WFC Wells Fargo and Company

By Rachel Louise Ensign 

Wells Fargo & Co. said Tuesday that second-quarter profit rose, though the bank had to pay up to satisfy depositors.

Quarterly profit at the San Francisco-based bank, the fourth-largest in the U.S. by assets, was $6.21 billion, compared with $5.19 billion a year ago. Per-share earnings were $1.30. Analysts polled by FactSet had expected $1.17 per share.

Second-quarter revenue was $21.6 billion, roughly the same level as a year ago. Analysts had expected $20.93 billion.

The quarter's results included a $721 million gain from selling old mortgages.

Higher interest rates have boosted banks' performance since the Fed started raising them in late 2015. But the Fed is now expected to hold off on future increases and even cut rates this year, clouding the outlook for banks' lending businesses.

Wells Fargo found it had to pay more to depositors looking for higher rates in the quarter.

Net interest margin, which measures lending profitability, fell to 2.82% from 2.91% in the prior quarter due in large part to higher interest costs.

The bank paid an average 0.96% on interest-bearing deposits in the quarter, up from 0.89% in the first quarter. Overall, net interest income fell $216 million from the first quarter.

The bank is still grappling with its 2016 sales-practices scandal, which badly damaged the bank's reputation and led to a morass of regulatory problems. The bank is in its fourth month without a permanent chief executive following Timothy Sloan's retirement in March. The board continues to search for a replacement and some top candidates have told the bank they aren't interested in the role.

Wells Fargo's key business lines also have struggled in recent years. What was once an aggressive, rapidly growing lender whose profits towered above those of rivals has become a firm with sluggish revenues that is leaning heavily on cost cuts.

Revenue was down in the bank's wholesale unit from a year earlier, flat in consumer banking and up in the wealth unit. Mortgage originations rose.

Expenses fell 4% in the second-quarter from a year earlier, driven by items such as lower Federal Deposit Insurance Corp. assessments. The bank said some of its expense-cutting initiatives were being outweighed by the need to spend more on risk and compliance efforts to please regulators.

Total loans rose 0.6% in the quarter from a year earlier. Deposits were up 2% from a year earlier.

Shares fell nearly 3% in afternoon trading.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

July 16, 2019 13:20 ET (17:20 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.