7/17/2007 1:01:33 PM Banking and financial products and service provider Wells Fargo & Co. (WFC) announced Tuesday morning a 9% rise in net income for the second quarter fuelled by 13% top line growth as average total loans witnessed 11% upside helped by both commercial and consumer loan growth apart from favorable operating leverage and stable credit quality. The company's earnings result was in line with Street expectations.
Second Quarter Results
The San Francisco, California-based Wells Fargo reported net income of $2.28 billion, up 9% from $1.09 billion and earnings rose 10% to $0.67 per share from $0.61 in the same quarter last year. Twenty-three analysts, on average, polled by First Call/Thomson Financial estimated the company to earn $0.67 per share. Sequentially, net income rose marginally from $2.24 billion or $0.66 per share in the first quarter.
Latest quarter revenues increased 13% to $9.89 billion from $ 8.79 billion in the previous year quarter. Twelve Wall Street analysts expected the company to generate revenues of $9.64 billion. Compared to the first quarter, revenues rose from $9.44 billion in the current quarter. The company attributed the revenue upside to double-digit growth in consumer and business lending and deposits apart from a robust growth in all of its diverse, fee-based products and services.
Total interest income grew 6% to $8.57 billion from $8.08 billion, while net interest income after provision for bad loans slipped 2% to $4.48 billion from $4.55 billion in the preceding year second quarter. Total non-interest income surged 23% to $4.7 billion from $3.81 billion in the comparable 2006 period.
Average loans expanded 11% to $332 billion from $300.4 billion backed by average commercial and commercial real estate loan growth of 12% and average consumer loans upside of 10%. Similarly, average core deposits grew 14% to $300.5 billion from $264.1 billion in the year earlier quarter. Wells Fargo said that it could either lift or maintain operating margins with net interest margin of 4.89% compared to 4.76%.
Total non-performing assets were $2.72 billion or 0.79% of loans versus $1.92 billion or 0.64% of loans recorded in the second quarter of 2006 and $2.69 billion or 0.82% of loans registered in the first quarter. The company attributed the improvement in non-performing assets to slender commercial increase as a result of portfolio growth and seasoning and almost no consumer increases as it concentrated on loan resolution and asset sales.
Wells Fargo said that credit quality was in line with its expectations. The company added that home equity losses were at higher levels due to real estate values remaining weak during the second quarter with no signs of reversal of trend in the second half of 2007.
Segment-wise, Community Banking contributed revenues of $6.33 billion, up 11% from $5.72 billion with average loans of $186.6 billion compared to $173.9 billion. Average deposits rose 8% to $259.9 billion from $232 billion. But the alarming factor was the sharp rise in provision for credit losses of $353 million compared to $187 million in the prior year quarter. Still, the division posted 14% rise in net income to $1.55 billion helped by fee revenue growth in retail banking and investment income.
Another segment, wholesale banking earned net income of $570 million, up 13% from $506 million. Total revenues advanced 20% to $2.15 billion from $1.79 billion in the comparable 2006 period as loan recorded 16% upside due to double-digit increase in all of its wholesale lending units. Wells Fargo added that robust loan and deposit coupled with higher fee income contributed to the division's higher profitability.
Wells Fargo financial unit produced net income of $156 million, down 31% from $226 million in the corresponding period last year. Total revenues, however, rose 10% to $1.41 billion from $1.28 billion in the same period a year ago. The company said that it closed shutters of about 5% of its customer stores to cut down excess infrastructure cost and redundancies.
Commenting on the results, the company's president and chief executive officer John stumpf said, “We continue to earn more business from current customers and invest in future growth through internal investments and acquisitions. Our time-tested vision and business model have delivered double-digit annual compound growth in revenue, earnings per share and total stockholder return for the past five, ten, 15 and 20 years. The vast majority of this growth has come from earning more business from our current customers, but we've also been a disciplined, effective acquirer, which brings us more new customers and the opportunity to satisfy all their financial needs.”
Year-To-Date Results
For the six-month period, Wells Fargo revealed net income of $4.52 billion or $1.33 per share, up 10% from $4.11 billion or $1.21 per share in the corresponding period last year.
Total revenues for the same period advanced 11% to $19.33 billion from $17.34 billion in the previous year six-month period.
Competitors
Among others in the industry, Bank of America Corp. (BAC) is scheduled to announce its second quarter numbers on July 19. Street analysts have consensus earnings target of $1.20 per share on revenues of $18.58 billion.
Another peer, U.S. Bancorp (USB) earlier in the day reported second quarter net income of $1.16 billion or $0.65 per share compared to $1.2 billion or $0.66 per share in the corresponding quarter in the previous year.
Total net revenues grew 1.5% to $3.51 billion, from $3.45 billion in the prior year quarter. Net interest income slackened to $1.65 billion from $1.69 billion, while non-interest income rose to $1.86 billion from $1.76 billion in last year.
Washington Mutual Corp. (WM), in the same industry, is slated to reveal its second quarter results on July 18. Wall Street analysts, on average, are looking for earnings of $0.89 per share on revenues of $3.69 billion.
Stock Movement
Shares of Wells Fargo reached a year high of $36.99 and a low of $33.01. During the day, the stock ranged between $35.40 and $35.98. Currently, shares of the company are trading $0.28 or 0.79% up to trade at $35.73 on a volume of 6.12 million shares.
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