MSR Impairment Does Little Damage to Wells' Bottom Line.

San Francisco -- Wells Fargo reported record second-quarter income despite taking a $304 million impairment hit to the value of its mortgage servicing rights.

Wells Fargo & Co. earned record diluted earnings per share of $1.12, up 12% from the prior year, on record net income of $1.91 billion, up 11%.

But don't think the impairment of mortgage servicing rights left the nation's second-largest mortgage lender unscathed. Wells Fargo said that revenue was up 6% from the prior year. But revenue from businesses other than Wells Fargo Home Mortgage was up 16%.

Home mortgage revenue declined $559 million, or 42%, from $1.3 billion in the second quarter of 2004 to $774 million in the second quarter of this year.

But despite the revenue shortfall, Wells Fargo continued to grow its residential real estate loan portfolios. Its residential first mortgage and home-equity portfolios both grew at a double-digit clip in the second quarter.

Unlike many banks, Wells Fargo reported a widening of its net interest margin during the second quarter compared to one year earlier. Wells said the net interest margin increased by six basis points to 4.89%.

Wells Fargo said that a "repositioning" of its balance sheet earlier in the year, which included the sale of $18 billion of adjustable-rate mortgages and auto loans, helped boost the net interest margin even as it slowed asset growth temporarily. Wells reported 6% growth in earning assets year over year.