Wells Fargo (WFC $32.73 --0.10) reported second quarter earnings of $0.82 per share, $0.01 better than the Capital IQ consensus of $0.81, while revenues rose 4.4% year/year to $21.29 billion versus the $21.41 billion consensus.

Net interest income increased 1.4% from first quarter, and noninterest income declined by $496 mln from first quarter because of lower market sensitive revenue, including a decline in trading gains related to deferred compensation plan investments. Net interest income increased to $11.0 bln in the second quarter, up from $10.9 bln in first quarter 2012. Growth in commercial loan interest income and yields was driven by balance growth and higher levels of purchased credit-impaired (PCI) resolution income. The net interest margin was 3.91%, flat QoQ. On a linked quarter basis, the impact of higher variable income, including PCI loan resolution income, was ~7 bps, helping offset pressure on the net interest margin from balance sheet repricing in the current low interest rate environment. Noninterest income was $10.3 bln, compared with $10.7 bln in first quarter 2012. While the co recorded higher deposit service charges, trust and investment fees, card fees and mortgage banking revenue, the decline from first quarter 2012 was attributable to lower market sensitive revenue, primarily trading gains related to deferred compensation plan investments ($218 mln offset in employee benefits expense), as well as $122 mln in lower equity gains. Mortgage banking noninterest income was $2.9 bln, up $23 mln from first quarter, on $131 bln of originations, compared with $129 bln of originations in first quarter. The co provided $669 mln for mortgage loan repurchase losses, compared with $430 mln in Q1. The increase in the repurchase provision was primarily attributable to an increase in projected demands from govt-sponsored entities on loans sold between 2006 and 2008. Net mortgage servicing rights (MSRs) results were a $377 mln gain compared with a $58 mln loss in first quarter.

The ratio of MSRs to related loans serviced for others was 69 bps and the average note rate on the servicing portfolio was 4.97%. The unclosed pipeline at June 30, 2012, was $102 bln, up from $79 bln at March 31, 2012. Capital increased in the second quarter, with Tier 1 common equity reaching $101.7 bln under Basel I, or 10.08% of risk-weighted assets. Based on interpretation of the latest Basel III capital proposals, including the notices of proposed rulemaking issued by the federal banking agencies in June 2012, the Tier 1 common equity ratio was an estimated 7.78%. In Q2, the co purchased ~53 mln shares of its common stock and an additional estimated 11 mln shares through a forward repurchase transaction expected to settle in third quarter 2012, paid quarterly common stock dividends of $0.22 per share, and redeemed $1.8 bln of trust preferred securities, with an average coupon of 6.31%, on June 15, 2012. Total loans were $775.2 billion at June 30, 2012, up $8.7 billion from $766.5 bln at March 31, 2012. ROA of 1.41%, up 10 bps QoQ. ROE of 12.86%, up 72 bps QoQ. Reserve release of $400 mln (pre-tax) reflected continued improved credit performance. Net charge offs were $2.2 bln, -8% QoQ. "Absent significant deterioration in the economy, we continue to expect future reserve releases in 2012."