Updated from 10:30 a.m. EDT
beat earnings estimates by 3 cents a share, even though profits were off by 11 cents due to the charge-off virus spreading through the banks.
The San Francisco-based bank reported diluted earnings of 60 cents a share for the first quarter. That easily beat analysts' expectations of 57 cents a share, according to Thomson Financial, but was lower than the 66 cents a share reported in the first quarter of 2007. Net income came in at $2 billion, down from last year's $2.24 billion, but up sequentially from $1.36 in the fourth quarter.
Like most other banks during the credit crisis, Wells Fargo is experiencing an increasing level of charge-offs due to poor loans. The bank recorded $1.5 billion in net charge-offs, an increase over last quarter's $1.2 billion and a big jump over last year's $715 million. The allowance for credit losses, including unfunded credit commitments, was $6.01 billion at the end of March, up 9% from $5.52 billion at year-end 2007, and included an additional $500 million in credit reserves due to higher credit losses inherent in the loan portfolio. Total nonperforming assets were $4.50 billion, compared to $3.87 billion at the end of December.
"We may not have seen the last of the challenges for this cycle, but we're very excited about our opportunities to continue to gain market share prudently in our core businesses at a time when many of our competitors are struggling," President and CEO John Stumpf said in a company statement. "With our more than 80 businesses pulling the stagecoach, we believe we're among the best positioned in our industry to prosper and grow through adversity and to build an even stronger franchise for our team members, customers and shareholders."
Byron Macleod of Gradient Analytics said the results were "pretty much in line with what we were thinking."
"Wells took all their medicine in the fourth quarter, unlike some of their peers," he said. "They took the conservative route, which is why we're seeing this response."
Shares closed up $1.20, or 4.3%, to $29.01.
Like most other banks, Wells
initial public offering. The bank gained $334 million through selling stock in the IPO, which, combined with a 12% jump in revenue to $10.6 billion, helped the bank hold its head above water. In a positive sign, core deposits grew 10% over the previous year, excluding the mortgage escrow balances, which were down.
"Residential real estate values continued to decline in the quarter and the number of markets adversely impacted continued to increase," said Mike Loughlin, chief credit officer. As previously disclosed, the bank segregated approximately $12 billion of home equity loans into a liquidating portfolio. The liquidating portfolio produced $163 million in net charge-offs in first quarter 2008, for an annualized quarterly loss rate of 5.58%.
But even in a terrible housing market, the bank managed to record $132 billion in mortgage applications, an increase of 17% over last year and an impressive 42% increase in the mortgage pipeline over the previous quarter.
"They didn't grow as fast as others and they set aside more for losses -- they were on the high side. Wells is also more conservative in their loans" said MacLeod.
The stock is down 21% over the past year, whereas
Bank of America
is down 30% for the year and
is down a whopping 56%.