SAN FRANCISCO (AP) - Wells Fargo & Co. (NYSE:GWF) (NYSE:JWF) (NYSE:WSF) (NYSE:WPF) (NYSE:WFC) raked in more service fees and milked customer deposits to boost its second-quarter profit by 9 percent, sticking to a familiar formula that paid off even as more households struggled to pay their bills.
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Wells Fargo, the nation's fifth largest bank, has been largely unscathed by the subprime implosion so far, even though it ranks among the sector's largest lenders.
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The bank benefited from a 23 percent increase in noninterest income, propelled by higher fees on deposit accounts, credit cards and other basic financial services.
Wells Fargo also fattened the spread between the average rate it paid to attract customer deposits and the average price it charged for loans. This gap, known as the net interest margin, stood at 4.89 percent in the second quarter, up from 4.76 percent a year ago.
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Without providing a specific breakdown, Wells Fargo said its subprime mortgages are held in a $22 billion portfolio of 'debt consolidation' loans. The bank said it lost just $10 million in this segment during the second quarter.
Wells Fargo management believes it is better positioned to avoid major subprime headaches because it demanded more paperwork to verify the incomes of borrowers and eschewed the kind of exotic loans that have devastated other lenders.
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Although it hasn't been hard hit yet, Wells Fargo is feeling some pain from the housing slump. The bank said more of its customers are missing payments on home equity loans, a trend that management expects to add to its loan losses in the rest of the year. The bank said its home equity headaches are concentrated in the Midwest and California's Central Valley.
The bank's second-quarter loan losses totaled $720 million, up 67 percent from $432 million at the same time last year.