Wells Fargo, the fifth-largest U.S. bank, said second-quarter profit rose 9% to a record, as higher customer fees offset a decline in mortgage banking income and a jump in loan losses.
Net income for the San Francisco-based company increased to $2.28 billion, or 67 cents per share, from $2.09 billion, or 61 cents, a year earlier. Revenue rose 13% to $9.89 billion, while expenses rose just 11%.
“We had a good second quarter on the mortgage side,” Howard Atkins, chief financial officer at Wells Fargo, told CNBC Tuesday. “Mortgage applications were up 6% year-over-year--the volume is still there. When you look at the organization more broadly, we had double-digit top-line growth, double-digit earnings per share growth, double-digit growth in commercial loans, total deposits and very strong growth in all our fee-based businesses – asset management, insurance, real estate brokerage, trust and investment fees and credit card fees. This was very solid quarter across the board.”
Analysts on average forecast profit of 67 cents per share on revenue of $9.63 billion, according to Reuters Estimates.
"It was a typical Wells Fargo quarter," said Mark Batty, an analyst at PNC Wealth Management in Philadelphia, which invests $75 billion and owns the bank's shares. "Credit quality was relatively benign, given issues surrounding subprime lending."
A 23% increase in fee income to $4.7 billion bolstered results, as gains from trust and investment fees and card fees offset a 6% drop from mortgage banking.
Wells Fargo is the largest U.S. bank so far to report results for the second quarter, when stagnating housing prices and rising borrowing costs caused more borrowers to default on home loans.
The bank, which is the nation's second-largest mortgage provider, said it is better able to withstand the turmoil afflicting "subprime" and other lenders because it doesn't make the exotic loans that caused dozens of rivals to retrench or collapse.
Wells Fargo said quarterly home loan applications rose 6% to $114 billion, while originations fell just 1% to $80 billion. "Given the turmoil in the market, business is somewhat being directed our way," Chief Financial Officer Howard Atkins said in an interview.
Credit Losses Rise
Credit losses rose 67% from a year earlier to $720 million, but just 1% from the first quarter. These losses were "very much in line with our expectations," Atkins said.
Wells Fargo's net interest margin, the highest of any large bank, rose to 4.89% from 4.76 percent a year earlier.
It declined from the first quarter's 4.95%, however, as the bank bought $30 billion of securities with "substantially higher yields." The bank said this should boost net interest income, which rose just 4% last quarter to $5.2 billion.
Profit rose 14% to $1.55 billion from retail banking, and 13% to $570 million from wholesale business banking. At Wells Fargo Financial, which lends to less creditworthy people, profit fell 31% to $156 million.
Customers also bought more products. The bank said it sold an average of 5.4 products to each retail customer, up from three when Norwest Corp. and Wells Fargo merged in 1998.
Results benefited from June's roughly $645 million purchase of Sacramento, California-based Placer Sierra Bancshares. Wells Fargo agreed in May to buy East Palo Alto, California-based Greater Bay Bancorp for $1.5 billion.
Atkins said acquisitions of similarly sized companies in Wells Fargo's areas of business are possible. Wells Fargo has more than 3,200 branches, mainly in the western two-thirds of the United States, and $539.9 billion of assets.
Billionaire Warren Buffett's Berkshire Hathaway is the bank's largest investor, owning 7% of its stock as of March 31, Thomson ShareWatch said.
Through Monday, Wells Fargo shares were little changed this year, compared with a 25% drop in the Philadelphia KBW Bank Index.