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(Adds comments from analysts, executives, detail on housingmarket; updates prices)
By Peter Rudegeair and Anil D'Silva
April 11 (Reuters) - Wells Fargo & Co, the biggestU.S. mortgage lender, reported a higher-than-expected 14 percentrise in first-quarter net profit, as a series of cost cuts andone-time gains helped the bank offset the lowest volume of homeloans it made in five-and-a-half years.
The bank, the most profitable in the United States in 2013,has been hurt in recent quarters by declining demand formortgage refinancing, as lending rates have risen.
Income from mortgage banking fell by 46 percent to $1.5billion from the same quarter last year. Wells Fargo's new homeloans fell by two-thirds to $36 billion in the quarter from $109billion a year earlier, the lowest since the third quarter of2008, when the housing market was under heavy stress.
But a series of one-time items this quarter helped offsetmuch of the decline in the mortgage business. Wells Fargorecorded $847 million in gains on its equity investments, about7.5 times the $113 million it earned a year earlier.
Its tax bill was also $227 million lower as it booked a $423million benefit from resolving prior disputes with state taxauthorities. Overall operating expenses fell 4 percent as itspent less on employee benefits and incentive compensation.
Another boost to net income came from the bank dipping intofunds set aside to cover soured loans, as the housing market andthe overall economy stabilized. The bank released $500 millionfrom these reserves, higher than the $200 million a year ago butless than the $600 million released in the fourth quarter.
Without many of these one-time gains, Wells Fargo's resultswould have missed Wall Street's estimates, according toCitigroup Inc banking analyst Keith Horowitz.
JPMorgan Chase & Co, the biggest U.S. bank byassets, reported Friday profits fell 19 percent from a yearearlier thanks to weaker-than-expected bond trading and mortgagebanking revenue.
Wells Fargo's shares rose 1.5 percent in afternoon tradingat $48.41. JPMorgan Chase shares fell 3.3 percent to $55.48. TheKBW index of bank stocks was down nearly 1 percent.
Net income for Wells Fargo's common shareholders rose to$5.60 billion, or $1.05 per share, in the quarter, from $4.93billion, or 92 cents per share, a year earlier.
Analysts on average had expected the bank to earn 97 centsper share, according to Thomson Reuters I/B/E/S.
"Wells always finds a way to figure it out," said JasonGoldberg, a banking analyst at Barclays. "This is a company thatconsistently puts up better-than-peer results."
'A DIFFERENT COMPLEXION'
Chief Financial Officer Tim Sloan told Reuters that beingable to benefit from occasionally outsized equity gains and taxbenefits spoke to the strength of being a diversifiedinstitution with many distinct business lines.
"Unless your revenue sources were exactly like the priorquarter where every business increased by same percentage,someone will say that's not sustainable," he said. "Everyquarter has a different complexion."
There were some indications in Wells Fargo's results thatmortgage banking might be rising out of the doldrums. The bankhad $27 billion of mortgage applications in the pipeline at theend of the quarter, up slightly from $25 billion at the end ofthe fourth quarter. Chief Executive John Stumpf told analysts ona conference call that "the housing recovery remained on trackand should benefit from the spring buying season."
Wells Fargo's loan book also showed signs of life. Totallending rose 4 percent to $826.4 billion thanks to a 7 percentincrease in commercial and industrial loans and an 11 percentincrease in auto loans since the first quarter of 2013.
At the same time, the company is experiencing historicallylow loan losses. Its net charge-off rate was 0.41 percent in thelatest quarter, versus 0.72 percent a year ago. It lost a mere$5 million on its $381.3 billion commercial loan portfolio.
Total revenue fell 3 percent to $20.6 billion from $21.3billion a year earlier. Between $120 million and $130 million ofthat decline could be attributed to the first quarter having twofewer days, Sloan told analysts on the conference call.
Wells Fargo's net interest margin, a measure of theprofitability of its loans, fell to 3.2 percent from 3.49percent a year earlier and 3.27 percent in the fourth quarter.
The bank received regulatory approval in March to increaseits quarterly dividend to 35 cents from 30 cents and torepurchase an additional $17 billion of stock, or about 6.5percent of the total outstanding. (Reporting by Anil D'Silva in Bangalore and Peter Rudegeair inNew York; Editing by Ted Kerr and Nick Zieminski)
