Financial services firm Wells Fargo & Co. (WFC), which celebrates its 160th anniversary, on Friday posted better-than-expected profit and revenues for its first quarter, benefited by higher mortgage banking revenues as well as lower bad loan provision. Meanwhile, net interest margin declined from last year.
Noting that credit quality continued to improve in the first quarter, Chief Risk Officer Mike Loughlin said, "We have seen significant improvement in credit performance over the past two years, and expect continued but slower improvement this year as losses approach a stable, more normalized level. Absent significant deterioration in the economy, we continue to expect future reserve releases in 2012."
Peer JP Morgan Chase & Co. (JPM), meanwhile, reported Friday a marginal drop in first-quarter profit, amid a solid performance by the Retail Financial Services division and a plunge in bad loan provision. Revenue surpassed Wall Street estimates.
For its first quarter, Wells Fargo's net income applicable to common stock grew 13 percent to $4.02 billion from last year's $3.57 billion. Earnings per share grew 12 percent to $0.75 from $0.67 last year. On average, 29 analysts polled by Thomson Reuters expected earnings of $0.73 per share for the quarter. Analysts' estimates typically exclude one-time items.
In the quarter, pre-tax pre-provision profit or PTPP, i.e., total revenue less noninterest expense, grew 14 percent from last year to $8.64 billion. On an annualized basis, earnings per share rose 11 percent and PTPP climbed 27 percent.
Total quarterly revenues grew 6 percent to $21.64 billion from $20.33 billion a year ago, while analysts estimated revenues of $20.46 billion. Revenue was up 20 percent on annualized basis.
Chairman and CEO John Stumpf said, "Quarterly revenue was the highest in nine quarters, and we achieved our ninth consecutive quarter of earnings per share growth."
The company noted that the revenue growth mainly reflected 11 percent increase in noninterest income, including strong mortgage banking and market sensitive revenues. Net interest income grew 2 percent, while net interest margin fell to 3.91 percent from prior year's 4.05 percent. Provision for credit losses fell 10 percent to $2 billion.
Segment-wise, Community Banking results increased on higher volume-related mortgage banking income, deposit growth, and higher equity sale gains.
Wholesale Banking's strong performance was driven by broad-based business growth as well as strong loan and deposit growth.
Meanwhile, Wealth, Brokerage and Retirement posted lower income and revenues due to lower brokerage transaction revenue and reduced securities gains in the brokerage business.
In the quarter, average loans increased 2 percent and average core deposits grew 9 percent. Average retail core deposits also increased 6 percent.
Looking ahead, the company said it expects quarterly noninterest expenses to decline $500-$700 million in second quarter due to elimination of merger expenses and the absence of the first quarter seasonally higher personnel costs. Also, the company expects fourth quarter expense at the upper end of forecast due to higher than expected revenues.
Wells Fargo shares are currently trading at $33.66, down $0.36 or 1.06 percent.
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