Updated from 9:54 a.m. EDT.
surged 24% Wednesday morning after the big mortgage lender said it was increasing its dividend by 10% and posted better-than-expected second-quarter earnings results.
The San Francisco-based bank declared a quarterly common stock dividend of 34 cents a share, up from its previous dividend of 31 cents a share. The dividend increase overshadowed the company's 23% drop in quarterly profit from a year earlier, according to second quarter results released on Wednesday.
News of the dividend increase sent shares up $4.85 to $25.36 in recent trading, as investors breathed a sigh of relief amid a troubled banking environment. A dividend increase by any bank will be rare this earnings season, particularly as they look to shore up capital as loan losses mount. Other banks that have cut their dividend this year include
, among others.
Wells Fargo, while it has not been immune to the soured housing market and deteriorating home prices, particularly related to its home equity portfolio, it has nonetheless remained relatively unscathed through the credit crisis.
"This increase which reflects the company's performance and our confidence in its long-term growth, is possible because of our time-tested vision and values, diverse business model and our talented team," CFO Howard Atkins said in a statement
Wells Fargo is one of the few financial institutions that has continued to increase its annual dividend, which exceeds $4.5 billion, Atkins added.
Wells Fargo said that it made $1.75 billion, or 53 cents a share, in the second quarter, compared to $2.28 billion, or 67 cents a share, in the year-earlier period. Still, the company managed to beat earnings estimates by 3 cents a share even as the economy softened and the housing market continued to take its toll on large and small banks in the second quarter.
Revenue rose 16% from a year earlier to $11.5 billion.
"Wells Fargo continued to strengthen its franchise during the second quarter," CEO John Stumpf said in a statement. "We are open for business and getting lots of it."
"We're still affected by the weak economy, but we believe we're one of the best positioned in financial services to grow through this adversity and to build an even stronger company for our team members, customers, communities and shareholder," Stumpf said.
Wells Fargo took a $3 billion provision charge to cover against $1.5 billion of net charge-offs -- flat from the first quarter -- and an additional $1.5 billion reserve, primarily related to its struggling home equity portfolio, it said.
Wells Fargo separated approximately $12 billion worth of souring brokered home equity loans into a liquidating portfolio at the beginning of the year. The company said Wednesday that the liquidating portfolio has been reduced by $800 million or 7% from the beginning of the year.
In the second quarter, Wells Fargo changed its policy toward charged-off home equity loans to 180 days delinquent from 120 days "to provide more time to work with customers to solve their credit problems and keep them in their homes," the company said on Wednesday. The change deferred roughly $265 million of charge-offs in the second quarter. Approximately 900 customers with $90 million of home equity loans have been modified due to the change, Wells Fargo said.
Wells Fargo's Tier-1 capital level was 8.24% at the end of the quarter, up 32 basis points from the first quarter and 65 basis points since the end of 2007.
There was "deterioration in all loan segments," writes Richard Staite, an analyst in London at Atlantic Equities, but "
management remains confident, seeing greater opportunities to deploy capital at attractive returns in the current environment."