Is Wells Fargo Still a Safe Bank to Own?

Source: Thinkstock

Source: Thinkstock

Wells Fargo (NYSE:WFC) is a bank that many of us are familiar with and probably have done business with. The stock has pulled back about 5 percent from its 52 week high, but I think it can continue to climb higher. This is because despite it reporting slowing earnings growth, there are a lot of positives going for the bank. I have long considered it a safe investment that offererd growth and a decent yield. The yield in fact is at 2.7 percent after pulling back from its highs. In this article, I will review the key highlights of the stock’s earnings that you need to know and make a recommendation on the stock moving forward.

Let’s start with the headline numbers that everyone probably saw on the news. Wells Fargo reported net income of $5.7 billion, or $1.01 per diluted common share for the quarter, up from $5.5 billion, or $0.98 per share, for second-quarter 2013. This is growth, but the growth is certainly slowing down. This 3 percent rise is well below the high single digit growth we were seeing in year’s past. Is this a warning sign? Perhaps.

How was revenue? Well, Wells Fargo’s revenue came in at $21.1 billion, up from $20.6 billion in first-quarter 2014. This is again slowed growth, but growth nonetheless. The growth comes from increases in both net interest income and non-interest income. Several segments produced growth, including capital markets, corporate banking, commercial real estate, corporate trust, debit card, personal lines and loans, merchant services, and retail brokerage.

I mentioned both net interest income and non-interest income rising. Net interest income increased $176 million to $10.8 billion driven by organic growth in commercial and consumer loans and higher mortgages held for sale and trading assets. However, approximately one-third of the increase resulted from the benefit of one additional business day in the quarter. Interest income from variable sources, including purchased credit-impaired (PCI) loan resolutions and periodic dividends, also improved slightly linked quarter. Noninterest income in the second-quarter was $10.3 billion, up from $10.0 billion in the prior quarter. Growth was broad-based and was driven by increases in mortgage banking, trust and investment fees, deposit service charges, and card fees.