Wells Rebalances Portfolio, Sees Record Low Average Rate.

Wells Fargo racked up a solid quarter financially despite jettisoning a portfolio of lower-yield adjustable-rate mortgages at a loss.

At the same time, a $375 million recapture of impairment on the company's mortgage servicing portfolio helped boost Wells Fargo's income, and company executives said they expect the servicing portfolio to provide more earnings support in future quarters if rates trend upward.

Because Wells Fargo does not hedge the entire value of its servicing portfolio, the company expects that MSR gains will continue to exceed hedging losses, chief financial officer Howard Atkins said in a recorded management call discussing company earnings.

And if the mortgage origination business is slowing down, you wouldn't know it from Wells Fargo's second quarter. Although interest rates trended upward during the quarter, a strong pipeline leftover from the first quarter helped Wells Fargo tally $96 billion in mortgage originations, a $31 billion increase from the prior quarter.

Weighing down on the company's earnings, however, was the sale of $3.5 billion in securities, mostly mortgage-backed, that had yields below 4%, the company said. It also sold some $10.5 billion of three- and five-year ...