Wells Fargo & Co posted a better than expected quarterly profit, but revenue fell short of expectations as the lender's mortgage business continued to remain a dark spot.
While higher interest rates have helped banks earn more on loans, borrowers have shied away from refinancing their loans, hurting mortgage business across the banking industry.
Wells Fargo, the largest US residential mortgage lender, recorded an 18.8% fall in mortgage banking income to $1.15 billion.
JPMorgan, its closest rival in mortgage banking, posted a 41% decline in mortgage fees and loan servicing revenue.
Wells Fargo's total revenue remained flat at $22.17 billion and missed analysts' average estimate of $22.47 billion.
Mortgage banking was not the only drag for Well Fargo. Wholesale banking was particularly weak, with non0-interest income falling by 21% to $2.67 billion.
The bank attributed the decline to the $290m sale of a health benefit service business a year ago, as well as lower results from trading and principal investing.
However, it was not all gloom for the third-largest US bank by assets. Net interest income, a measure that reflects earnings relative to funding costs, rose 6.4% to $12.48 billion.
The US Federal Reserve raised interest rates for the second time this year in June, and indicated another possible increase this year.
The bank also set aside less money to meet any future loan losses. Provisions nearly halved to $555m, helped by an improving energy loan portfolio.
Net income rose 4.5% to $5.40 billion, or $1.07 per share, in the quarter ended June. 30, beating the average analyst estimate of $1.01, according to Thomson Reuters.
Wells Fargo has also been struggling with high costs as it battles lawsuits related to a sales scandal last year, which involved employees creating millions of unauthorised accounts in customers' names to meet sales targets.
The San Franscisco-based lender said non-interest expenses rose about 5% to $13.54 billion.
"We continued to make progress this quarter in our efforts to rebuild trust - while there is still more work ahead of us, we are on the right track and I am confident about our future", the bank's chief executive Tim Sloan said.
The company doubled its cost-cutting goals in May and plans to reduce costs by $4 billion by the end of 2019.
