Earns Wells Fargo Bank
Paul Sakuma/AP
By Anil D'Silva
and Peter Rudegeair


Wells Fargo the biggest U.S. mortgage lender, reported a better-than-expected 11 percent rise in fourth-quarter profit as a steep fall in bad-loan provisions helped to make up for a big drop in mortgage lending.

Net income applicable to common shareholders rose to $5.37 billion, or $1 a share, from $4.86 billion, or 91 cents a share, a year earlier, the fourth-biggest U.S. bank said Tuesday.

Analysts on average had expected earnings of 98 cents a share, according to Thomson Reuters I/B/E/S.

Provision for credit losses fell 80 percent to $363 million, helping to offset a 49 percent drop in mortgage income to $1.57 billion.

The San Francisco bank's mortgage business took a hit from a slowdown in refinancing activity, which dropped by nearly a third in the quarter, according to the Mortgage Bankers Association. Wells Fargo had $25 billion of mortgage applications in the pipeline at the end of the quarter, down from $35 billion at the end of the third quarter.

Wells Fargo's (WFC) shares were down 0.3 percent at $45.35 before the opening bell on the New York Stock Exchange.

The bank,
whose total revenue fell about 6 percent to $20.7 billion, accounted for more than one out of every five U.S. home loans in the first half of 2013, according to industry publication Inside Mortgage Finance.

Wells Fargo is also the top U.S. lender for autos, small business and commercial real estate.

Expenses in the bank's home loan unit fell as the effects of 6,200 layoffs announced in the second half of the year were realized. That pushed its efficiency ratio, or its expenses relative to its revenue, to 58.5 percent and into its targeted range of 55 percent to 59 percent.

Net income also got a boost from the release of $600 million from the bank's loan loss reserves, more than double the $250 million released in the year-earlier quarter but less than the $900 million released in the third quarter.

"Given these favorable conditions, we continue to expect future reserve releases absent a significant deterioration in the economic environment," Chief Risk Officer Mike Loughlin said in a statement.

Lending Rises

The bank continued to experience historically low loan losses with a net charge-off rate of 0.47 percent, down from 0.48 in the third quarter and 1.05 percent a year earlier.

Total lending rose to $825.8 billion from $812.3 billion at the end of the third quarter and $799.6 billion in the fourth quarter of 2012. The increase was driven by foreign and commercial real estate lending as well as the retention of more residential mortgages on its balance sheet.

The bank's net interest margin, a measure of the profitability of its loans, fell to 3.26 percent from 3.56 a year earlier and 3.38 in the third quarter.

Wells Fargo is one of the few large U.S. banks to emerge from the financial crisis in a much stronger position, thanks in part to its acquisition of Wachovia at the end of 2008.

Its stock rose 28.7 percent in 2013, lagging the 34.3 percent increase in the KBW index of bank stocks. The company had a market value of $243.2 billion at the end of the year, making it the largest U.S. bank by that measure.

JPMorgan Chase (JPM) also reported a better-than-expected adjusted quarterly profit Tuesday as the biggest U.S. bank kept a lid on costs and set aside less money to cover bad loans.



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