Why Wells Fargo Earnings Came Up Short

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Wells Fargo & Co. (NYSE: WFC) released its second-quarter financial results before the markets opened on Friday. The company said that it had $0.98 in earnings per share (EPS) and $21.6 billion in revenue, while consensus estimates had called for $1.12 in EPS on revenue of $21.68 billion. The same period of last year reportedly had EPS of $1.08 and $22.17 billion in revenue.

Total average loans were $944.1 billion in the second quarter, down $6.9 billion from the first quarter. Period-end loan balances were $944.3 billion, down $3.0 billion from the first quarter. Commercial loans were down $291 million sequentially, with a $2.5 billion decline in commercial real estate loans, partially offset by $1.9 billion of growth in commercial and industrial loans and a $321 million increase in lease financing loans. Consumer loans decreased $2.8 billion.

Total average deposits for second quarter 2018 were $1.3 trillion, down $25.8 billion from the prior quarter. Average consumer and small business banking deposits of $754.0 billion for second quarter 2018 were down $1.4 billion from the prior quarter.

At the end of the quarter, the company had a book value per common share of $37.41 and a tangible book value per common share of $31.47.

The bank did not offer any guidance for the coming quarter, but consensus estimates from Thomson Reuters call for $1.18 in EPS and $21.82 billion in revenue.

Tim Sloan, CEO of Wells Fargo, commented:

During the second quarter we continued to transform Wells Fargo into a better, stronger company for our customers, team members, communities and shareholders. Our progress included making further improvements to our compliance and operational risk management programs; hiring a new Chief Risk Officer; announcing innovative new products including a digital application for Merchant Services customers and our enhanced Propel Card, one of the richest no-annual-fee credit cards in the industry; launching our ‘Reestablished’ marketing effort, the largest advertising campaign in our history; announcing a new $200 billion commitment to financing sustainable businesses and projects; and continuing to move forward on our expense savings initiatives.

Shares of Wells Fargo closed Thursday at $56.03, with a consensus analyst price target of $61.57 and a 52-week range of $49.27 to $66.31. Following the announcement, the stock was down about 3% at $54.36 in early trading indications Friday.