NEW YORK — Wells Fargo & Co., Washington Mutual Inc. and U.S. Bancorp posted first-quarter profits Tuesday that shrugged off a recent home-mortgage slowdown caused by rising interest rates.
Earnings at San Francisco-based Wells Fargo, the fifth-largest U.S. bank, rose 9 percent to $2.02 billion — marking the first time in the company's 154-year history it passed the $2 billion mark. Meanwhile, Washington Mutual reported a 9 percent jump in profit from stronger fee income, and U.S. Bancorp posted a 7.7 percent increase to $1.15 billion.
For the three banks, the secret to earnings success was the same: diversification in their businesses. They used acquisitions and an expansion of their retail branch network to increase lending revenue despite the cooling of the mortgage market.
"We had solid, broad-based and, in many businesses, accelerating revenue growth, with revenue in businesses other than home mortgage up a combined 17 percent from a year ago," Wells Fargo Chief Financial Officer Howard Atkins said in a statement.
Banks with large lending operations have seen margins squeezed after 15 straight Federal Reserve interest rate hikes, which have also curbed demand for refinancing and home loans. Banks make money from the spread between deposits and what they charge for loans.
Wells Fargo — the nation's second-largest mortgage originator behind Countrywide Financial Corp., based in Calabasas, Calif. — reported earnings rose to $1.19 per share from $1.08 in the year-ago period. Revenue totaled $8.56 billion, a 6 percent increase from $8.09 billion a year ago.
The company's home-mortgage division posted revenue of $853 million, a 44 percent drop from $1.52 billion last year. Accounting adjustments to Wells Fargo's home mortgage servicing portfolio contributed to the erosion.
Wells Fargo said it now sells an average of nearly five different products — from deposit accounts to home equity loans — to the households where it has at least one customer. Five years ago, the average was still below four different products per customer household.
This has helped Wells Fargo diversify and overcome the mortgage slowdown. Now that mortgage rates are higher, fewer homeowners are looking to refinance their existing loans.
Wamu, the nation's largest savings and loan, reported profit rose to $985 million on $3.84 billion of revenue.
The Seattle-based thrift said its $6.45 billion acquisition of credit-card issuer Providian Financial Corp. boosted profit on some 417,000 new accounts opened since the deal closed in October. Also boosting results was fee income, which spiked 29 percent from the year-ago period to $1.73 billion.
Wamu said profit from its lending operations rose 8 percent to $2.12 billion from the year-ago period, but tumbled 6 percent from the fourth quarter.
Profit at U.S. Bancorp climbed to 63 cents a share, from $1.07 billion, or 57 cents, a year earlier. Revenue climbed 7 percent to $3.34 billion from last year's $3.13 billion.
U.S. Bancorp Chief Executive Jerry Grundhofer has been steadily trying to increase profit in other areas of the bank, including installing more automated teller machines and increasing its fee-based businesses. He said the company will "continue to leverage our balanced business mix, advantaged scale (and) reduced risk profile."
U.S. Bancorp Chief Financial Officer David Moffett said bad debts on its books dropped 7 percent to $619 million. Moffett said those debts, called nonperforming assets, are expected to keep shrinking for several quarters.
Financial institutions have benefited from fewer bankrupt customers in recent months because a new bankruptcy law last fall prompted people with shaky finances to hurry up and file for protection from creditors.
For smaller banks without diversified businesses, the quarter was a tough one to show any earnings growth at all. Cleveland-based National City Corp., the nation's eighth-largest bank, reported profit fell 5 percent during the first quarter, slammed by a 77 percent drop in mortgage banking results.
Rival Fifth Third Bancorp said first-quarter profit dropped 10 percent because of the mortgage business decline, while Cleveland-based KeyCorp posted a 9.5 percent jump in profit due to strong results in its consumer banking division.
Contributing: Michael Liedtke; Josh Freed