Wells Fargo Releases $1B in Reserves

SAN FRANCISCO ( TheStreet) - Wells Fargo's ( WFC) continued credit quality improvement enabled the company to release $1 billion in reserves during the first quarter, boosting earnings and following the trend for the largest U.S. banks that had already reported earnings.

The company's net charge-offs -- loan losses less recoveries -- fell for the fifth-straight quarter to $3.2 billion, a 16% decline from the previous quarter and a 40% decline from a year earlier. The company's annualized ratio of net charge-offs to average loans was 1.73%, improving from 2.02% in the fourth quarter and 2.71% in the first quarter of 2010. With loan loss reserves covering 2.98% of total loans as of March 31, it appeared the company was well-positioned for further reserve releases in coming quarters, which would continue to boost earnings.
Wells Fargo CEO John Stumpf

Wells Fargo's reserve release was in line with the other "big four" U.S. banks, including

Citigroup ( C), Bank of America ( BAC), which saw its allowance for loan losses decline by $2 billion, and JPMorgan Chase ( JPM).

Citigroup released $3.3 billion in credit reserves during the first quarter, while JPMorgan's allowance for loan losses declined by $2.5 billion. Bank of America's loan loss reserves declined by $2 billion during the quarter.

The company also reported a decline in mortgage repurchase losses to $249 million in the first quarter from $464 million in the fourth quarter and $402 million in the first quarter of 2010. Total liability for mortgage repurchases was $1.2 billion as of March 31, declining from $1.3 billion the previous quarter and $1.3 billion a year earlier.

Wells Fargo's nonperforming assets -- including nonaccrual loans and repossessed assets -- totaled $30.6 billion as of March 31, declining 5% from the previous quarter and 11% from a year earlier. The ratio of nonperforming assets to total assets was 2.46% as of March 31, improving from 2.57% in December and 2.83 % in March 2010.

Earlier-stage loan delinquencies also declined, with "6% of the retail loan portfolio was 30 days or more past due, down 15% from the previous quarter," according to Mike Koughlin, chief risk officer.

Inflows of nonperforming loans were also down, with nonperforming commercial inflows of $1.9 billion in the first quarter, from $2.3 billion in the fourth quarter and $2.8 billion in the first quarter of 2010. Nonperforming consumer loan inflows were $4 billion in the first quarter, declining from $4.3 billion the previous quarter and $6.1 billion a year earlier.

The company said it was "committed to complete compliance" in regulatory consent orders requiring improvements in mortgage servicing and foreclosure procedures, and reported over 665,000 "trial and completed modifications since 2009," with over $3.9 billion in principal loan balances forgiven. Wells Fargo also said it had hired 10,000 employees since early 2009 "for a total of 16,000 home preservation staff," and in the fourth quarter had established uniform foreclosure affidavits "for each judicial state."

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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