When other banks were nursing their wounds, Wells Fargo (WFC) was posting consistently strong results. Now the question has become: how well will the San Francisco lender's performance hold up as the competition for loans stiffens?

Wells' second-quarter results ended its 17-quarter streak of earnings per share growth, and during a conference call with analysts, the company's top executives faced a series of questions about the stepped-up competition, its impact on the company's profits and the risks it brings.

"It is a more competitive environment," Chief Financial Officer John Shrewsberry said during the call. "There are lots of people out there, lots of banks out there with a lot of liquidity, competing for loans. And we do see more competitive, more borrower-friendly structures that we have to react to, from one asset category to another."

However, managing credit risk is a longtime strength of Wells Fargo, he added.

Wells was the first U.S. bank to give its second-quarter report — in recent quarters it has shared the day-one stage with JPMorgan Chase (JPM), but JPMorgan is waiting until Tuesday to make its announcement — so analysts picked over Wells' results in an effort to discern larger industry-wide trends.

Total average loans at Wells rose 4% from the same period a year earlier, while core loans were up 7%. At the same time, Wells Fargo's revenue fell from $21.4 billion in the second quarter of last year to $21.1 billion in the same period this year, and the company's net interest margin also dropped. Stepped-up competition likely contributed to both reductions.

Nomura analysts called Wells Fargo's second-quarter loan growth "solid." In a research note, they pointed to the strength of the bank's core commercial loan portfolio, which grew 8% year over year, as a good sign for regional banks that focus on commercial loans, such as Comerica (CMA), PNC Financial (PNC) and U.S. Bancorp (USB).

Analysts at Keefe, Bruyette & Woods made the same point about commercial loans in a research note. They also wrote that loan growth at Wells was "in line with our expectations and in line with industry trends."

One negative mark on Wells' earnings report was its decision to set aside an additional $205 million to pay for various legal matters. Wells Fargo declined to provide any new details about the legal issues the company is facing.

On the positive side of the ledger were comments from Chief Executive John Stumpf about the upward trajectory of the U.S. economy. For several quarters, Stumpf has been relatively bullish on the economic recovery, and on Friday he drew attention to the strength of U.S. auto sales, energy production and the employment market.

"While the economic recovery remains uneven," he told analysts, "there are many indicators that economic growth is accelerating, and we remain optimistic about the opportunities the recovery provides for Wells Fargo and for our customers."

Income from mortgage banking was down 39% from a year earlier, when Wells Fargo was still riding out the refinancing boom. But mortgage income rose 14% from the first quarter, as home sales rebounded due to seasonal trends, and was generally in line with analysts' expectations.

Asset quality was a bright spot for Wells. In the second quarter, the company's net chargeoffs fell to 0.35% as a percentage of its average total loans, down from 0.58% in the same period a year earlier.

The chargeoff rate was the "lowest I remember in my 30-some years with the company," Stumpf told analysts.

Shrewsberry expressed confidence that Wells Fargo's chargeoffs will not rise rapidly, despite the increased competition over loan terms.

"We know what kind of assets we've been putting on the books for the last few years, which I think we all believe are of very high credit quality, particularly on a historical basis," he during the conference call.

But analysts pressed Wells' honchos about the state of competition for auto loans and in leveraged lending. The Office of the Comptroller of the Currency has raised concerns about the deterioration of credit standards in both of those loan categories.

In auto loan originations, Wells reported an 11% increase in the second quarter over the same period a year earlier. But Stumpf waved off concerns about credit quality.

"I don't think we're taking inappropriate risk. In fact I think we're taking the right risk," he told analysts. "After all, this is a business that we've been in a long time."

When asked about regulators' focus on leveraged lending, Shrewsberry said that he expects to get a better understanding of how Wells will be affected later this year. "We don't anticipate it having an extraordinary impact on Wells Fargo, based on our business mix," he said.

Later, in an interview with American Banker, Shrewsberry added that "the frothy part" of the leveraged-loan market "is not really a mainstay for us."

Overall in the second quarter, Wells reported net income of $5.7 billion, or $1.01 per share, which was up from $5.5 billion, or $0.98 per share, in the same period a year earlier. The company's high-water mark for earnings per share was $1.05 in the first quarter of this year.

Wells Fargo's share price fell 0.62% Friday, to $51.49.

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry. 

Read more: