No. 1 mortgage lender Wells Fargo & Co. kicked off the bank earnings season with a 3.8% increase in profit in a report that sent modestly positive signals about Main Street lending and the housing market.
Wells Fargo had second-quarter net income of $5.73 billion, compared with $5.52 billion a year earlier. Its $1.01 in per-share earnings, up from 98 cents, met Wall Street expectations. Revenue fell 1% to $21.1 billion, but beat analysts' average estimate of $20.8 billion.
The bank's provision for loan losses was less than many on Wall Street had anticipated. In announcing the results Friday, Wells Fargo Chairman and Chief Executive John Stumpf said improvements in loan repayments were "driven by an improved economy, especially the housing market."
The San Francisco-based bank, California's largest by far, said it wrote $47 billion in mortgages during the quarter, compared with $112 billion in the second quarter of 2013, when a home-refinancing boom was boosting results.
With that boom long gone and the focus now on loans to buy homes, analysts were comparing the mortgage results to this year's first quarter, when originations totaled just $36 billion.
The 30.6% gain from the first quarter was at the high end of projections, reinforcing a report Thursday from Inside Mortgage Finance that said second-quarter lending for the mortgage industry had greatly exceeded expectations.
Wells Fargo's pipeline of mortgage applications also grew more than expected, noted analysts at Keefe, Bruyette & Woods.
The KBW analysts and others are bullish on Wells Fargo because it is less focused on risky Wall Street trading and less exposed to liability for toxic mortgage securities than rivals JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc., which report earnings next week.
Investors, who often see Wells Fargo exceed Wall Street's profit estimates, pondered certain weaknesses in the results.
The profit margin on lending narrowed due to low interest rates and heated competition, and expenses were greater than expected at a time when banks are focused on reducing operating costs. Wells Fargo shares fell 1% in morning trading.
But loans increased from the first quarter at an annualized pace of 6%, with strength in retail areas such as auto and credit card lending. Commercial and industrial loans -- the meat and potatoes funding of businesses -- were growing twice as fast as the average for large domestic banks, according to the KBW analysts.
At the same time, Wells Fargo slashed its losses on loans by 52% to $717 million, down from $1.2 billion a year earlier.
Follow @ScottReckard for news about banks and mortgagesCopyright © 2014, Los Angeles Times