A flag waves outside of a Wells Fargo bank branch in San Francisco, Calif.
Justin Sullivan—Getty Images
By John Kell
July 11, 2014

Wells Fargo’s second-quarter profit climbed 4% from a year ago as the bank reported fewer credit losses, helping offset a slight decline in revenue and a drop in home lending orientations.

The world’s most valuable bank by market capitalization on Friday said credit performance continued to improved in the second quarter as credit losses remained at historically low levels and nonperforming assets continued to decrease. The bank is the first major U.S. lender to report results for the quarter, and thus the results will be closely watched as an indication of what’s to come from banking peers.

Wells Fargo reported net income of $5.73 billion, or $1.01 a share in the latest period, up from $5.52 billion, or 98 cents a share, a year ago. Total revenue slid 1.5% to $21.07 billion.

Analysts surveyed by Bloomberg had projected a profit of $1.01 a share on $20.84 billion in revenue.

“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,” said Chief Financial Officer John Shrewsberry in a statement.

In a sign of strength, Wells Fargo earlier this year boosted its quarterly dividend payout by 17% and announced a plan to increase share repurchases this year. The bank’s executives have said reduced household leverage, ample supplies of cash held by businesses, and improved economic activity are all factors that should bolster demand for the bank’s products. Wells Fargo also has a key advantage, as it is the sold bank lender for about 80% of its clients, allowing it to have a deep relationship with those customers and cross-sell products.

But Wells Fargo (WFC) is also the leading mortgage originator in the U.S., and thus has been hurt by an industrywide decline in mortgage volume. Home lending originations totaled $47 billion in the latest quarter, compared with $112 billion a year ago and $36 billion in the prior quarter.

Still, consumer lending has been bolstered by autos and credit cards, helping offset the mortgage business weakness. Total average loans were $831 billion in the latest quarter, up 4% from a year ago.

Meanwhile, the company’s credit-loss provisions totaled $217 million, compared with $652 million a year ago.

Net interest margin totaled 3.15% in the latest quarter, compared with 3.47% a year ago and 3.20% in the first quarter. That metric is an important measure of lending profitability.

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