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.

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.

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