Wells Fargo 2Q profit rises as bad loans ease

Wells Fargo 2nd-qtr profit rises 12 percent; growth in souring loans slows

Eileen Aj Connelly, AP Business Writer, On Wednesday July 21, 2010, 10:27 am EDT

NEW YORK (AP) -- Wells Fargo & Co. on Wednesday said its second-quarter profit rose 12 percent, and the results show signs that bad loans are easing.

The San Francisco-based bank posted net income applicable to common shareholders of $2.88 billion, up from $2.58 billion last year. Before the payment of preferred dividends, net income fell 3 percent to $3.06 billion.

On a per-share basis, profit was 55 cents per share, compared with 57 cents per share last year. That reflects a 17 percent increase in the number of outstanding shares.

The results came in well ahead of the 48 cents per share forecast, on average, by analysts polled by Thomson Reuters.

Shares of Wells Fargo gained $1.18, or 4.6 percent, to $27.09 in morning trading, after earlier trading as high as $27.60

Wells Fargo said its average checking and savings deposits rose 10 percent from a year ago, showing strength in its consumer banking division. Still, net interest income, or money earned from deposits and loans, fell 3 percent to $11.45 billion from $11.76 billion last year.

Noninterest income, or money earned from fees and service charges, slid 7 percent to $9.95 billion from $10.74 billion a year ago.

The positive signs came from improvement in Wells Fargo's lending business. The bank said it had reduced losses in home equity, mortgages, consumer lines and loans, auto dealer services and credit cards. It cited a slowly improving economy and actions taken over the last few years to improve underwriting standards and shed bad loans for the gains.

The bank slashed its provision for credit losses -- money set aside for loans expected to go into default -- by 22 percent to $3.99 billion, from $5.09 billion in the 2009 quarter.

It wrote off 2 percent more loans than in the 2009 second quarter, $4.49 billion versus $4.39 billion.

But the figure showed a drop in charge-offs of 16 percent from 2010's first quarter figure of $5.33 billion.

"Last quarter we said we believed credit losses and provision expense had peaked," said Chief Credit and Risk Officer Mike Loughlin in a statement. "This quarter's significant reduction in credit losses confirmed our prior outlook and, in fact, we have seen credit quality improve earlier and to a greater extent than we had previously expected."

Nonperforming assets, or loans that are considered past due and in danger of default, were $27.8 billion. That's a 76 percent leap from the prior year's $15.8 billion, but up just 2 percent from the first quarter, the smallest quarter-over-quarter increase in a year.

Wells said it is seeing improving trends on 30-day delinquencies -- payments that are just a month late -- in many loan lines, including business, credit cards, home equity, student loans and mortgages.

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