JPM), Bank of America ( BAC) and Citigroup ( C), Wells Fargo has shown no immunity against a tough interest rate environment and weak loan growth. Even so, unlike some of its rivals, what I've noticed is that, despite the bank's sluggishness in mortgage lending and an overall weakness in loan demand, Wells Fargo's management has made no excuses. Instead, it has consistently raised the bar -- adding pressure on the bank's ability to perform better. Investors have responded by aligning their trust with the banks direction. It's turned out to be a smart move. On Jan. 9, I issued a $40 price target on the stock. This was while shares traded at around $34 per share. Admittedly, it wasn't a huge gamble. But considering that we were all just slowly backing away from the "fiscal cliff," it didn't make sense for me to then go too far out on another limb. Not surprisingly, shares would hit my $40 mark four months later. raised my price target to $45. On July 23, the stock reached another new 52-week high of $44.79, less than half of a percentage point from $45. With an improved interest rate environment, which coincides with Wells Fargo's better-than-expected second-quarter earnings results, these shares still look cheap. Essentially, despite some headwinds, Wells Fargo has done everything that I've asked it to do. Heading into the second-quarter report, one of my concerns (among others) had to do with the bank's lackluster performance in net interest margin (NIM), which was down by 33 basis points in the April quarter and down 8 basis points from the January quarter. I don't want to overstate the importance of NIM, but this is the metric that tells investors if management made sound investment decisions relative to the bank's debt situation. As I said above, investors aligned themselves with management. So it's important that these sorts of details aren't overlooked. From my calculation, last quarter's 33-basis-point decline told me that the bank's interest expenses were higher than the returns Wells Fargo generated from its investments. It's wasn't a good feeling.
In the recent quarter, however, NIM was basically flat (sequentially) while the Street was looking for another decline. Likewise, when compared to last quarter when there was virtually no growth to speak of, operating revenue did climb slightly this time -- albeit by 1%. Wells Fargo also exceeded expectations in areas like fee income. Although the bears have every right to gripe about the 1% decline in fees, it's not as if Wall Street was looking for a quick fix in this category. What's more, the 3% sequential increase in net interest income more than offset the 1% fee decline. And let's not forget the 3% year-over-year increase in average earning assets, which helped improve the NIM situation that we've outlined above. As with the April quarter, which produced a 2% decline in expenses, management was just as diligent with expense contro, helping to grow operating income by 3% sequentially. I don't believe Wells Fargo's management has gotten enough credit for this level of fiscal awareness. The Street continues to take for granted how hard it is to keep costs down amid a highly competitive banking market where everyone is scrounging for loan growth. Along similar lines, management continues to get rid of assets and loan ratios that have not been performing well. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.