July 16 (Bloomberg) -- Wells Fargo & Co., the biggest bank on the U.S. West Coast, rose the most in more than 25 years after reporting better-than-expected second-quarter profit and raising its dividend.

Wells Fargo advanced $4.09 to $24.56 in 10:29 a.m. New York Stock Exchange composite trading, and jumped as high as $24.74 after the bank said net income dropped 23 percent to $1.75 billion, or 53 cents a share, from $2.28 billion, or 67 cents, a year earlier. That beat the 50-cent average estimate of analysts surveyed by Bloomberg. Revenue rose 16 percent to a record $11.5 billion.

Gains in credit-card fees and insurance softened the impact of bad home loans at the San Francisco-base bank, which increased the quarterly payout 10 percent. While earnings have declined for three straight quarters, Chief Executive Officer John Stumpf has kept the bank profitable even as Citigroup Inc. and Washington Mutual Inc. racked up losses and lenders Countrywide Financial Corp. and IndyMac Bancorp Inc. disappeared.

``They've got a nice balance of businesses,'' said William Frels, chief executive officer of Mairs & Power Inc., which manages $4.5 billion in St. Paul, Minnesota and owns Wells Fargo shares. ``They're very well-managed.''

The company is the first of the five biggest U.S. banks to post formal second-quarter results. JPMorgan Chase & Co., ranked third, is scheduled to report tomorrow, and Citigroup, the industry's biggest, discloses earnings the next day.

Avoiding Subprime

Wells Fargo, the second-biggest U.S. mortgage lender, has said it avoided subprime loans, which caused more than 100 companies to close, be sold or halt operations since the beginning of 2007. Bank of America Corp. became the biggest home lender this month when it completed a rescue of Countrywide by purchasing the Calabasas, California-based company.

``In Wells Fargo's case, the benefit of the credit crisis in terms of higher assets at higher spreads has so far largely offset the negative impact of higher charge-offs,'' Chief Financial Officer Howard Atkins said in prepared remarks on the bank's Web site. ``We are one of the few banks that have the capacity to take advantage of such opportunities.''

The quarterly dividend will increase to 34 cents a share from 31 cents. Competitors including Washington Mutual and Citigroup have slashed payouts as losses mount.

Insurance and Cards

Insurance revenue climbed 27 percent to $550 million and credit-card fees rose 14 percent to $588 million, the company said. The economic slowdown contributed to a 20 percent increase in card charge-offs from last quarter to $329 million, which the bank said was within the expected range.

Mortgage banking revenue jumped 74 percent to $1.2 billion as the company gained business with loans that conform to the standards of government-backed Fannie Mae and Freddie Mac.

New mortgages were little changed at $31 billion even as government-backed loans jumped 40 percent. Mortgage applications fell 12 percent to $100 billion, with 44 percent of those for refinancing existing loans.

The company's allowance for loan losses increased to $7.52 billion from $6 billion at the end of March. The bank said in April that the $6 billion allowance was the highest in 10 years. The percentage of loans no longer collecting interest rose to 1 percent from 0.8 percent in the previous quarter and 0.5 percent a year earlier.

While profit is declining amid record foreclosures, Wells Fargo is diversifying by bolstering its insurance and credit cards units. In May, Wells Fargo bought Flatiron Credit Co., which finances insurance premiums.

Berkshire Stake

Billionaire Warren Buffett's Berkshire Hathaway Inc. boosted its stake in Wells Fargo in the first quarter by 1.4 million shares to 290.7 million, according to data compiled by Bloomberg. The Omaha, Nebraska-based firm owns 8.8 percent of Wells Fargo, making Berkshire the biggest stakeholder, according to Bloomberg data.

California ranked second among U.S. states in June for foreclosures, with one filing for every 192 households, according to RealtyTrac Inc. Foreclosures nationwide increased 53 percent that month from a year earlier.

The world's biggest financial firms have reported more than $400 billion of losses and writedowns tied to the U.S. housing slump, according to Bloomberg data, with $4.9 billion coming from Wells Fargo.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: July 16, 2008 10:30 EDT