Lending arm sees surge in mortgage originations amid decline in banking income
Wells Fargo has announced its second-quarter earnings for 2024, revealing mixed outcomes for its mortgage banking operations.
Despite a surge in mortgage originations, the bank experienced a decline in overall mortgage banking income.
It originated $5.3 billion in mortgages during the second quarter, a 51.4% jump, according to its latest earnings report. Notably, all mortgage production occurred through the retail channel.
However, its mortgage banking income declined in Q2. The bank’s home lending division was down 5% quarter over quarter and 3% year over year to $823 million, reflecting lower net interest income due to decreased loan balances. This figure has fluctuated for Wells Fargo in recent quarters.
The bank saw positive movement in other areas, with non-interest income increasing by 19%, driven by higher trading revenue and investment banking fees.
Net interest income decreased by 9%, primarily due to higher interest rates impacting funding costs. However, non-interest income increased by 19%, driven by higher trading revenue, increased investment banking fees, and improved results from venture capital investments.
Wells Fargo CEO Charlie Scharf commented on the company’s financial performance, highlighting the growth in fee-based revenue offsetting the decline in net interest income.
“The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading, and investment banking fees,” Scharf said. “Credit performance was consistent with our expectations.”
Scharf added that commercial loan demand remained tepid while deposit balances grew across all business sectors. Commercial net loan charge-offs as a percentage of average loans increased to 0.35% (annualized) from 0.25% in the previous quarter, driven by higher commercial real estate net loan charge-offs, particularly in the office portfolio.
Read more: Commercial mortgage debt rises due to slow loan payoffs
Nonperforming assets increased by $410 million, or 5%, primarily due to higher commercial real estate nonaccrual loans, predominantly in the office portfolio.
The bank’s provision for credit losses in Q2 included a modest decrease in the allowance for credit losses, with a higher allowance for credit card loans offset by lower allowances in most other loan portfolios.
Wells expects its stress capital buffer (SCB) for Oct. 1, 2024, through Sept. 30, 2025, to be 3.8%. The Federal Reserve Board said it will publish the final SCB by August 31.
“Our capital position remains strong, and we continue to use it to support our customers while prudently returning excess capital to our shareholders,” Scharf said. “We repurchased over $12 billion of common stock during the first half of this year, and, as we previously announced, we expect to increase our third quarter common stock dividend by 14%, subject to approval by the company’s board of directors at its regularly scheduled meeting later this month.”
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