Wells Fargo profit grows on loan improvement

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- Wells Fargo Co. on Wednesday posted a second-quarter profit that rose from a year earlier and topped what analysts had expected, thanks to dwindling losses from commercial and consumer loans.

The San Francisco-based bank's quarterly net income rose 12% to $2.9 billion, or 55 cents a share, over the same period a year earlier, when the bank earned $2.6 billion. Analysts polled by Thompson Reuters had forecast earnings of 48 cents per share.

Net income before paying out preferred dividends was $3.1 billion, down 3% compared to the prior year.

Shares of Wells Fargo (WFC, Fortune 500) rose more than 4% in Wednesday trading following the announcement.

The bank said the profit was marked by growth across the franchise and "significant improvement" in credit quality from the weakness during the financial crisis.

Wells Fargo's loan-loss provisions, the funds set aside for the allowance of bad loans, were reduced by $500 million during the quarter. Mike Loughlin, Wells Fargo's chief credit and risk officer, said the bank has "seen credit quality improve earlier and to a greater extent than we had previously expected."

Net charge-offs, or the amount in loans lenders don't think will be repaid, declined 16% during the quarter to $4.5 billion, as losses diminished across consumer and commercial loans.

Costs on bad commercial loans dipped 2%, while losses from outstanding consumer loans fell a sharp 21%, said Howard Atkins, Wells Fargo chief financial officer, during a conference call with analysts.

The bank also cited improvements in early-stage delinquencies in several portfolios, including credit card, home equity, student lending and home mortgage.

"The credit picture brightened, but if you leave that out, the results are pretty flat and uninspiring," said Thomas Mitchell, analyst at Miller Tabak & Co.

Loan demand remained subdued last quarter. Average total loans were $833.9 billion compared with $855.6 billion in the second quarter of 2009.

Mortgage applications totaled $143 billion during the quarter, with $68 billion in the pipeline. That compared to $194 billion in mortgage applications and $90 billion in pending applications a year earlier.

During the call, Wells Fargo chief executive John Stumpf also discussed the impact of the Dodd-Frank Wall Street reform bill, which President Obama will sign later Wednesday.

"There are parts of the bill we agree with that will make the financial services industry and the country stronger," Stumpf said. "But there's a big omission - there's not one word about government-sponsored enterprises like Fannie and Freddie. And there are some parts of that bill, like debit card fees between banks and merchants, that don't have anything to do with what happened over the last few years."

Stumpf said he expects rival banks will be impacted more than Wells Fargo by regulations related to proprietary trading, derivatives and private equity.

He added that the bank will be affected by the debit card interchange fees, but the available information is insufficient to estimate the economic outcome.

Wells Fargo's results were the latest in a string of mostly better-than-expected results from the financial sector. Rivals JPMorgan Chase (JPM, Fortune 500), which raked in $4.8 billion last quarter, and Bank of America (BAC, Fortune 500), which earned $3.1 billion, and Citigroup (C, Fortune 500), which posted a$2.7 billion profit, beat forecasts and said results were helped by improvement in consumer lending businesses.

But the profit of Wall Street giant Goldman Sachs (GS, Fortune 500) tumbled 82% in the latest quarter, as market volatility and a recent settlement with the Securities and Exchange Commission weighed on results. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,039.49 60.36 0.36%
Nasdaq 4,532.10 5.62 0.12%
S&P 500 1,992.37 5.86 0.29%
Treasuries 2.41 -0.02 -0.78%
Data as of 8:48pm ET
Company Price Change % Change
Bank of America Corp... 16.16 0.64 4.12%
eBay Inc 55.89 2.49 4.66%
Hewlett-Packard Co 37.00 1.88 5.35%
Intel Corp 35.15 0.65 1.88%
Apple Inc 100.58 0.01 0.01%
Data as of 4:03pm ET

Sections

Russian officials have shut four McDonald's restaurants in Moscow, including the first to open in the city nearly 25 years ago at the end of the Cold War. More

The Heartbleed bug is to blame for the hospital hack that stole 4.5 milliion patient records. If true, brace yourself for similar, mega data breaches. More

This Canadian startup founder faced the threat of deportation because he was on the wrong visa. Problem is -- there's no startup visa for entrepreneurs. More

This month, Delaware became the first state to pass a law giving heirs the right to access the online accounts and assets of someone who has passed away. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.