Wells Fargo says it generated record profits of $2.09 billion in the second quarter, despite taking a $250 million loss on the sale of $26 billion in adjustable-rate mortgages and other loans.

Diluted earnings per share were a record $1.23, up 10 percent from $1.12 in second-quarter 2005 and 13 percent (annualized) from first-quarter 2006.The bank’s profits for the quarter were up 9 percent over last year, and revenue was also up 12 percent, hitting a record $8.79 billion.

“Our strong 12 percent revenue growth was achieved despite taking $250 million of losses on the sale of ARMs and debt securities this quarter compared with negligible gains on the sale of debt securities in second-quarter 2005,” said Senior EVP and Chief Financial Officer Howard Atkins. “This reduced reported year-over-year revenue growth by 3 percentage points.”

Wells Fargo said it sold off $26 billion in ARMs in the second quarter “to further improve long-term earning asset yields.” With the sale factored in, average loans of $300.4 billion increased $4.8 billion from second-quarter 2005. Excluding real estate one- to four-family first mortgages — the loan category affected by the sale of ARMs — total average loans grew by $29.3 billion, or 14 percent, from second-quarter 2005 and 15 percent (annualized) on a linked-quarter basis.

The bank’s Community Banking division reported net income of $1.34 billion, up 8 percent from $1.24 billion in second quarter 2005. Noninterest income was up $406 million compared with the same period last year, with higher mortgage banking revenue partially offset by losses on the sale of the ARMs.

Community Banking reported:

  • Home mortgage originations of $116 billion, up $25 billion from the prior quarter;

  • Home mortgage applications of $108 billion, up $13 billion from the prior quarter;

  • Home mortgage application pipeline of $63 billion, up $4 billion from the prior quarter;

  • Owned mortgage-servicing portfolio of $1.11 trillion, up 27 percent from June 30, 2005.

“Our residential real estate lending businesses continued their strong performance with double-digit growth in the owned servicing portfolio and originations over the same period last year,” said Mark Oman, senior EVP, Home and Consumer Finance. “Originations were $116 billion, up 36 percent from last year, as we took advantage of market opportunities in the correspondent channel.”

At the end of the quarter, the National Home Equity Group portfolio was $76 billion, with nonaccrual loans at $312 million, or 0.41 percent of the portfolio, and annualized net loss rates of 9 basis points, compared with 9 basis points in second-quarter 2005 and 13 basis points in first-quarter 2006.

On the commercial side, net income was up 7 percent from a year ago, at $523 million. Average commercial and commercial real estate loans increased $12.1 billion, or 12 percent, from second-quarter 2005 and $3.6 billion, or 13 percent (annualized), from first-quarter 2006 — the seventh consecutive quarter of double-digit, linked-quarter growth.

The bank said the pending acquisition of Reilly Mortgage Group will bring new commercial real estate customers who finance multifamily properties through Freddie Mac, Fannie Mae and FHA.

Wells Fargo saw an 8 percent increase in deposits from the second quarter of 2005, to $257.7 billion. Average mortgage escrow deposits were $17.6 billion, up $1.5 billion from second-quarter 2005.

At $1.92 billion, the percentage of nonperforming assets is up 38 percent from last year’s $1.39 billion. But Wells Fargo blamed almost all of the increase on a change in regulatory reporting requirements. The changes forced the bank to report $465 million of foreclosed real estate securing Government National Mortgage Association loans as nonperforming assets. However, “these assets are fully collectible because the corresponding GNMA loans are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs,” the bank said. Wells Fargo had already reported $227 million of the GNMA loans as nonperforming in the first quarter. GNMA loans totaling $238 million were reported as nonperforming in the second quarter, adding 8 basis points to the ratio of nonperforming assets.

Nonperforming loans as a percentage of all loans now stands at 0.64 percent, compared to 0.46 percent on June 30, 2005, the company said.

Wells Fargo stock was trading at $68.36 shortly after noon Tuesday, down 19 cents from Monday’s closing price.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription