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 The bank, the most profitable in the United States in 2013, has been
hurt in recent quarters by declining demand for mortgage
refinancing, as lending rates have risen.
Income from mortgage banking fell by 46 percent to $1.5 billion from
the same quarter last year. Wells Fargo's new home loans fell by
two-thirds to $36 billion in the quarter from $109 billion a year
earlier, the lowest since the third quarter of 2008, when the
housing market was under heavy stress.
But a series of one-time items this quarter helped offset much of
the decline in the mortgage business. Wells Fargo recorded $847
million in gains on its equity investments, about 7.5 times the $113
million it earned a year earlier.
Its tax bill was also $227 million lower as it booked a $423 million
benefit from resolving prior disputes with state tax authorities.
Overall operating expenses fell 4 percent as it spent less on
employee benefits and incentive compensation.
Another boost to net income came from the bank dipping into funds
set aside to cover soured loans, as the housing market and the
overall economy stabilized. The bank released $500 million from
these reserves, higher than the $200 million a year ago but less
than the $600 million released in the fourth quarter.
Without many of these one-time gains, Wells Fargo's results would
have missed Wall Street's estimates, according to Citigroup Inc
banking analyst Keith Horowitz.
JPMorgan Chase & Co, the biggest U.S. bank by assets, reported
Friday profits fell 19 percent from a year earlier thanks to
weaker-than-expected bond trading and mortgage banking revenue.
Wells Fargo's shares rose 1.5 percent in afternoon trading at
$48.41. JPMorgan Chase shares fell 3.3 percent to $55.48. The KBW
index of bank stocks was down nearly 1 percent.
Net income for Wells Fargo's common shareholders rose to $5.60
billion, or $1.05 per share, in the quarter, from $4.93 billion, or
92 cents per share, a year earlier.
Analysts on average had expected the bank to earn 97 cents per
share, according to Thomson Reuters I/B/E/S.
"Wells always finds a way to figure it out," said Jason Goldberg, a
banking analyst at Barclays. "This is a company that consistently
puts up better-than-peer results."
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"A DIFFERENT COMPLEXION"
Chief Financial Officer Tim Sloan told Reuters that being able to
benefit from occasionally outsized equity gains and tax benefits
spoke to the strength of being a diversified institution with many
distinct business lines.
"Unless your revenue sources were exactly like the prior quarter
where every business increased by same percentage, someone will say
that's not sustainable," he said. "Every quarter has a different
complexion."
There were some indications in Wells Fargo's results that mortgage
banking might be rising out of the doldrums. The bank had $27
billion of mortgage applications in the pipeline at the end of the
quarter, up slightly from $25 billion at the end of the fourth
quarter. Chief Executive John Stumpf told analysts on a conference
call that "the housing recovery remained on track and should benefit
from the spring buying season."
Wells Fargo's loan book also showed signs of life. Total lending
rose 4 percent to $826.4 billion thanks to a 7 percent increase in
commercial and industrial loans and an 11 percent increase in auto
loans since the first quarter of 2013.
At the same time, the company is experiencing historically low loan
losses. Its net charge-off rate was 0.41 percent in the latest
quarter, versus 0.72 percent a year ago. It lost a mere $5 million
on its $381.3 billion commercial loan portfolio.
Total revenue fell 3 percent to $20.6 billion from $21.3 billion a
year earlier. Between $120 million and $130 million of that decline
could be attributed to the first quarter having two fewer days,
Sloan told analysts on the conference call.
Wells Fargo's net interest margin, a measure of the profitability of
its loans, fell to 3.2 percent from 3.49 percent a year earlier and
3.27 percent in the fourth quarter.
The bank received regulatory approval in March to increase its
quarterly dividend to 35 cents from 30 cents and to repurchase an
additional $17 billion of stock, or about 6.5 percent of the total
outstanding.
(Reporting by Anil D'Silva in Bangalore and Peter Rudegeair in New
York; editing by Ted Kerr and Nick Zieminski)
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