Wells Fargo’s second-quarter profits slumped as losses from the oil and gas industry continued to dampen results at the third largest U.S. bank by assets.
The San Francisco-based bank, however, managed to add new loans and increase revenue at a time when banks are struggling with low interest rates that squeeze profits. The bank’s shares dropped more than 2 percent Friday to $47.71 on a mixed day for bank stocks.
Wells said net income fell 3 percent to $5.56 billion from a year earlier. Its earnings per share of $1.01 matched estimates of analysts polled by Bloomberg.
Oil and gas loans have been a sore spot for banks in recent quarters, as lower oil prices have battered their customers in energy-related industries. Crude oil prices have been rising again, but banks are still dealing with the fallout from soured loans.
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“We’re a little premature to declare a victory,” Chief Financial Officer John Shrewsberry said in a conference call with analysts.
Wells Fargo’s provision for bad loans more than tripled to $1.1 billion from a year earlier, partly to cover $263 million in oil and gas loans that the bank doesn’t expect to be repaid.
Total revenue increased 4 percent to $22.2 billion, while expenses rose 3 percent to $12.9 billion. The bank’s efficiency ratio, a measure of expenses as a percent of revenue, was 58.1 percent, a slight improvement from the previous quarter.
The bank is focused on managing expenses, Shrewsberry said, but it continues to spend more on compliance, risk management and technology areas.
Wells has its largest employee base in Charlotte, with about 23,600 across multiple business lines. Total employees fell by 700 from the first quarter to 267,900. The bank has disclosed reductions in its mortgage unit in recent months, partly due to the decline in delinquent loans.
Total loans at the bank rose about 1 percent from the previous quarter to $957.2 billion as Wells issued more credit to businesses and consumers. The bank has also bulked up its portfolio through the purchase of commercial finance businesses from General Electric.
Addressing Great Britain’s vote to leave the European Union, Wells CEO John Stumpf said the decision has increased “global economic uncertainty” and could result in interest rates staying lower for even longer. But he said the decision should have “a much lower direct impact” than on the bank’s peers because Wells is more U.S.-focused.
While the bank’s results matched forecasts, analysts at Keefe, Bruyette & Woods said the sale of a health benefits business gave earnings per share a one-time boost of 4 cents.
“Overall, results were below our expectations and the net interest margin was well short of what we expected,” the analysts said in a report Friday, referring to the profit margin the bank makes off loans.
Citigroup, the fourth-largest U.S. bank, also reported earnings Friday. Profits fell 17 percent to about $4 billion but beat analyst expectations.
Rival JPMorgan Chase, the largest U.S. bank by assets, on Thursday said its net income fell by 1 percent to $6.2 billion, as it set aside more reserves for bad loans, including in the oil and gas industry. Charlotte-based Bank of America, the No. 2 U.S. bank, reports Monday.
Earlier this month, as part of annual “stress tests” of big banks, the Federal Reserve signed off on Wells’ plan for returning capital to shareholders. But the bank has not said whether it plans to up its quarterly dividend of 38 cents per share.
In the conference call, analyst Nancy Bush jokingly praised Stumpf for his “artful non-answer” to her question on when the bank might boost its payout.