People walk past a Wells Fargo bank on 14th Street on December 20, 2022 in New York City. 

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Wells Fargo reported shrinking profits on Friday, weighed down by a recent settlement and the need to build up reserves amid a deteriorating economy.

The stock erased earlier losses to trade 2% higher in Friday’s trading.

related investing newsHere’s how the bank did:

Earnings: 67 cents a share, compared with $1.38 a share a year agoRevenue: $19.66 billion, 5.7% lower than a year earlier and lower than the $19.98 billion expected, according to RefinitivWells Fargo’s net income tumbled 50% to $2.86 billion, or 67 cents a share, from $5.75 billion, or $1.38 per share, a year ago. The big decrease was driven in part by lower mortgage banking on fewer originations, the bank said.

In the latest period, the bank set aside $957 million for credit losses after reducing its provisions by $452 million a year ago. The provision included a $397 million increase in the allowance for credit losses reflecting loan growth and a less favorable economic environment, the bank said.

The disappointing earnings report came after the bank announced earlier this week that it would retrench from the U.S. mortgage market. Meanwhile, Wells Fargo also said last month that it would have a $2.8 billion after-tax operating loss tied to legal and regulatory costs.

The combined impact of the legal, regulatory and customer remediation efforts lowered Well Fargo’s earnings by 70 cents per share.

After excluding severance costs and a tax gain, Wells Fargo earned 61 cents a share, shy of the 66 cents analysts surveyed by Refinitiv were expecting.

“Though the quarter was significantly impacted by previously disclosed operating losses, our underlying performance reflected the progress we are making to improve returns,” CEO Charlie Scharf said in a statement. “Rising interest rates drove strong net interest income growth, credit losses have continued to increase slowly but credit quality remained strong, and we continue to make progress on our efficiency initiatives.”

As the most mortgage-dependent of the six biggest U.S. banks, Wells Fargo has faced pressure as sales and refinancing activity has fallen steeply amid mortgage rates that have topped 6%. The bank said its home lending revenue was down 57% this quarter.

Shares of Wells fell nearly 14% in 2022, faring better than the S&P 500 as the bank’s retail and commercial banking benefited from rising rates. The stock is up about 3.7% year to date.

“As we look forward, we are carefully watching the impact of higher rates on our customers and expect to see deposit balances and credit quality continue to return toward pre-pandemic levels,” Scharf said.

— CNBC’s Hugh Son contributed reporting.

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