Wells Fargo & Co, the biggest U.S. mortgage lender, reported a higher-than-expected 14 percent rise in first-quarter net profit, as a series of one-time gains helped offset the continued slowdown in its home loan business.
Net income applicable to 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, the fourth-biggest U.S. bank said on Friday.
Analysts on average had expected the bank to earn 97 cents per share, according to Thomson Reuters I/B/E/S.
The bank's mortgage business, which provides nearly one in five U.S. home loans, continued to suffer from a drop in refinancing activity. Income from mortgage banking fell by 46 percent to $1.5 billion.
Applications for refinancing fell to their lowest share of total mortgage applications since July 2009 in the week ending April 4, according to the Mortgage Bankers Association. February was the worst month for new home loans since at least 2000, according to Black Knight Financial Services.
Wells Fargo's new home loans fell to $36 billion in the quarter from $109 billion a year earlier and from $50 billion in the fourth quarter. The company had not made so few home loans since the third quarter of 2008, when the housing market was under heavy stress.
Nearly two-thirds of the mortgages Wells extended in the first quarter went to customers purchasing a home, as opposed to refinancing one, compared to less than one-third in the first quarter of 2013. It had $27 billion of mortgage applications in the pipeline at the end of the quarter, up from $25 billion at the end of the fourth quarter.
Despite weakness in its mortgage unit, the San Francisco-based bank received outsized boosts to profit from other business lines that may not be repeatable.
Wells Fargo recorded $847 million in gains on its equity investments, about 7.5 times the $113 million it earned a year earlier. It also booked $423 million in tax benefits from resolving prior disputes with state tax authorities, lowering its effective income tax rate to 27.9 percent. The bank said it expected its full-year tax rate to rise from that level.
Additionally, Wells Fargo released $500 million from its funds set aside to cover soured loans, higher than the $200 million released a year ago but less than the $600 million released in the fourth quarter.
Wells Fargo's shares were up 0.3 percent in early trading at $47.85. JP Morgan Chase shares fell 3.1 percent to $55.69.
JPMorgan Chase & Co, the biggest U.S. bank by assets, reported earlier on Friday that income from its mortgage business fell to $114 million in the quarter, a drop of $559 million from the year-earlier period.
LOAN PROVISIONS DROP
Wells Fargo's net income got a lift from a drop in the amount it set aside to cover bad loans as the housing market and the overall economy stabilized.
Wells Fargo is experiencing historically low loan losses. Its net charge-off rate was 0.41 percent in the latest quarter, down from 0.47 percent in the fourth quarter and 0.72 percent in the first quarter of 2013.
Total lending rose 4 percent to $826.4 billion. Total revenue fell to $20.6 billion from $21.3 billion a year earlier.
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.
Wells Fargo was one of the few big U.S. banks to emerge from the financial crisis in a stronger position, thanks in part to its acquisition of Wachovia, and its market value of about $260 billion makes it the biggest U.S. bank on that basis.
Wells Fargo shares were trading a multiple of 11.60 times estimated forward earnings on Thursday, compared with a median of 12.64 for the wider banking industry.
(Reporting by Anil D'Silva in Bangalore and Peter Rudegeair in New York; Editing by Ted Kerr and Nick Zieminski)
