Wells Fargo & Co. (WFC) reported first-quarter net income of $2.5 billion, or 45 cents per share in the first quarter. Analysts had forecast earnings of 42 cents per share, according to Thomson Reuters.
The number was down 16% from the first quarter of 2009 and was the San Francisco-based bank’s lowest quarterly profit since its acquisition of Wachovia Bank in 2007. In fact, the results included a charge of 5 cents per share related to the integration of Wachovia.
“This merger has been a team effort and our entire team is working exceptionally well together,” said John Stumpf, Wells Fargo CEO. “Culturally and financially, this merger is exceeding my expectations and I couldn’t be more excited about the opportunities ahead.”
“We believe quarterly provision expenses and quarterly total credit losses have peaked,” said Chief Credit and Risk Officer Mike Loughlin. Provisions are the capital that banks set aside from quarterly earnings to offset current and future losses, and investors have been eager to see when lenders’ provisions will fall.
The company’s financial chief predicted that the bank’s losses from loans should start to narrow, even though troubled loans are likely to keep growing.
Credit-loss provisions were $5.33 billion in the first quarter, up from $4.56 billion a year earlier but down from $5.91 billion in the prior quarter. Net charge-offs were 2.71% of average loans, compared with 1.54% a year ago and 2.71% in the previous quarter. Nonperforming assets increased to 3.49% from 1.25% and 3.12%, respectively.
“We do not believe the increase in nonaccrual loans translates into future losses,” Chief Financial Officer Howard Atkins told analysts during a conference call to discuss first-quarter earnings. Nonaccrual loans are typically loans whose borrowers are no longer making scheduled payments.
Wells said profits rose across all business segments and that credit conditions have “turned the corner” from the weakness of the financial crisis.
Stumpf said he was “encouraged” by improvements in credit conditions at the bank. But he warned that the economy “continues to present challenges” and cautioned that consumer spending and borrowing remain below past levels.
In addition, Wells said early-stage delinquencies on consumer loans improved in the quarter. Delinquencies declined across all of Wells’ major consumer loan portfolios, including home equity, auto loans and credit cards.
“Our credit picture has improved earlier than we had anticipated,” Loughlin said.
Bernstein analyst John McDonald said Wells has lagged its peers a bit in recovering from the credit crisis, but he added that Wells’ purchase of Wachovia has positioned the bank for long-term growth.
“We like the franchise and earnings power story at Wells Fargo, as it begins to capitalize on growth opportunities from the Wachovia acquisition and realize meaningful credit leverage in 2011 and beyond,” McDonald wrote in a research report.
The bank generated first-quarter revenue of $21.5 billion, the lowest in four quarters, but better than last year’s first quarter. Wells Fargo also booked a one-time gain of $1 billion related to complex hedges in its mortgage-servicing business, continuing a year-long trend in which Wells has boosted quarterly results with outsized hedging gains.
Shares were down 0.68 cents to 33.01 in late-day trading.
