Wells Fargo Posts $3.8B Profit for Q1 as Loan Quality Improves

""Wells Fargo"":http://www.wellsfargo.com reported record earnings of $3.8 billion, or 67 cents per share, for the first quarter of 2010. That's up 48 percent from $2.5 billion for the same period last year, and up 10 percent from the $3.4 billion the bank brought in during the fourth quarter of 2010.
[IMAGE] The California-based lender's first-quarter profit beat analysts' estimates, but the market didn't look too kindly on the underlying numbers that showed revenue was down $1.2 billion from the previous quarter. That decline included a $741 million drop in mortgage banking fee income.

While revenue slipped, Wells Fargo says its numbers were boosted by improving loan quality. The nation's No. 1 mortgage lender was able to release $1.0 billion from its reserves set aside to cover expected loan losses.

Wells stressed in its ""first-quarter earnings release"":https://www.wellsfargo.com/downloads/pdf/press/1q11pr.pdf that the move reflects ""improved portfolio performance"" and said the company ""expects future reductions in the allowance, absent significant deterioration in the economy.""

Net loan charge-offs declined to $3.2 billion, down $629 million from the final three months of last year. Nonperforming assets declined $1.8 billion from the prior quarter to $30.6 billion and nonperforming loans declined $1.3 billion.

“The first quarter marked the fifth consecutive quarter of declining loan losses and the second consecutive quarter of reduced nonperforming assets,” said Mike Loughlin, chief risk officer. “Delinquency trends continued to improve across the portfolio for both early and late stage delinquencies.”

As of March 31, 2011, over 665,000 active trial or completed loan modifications have been initiated by the

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bank since the beginning of 2009. Of this total, over 85 percent were through Wells Fargo's own modification programs and the remainder were through the federal government's Home Affordable Modification Program (HAMP).

At the end of March, Wells held $5.5 billion in foreclosed assets. In addition, first quarter expenses included $472 million of operating losses (up from $193 million in fourth quarter 2010) substantially all from additional litigation accruals for foreclosure-related matters, the company said.

Wells Fargo’s CEO John Stumpf discussed the settlement reached with federal regulators over problems that surfaced with foreclosure procedures last fall in the company’s conference call with investors Wednesday.

“As you are aware, federal banking regulators recently issued consent orders regarding foreclosure policies and practices. We take this issue seriously and are committed to complying with those orders,” he said. “In addition, Wells Fargo supports the idea of national servicing standards suggested by the regulators, which we hope will provide greater clarity for customers, servicers and investors.”

Stumpf said Wells has been working with its regulators for an extended period on improving servicing practices and has already begun instituting changes to the company’s processes.

“Last summer, we adopted a single point-of-contact strategy to help customers seeking loan modifications,” Stumpf explained. “In the fourth quarter, we established a uniform foreclosure affidavit for each judicial state subject to local rules. So we had already started banking some of the operational changes and incurring some of the costs that will result from the expanded servicing responsibilities outlined in the consent order.”

The company also reported that net mortgage servicing rights (MSRs) results were a $379 million gain in Q1 compared with a $143 million loss the previous quarter. The bank’s financials also showed a $249 million provision for mortgage loan repurchase losses, down from $464 million in the fourth quarter of 2010.

Wells Fargo also disclosed that layoffs of full-time mortgage employees totaled 4,500 during the first quarter as both new lending and refinance activity took a hit.