Wells Fargo & Co (WFC) Was Beaten By JPMorgan Chase & Co. (JPM) And Citigroup Inc. (C)

Wells Fargo & Co (NYSE:WFC), once considered the largest mortgage lender in the US, has once again topped analysts’ expectations as far as its bottom line for the first quarter is concerned. However, for the second consecutive quarter, the revenues accruing from its mortgage related business suffered, a trend also visible in JPMorgan Chase & Co. (NYSE:JPM)’s first quarter earnings. This is happening despite the Fed’s best efforts to make borrowing cheaper and more affordable.

Wells Fargo & Co (NYSE:WFC) reported its first quarter 2013 performance with an earnings beat of $0.03 per share. The reported earnings per share of $0.92 was also $0.03 ahead of the prior quarter’s EPS. However, the top line (revenue) of $21.3 billion came in $0.29 billion below expectations. The revenues came in below expectations due to lower spread income, which was down 2% compared to the linked quarter.

Among some of the highlights of the bank’s first quarter results was strong year over year growth in loans and deposits, which swelled 4.3% and 6.3%, respectively. This was partially offset by a decline in the bank’s net interest rate margin of $3.48%, which plunged 8 bps over the linked quarter. During the quarter, the bank also got rid of $200 million worth of credit loss reserves, which contributed as much as $0.04 in the quarter’s EPS. Further, the net charge-offs of $1.4 billion declined 19% sequentially, showing an improvement in the bank’s asset quality.

Further disappointment was seen in the bank’s mortgage banking income of $2.8 billion, down 9% from a year ago. The bank’s CEO was found telling the analysts on the earnings call that the bank’s diverse business mix led to the bottom line beat, otherwise there is little business left for banks to squeeze out of the Home Affordable Refinance Program. For the first quarter of the current year, mortgage banking revenues were 26% of the bank’s entire fee income. Overall, Wells Fargo & Co (NYSE:WFC)’s mortgage market share plunged to 27.7% at the end of the first quarter from as high as 33.9% at the end of the first quarter of the last year.

Going forward, you cannot expect a lot of improvement in the mortgage banking business at Wells Fargo. The pipeline for home loans applications at the end of the first quarter of the current year was $74 billion, down from the prior year’s $81 billion. “Our guess is that mortgage origination levels and revenues will continue to come down,” Chief Financial Officer Tim Sloan said in an interview.

Other than that, the quarter’s expenses were well managed, as operating expenses of $12.4 billion came down 5% of over the prior year. The reported efficiency ratio of 58% is also hovering near the top of the management’s target range of 55% – 59%.

The Basel III capital ratio for Wells Fargo & Co (NYSE:WFC) continued to improve during the quarter. Its Tier 1 common equity ratio surged 20 bps to 8.4%, while the bank repurchased 16.6 million shares during the quarter.