Wells Fargo Doesn't Impress or Disappoint Investors

Wells Fargo & Co. (NYSE: WFC) reported second-quarter results before markets opened Friday. The banking giant posted 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.

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%.

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%.

The bank’s CFO said:

The primary drivers of Wells Fargo’s business remained strong in the second quarter, with broad-based loan growth, increased deposit balances, and improved credit quality. Revenue increased linked quarter as the Company grew both net interest income and noninterest income, a reflection of Wells Fargo’s diversified business model. These solid fundamental business results led to an increase in pre-tax income linked quarter. Net income was down as the Company’s effective tax rate was lower in the first quarter due to a $423 million discrete tax benefit.

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 0.6% in the premarket Friday morning, at $51.48. 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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