Analyst: Wells Fargo has one of the ‘best deposit bases’ despite a 6.8% decline in Q2

Wells Fargo & Co (NYSE: WFC) reported better-than-expected results for its fiscal second quarter on Friday. Its shares are up slightly this morning.

Analyst reacts to Wells Fargo results

The financial services company attributed its quarterly strength to an increase in net interest income on the back of higher rates and loan balances.

Wells Fargo concluded its Q2 with $13.16 billion of net interest income – a 29.1% annualised growth that handily topped Street estimates. On CNBC’s “Squawk Box”, Baird analyst David George said:

We are off to a good start from earnings perspective. Wells Fargo raised interest income guidance for the full year and posted what we think were pretty good results in a very difficult environment.

Wells Fargo shares are still down about 10% year-to-date.

Credit loss provisions nearly tripled

Wells Fargo reported $1.71 billion of provisions for credit losses which were up sharply from $580 million in the same quarter last year.

Average loans were also up 2.1% in the second quarter, as per the earnings press release. Baird’s George added:

I think it’s important to expect that credit will deteriorate. But we are of the view that bank stocks are already baking in a more Draconian credit scenario over the next year or two.

His outperform rating on Wells Fargo shares comes with a price target of $50 that suggests close to a 15% upside from here.

Notable figures in Wells Fargo Q2 earnings report

• Earned $4.94 billion versus the year-ago $3.14 billion
• Per-share earnings also climbed from 75 cents to $1.25
• Revenue jumped 20.5% year-on-year to $20.53 billion
• Consensus was $1.16 a share on $20.11 billion revenue

Wells Fargo noted a 6.8% decline in average deposits to $1.35 billion in its Q2. Still UBS analyst Erica Najarian said today in a CNBC interview that it has one of “the best deposit bases” in the banking sector.