Wells Fargo, Wall Street's top oil and gas banker, said first-quarter profit fell 5.9 percent as the firm set aside more money for soured energy loans and expenses increased.
Net income slid to $5.46 billion, or 99 cents a share, from $5.8 billion, or $1.04, a year earlier, the San Francisco-based lender said Thursday in a statement. That beat the 97-cent average estimate of 29 analysts surveyed by Bloomberg.
Chief Executive Officer John Stumpf has sought to keep expenses in check, while increasing deposits and expanding the bank's loan portfolio with strategic acquisitions. Wells Fargo shares fell 11 percent in the first three months of the year, the worst quarterly performance since 2011, as interest rates remained near record lows.
"While challenges in the energy industry and persistent low rates impacted our bottom line, our diversified business model was again beneficial to our results," Chief Financial Officer John Shrewsberry said in the statement.
Wells Fargo shares fell 1.1 percent to $48.48 at 8:32 a.m. in early trading in New York.
Revenue climbed 3.8 percent to $22.2 billion, Wells Fargo said, beating analysts' estimates of $21.6 billion. Net interest income rose 6.2 percent to $11.7 billion, while expenses increased 4.2 percent to $13 billion on higher employee benefits and incentive compensation. Net interest margin, a measure of profitability, declined five basis points from the previous quarter to 2.90 percent.
The firm set aside $1.09 billion for bad loans, a 79 percent increase from a year earlier, fueled largely by exposure to the oil and gas industry. Wells Fargo reserved $1.7 billion to cover potential losses on energy loans, up about $500 million from the end of 2015. The bank had $17.8 billion in outstanding loans to the industry at the end of the first quarter, about 1.9 percent of its portfolio.
Profit in Wells Fargo's community-banking division, which houses the branch-based business as well as mortgage and credit-card lending, declined 7.1 percent from a year earlier to $3.3 billion. Net income in wholesale banking, which includes the commercial real estate business and securities unit, fell 2.7 percent to $1.92 billion. Wealth and investment-management posted profit of $512 million, a 3.2 percent drop.
The bank's efficiency ratio, a measure of how much it costs to generate a dollar of revenue, fell to 58.7 percent, near the upper end of the firm's target range.
Revenue from the business of making the loans and servicing them rose 3.3 percent in the quarter to $1.59 billion on $44 billion in originations. Wells Fargo, the biggest U.S. home lender, agreed in February to pay $1.2 billion to resolve U.S. government claims related to its Federal Housing Administration mortgage practices. The agreement covered loans made under the program from 2001 to 2010.
Earlier Thursday, Bank of America Corp. said first-quarter net income fell 13 percent on a drop in trading and underwriting revenue, while PNC Financial Services Group Inc., the second-largest U.S. regional bank, reported profit that missed analysts' estimates as provisions for bad loans almost tripled from a year earlier. JPMorgan Chase & Co., the largest U.S. bank, on Wednesday posted profit that beat Wall Street estimates on cost cuts and a smaller decline in trading revenue than most analysts predicted. Citigroup Inc. is scheduled to report on Friday, with Morgan Stanley and Goldman Sachs Group Inc. releasing results next week.