There has been some consternation recently regarding the first-quarter reports of the biggest banks, as some analysts fear that slower mortgage activity so far this year may put a damper on earnings. Two of the biggest banks have reported this morning, JPMorgan Chase (JPM 3.31%) and Wells Fargo (WFC 3.55%), which will give investors some insight on this mortgage issue.
Fans of Wells Fargo needn't be glum, however, as the bank's report will give them plenty to cheer about. Here are three of the juiciest bits of news from Wells' first earnings report of the year.
1. Profits are record-breaking
Despite the effects of the pre-announced mortgage slowdown by CFO Tim Sloan, he noted that the $5.2 billion in net income is the highest quarterly profit ever for the company, up from $5.1 billion year over year. The earnings per share of $0.92 beat analysts' estimates and represents a substantial rise from the year-ago earnings of $0.75 per share.
Although revenue of $21.3 billion fell short of last year's $21.9 billion, Sloan noted that sectors such as credit cards and brokerage advisory fees were up more than 10%.
2. The loan machine is still humming
Wells noted that consumer mortgage originations did indeed decrease year over year, by approximately 16%. Despite a reduction in home mortgages, Wells was able to bulk up its total loan growth by 4.2%, primarily by increasing commercial lending. In other mortgage-related news, the bank showcased its lower-than-average delinquency and foreclosure ratios, both of which trail the industry average. Wells' delinquency rate, for example, is nearly half of that of Bank of America (BAC 3.39%), and 31% lower than JPMorgan. Considering its dominance in the home mortgage industry, that's saying something.
3. Deposits are up, capital reserves continue to grow
Wells saw retail deposits rise 8% year over year, even as the cost of those deposits fell by 1 basis point. Deposits grew 4% in the Wealth, Brokerage and Retirement section, as well, and were up very slightly in Wholesale Banking.
In addition, the bank's capital cushion has expanded quite nicely, showing a healthy 10.38% for the current quarter, up from 10.12% sequentially, and 9.98% year over year. Wells also notes its plans to return capital to its investors this year in the form of stepped-up share repurchases -- as well as a hike in the dividend from $0.25 to $0.30 per share.
Wells is ready for the mortgage slowdown
The mortgage-lending slowdown will likely affect all the big banks, and JPMorgan CEO Jamie Dimon commented in that bank's report that the first quarter saw an industrywide decrease in home loan activity.
For Wells, the reduction in that arena will likely hurt less -- despite its heavy involvement in that business -- because it has been planning for just this occurrence for some time. For Bank of America, which reports next week, the problem may be the harbinger of tough times to come, since CEO Brian Moynihan has made it clear that he plans to jump back into that business in order to boost profits.
From that perspective, Wells looks much better situated to weather the coming downturn in mortgage activity than Bank of America -- which may have just missed the mortgage bus, once again.