Wells Fargo, the most profitable U.S. bank in 2013, posted a 14 percent rise in first- quarter earnings as fewer customers missed loan payments.
Net income advanced to $5.89 billion, or $1.05 a share, from $5.17 billion, or 92 cents, a year earlier, the San Francisco-based company said today in a statement, marking the 12th consecutive record quarter. The average estimate of 31 analysts surveyed by Bloomberg was 96 cents a share excluding special items. While the results beat estimates, revenue fell 3 percent and profit was down 2 percent before taxes and changes in reserve levels.
Wells Fargo's $21.9 billion of net income last year surpassed JPMorgan Chase & Co., its largest U.S. rival by assets. Those profits helped boost capital at Wells Fargo, which ranks first in market value and home lending. Chief Executive Officer John Stumpf gained clearance last month to raise the quarterly dividend to 35 cents after passing Federal Reserve stress tests.
"Revenue remained relatively stable despite the impact of fewer days in the quarter, reflecting contributions from our diversified sources of fee revenue," Chief Financial Officer Tim Sloan said in the statement.
Results were helped by a $227 million drop in income tax expenses, driven by a $423 million tax benefit, Sloan said. The bank released $500 million of loan-loss reserves. Banks typically reclaim money put aside in earlier years as the economy improves and borrowers become less prone to default.
The efficiency ratio, which measures management's ability to control costs, improved to 57.9 percent from 58.5 percent in last year's fourth quarter, the bank said. The net interest margin, a gauge of profitability, fell to 3.20 percent from 3.27 in the preceding three months.
The stock was little changed in early New York trading. The shares rose 5.1 percent this year through yesterday, outpacing the 0.6 percent drop for 24 lenders in the KBW Bank Index.
Within the business segments, community banking profit rose 31 percent over the year earlier. Wealth, brokerage and retirement rose 41 percent and wholesale banking fell 15 percent. Mortgage originations fell 28 percent from the fourth quarter to $36 billion.
"They have done a great job sticking to their knitting, which is old-fashioned relationship banking," Andrew Marquardt, an analyst at New York-based Evercore Partners Inc., said before the results were announced. "Credit should continue to do better." He has a hold recommendation on the stock.
Banks have struggled to raise revenue with interest rates near historic lows and demand cooling for U.S. home loans. Nationwide, mortgage originations declined 57 percent in the first quarter from a year earlier, according to the Washington- based Mortgage Bankers Association.
Originations accounted for about 6 percent of Wells Fargo's fee revenue in the latest quarter compared with 25 percent a year earlier, company presentations show. The bank has said the business of servicing mortgages, where it also ranks No. 1, softens the drop in originations as people stay in homes longer. Servicers earn fees from mortgage investors for handling bills, collections and foreclosures.
Wells Fargo's 2014 capital plan passed the Fed's annual review, which is designed to prevent banks from failing and bringing down the financial system. The company set plans to raise its quarterly dividend from 30 cents and buy back 350 million additional shares.