Wells Fargo shares fall as second-quarter net interest income falls

Wells Fargo (WFC) shares fell on Friday after the lender reported a decline in net interest income in the second quarter, which offset better-than-expected results.

Net interest income (NII), a key measure of profitability in the lending business, fell 9% year over year to $11.9 billion in the three months ended June 30.

Competition for borrowers as depositors seek higher interest rates has weighed on the banking sector’s NII, which measures revenue from loans minus what banks pay for deposits and funds. Banks like Wells Fargo, which focus more on consumer banking, have been hit particularly hard by the drop in NII.

The drop in net interest income overshadowed results that beat Wall Street analysts’ estimates. Well Fargo reported earnings per share (EPS) of $1.33 on revenue of $20.7 billion, beating analyst estimates compiled by Visible Alpha of $1.28 billion and $20.3 billion, respectively.

Wells sees some benefits from investment banking

Wells Fargo CEO Charlie Scharf said the Main Street-focused bank’s expansion into investment banking is paying off. The S&P 500’s 4% gain in the second quarter, with the indexes at record highs, was a boon for more Wall Street-focused lenders like JPMorgan Chase (JPM), which posted better-than-expected earnings on Friday.

“We continued to see growth in fee income, which offset the expected decline in net interest income,” Scharf said. “The investments we made allowed us to capitalize on market activity during the quarter, with strong fee performance across investment advisory, trading and investment banking.”

Wells Fargo shares fell more than 6% to $56.46 as of 9:45 a.m. ET Friday. Shares of the San Francisco-based lender are up 14% this year.