Wells Fargo's income jumped 51 percent in the first quarter as more people opened accounts with the bank and business customers took out more loans. Revenues fell as higher interest rates resulted in a sharp decline in new mortgages.
The San Francisco bank said Wednesday it earned $3.6 billion after paying preferred dividends, or 67 cents per share. That compared with $2.4 billion, or 45 cents a share in the first quarter of last year. The earnings were a penny better than the forecast of analysts surveyed by FactSet. Wells released $1 billion from its reserves for loan losses in the quarter as defaults declined, giving a boost to its bottom line.
Revenue fell to $20.3 billion from $21.5 billion, largely due to lower income from mortgage fees.
Wells Fargo & Co.'s stock fell $1.24, or 4.1 percent, to $28.83.
A sharp rise in mortgage rates hurt Wells' home loan business. Rates for 30-year mortgages jumped to 4.84 percent in March from 4.35 percent in September. New mortgage loans at Wells fell to $84 billion from $128 billion the previous quarter.
Wells Fargo chief financial officer Tim Sloan said there was a sharp increase in mortgage refinancing in the third and fourth quarter, when interest rates fell to record lows. The steep rise in rates since then has led to a drop in refinancing.
"We are the largest mortgage originator," said Sloan in an interview. "$700 million of our revenue decline came from the decline in mortgage originations."
Applications for home mortgages, an indicator of future lending, fell sharply to $102 billion from $158 billion in the prior quarter. The amount of pending applications also fell to $45 billion at the end of the first quarter from $73 billion at the end of December.
Wells Fargo said more of its customers were paying their debts on time as the economy improves. Other major banks that have released results over the past week, including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp., reported similar trends. The amount of soured loans that Wells wrote off declined by $629 million from the previous quarter to $3.2 billion.
CEO John Stumpf told analysts in a conference call that Wells Fargo's customers were doing better. Consumers were paying down debt and corporations had strong balance sheets. However, it was unclear when those customers would start taking out more loans and use the bank's services at a pace that would lead to higher profits for the bank.
"It's going to take the industry some time," said Stumpf.
On the positive side, Wells Fargo's customers are saving more. Checking and savings account deposits grew 9 percent from last year to $722.5 billion.
Small business customers also took out loans totaling $3.7 billion, an increase of 27 percent from last year.