Wells Reports 7% Rise in Net Income

San Francisco-based Wells Fargo & Co., the nation’s No. 1 mortgage lender, posted a 7% increase in second-quarter earnings Tuesday, falling just shy of Wall Street’s forecasts.

Also Tuesday, Washington Mutual Inc. of Seattle, the No. 2 mortgage lender nationally, and Beverly Hills-based City National Corp., the largest bank based in the Los Angeles area, beat earnings forecasts and announced sharp dividend increases, actions already taken by competitors such as Citigroup Inc. and Bank of America Corp.

Wells, the fourth-largest U.S. bank and the largest based in California, earned $1.53 billion, or 90 cents a share, during the April to June quarter, up from $1.42 billion, or 82 cents, during the same period of 2002. Revenue from lending rose 11% to $4 billion, and fee revenue was up 14% to $2.7 billion, including $543 million in mortgage banking fees, a 32% increase.

At the end of June, Wells had $120 billion in pending new mortgages, up from $48 billion a year ago, indicating its home-lending boom would continue this quarter. Wells also said it may boost its dividend, which is lower than most of its rivals, when its board of directors meets next week.

But Wells also reported sluggish commercial lending and more losses on venture capital investments. The bank wrote off $47 million of losses on equity investments made during the last stock-market boom, the latest in a two-year series of similar charges. Wells Chief Financial Officer Howard Atkins said the bank now feels it has put the losses on its private and public equity investments behind it.

Analysts surveyed by Thomson First Call had expected Wells to earn 91 cents a share, and the bank’s shares fell $1.10 to $51.93 on the New York Stock Exchange.

Wells and many other banking stocks were hurt Tuesday by another jump in interest rates. Since closing at 3.11% on June 13, the yield on the benchmark 10-year Treasury note has climbed to 3.98%. If continued, the increases would threaten the boom in consumer lending that has propped the big banks up at a time when business demand for financing remains tepid.

“As the consumer growth slows and normalizes, we’re going to need to see a pickup from the commercial side,” said analyst Joseph Morford of RBC Capital Markets in San Francisco.

After the markets closed, City National reported that its second-quarter profit rose from $45.8 million, or 88 cents a share in 2002, to $46.1 million, or 93 cents, beating analysts’ estimates of 91 cents. Commercial loan volumes were weak, but the bank made progress in cleaning up problem loans, Morford said. The bank also raised its quarterly dividend 37% to 28 cents.

Cathay Bancorp of L.A., which would become the largest independent Asian American bank in the country if it completes its planned acquisition of GBC Bancorp, announced late in the day that it had earned $13.2 million, or 73 cents a share, during the second quarter, up from $12.2 million, or 67 cents, a year earlier. Wall Street had forecast earnings of 69 cents.

Washington Mutual, which according to DataQuick Information Systems edges out Wells Fargo as California’s No. 1 mortgage lender, reported after the markets closed that it earned $1.02 billion, or $1.10 a share, in the second quarter, up from $990 million, or $1.01, a year ago.

Kerry Killinger, Washington Mutual’s chief executive, said the recent reduction in the federal tax on dividends contributed to a decision to hike the S&L;’s quarterly dividend by 33%, from 30 cents to 40 cents.