectations

Wells Fargo reported earnings results for the second quarter that were roughly in line with analysts’ expectations. The San Francisco-based bank reported a profit of $5.56 billion, or $1.01 a share, lower than the $5.72 billion, or $1.03 a share, reported in the same period of 2015. Revenue was $22.16 billion. Both were in line with analysts’ expectations.

During the first quarter, the bank’s return on equity reached 11.7 percent, the lowest ROE for the bank since the fourth quarter of 2010. This was down from 11.75 percent last quarter and 12.71 percent in the year-earlier period. Costs increased 3 percent to $12.87 billion from $12.47 billion in the second quarter of 2015. Expenses as a share of revenue was 58.1 percent in the second quarter, which was within the 55 -59 percent range targeted by Wells Fargo.

Wells Fargo said its second-quarter profit fell due to low interest rates sapping profitability. Low interest rates mean that the banks don’t earn as much money by lending out their deposits. Wells Fargo reported that its total loans at the end of the second quarter were $957.16 billion, 7.7 percent higher than the same period a year ago. Commercial and industrial loans rose 14 percent to$323.86 billion from $284.82 billion in the second quarter of 2015.

Because Wells Fargo is one of the largest energy lenders, a slump in oil prices has also hurt profitability. Low oil prices have pushed many energy firms into distress. While oil has recovered somewhat in the last few months, they still aren’t at profitable levels for many energy companies. This leaves Wells Fargo, along with other banks, exposed to large amounts of bad debt. In the second quarter, Wells Fargo charged off $263 million in energy loans, 29 percent higher than the amount it charged off in the first quarter.

Wells Fargo’s mortgage business is the largest in the U.S. by volume. The bank extended $63 billion in home loans between the end of March and the end of June, compared with $44 billion in the first quarter of 2016. The company earned $1.41 billion in fees from the mortgage business in the second quarter, down 17 percent from the $1.71 billion earned in same period a year ago.

Overall profits at Wells Fargo’s community banking division were $3.18 billion, 1.1 percent lower than the second quarter of 2015. Wells Fargo’s wholesale banking division recorded profits of $2.07 billion, down 5.4 percent from the same quarter last year. The bank’s wealth and investment management unit profits were flat at $584 million.

Wells Fargo has been one of the most consistent big banks at growing earnings and revenue.
However, the bank’s shares have fallen 10 percent since the start of 2016. Over the same period, the KBW Nasdaq Bank index of large commercial lenders has dropped 8 percent. Wells Fargo is currently the nation’s third-largest bank by assets.

 

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