Wells Fargo & Co posted a record first-quarter profit of $3.05 billion as a surge in mortgage refinancings helped it displace Bank of America Corp as the nation's largest home lender.

The San Francisco-based bank is adding market share and deposits as rivals including Countrywide Financial Corp, once the nation's largest mortgage lender, and IndyMac Bancorp Inc reduce risk or disappear. Results were also bolstered by the acquisition of Wachovia Corp on December 31.

Wells looks like one of the winners, said Thomas Russo, a principal at Gardner, Russo & Gardner in Lancaster, Pennsylvania, which owns the bank's shares. People left IndyMac, Countrywide and other local California disasters. So Wells Fargo is getting more deposits. And they can make loans that competitors can't.

Net income, excluding payment of preferred stock dividends, rose 19 percent to $2.38 billion from $2 billion a year earlier. Profit per share fell to 56 cents from 60 cents because Wells Fargo issued stock to buy Wachovia for $12.5 billion, creating the fourth-largest U.S. bank by assets.

Excluding one-time items, profit was 59 cents per share, 4 cents more than analysts expected, Reuters Estimates said. Revenue totaled $21.02 billion, topping the average $19.91 billion forecast, and rose 16 percent excluding the impact of Wachovia.

Results included $516 million of securities writedowns.

Larger rivals Bank of America, JPMorgan Chase & Co and Citigroup Inc have also posted better-than-expected quarterly results, though lenders have been bolstered by trading gains and accounting changes that may not recur.

Wells Fargo made $101 billion of home loans in the quarter, twice as much as in the fourth quarter and the most since 2003, as benchmark rates fell below 5 percent.

The bank added 5,000 mortgage jobs in the quarter, and ended March with $100 billion of mortgages yet to be closed.

Loan volume surpassed the $89.3 billion of loans made by Bank of America, which bought Countrywide last July. Bank of America has since slashed Countrywide's subprime and adjustable-rate loan operations.

Wells Fargo's results were slightly better than the bank projected on April 9. Its shares rose 32 percent that day.

The bank returned to profit after losing money in the fourth quarter, its first loss in seven years. Wells Fargo's largest shareholder is Warren Buffett's Berkshire Hathaway Inc .

In afternoon trading, Wells Fargo shares were up 64 cents, or 3.4 percent, to $19.45 on the New York Stock Exchange. Through Tuesday, the shares had fallen 36 percent this year.

NO CRAZY STUFF, CFO SAYS

Wells Fargo set aside $4.56 billion for credit losses and charged off $3.26 billion, while nonperforming assets totaled $12.61 billion.

The bank said its $22.85 billion reserve will cover 12 months of consumer losses and at least 24 months of commercial and commercial real estate losses. Wells Fargo took a $37.2 billion writedown on riskier Wachovia loans when it bought that bank, and does not expect another writedown on that portfolio.

In an interview, Chief Financial Officer Howard Atkins said the bank is still emphasizing plain vanilla home loans, eschewing the crazy stuff that hurt many rivals.

While the bank has resumed foreclosures after a short moratorium, Atkins said, We're bending over backwards to keep people in their homes. A lot of foreclosures are taking place in second homes and investment property, where foreclosures are really the only way we can protect the interests of the bank.

The bank said it added $10.8 billion of core deposits in the quarter, ending with $756.2 billion, even as $34 billion of high-yielding certificates of deposits from Wachovia matured.

Wells Fargo last year took $25 billion from the Treasury Department's Troubled Asset Relief Program, but has long said it did not need the capital. It said its ratio of tangible common equity to tangible assets was 3.28 percent as of March 31; some analysts prefer a ratio closer to 5 percent.

The bank slashed its dividend 85 percent in March, and still expects $7 billion of annual cost cuts, including $5 billion tied to Wachovia starting this quarter. Atkins said there is a certain amount of duplication that can be eliminated in employment. The bank employs 272,800 people.

Wells Fargo is one of 19 banks facing government stress tests to see if they need capital to handle a deep recession. Results are due May 4. Atkins declined to discuss the tests.

(Reporting by Jonathan Stempel; Additional reporting by Dan Wilchins; editing by John Wallace)

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