Shares of Wells Fargo & Co. (NYSE: WFC) opened down about 1.3% Friday, following a lackluster second-quarter earnings report. But the bank had some trouble putting its deposits to work earning returns.

The banking giant reported diluted earnings per share (EPS) of $1.01 on revenue of $21.1 billion. In the same period a year ago, Wells Fargo reported EPS of $0.98 on revenue of $21.38 billion. Net income rose 4% to $5.7 billion in the quarter. Second-quarter results also compare to the consensus estimates for EPS of $1.01 on revenue of $20.82 billion.

Strong deposit growth pushed the bank’s net interest margin down by five basis points from 3.2% in the first quarter to 3.15%. Wells Fargo said that the impact on net income was “essentially neutral,” but investors do not like seeing the bank pay more interest on deposits.

Expenses also rose in the second quarter, up $246 million to $12.2 billion. This was another point that caused investors some pain.

Total loans rose $2.5 billion sequentially to $828.9 billion in the quarter, with growth in commercial and industrial lending, commercial real estate, auto, credit card, and one-to-four family first mortgage lending.

Net loan charge-offs fell sequentially from $825 million to $717 million, or an annualized 0.35%. Non-performing assets decreased by $686 million and foreclosed assets remained flat sequentially at $4.1 billion.

Home loan originations rose sequentially from $36 billion to $47 billion, and applications also rose from $60 billion to $72 billion. The average note rate on the bank’s loan servicing portfolio fell slightly from 4.51% to 4.49%.

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Wells Fargo’s tier 1 common equity ratio under the general approach of Basel III is 11.31%, and its ratio under the Basel III advanced approach is 10.09%.

The bank did not offer guidance in its press release, but the consensus estimates call for third-quarter EPS of $1.02 on revenues of $21 billion. The EPS estimate for the 2014 fiscal year is now $4.12.

Shares traded down about 1% late Friday morning to $51.22, after opening at $51.13. The current 52-week range is $40.07 to $53.08. Thomson Reuters had a consensus analyst price target of around $53.50 before the results were announced.

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