Wells' 2Q'14 earnings, which were up nearly 4% versus the same quarter a year ago, continue to be supported by lower credit costs and revenue growth across its various business units. Fitch also observes that when adjusting for the one-time discreet tax benefit in 1Q'14, earnings were actually up sequentially.
Revenue growth, which continues to be a challenge for the banking industry as a whole, was up over 2% on a linked-quarter basis, reflecting not only one extra day in the quarter but also organic loan growth and increases in mortgage banking and wealth management revenue.
While net interest income expanded sequentially, WFC's net interest margin (NIM) has continued its steady downward march, falling an additional 5bps from last quarter. Additionally, the company's margin has fallen 32bps year-over-year, due to a mix of higher cash and short-term investments as well as industry-wide pressure on loan yields.
Noninterest income, up over 2.5%, once again increased on a linked-quarter basis, driven by revenue growth across WFC's corporate banking, wealth management and consumer banking platforms. After a strong 1Q'14, net gains from trading activities, debt securities and equity investments were sequentially down. However, increases in mortgage banking, and trust and investment fees offset the decline.
After several sequential declines, WFC experienced a 30% increase in mortgage originations compared to 1Q'14 leading to sequentially higher mortgage banking income for the first time in over a year. Fitch notes that quarterly applications were also up for the first time in over four quarters, increasing 20% indicating that mortgage activity, not only at WFC but industry-wide, appears to have stabilized or is close to stabilizing. However, Fitch also notes that gain on sale margins fell 20bps indicating the competitive nature of the market in order to drive new business growth.
Expenses rose noticeably on a sequential basis driven largely by a
WFC reported a sequentially flat reserve release of
Estimated Common Equity Tier 1 under Basel III Advanced Approach was solid 10.09% at quarter-end up 2bps from the prior quarter. WFC executed on its capital request under CCAR, increasing its dividend to
Additional information is available at 'www.fitchratings.com'.
Source: Fitch Ratings
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