* Earnings per share 92 cents vs estimate 88 cents
* Revenue $21.3 bln vs estimate $21.6 bln
* Mortgage business slows for second straight quarter
* Net interest margins continue to decline
* Shares down in afternoon trading (Adds CFO, CEO and analyst comments, updates stock)
By Rick Rothacker and Jochelle Mendonca
April 12 Wells Fargo & Co 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.
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 bust. But the bank has now seen a decline in home loans for two consecutive quarters as fewer borrowers refinance at low interest rates.
"It's going from great to good," said Sandler O'Neill analyst Scott Siefers. "This is a business that is simply tailing off, and it's going to be very challenging to sustain."
Wells 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.
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.
"Our guess is that mortgage origination levels and revenues will continue to come down," Chief Financial Officer Tim Sloan said in an interview.
He said the bank was seeing an increase in loans taken out by customers buying homes, which will help offset a decline in refinancings. Refinancings accounted for 65 percent of mortgage applications in the first quarter, down from 76 percent a year ago.
Wells' mortgage market share dipped to 27.7 percent at the end of the fourth quarter from 33.9 percent in the first quarter of last year, according to Inside Mortgage Finance, an industry publication. The bank's share could fall to the low- to mid-20 percent range, Sloan said, because the bank is such a dominant player in mortgage refinancings.
The bank 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.
With the debate in Washington heating up over too-big-to fail banks, Wells Fargo Chief Executive John Stumpf took time during the bank's earnings conference call to lash out against efforts to further regulate the largest financial institutions.
"We do not need additional legislation aimed at big banks," Stumpf said. "Important and significant regulatory changes have been made since the financial crisis and we need to give existing regulations a chance to work."
The United States needs banks of all sizes, and large banks have "unique resources and capabilities" to help fuel economic growth, he said.
Stumpf was part of a group of bank CEOs who met with President Barack Obama on Thursday at the White House. The need to revive the U.S. economy and reform immigration and fiscal policy was on the agenda set by the White House. [ID: nL2N0CY1MY]
MARGIN UNDER PRESSURE
Wells Fargo said net income applicable to common shareholders rose in the quarter to $4.93 billion, or 92 cents per share, compared with $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.
Excluding preferred dividend payments, the bank's net income was $5.2 billion, up 22 percent.
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 analysts' average 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 shares were down 46 cents at $37.05 in afternoon trading. Investors were likely concerned about the bank's net interest margin, minimal loan growth and the mortgage business, said Erik Oja, analyst with S&P Capital IQ.
"The only thing that was really impressive about the quarter was the expense reduction," he said. (Reporting by Rick Rothacker in Charlotte, N.C.; Editing by Sriraj Kalluvila)