Wells Fargo on Tuesday reported second-quarter earnings that easily topped expectations as the bank’s checking and consumer lending businesses posted growth, but slightly lower net interest income kept the company’s stock in check.
Wells said its net income was $6.2 billion in the second quarter, up from $5.9 billion in the first quarter and $5.2 billion in the year-earlier period. The bank’s loan balances at the end of June totaled $949.9 billion, up $1.6 billion from the first quarter as real estate, credit card and automobile lending all rose.
Here’s how the company did compared with what Wall Street expected:
- Earnings: $1.30 per share vs. $1.15 cents per share forecast by Refinitiv.
- Revenue: $21.58 billion vs. $20.93 billion forecast by Refinitiv.
Net interest income — a main driver of bank profits — came in just shy of estimates at $12.1 billion while net interest margin fell 9 basis points from the prior quarter to 2.82% due to repricing and higher deposit costs and a “lower interest rate environment.”
The nation’s fourth-largest bank said that recent customer surveys showed satisfaction scores rising to multiyear highs, helping buoy primary consumer checking customers 1.3% from the year-earlier period to 24.3 million.
“The commitment of our team members to provide outstanding customer service was reflected in higher customer experience survey scores from our branches, continued growth in primary consumer checking customers, and an increase in referred investment assets as a result of the partnership between our Wealth and Investment Management team and our Community Banking team,” interim CEO Allen Parker said in the release.
Recent capital test results “demonstrated the strength of our diversified business model, our strong capital position, our sound financial risk management, and our commitment to return excess capital to our shareholders in a prudent manner,” he added.
The company’s stock fell 1.1% in Tuesday’s premarket.
Chief Financial Officer John Shrewsberry highlighted the bank’s strong capital position as it returned $6.1 billion to shareholders through dividends and share repurchases, up 52% from the year-earlier period. He also mentioned the bank’s plan to increase its quarterly dividend rate in the third quarter to 51 cents.
Pedestrians pass in front of a Wells Fargo bank branch in New York.
Eric Thayer | Bloomberg | Getty Images
Wells Fargo’s nonperforming assets fell $1 billion from the first quarter to $6.3 billion, well short a $7.26 billion estimate from StreetAccount. The bank’s efficiency ratio was lower than forecast, coming in at 62.3% for the quarter. A higher efficiency ratio indicates a bank is spending more money than it is making.
The bank and its reputation remain mired in regulatory inquisition stemming from its 2016 sales scandal that’s since claimed the jobs of two CEOs. Tim Sloan, the bank’s most recent chief, stepped down in March after 31 years at the company.
The board has been searching for a new CEO ever since, reportedly struggling to persuade a number of outside bank executives to consider the role. Still, the board isn’t ruling out a company insider as some look to make Parker permanent chief.
Ahead of the earnings report, many analysts also highlighted the bank’s ability to keep a lid on expenses as key to its success in 2019. Citigroup analyst Keith Horowitz told clients in a note last week that an insider appointment to CEO “would imply higher likelihood that WFC maintains expense targets, which would help offset revenue pressures.”
Horowitz, who downgraded Wells Fargo to neutral from buy on Thursday, added that rising expectations for a Federal Reserve rate cut could also dampen sales. The company’s stock is down about 0.5% over the last three months versus the S&P 500’s 3.7% gain. The stock is up only 1% this year, compared with double-digit returns for most other major banks.
“Revenue growth trends have been disappointing, and Fed rate cuts will hurt the trajectory,” he wrote. “We are downgrading to Neutral as we await a better entry point.” Banks turn a profit by charging borrowers higher, longer-term interest rates compared with the lower, short-term interest rates they dole out to savers.