SAN FRANCISCO -- Wells Fargo posted record profits of nearly $5.2 billion during its first quarter, but the company's shares fell nearly 1 percent Friday over worries about a decline in revenue and a drop in its mortgage business.
San Francisco-based Wells earned $5.17 billion and generated revenue of $21.3 billion in its January-March quarter. Compared with the year-ago first quarter, profits jumped 22 percent, but revenue fell 1.7 percent.
"It was a solid start to the year during a quarter that normally is soft for banks on a seasonal basis," said Joe Morford, an analyst with the San Francisco office of RBC Capital Markets, an investment firm. "This is still one of the most profitable banks out there, a high-quality company with superior returns."
Still, investors were spooked by erosion in the bank's mortgage business. Home loans are a key segment of its business and have driven its success in recent quarters.
Investors shed Wells Fargo's shares, which fell 0.8 percent and finished at $37.21 Friday.
Wells Fargo originated $109 billion in home loans in the first quarter, down 12.8 percent from the $125 billion originated in the fourth quarter, which ended in December.
"The mortgage business is still very strong," John Stumpf, CEO of Wells Fargo, said during a conference call with analysts Friday. "It's our sixth consecutive quarter of originations above $100 billion. We're very bullish on the business."
Despite
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the erosion, Wells hired more employees for its mortgage operations during the final three months of 2012 to improve customer service.
"We view the purchase market as a big opportunity," Timothy Sloan, the bank's chief financial officer, said during the conference call. "As refinancing volume comes down, which has happened over the last few quarters, we have our sales folks and our bankers out there being more proactive with our customers."
Wells now is the No. 1 home loan company and accounts for one out of three new residential mortgages. It saw an increase of 31 percent in purchase activity during the first three months of this year.
But applications for home loans totaled $140 billion in the first quarter, down 7.9 percent from the $152 billion in applications in the fourth quarter.
The bank's profits beat Wall Street's expectations, with per-share profits of 92 cents, ahead of the predictions by analysts of 88 cents.
The slowly improving economy nationwide should provide a tail wind for Wells, said Ken Thomas, a Miami-based independent bank analyst and operator of BranchLocation.com.
"The economy is recovering slowly," Thomas said. "As the economy goes, so goes housing. As housing and the