Money center financial titans Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM) were among the first banks to report second quarter earnings results. Wells continued to be a standout, due in good part to minimal investment banking and international market exposures. Its current valuation also suggests there is minimal downside to owning the stock, as well as some additional, albeit modest, upside potential in the coming few years.

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Quarterly Details
Wells reported modest revenue growth of 4.4% to $21.29 billion on modest average loan growth of 2.2% to $768.2 billion. Its net interest margin also fell slightly, dropping 10 basis points to 3.91%. However, this is among the highest in the peer group of large domestic banks. Cost controls fell rather significantly, as signified by a three-point drop in the efficiency ratio to 58.2. This allowed net income to jump approximately 17% to $4.62 billion, or 82 cents per diluted share.

Return on equity rose nearly a percent to 12.86%, which is also among the highest in the industry. Only U.S. Bancorp (NYSE:USB) has been logging a higher ROE and second quarter details will be known when it reports its own results in the coming week. Book value per common share ended the quarter at $26.06.

SEE: Understanding The Income Statement

The Bottom Line
Prior to the financial crisis, Wells consistently reported an ROE above 18%. Though it is unlikely to return to these pre-housing boom figures, an eventual target of 15% is reasonable. Based off the current book value figure, this suggests earnings close to $4, which it could achieve within the next couple of years.

For this year, analysts project earnings of $3.31 and a rise of nearly 11% to $3.66 by the end of 2013. Prior to the crisis, it paid out more than 40% of its earnings in the form of quarterly dividends. Returning to this level suggests an annual payout closer to $1.50 per share, or a dividend yield above 4%.

SEE: 5 Must-Have Metrics For Value Investors

All of this suggests that the bank's valuation remains reasonable, and there could be further upside as earnings and dividend payments continue to rise. It is also nice that the bank doesn't focus on investment banking activities, which have caused JPMorgan some struggles recently. Avoiding European exposure is another big positive these days. European-based banks including Santander (NYSE:SAN) and Barclays (NYSE:BCS) are seeing difficulties, given their exposure to Europe, as well as LIBOR rate-fixing allegations in the case of Barclays.

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