Wells Fargo Q1 Profit Up 14% Despite Lower Revenue; Results Beat View

(RTTNews) - Wells Fargo & Co. (WFC), the fourth-largest bank in the U.S. by assets, on Friday reported a 14 percent increase in profit for the first quarter from last year, despite lower revenue. The results reflect a decline in provision for credit losses and lower non-interest expenses that helped offset a 46 percent decline in mortgage banking revenue. Both earnings per share and revenue for the quarter beat analysts' estimates.

Tim Sloan, chief financial officer of Wells Fargo said, "We are very pleased with Wells Fargo's performance in the first quarter, particularly in some of the fundamental drivers of long term growth: loans, deposits, investments, capital and credit quality. Revenue remained relatively stable, despite the impact of fewer days in the quarter, reflecting contributions from our diversified sources of fee revenue."

Wells Fargo, the largest U.S. mortgage lender, said its credit losses for the first quarter were $825 million, down 42 percent from the year-ago period.

The company released $500 million from the allowance for credit losses in the fourth quarter, reflecting improved credit performance. Wells Fargo continues to expect future reserve releases absent a significant deterioration in the economic environment.

Earlier today, Wells Fargo's larger rival JPMorgan Chase & Co. (JPM) reported a 19 percent decline in profit for the first quarter from last year, reflecting lower net revenue and a higher provision for credit losses, despite a decline in expenses.

Wells Fargo's net income applicable to common stock for the first quarter increased to $5.61 billion or $1.05 per share from $5.17 billion or $0.92 per share in the prior-year period. On average, 31 analysts polled by Thomson Reuters expected earnings of $0.97 per share for the quarter. Analysts' estimates typically exclude special items.

Revenue for the quarter declined 3 percent to $20.63 billion from $21.26 billion in the prior-year period. Analysts' revenue consensus for the quarter was $20.60 billion.

Net interest income for the quarter rose 1 percent from the year-ago period to $10.62 billion. However, non-interest income declined 7 percent to $10.01 billion, primarily on lower mortgage banking revenue.

Mortgage banking revenue for the quarter declined 46 percent from last year to $1.51 billion. Wells Fargo has been cutting jobs at its mortgage unit as higher mortgage interest rates slow down refinancing activity.

Home lending originations in the quarter declined 67 percent from the prior-year quarter to $36 billion, while mortgage applications decreased 57 percent to $60 billion.

Net interest margin for the quarter declined to 3.20 percent from 3.49 percent in the year-ago period. Provision for credit losses fell 73 percent from the year-ago period to $325 million. Non-interest expense declined 4 percent from the previous-year quarter to $11.95 billion.

Segment-wise, Community Banking segment net income increased 31 percent from the year-ago period to $3.84 billion. However, revenue decreased 2 percent to $12.59 billion, reflecting lower mortgage banking revenue, partially offset by higher net interest income and equity investment gains.

Wholesale Banking net income declined 15 percent from last year to $1.74 billion. Revenue decreased 8 percent to $5.58 billion, as strong loan and deposit growth was more than offset by lower PCI resolution income and market sensitive revenue, including reduced customer accommodation trading revenue.

Wealth, Brokerage and Retirement segment net income grew 41 percent from the prior-year period to $475 million. Total revenue grew 8 percent to $3.47 billion, primarily driven by strong growth in asset-based fees and higher net interest income. This was partially offset by a decrease in brokerage transaction revenue.

WFC closed Thursday's trading at $47.71. In Friday's pre-market trades, the stock is up $0.18 or 0.38 percent to $47.89.