Wells Fargo (WFC) revealed on Friday a 19% increase in its second-quarter net income, as credit quality strengthened but revenue stayed flat.
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The bank beat Wall Street projections with a profit that rose to $5.52 billion from the $4.62 billion logged in the year-ago period. Per-share earnings were 98 cents compared to 82 cents.
Revenue was roughly level with year-ago results, checking in at $21.38 billion. Noninterest expense narrowed 1% to $12.26 billion.
Analysts were looking for per-share earnings of 93 cents and revenue of $21.22 billion.
Wells Fargo, the largest mortgage lender in the U.S., is considered to be a bellwether for the housing market. It is estimated to have a 22% share of mortgage originations in the U.S., and in the latest period, total mortgage applications were down nearly 30% from the year-ago quarter. The bank also said it expects originations to decline further.
Last month, long-term interest rates quickly shot higher on comments from Fed Chairman Ben Bernanke, creating challenges for banks facing weak loan demand.
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The rate spike could also boost bank profits since lenders would be charging more for loans. For the second quarter, Wells Fargo had a net interest margin, or the profit margin between lending and investing, of 3.46% compared to the 3.91% a year ago and 3.48% in the previous quarter.
Both Wells Fargo and rival J.P. Morgan Chase (JPM), which also reported its second-quarter earnings Friday, were aided by stronger credit quality. Credit loss provisions were $652 million, well below the prior year’s $1.8 billion and the first quarter’s $1.22 billion.
Net charge-offs, the loans that lenders believe aren’t collectible, fell to 0.58% of average loans from 1.15% last year and 0.72% in the first quarter.
Total loans rose by $2 billion sequentially to $802 billion, after Wells Fargo saw flat results in the last period.
Wells Fargo’s community banking segment saw its profit climb 28% year-over-year to $3.25 billion, up 11% from the first quarter.
The wholesale banking division, which lends to corporations and includes a small investment banking business, logged 6.5% profit growth from the prior year with earnings of $2 billion, which is down 2% sequentially.
Mortgage banking non-interest income was $2.8 billion, down 3% year-over-year.
Shares jumped 1.9% to $42.69 in early morning trading.