Wells Fargo's Q1 profit drops in hard times

Wells Fargo & Co. reported a profit of $2 billion for the first quarter, down from earnings of $2.24 billion a year ago.

CEO John Stumpf called it "a remarkably strong quarter of growth" since the bank had set aside a $2 billion pre-tax provision for credit losses.

Revenue rose at the San Francisco bank (NYSE: WFC) to $10.56 billion, up from $9.44 billion in last year's first quarter.

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Nonperforming loans rose to 0.84 percent of total loans. A year ago that figure for bad debt was 0.54 percent.

First quarter net charge-offs were $1.5 billion, up from $715 million in the first quarter of 2007. Loans 90 days or more past due and still accruing totaled $6.92 billion at quarter's end on March 31, up from $4.81 billion a year earlier.

The bank's return on equity fell to 16.9 percent from 19.7 percent. Net interest margin -- the difference between the interest banks pay on deposits and receive on loans -- dropped to 4.69 percent from 4.95 percent. The Fed's sharp cuts in short-term interest rates in the first quarter and earlier has placed pressure on the industry's net interest margins.

Wells Fargo's average loans jumped 19 percent, lending credence to the company's bankers who have said in recent weeks that the bank continues to lend amid the credit crunch. Average core deposits rose 9.2 percent.

The first-quarter results "reflected a great combination of solid business growth, strong operating margins and further balance sheet strengthening," said Howard Atkins, the bank's chief financial officer.

Despite Wells Fargo's relative success so far in weathering the storm, the bank's top brass sees more trouble ahead for the industry.

"We may not have seen the last of the challenges for this cycle," Stumpf said. "But we're very excited about our opportunities to continue to gain market share prudently in our core businesses at a time when many of our competitors are struggling."