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CHARLOTTE, NC (Adam O'Daniel/Charlotte Business Journal) -
Wall Street's initial reactions to Wells Fargo's record profit in the second quarter is generally positive.
Baird Equity Research analyst David George says in a note to investors that overall the San Francisco-based bank had a positive quarter.
"From our perspective, this was a solid quarter from WFC," he says. "While mortgage revenue helped drive some of the revenue upside in the quarter, (net interest margin) and spread revenue trends were better than expected, capital continues to improve, expenses were well controlled and and core loan growth showed improvement. Given the recent out performance of the stock, gains today could be muted, but we continue to like WFC, especially on weakness."
Wells shares were trading up over 1.3% to $33.29 in early trading.
Wells Fargo, with $1.3 trillion in assets, earned $4.4 billion of 82 cents per share in the three month period ending June 30 after paying preferred dividends, a new quarterly record, and up from $3.7 billion in profits for the same period a year ago. So far this year the bank has recorded $8.4 billion n profit, a 15% increase through this time last year.
The results beat Wall Street expectations by a penny per share.
Wells' record earnings were bolstered by strong mortgage revenue as more consumers rushed to refinance their homes and Wells Fargo continued to expand its share of the mortgage market. More than one-third of all U.S. mortgages are now funded by Wells, tops among U.S. banks.
However, in a separate announcement Thursday the bank said it will cease wholesale lending to independent mortgage brokers, which accounts for 5% of the company's mortgage business. That news followed a $175 million settlement of allegations that Wells-affiliated brokers had violated fair-lending rules and steered some black and Hispanic borrowers into higher-priced loans from 2004 to 2009. The bank denied the allegations.
Wells on Friday says it saw an increase in lending and deposits in most of its units during the second quarter, a sign that customers are both borrowing more and bringing more of their business to the bank. The number of bad loans Wells charged off decreased to its lowest level since the third quarter of 2011.
Altogether, the bank increased its total core loan portfolio by $13.8 billion.
It also trimmed its expense line by $600 million as it works through an efficiency program known as Project Compass. Wells Fargo reduced its headcount in the second quarter to 264,400 compared to 266,600 at this time a year ago and 264,900 on March 31 this year.
"While the economic recovery remains uneven, we continued to meet our customers' financial needs and benefited from signs of stabilization in the housing market," Chairman and CEO John Stumpf said in a statement before the markets opened. "The foundation of our business is putting the customer at the center of all we do. Because of that focus, our customers entrusted more of their business with us—we had record quarterly mortgage applications, increases in lending to consumers and businesses and continued growth in deposits and cross-sell."
Revenue dipped slightly in the second quarter to $21.3 billion from $21.6 billion in the first quarter this year but up from $20.4 billion in the same period a year ago. The bank attributed the linked-quarter decline to smaller income from its trading unit. The company says revenue increased from the first quarter in the following units: capital finance, capital markets, commercial banking, commercial mortgage servicing, commercial real estate, corporate banking, corporate trust, debit card, equipment finance, global remittance, government and institutional banking, home equity, international, merchant services, real estate capital markets and wealth management.
The bank's interest income was flat, holding the same 3.91% net interest margin as the first quarter. Net interest margin reflects the spread between what a bank pays for deposits and the interest income it generates from lending money, an important metric for banks.
Stumpf began a conference call with investors and analysts at 10 a.m. Check back for updates.
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