Wells Fargo shares tumble after expenses rise, mortgage volume declines in Q1

An uptick in expenses and a sharp decline in mortgage banking volume in the first quarter sent Wells Fargo & Co.'s stock price tumbling.

The company's share price declined more than 6% shortly after reporting its first-quarter results, which included higher-than-expected expenses and lower-than-expected mortgage volume. The company's stock price has since recovered some and was down 2.53% at 11:25 a.m. ET.

Mortgage originations declined 21% quarter over quarter in what the company believes is the largest quarterly decline since 2003, CFO Michael Santomassimo said on the company's first-quarter earnings conference call. The drop-off was driven by lower refinance activity due to rising interest rates, a dynamic that will continue to have a negative impact on mortgage volume, the executive said.

"Reflecting this environment, we expect second-quarter originations and margins to remain under pressure and mortgage banking revenue to continue to decline. We've started to reduce expenses in response to the decline in volume," he said.

The company's reported $13.87 billion in noninterest expenses in the first quarter was a "negative" and brings "a bit more uncertainty" regarding the company's prior full-year expense guidance, Compass Point analyst David Rochester wrote in an initial note on the company's results.

The company maintained its guidance of $51.5 billion in expenses for the full year, but "operating losses can be episodic and hard to predict, and we will continue to update you on our expense expectations throughout the year," Santomassimo said.

The uptick in expenses in the first quarter was largely driven by seasonally higher personnel expenses of about $600 million and operating losses of about $673 million, Santomassimo said. The executive said he expects expenses to trend downward as the year progresses.

Addressing the current economic environment, President and CEO Charles Scharf said he feels Wells Fargo is well-positioned to help clients weather a potential storm.

"Our internal indicators continue to point towards the strength of our customers' financial position but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation, and this will certainly reduce economic growth. In addition, the war in Ukraine adds additional risk to the downside," he said. "Wells Fargo is positioned well to provide support for our clients in a slowing economy."

Credit losses will likely increase in the future, but "we should be a net beneficiary as we will also benefit from rising rates," Scharf said.