via flickr” url=”http://www.flickr.com/photos/clintw/241152422/sizes/m/in/photostream/”]Wells Fargo said Q3 earnings increased 20% year-over-year to 72 cents per share, right in line with analysts expectations 72 cents per share.The bank reported $19.6 billion in revenue, missing the expectation for $20.2 billion.
Revenue was $19.6 billion, compared with $20.4 billion in second quarter 2011. “While certain market-sensitive revenues were down from the second quarter, many of our businesses grew revenue,” said [CFO Tim] Sloan.
Wells Fargo’s net interest margin has been under pressure as long-term interest rates have trended lower. The bank has also seen deposit soar:
Net interest income was $10.5 billion, down from $10.7 billion in second quarter 2011. The continued negative impact of higher-yielding loan and security runoff was partially offset by growth in commercial loans, investment portfolio purchases, lower deposit and debt costs, and the benefit of one additional business day in the quarter. Net interest income was also lower due to items that vary from quarter to quarter such as loan prepayments and resolutions. Approximately 12 basis points of the 17 basis point decline in the net interest margin – slightly over 70 per cent – from 4.01 per cent in second quarter to 3.84 per cent in third quarter was due to the exceptional deposit growth of $42 billion from June 30, 2011. These deposits were invested in short-term assets which had the effect of diluting the net interest margin.
The stock is sliding in premarket trading. Shares are down around 2.5%.
“The economic recovery has been more sluggish and uneven than anyone anticipated,” said Chairman and CEO John Stumpf. “We can’t change the economic environment, yet we have worked hard to control the variables we can – making our products and services more relevant to individuals and businesses, focusing on the customer, making as many loans as possible and growing new relationships – as well as fostering longtime ones. We see the results of this focus in growing cross-sell, deposits, and loans. Customers need a trusted financial partner, especially in challenging economic times. Wells Fargo has proven to be that partner over and over again.”
Capital increased with Tier 1 common equity reaching $91.9 billion under Basel I, or 9.35 per cent of risk-weighted assets. Under current Basel III proposals, the Tier 1 common equity ratio was an estimated 7.41 per cent.
Regarding credit quality:
“Credit quality continued to improve in the third quarter, our seventh consecutive quarter of declining loan losses and the fourth consecutive quarter of lower nonperforming assets,” said Chief Risk Officer Mike Loughlin. Third quarter net charge-offs were $2.6 billion, or 1.37 per cent (annualized) of average loans, down $227 million from second quarter net charge-offs of $2.8 billion (1.52 per cent). The decline in net charge-offs was driven by lower losses in nearly all loan categories and delinquency trends were stable. Reflecting the improved overall portfolio performance, the provision for credit losses was $800 million less than net charge-offs, compared with $1.0 billion in prior quarter. “While we continued to see positive trends in credit performance, the rate of improvement moderated in some portfolios in the quarter, as one would expect at this point in the credit cycle,” said Loughlin. “Absent significant deterioration in the economy, we continue to expect future reserve releases.“
Photo: Wells Fargo
The full press release can be found here.