Wells Posts Record Earnings; Mortgage Pipeline Down 45 Percent from Q2
Wells Fargo Bank reported record net income for the third quarter of $5.6 billion, a 13 percent increase from the same quarter in 2012 even though rising interest rates hurt its mortgage banking revenue. The company said its diluted per share earnings were also a record, $0.99 per share, another 13 percent increase. For the first nine months of 2013, net income was a record $16.3 billion, or $2.89 per share, compared with $13.8 billion, or $2.45 per share, for the same period in 2012.
(NOTE: While Wells Fargo's financial tables provided comparisons between Q3 2012 and Q3 2013 many of the comparisons in the report itself are with Q2, 2013. Thus in the summary below it is important to note the relevant periods.)
Revenue was $20.5 billion, compared with $21.4 billion in second quarter 2013. Interest income totaled 11.78 billion, a 1 percent decrease from a year earlier but total interest expenses decreased 19 percent to 1.028 billion and provision for credit losses were down 95 percent to $75 million. This put net interest income at 10.67 billion, an 18 percent increase over Q3 2012. Contributing to the increase as well were available-for-sale (AFS) securities portfolio purchases consisting largely of agency mortgage-backed securities (MBS), lower funding costs, organic growth in commercial and consumer loans, commercial real estate loan acquisitions, and one additional business day in the quarter. These benefits were offset by lower interest income from mortgages held for sale and reduced income from several other sources.
Mortgage Banking Income fell from $2.81 billion in the third quarter of 2012 to $1.61 billion, a decrease of 43 percent. Residential mortgage originations in the third quarter were $80 billion compared to $112 billion in the second quarter of this year. The Bank provided $28 million for mortgage loan repurchase losses, compared with $65 million in second quarter 2013.
Declines in the mortgage sector and trust and investment fees were partially offset by increases in debt and equity gains, mortgage servicing income and trading revenues. This brought total non-interest income in at $9.73 billion, down 18 percent from $10.55 billion in the third quarter of 2012.
"Wells Fargo continued to demonstrate strong and consistent financial performance in the third quarter," said Chairman and CEO John Stumpf. "As our economy continues to transition to higher interest rates, our diversified business model and strong risk discipline contributed to record earnings per share along with continued strength in return on assets, return on equity and capital. The improvement in the housing market has been beneficial to our customers and significantly contributed to our broad-based credit improvement in the quarter. We also deepened relationships, resulting in increases in cross-sell across the Company. As we look forward, we remain well positioned to meet the needs of our customers and to perform for our shareholders."
Chief Financial Officer Tim Sloan said, "This was a solid quarter for Wells Fargo. As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses. Year-over-year, we had strong loan growth, double-digit increases in noninterest income across many of our businesses and continued to build capital and return more to shareholders through dividends and share buybacks."
The company noted continued improvement in credit quality with net charge-offs of $975 million compared to $1.4 billion the previous year, and non-performing assets down $4.6 billion to $20.7 billion. The strong credit performance allowed a $900 million reserve release.
The $80 billion in mortgage loan originations noted above resulted from applications for $87 billion in mortgage financing compared with $146 billion in applications in the second quarter. The Bank had $35 billion in applications in the pipeline at the end of the quarter, down 45 percent from $63 billion on June 30, 2013.
The residential mortgage servicing portfolio totaled $1.8 trillion with a ratio of MSRs to related loans serviced for others of 82 basis points compared to 81 in the prior quarter. Loans in the servicing portfolio had an average note rate of 4.54 percent compared to 4.59 percent the previous quarter.