WFC Wells Fargo and Company

By Emily Glazer 

Wells Fargo & Co. said its first-quarter profit rose as one of the nation's largest banks continues to seek growth while trying to move past its spate of regulatory problems.

The bank said it may need to restate its results, though, given ongoing discussions and a possible looming settlement with two regulators -- the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency. The regulators offered to resolve problems they are investigating with ghe bank's risk management for $1 billion, Wells Fargo said Friday.

Wells Fargo reported a profit of $5.94 billion, or $1.12 a share. Analysts polled by Thomson Reuters had expected earnings of $1.06 a share.

Revenues fell to $21.9 billion from $22.3 billion in the year-earlier period.

Shares rose nearly 1% to $53.16 in premarket trading after the results were announced. Investors are expected to focus this quarter on the lender's growth prospects and ability to keep costs contained.

In early February, the Federal Reserve sanctioned Wells Fargo for failing to have proper risk controls in place that could detect such issues. In an unusual move, it barred the bank from growing above the $1.95 trillion in assets it had at the end of 2017. The Fed cited "widespread consumer abuses" in its rebuke.

Wells Fargo, run since late 2016 by Chief Executive Timothy Sloan, had previously been one of the most consistent big banks at growing earnings and revenue. But its shares more recently have underperformed big bank peers.

In September 2016, the San Francisco-based bank agreed to a $185 million settlement over opening as many as 3.5 million accounts with fictitious or unauthorized information.

Since then, the bank has disclosed wealth management problems and consumer-lending issues around auto-lending charges and mortgage fees, all of which regulators are probing. Wells Fargo has said it plans to refund around $145 million to consumers related to the consumer-lending problems.

The potential OCC and CFPB settlement that Wells Fargo referenced Friday is related to those auto-lending and mortgage problems. The bank said it is "unable to predict the final resolution" of that matter and "cannot reasonably estimate our related loss contingency."

The sales scandal and other regulatory investigations have boosted expenses, which are likely to remain high for some time. This is happening as interest rates have begun to rise. The result of this combination: Wells Fargo's return on equity rose from a year ago, to 12.37%, but was down from last year's fourth quarter.

Profits at Wells Fargo's community banking division, which includes the unit responsible for the questionable sales tactics over the past several years were $2.71 billion, a 3.9% decrease from the $2.82 billion it earned in the first quarter of 2017.

Though low rates had been a boon for certain aspects of home lending, the all-important refinancing market has largely slowed down. Wells Fargo's mortgage business, the largest in the United States by volume, earned $934 million in fees in the first quarter, down 24% from the $1.23 billion it earned in the same period a year ago.

The bank extended $43 billion in home loans between the end of January and the end of March, compared with $44 billion in the first quarter of 2017 and $53 billion in the fourth quarter of 2017.

Costs at Wells Fargo have risen with the firm's regulatory problems. In the first quarter, they increased 3% to $14.24 billion from $13.79 billion a year ago. Expenses as a share of revenue in the first quarter were 64.9%, above the target of 60% to 61% set at an investor presentation in May 2017. The bank has operated well above its so-called efficiency ratio of 55% to 59%, hitting an all-time high of 76.2% in the fourth quarter of 2017 and topping 59% for the past six quarters.

Wells Fargo's loan book continued to contract. Total loans at the end of the first quarter tallied $947.31 billion, a decrease from $958.41 billion in the same period a year ago. Commercial loans, which make up one of the largest part of the bank's total portfolio, were $503.4 billion, down from $505 billion in the first quarter of 2017.

At the same time, Wells Fargo reported profitability of its lending activities continued to be challenged. Its net interest margin, a measure of how profitably it can lend out its customers' deposits, was 2.84%. That was flat from the prior quarter and down from 2.87% in the year-ago first quarter.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

April 13, 2018 09:07 ET (13:07 GMT)

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