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(CNN Business) —  

Wells Fargo’s lending and deposits continue to shrink but the crisis-stricken bank managed to grow its bottom line during the first quarter.

America’s fourth-largest bank reported on Friday a 16% jump in first-quarter profits thanks to lower expenses. That exceeded Wall Street’s expectations. Wells Fargo’s (WFC) revenue also fell less than feared.

It’s the bank’s first earnings report since Tim Sloan stepped down suddenly as CEO late last month. Sloan, a three-decade veteran of Wells Fargo, struggled to move the bank past two-and-a-half years of scandals that have hurt its reputation and its bottom line.

Even as other big banks grow deposits, Wells Fargo reported a 3% decline in total average deposits during the first quarter to $1.3 trillion. The bank blamed lower wholesale banking and a decrease in wealth and investment management deposits.

Consumer and small business banking deposits dipped 2% to $740 billion.

Wells Fargo’s total average loans stood at $950.1 billion, down very slightly from a year ago. The bank reported quarter-over-quarter declines in auto, credit card and commercial loans.

“Wells Fargo is underperforming its peers at a time when the economy is strong,” said Ken Leon, an analyst at CFRA Research. “The entire management team is distracted by compliance and risk issues.”

Wells Fargo was able to grow profit by slashing costs. Noninterest expenses declined 7% during the first quarter. Wells Fargo continues to shrink its branch network. The bank shut down another 40 branches during the first quarter, leaving its total count down by 326 over the past year.

Looking ahead, Wells Fargo warned of trouble because of the flattening yield curve. During a conference call, the bank downgraded its forecast for net interest income, forecasting it could drop between 2% and 5% in 2019. Wells Fargo cited the shrinking gap between short and long-term bond yields – a development that makes it harder for banks to make money.

The cautious outlook drove Wells Fargo’s shares 2% lower, erasing earlier gains.

Stuck in the penalty box