Wells Fargo & Co., the most valuable U.S. bank, posted profit that beat analysts' estimates as lower interest rates spurred more borrowers to purchase homes or refinance debt.

First-quarter net income fell 1.5% to $5.8 billion, or $1.04 a share, from $5.89 billion, or $1.05, a year earlier, the San Francisco-based company said Tuesday in a statement. The average estimate of 24 analysts surveyed by Bloomberg was for profit of 98 cents a share. Net interest margin dropped below 3% for the first time since the 1990s.

"The high end of the mortgage market, the larger-balance loans, are doing better than the run-of-the-mill loans," Jennifer Thompson, an analyst at Portales Partners LLC in New York, said in an interview before the results were released. The bank is "well positioned" for that type lending, she said.

Chief Executive John Stumpf is searching for more revenue while trying to cap expenses as he awaits higher interest rates from the Federal Reserve, which most economists expect to act later this year. The bank's efficiency ratio, a measure of how much it costs to bring in a dollar of revenue, has stayed at the top end of management's 55% to 59% range.

Chief Financial Officer John Shrewsberry has highlighted one area of strength, the U.S. mortgage market. On Feb. 10 he said that volume at the nation's largest home lender would be similar to the fourth quarter, when it made $44 billion in loans, "despite the fact that the first quarter usually reflects a slower purchase market."

Average rates for 30-year residential mortgages fell 0.20 percentage point in the first quarter to 3.79%, spurring an uptick in refinancing activity. The industry originated $288 billion in home loans in the first quarter, 17% more than the first three months of 2014, according to a March 20 forecast from the Mortgage Bankers Association, a Washington-based trade group. Fifty-two percent of those replaced existing loans, the group estimates.

Wells Fargo pays commission to loan officers based on the number of loans they complete, and Stumpf has said the bank is willing to pay employees more in return for additional revenue. Investment bankers and financial advisers also receive incentive pay, which can add to costs.

Investors are focused on expenses as the banking industry struggles to show it can increase revenue amid persistent low interest rates. Expenses at Wells Fargo rose to the highest level in two years in the fourth quarter, climbing 4.7% from a year earlier to $12.6 billion, and costs remain one of analysts' chief concerns.

Wells Fargo's net interest margin, the difference between what it makes on lending and what it pays for funding, fell to 2.95% and has dropped more than a percentage point from the end of 2010.

Stumpf has taken action to add loans, including purchasing portfolios from competitors. Last week, the bank agreed to buy performing mortgages on commercial real estate valued at $9 billion in the U.S., U.K. and Canada from General Electric Co. as that firm decided to largely exit the business.

Wells Fargo fell 0.8% in the first quarter, compared with the 0.4% gain in the Standard & Poor's 500 Index. The shares rose 21% in 2014, outpacing the 7.2% advance of the 24-company KBW Bank Index and bringing the bank's market value at year-end to $284 billion.

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