Wells Fargo reported a higher-than-expected 23 percent rise in first-quarter profit on Friday, but its mortgage business showed further signs of slowing and net interest margins continued to shrink.
Wells Fargo shares were down 2 percent at $36.78 in premarket trading. (Click here for the latest before-hours quote.)
The fourth-largest U.S. bank by assets has emerged from the financial crisis as the leading U.S. home lender as other banks have pulled back from a business that burned them during the housing boom.
But the bank has now seen a decline in home loans for two consecutive quarters as fewer borrowers refinance at low interest rates.
The bank made $109 billion in home loans during the quarter, down from $129 billion in the same quarter a year ago and less than the $125 billion in loans extended in the fourth quarter.
Fees from mortgages dropped 2 percent to $2.8 billion from a year earlier, and were down 9 percent from the fourth quarter.
And a further fall is likely. The bank's pipeline of applications for home loans that have not yet closed was $74 billion at the end of the first quarter, down from $81 billion at the end of the fourth quarter.
Wells Fargo kicked off the bank earnings season on the same day as JPMorgan Chase & Co. The largest U.S. bank said its first-quarter earnings rose 33 percent to $6.53 billion, but most of its major businesses turned in tepid performances.
Unlike Wells Fargo, though, JPMorgan's mortgage originations rose -- by 37 percent from a year earlier and 3 percent from the fourth quarter.
Wells Fargo said net income applicable to common shareholders rose to $4.93 billion, or 92 cents per share, in the quarter, from $4.02 billion, or 75 cents per share, a year earlier.
Analysts on average had expected earnings of 88 cents per share, according to Thomson Reuters I/B/E/S.
The results marked the 13th consecutive quarter in which the bank's earnings per share have risen from the preceding quarter.
Total revenue fell slightly to $21.3 billion, missing the average analyst estimate of $21.59 billion.
Wells Fargo held onto $3.4 billion of mortgages that it could have sold to Fannie Mae and Freddie Mac, giving up $112 million of revenue.
The bank took similar actions last year, and had previously said it would hold onto $2 billion to $3 billion of mortgages that closed in January.
Total non-interest expenses fell 5 percent from a year earlier.
The bank's net interest margin -- a closely watched measure of how much money banks make from their loans -- fell to 3.48 percent from 3.91 percent a year earlier. Banks' margins are shrinking as older loans with higher interest rates are paid down.
Wells Fargo said it bought back about 17 million of its own shares during the quarter.
In March, after the Federal Reserve approved its capital plan, the bank said it planned to buy back more shares this year than in 2012, when it repurchased about $4 billion of its own stock.