Wells Fargo & Co (WFC.N), the biggest U.S. mortgage lender, reported a higher-than-expected 20 percent rise in quarterly profit on Friday as it set aside less money to cover bad loans.
The fourth-biggest U.S. bank's net income applicable to common stockholders rose to $5.27 billion, or 98 cents per share, in the second quarter from $4.40 billion, or 82 cents per share, a year earlier.
Analysts had expected earnings of 93 cents per share, according to Thomson Reuters I/B/E/S. This marked the 14th consecutive quarter of earnings growth per share.
Provision for bad loans fell 64 percent to $652 million.
The rise in U.S. interest rates since early May contributed to a slowdown in refinancing, which accounted for 54 percent of Wells Fargo's mortgage applications in the second quarter, down from nearly two-thirds in the first quarter.
Overall demand for refinancing fell 45 percent in the latest quarter, according to the Mortgage Bankers Association.
Wells Fargo originated $112 billion of home loans in the second quarter, down from $131 billion a year earlier but up from $109 billion in the first quarter.
Mortgage banking fees fell 3 percent from a year earlier to $2.80 billion.
Wells Fargo had a 22 percent share of the U.S. mortgage market in the first quarter, down from 27.7 percent at the end of the fourth quarter, according to Inside Mortgage Finance, an industry publication.
Thirty-year mortgage rates rose to 4.58 percent at the end of the second quarter, up 0.82 percentage points from the first quarter.
Wells Fargo's shares, which were up about 1 percent at $42.35 in premarket trading, have risen about 20 percent this year, roughly in line with the increase in the KBW index of bank stocks.
The bank's net interest margin, an indicator of how profitable its loans are, fell to 3.46 percent from 3.91 percent a year earlier and 3.48 percent in the first quarter.
Rising interest rates should ease pressure banks have faced on their margins, but that trend will take time to bear fruit.
Wells Fargo's total revenue rose marginally to $21.37 billion from $21.29 billion a year earlier. Non-interest expenses fell to $12.25 billion from $12.40 billion.
JPMorgan Chase & Co (JPM.N), the biggest U.S. bank by assets, reported a higher-than-expected 31 percent rise in quarterly profit earlier on Friday as its trading revenue rebounded and it set aside less to cover bad loans.
JPMorgan is the second-biggest provider of mortgages in the United States, with an 11 percent market share.
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