Wells Fargo & Co. booked a record $5.5 billion in profit during the second quarter despite a dramatic rise in mortgage rates and signs of a slowdown in its refinancing business.
The 19% year-over-year jump in earnings for the nation's largest home lender reflected the breakneck pace with which the U.S. housing industry has evolved. Although refinancing activity slowed as interest rates jumped, Wells Fargo still was able to grow its mortgage origination business by increasing the number of loans it made to home shoppers.
The San Francisco bank was also able to cut costs related to the improving housing markets, steering fewer delinquent borrowers through the foreclosure process and setting aside smaller reserves for loan losses. And the bank remains optimistic that the real estate recovery will help sustain strong profits going forward.
"We will continue to see home price appreciation generally; in certain markets you could continue to see double-digit increases," Chief Financial Officer Tim Sloan told The Times on Friday. "We are optimistic, because what we are seeing is — notwithstanding the economy not growing as quickly as we would all like — is that we are still in the midst of a recovery."
Sloan said the rapid rate of home price increases in California and beyond will probably moderate in coming months.
He said Wells Fargo also benefited by investing in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. And outside housing, the bank substantially increased its profits from trust and investment fees and made a record number of auto loans.
A boost in overall consumer fortunes helped boost Wells Fargo's overall loan portfolio to $802 billion, up $2 billion from the previous quarter. Although the bank's consumer loan activity has improved, the number of commercial loans made remains sluggish, said Joe Morford, an analyst with RBC Capital Markets.
"The housing recovery is providing a nice tail wind for their business at the moment, and they are fairly optimistic about the economy overall," he said. "Loan growth is still very modest, a little disappointing there."
Wells Fargo's net income rose to a $5.5 billion, or 98 cents a share, from $4.62 billion, or 82 cents, a year earlier. Revenue edged up to $21.4 billion from $21.3 billion a year earlier, which exceeded Wall Street projections.
The company's shares rose 74 cents, or 1.8%, to $42.63.
Meanwhile, JPMorgan Chase & Co. reported earnings results that beat analysts' expectations Friday, with a second-quarter profit of $6.5 billion, or $1.60 a share, up 31% from $4.96 billion, or $1.21, last year. Revenue was $26 billion, up from $22.9 billion a year earlier.
But the New York bank's chief executive, Jamie Dimon, warned Wall Street of a potential "dramatic reduction" in future mortgage profits given the rise in mortgage interest rates.
The nation's largest bank by assets reported strength in customer and community banking — with deposits up 10% — as well as a 12% growth in mortgages and a record volume of credit card sales.
JPMorgan's investment bank and asset management divisions also grew. Client assets in the second quarter were $2.2 trillion, an increase of $189 billion, or 10%, compared with the same period last year.
The company saw some softness in loan growth but remained confident in the economy, Dimon said in a statement.
"We continue to see broad-based signs that the U.S. economy is improving and we are hopeful that, as jobs are added and confidence builds, the U.S. economy will strengthen over time," Dimon said.
JPMorgan's stock closed down 17 cents at $54.97.
Some analysts have voiced concerns that banks' performances would turn sluggish whenever the Federal Reserve winds down its $85-billion-a-month bond buyback program. Tapering the program could weaken earnings as banks have fewer buyers for mortgages and other products as interest rates rise.
New home loans fell after Fed Chairman Ben S. Bernanke spoke publicly last month about the end of the program, according to a report Wednesday from the Mortgage Bankers Assn. And fixed mortgage rates this week resumed their recent upward trend, with lenders offering 30-year home loans to solid borrowers at an average of 4.51%, Freddie Mac reported Thursday.
But mortgage rates are still affordable by historical standards, and may even begin to creep back down again because of Bernanke's comments Wednesday that indicated the Fed's bond-purchase program would not end any time soon.Copyright © 2015, Los Angeles Times