Wells Breezes through Tough First Quarter

Wide-moat

Growing loan demand is encouraging for Wells and the banking industry as a whole. Balance sheet loans expanded 10% during the year, driven by across-the-board increases in credit demand. Mortgage origination income fell slightly from the fourth quarter, but we think a reasonably strong economy combined with an aging population of potential millennial borrowers will drive housing and mortgage demand over the medium term. In fact, the bank's mortgage pipeline grew from $29 billion to $39 billion in potential lending over the course of the past year.

We remain sanguine on credit quality. Wells charged off only 0.38% of loans during the first quarter, up just 7 basis points over the course of the year. Energy lending contributed to an additional $237 million in commercial loan provisioning during the first quarter, but losses to date remain quite manageable, especially as oil prices have rebounded somewhat since the middle of the first quarter. We do not believe Wells Fargo was overly aggressive in recent years, and a relatively healthy economy contributes to our optimism on credit quality.

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