NEW YORK — Wells Fargo, the nation's biggest mortgage lender, says its second-quarter earnings edged lower as a key measure of its profitability shrank.
EARNINGS: Net income fell to $5.36 billion from $5.42 billion a year earlier, the San Francisco-based bank said Tuesday. That's after taking out dividends for preferred stock. On a per-share basis, earnings rose to $1.03 from $1.01.
Revenue rose 1 percent, to $21.3 billion, from $21.07 billion in the same period a year earlier.
HOW IT HAPPENED: Revenue at Wells Fargo's community banking unit, the largest part of the bank, rose slightly from a year ago. The unit offers services such as checking accounts, credit and debit cards as well as mortgage loans.
Gains were driven by higher debit and credit card fees, as well as higher income from interest payments and higher trust and investment fees. That was offset by smaller gains from trading activities and lower mortgage banking fees.
Higher personnel expenses at the unit compared with a year earlier also pushed up costs.
THE QUOTE: Wells Fargo Chairman and CEO John Stumpf remains confident that the economy would continue to grow in the second half of the year and that the housing market would maintain it recovery, driven by an improving job market and better consumer confidence.
"Housing activity has been especially encouraging," Stumpf said on a conference call. "Wells Fargo should benefit from the increase in activity."
More Americans signed contracts to purchase homes in May, as pending sales climbed to their highest level in more than nine years, the National Association of Realtors said late last month. Steady job growth coupled with low but rising mortgage rates is creating a greater incentive to buy homes.
WHAT THE ANALYSTS EXPECTED: The earnings were in line with Wall Street's expectations, according to data provider FactSet. However, revenue came in slightly lower than forecast. Analysts at FactSet had predicted revenue of $21.6 billion for the quarter.
OF NOTE: The bank's net interest margin, a measure of how much profit it makes on money it loans out, shrank to 2.97 percent in the second quarter from 3.15 percent a year earlier. The measure is closely watched by financial analysts.
THE ANALYSTS' TAKE: The earnings report was "decent in light of the on-going interest rate environment," said Shannon Stemm, financial services analyst for brokerage Edward Jones, referring to historically low interest rates that are curbing banks' earning potential.
HOW THE STOCK REACTED: The bank's stock rose 40 cents, or 0.7 percent, to $57.14. The bank's stock has gained 4.2 percent this year, compared with a gain of 4.8 percent for the KBW Nasdaq Bank index.