Wells Fargo & Co reported a drop in profit for the second quarter in a row as expenses rose at a time when the largest U.S. mortgage lender is struggling to boost margins in a low-interest rate environment.
Continue Reading Below
Lower interest rates have crimped the bank's net income for the past two quarters, ending its five-year run of rising profits that was driven by a mortgage refinancing boom.
The bank's net interest margin, the difference between the rates at which it borrows and lends, fell to 2.97 percent in the second quarter from 3.15 percent a year earlier.
Wells Fargo's non-interest expenses rose 2.3 percent to $12.47 billion, accounting for about 58.5 percent of revenue, the higher end of its targeted range of 55-59 percent.
The bank set aside $300 million to cover bad loans, up 38.2 percent from a year earlier.
Mortgage banking revenue, which accounted for 17 percent of Wells Fargo's non-interest income, fell 1 percent to $1.71 billion.
"Mortgage banking was a little weaker than I had thought ... that was a little bit of a disappointment," Sandler O'Neill analyst R. Scott Siefers said.
Wells Fargo made $62 billion of home loans in the quarter ended June 30, up from $47 billion a year earlier and $49 billion in the first quarter.
The bank said mortgage applications in the pipeline fell to $38 billion as of June-end from $44 billion at the end of March.
JPMorgan Chase & Co reported a stronger-than-expected rise in second-quarter profit earlier on Tuesday as legal and restructuring expenses declined.
Net income applicable to Wells Fargo's common shareholders fell to $5.36 billion from $5.42 billion.
However, profit rose slightly on a per-share basis to $1.03 from $1.01 as the number of outstanding shares declined after buybacks.
Total revenue rose about 1 percent to $21.30 billion.
Analysts on average had expected a profit of $1.03 per share and revenue of $21.70 billion, according to Thomson Reuters I/B/E/S.
Wells Fargo's shares were little changed at $56.84 in early trading on the New York Stock Exchange.
The stock rose about 3.5 percent in the second quarter, while shares of other Wall Street banks gained 7-12 percent in the period. (Editing by Kirti Pandey)