Lending Losses Weigh on Wells Fargo Earnings

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Wells Fargo & Co. (NYSE: WFC) reported fiscal second-quarter results before markets opened Tuesday morning. The banking giant reported diluted earnings per share (EPS) of $1.03 on revenue of $21.3 billion. In the same period a year ago, Wells Fargo reported EPS of $1.01 on revenue of $21.1 billion. Second-quarter results also compare to the consensus estimates for EPS of $1.03 on revenue of $21.7 billion.

Wells Fargo’s tier 1 common equity ratio (fully phased-in) of Basel III is 10.5%.

Total loans rose $27.2 billion sequentially to $888.5 billion in the quarter with growth in commercial and industrial lending and commercial real estate. Total average loans were $870.4 billion in the second quarter, up $7.2 billion from the first quarter.

Net loan charge-offs fell from $717 million in the year-ago quarter to $650 million, or an annualized 0.3%. Net charge-offs totaled $350 million more than the bank’s provision for credit losses. This will weigh on the share price.

Non-performing assets decreased by $438 million and foreclosed assets fell from $2.3 billion in the first quarter of 2015 to $2 billion.

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Home loan originations rose sequentially from $49 billion to $62 billion, while applications fell from $93 billion to $81 billion. The weighted-average note rate on the bank’s loan servicing portfolio fell slightly from 4.49% to 4.41%.

The bank’s CEO said:

Compared with a year ago, we grew loans, deposits and capital, and our balance sheet remained strong. Credit results also improved and we continued to adhere to our disciplined approach to risk management. As the economic and interest rate environments evolved, our diversified business model continued to generate strong results for shareholders …

The bank had previously announced a 7% hike to its dividend to $1.50 annually, a yield of 2.7%.

The bank did not offer guidance in its press release, but the consensus estimates call for third-quarter EPS of $1.05 on revenues of $21.87 billion. The EPS estimate for the 2015 fiscal year is now $4.16.

Shares are trading down about 1.3% in the premarket Tuesday morning, at $56.00. The current 52-week range is $46.44 to $58.26. Thomson Reuters had a consensus analyst price target of around $58.50 before the results were announced.

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