Wells Fargo Reports Strong Quarter Boosted By Reduced Loan-Loss Reserves

Mortgage banking giant Wells Fargo WFC reported second quarter results before the bell Friday that initially looked to have beaten analyst estimates. However, adjusting for one-time items, the number looks worse and appears to be slightly weaker than the consensus forecast.

Second Quarter Highlights

For the second quarter of 2013, Wells Fargo reported earnings per share of $0.98 vs. the consensus forecast of $0.93. However, adjusting for some reduced loan-loss reserves, accounting mechanisms that boost profits, earnings per share were reduced by about $0.095 to $0.886 per share. Earnings per share on an adjusted basis were still higher than the same period a year ago when the company reported $0.82 EPS.

Revenues were stronger than expected as Wells Fargo reported revenues of $21.4 billion in the quarter, beating the consensus forecast of $21.16 billion by 1.15 percent. Revenues declined from the same period a year ago when the company reported revenues of $21.29 billion.

“Wells Fargo achieved outstanding results for the second quarter, with our diluted EPS growing for the 14th consecutive quarter and our returns on assets and equity increasing from second quarter 2012 and first quarter 2013,” said Chairman and CEO John Stumpf. “Our results reflected the strength of our diversified business model. Compared with the prior quarter, we grew loans, deposits, and net interest income, and both our efficiency ratio and credit quality improved. Wells Fargo again demonstrated an ability to grow during a dynamic economic and interest rate environment, and we feel very well positioned to continue to perform for our shareholders over the long term.”

Related: J.P. Morgan Drops On Q2 Earnings, One-Time Items Boost EPS, Revenues Miss, Fortress Dimon Reinforced.

Chief Financial Officer Tim Sloan said, “Solid performance in the quarter reflected the strength of our broad and diverse franchise. Linked quarter we grew revenue, with higher net interest income as we grew loans and invested in securities. In addition, expenses and net charge-offs were lower in the quarter and we continued to grow capital."

"Our estimated Tier 1 common equity ratio under the Basel III capital rules adopted July 2, 2013, increased to 8.54 percent this quarter, despite the increase in market interest rates late in the quarter which reduced unrealized security gains and negatively impacted the ratio by 24 basis points. That's a testament to the earnings power of Wells Fargo.”

“Credit performance was very strong in the second quarter with improvement in all key metrics,” said Chief Risk Officer Mike Loughlin. “Credit losses were $1.2 billion in second quarter 2013, compared with $2.2 billion in second quarter 2012, representing a 48 percent year-over-year improvement."

Shares Gain

Wells Fargo shares rose in the pre-market after initially falling and were up 1.7 percent heading into the open at $42.57.