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.
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.
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