Well Fargo Hits Record Earnings on Mortgage Volume (Update 1)

• Wells Fargo reports first-quarter earnings per share of 75 cents.
• Revenue increased 5% from the previous quarter, to $21.6 billion.
• Analysts were expecting EPS of 73 cents on revenue of $20.51 billion.

Updated with Well's Fargo's increase in noninterest expenses, and comments from CFO Tim Sloan.

NEW YORK (TheStreet) - Wells Fargo on Friday reported a 21% quarter-over-quarter increase in mortgage banking revenue, pushing profits to record levels.

The company earned $4.2 billion, or a record 75 cents a share during the first quarter, compared to fourth-quarter earnings of $4.1 billion, or 73 cents a share, and earnings of $3.8 billion, or 67 cents a share, during the first quarter of 2011.

The first-quarter results beat the 73-cent consensus estimate, among analysts polled by Thomson Reuters.

First quarter revenue totaled $21.6 billion, beating the consensus estimate of $20.51 billion, mainly reflecting the strong mortgage origination volume. In comparison, Wells Fargo reported total revenue of $20.6 billion during the fourth quarter, and $20.3 billion, during the first quarter of 2011.

The company reported $129 billion in mortgage loan originations during the first quarter, increasing from $120 billion the previous quarter, and $84 billion a year earlier. Noninterest mortgage revenue totaled $2.9 billion during the fourth quarter, growing from $2.4 billion during the fourth quarter, and $2.0 billion, during the first quarter of 2011.

Wells Fargo continued its strong overall earnings performance, with a first-quarter return on average assets of 1.31%, improving from 1.25% in the fourth quarter and 1.23% during the first quarter of 2011. CFO Tim Sloan said the ROA "was the highest since first quarter 2008," while the ROA "was the highest since second quarter 2009."

The company reported a first-quarter return on equity of 12.14%, increasing from 11.07% the previous quarter, and 11.98% a year earlier.

Wells Fargo reported total first-quarter noninterest expenses of 13.0 billion, increasing from $12.5 billion in the fourth quarter, and $12.7 billion during the first quarter of 2011. Sloan said that the company expects "a $500-$700 million overall reduction in noninterest expense during the second quarter."

Wells Fargo's shares closed at $34.02 Thursday, returning 24% year-to-date, following a 10% decline during 2011.

At Thursday's close, the shares were trading for nine times the consensus 2013 EPS estimate of $3.67. The consensus earnings estimate for all of 2012 is $3.24 a share.

Based on a quarterly payout of 22 cents, the shares had a dividend yield of 2.59%.

Philip van Doorn

04/13/12 - 08:29 AM EDT