Wells Fargo’s third-quarter profit rises 2.7% to $5.73 billion

Wells Fargo & Co., the biggest U.S. home lender, posted third-quarter profit that matched analysts’ estimates as fees from mortgage banking fell and lending margins narrowed.

Net income rose 2.7% to $5.73 billion, or $1.02 a share, from $5.58 billion, or 99 cents, a year earlier, the San Francisco-based lender said Tuesday. That met the average estimate of analysts surveyed by Bloomberg.

Chief Executive John Stumpf, 61, faces slackening demand for mortgages as the housing market shifts away from a refinancing boom that propelled profits in earlier years. With interest rates still near record lows, Wells Fargo’s net interest margin, a measure of profitability, has declined to the lowest in at least two decades.

“Net interest margins will go up when interest rates rise. The question is, how do you bridge the gap between now and then?” said Jennifer Thompson, an analyst at Portales Partners. “It has to be loan growth.”

Wells Fargo shares slid $1.37, or 2.7%, to close at $48.83, the lowest since April, after dropping as much as 4%. The shares have gained 7.6% this year, the best performance in the 24-company KBW Bank Index.

Third-quarter net interest margin fell to 3.06%, below the 3.13% average estimate of analysts surveyed by Bloomberg.

Revenue increased 3.6% to $21.2 billion from $20.5 billion a year earlier, beating the $21.1-billion average estimate of analysts in the Bloomberg survey.

“Our balance sheet has never been stronger, with higher levels of capital and liquidity, and improved asset quality,” Stumpf said in a statement. “We also remain well positioned to benefit from higher rates in the future.”

Mortgage banking revenue in the third quarter declined 5.2% to $1.63 billion from the preceding three-month period. Mortgage banking revenue increased 1.6% from last year’s third-quarter, Wells Fargo said.

“The last five years have been a real heyday for the mortgage-banking world,” said Paul Miller, an FBR Capital Markets analyst. “The next year or two is going to be more of a struggle.”

Mortgage refinancings that once fueled profits at the biggest U.S. banks have slowed as interest rates rose from historic lows. Wells Fargo accounted for about 16.3% of U.S. home loans in the second quarter, compared with 15.9% in the first three months of 2014, according to data compiled by Bloomberg.

Also reporting earnings Tuesday, JPMorgan Chase & Co., the largest U.S. bank by assets, reported a third-quarter profit after booking a loss in the same period last year, when the company absorbed a big charge for legal expenses. The bank reported earnings of $5.6 billion, or $1.36 share, compared with a loss of $380 million, or 17 cents, a year earlier. Revenue rose 5% to $24.25 billion.

Citigroup Inc., the third-largest bank, reported profit that beat analysts’ estimates as bond-trading revenue climbed and lending improved. Net income advanced 6.6% to $3.44 billion, or $1.07 a share, from $3.23 billion, or $1, a year earlier. Excluding special items, profit was $1.15 a share, beating the $1.12 average estimate of analysts surveyed by Bloomberg. The firm also announced plans to exit consumer banking in 11 markets.