Wells Fargo Continues Record Earnings Streak, Despite Slip in Mortgage Business

Wells Fargo beat analysts’ expectationsrnand brought in record high earnings for the first quarter of 2013 even thoughrnits mortgage earnings declined.  Therncompany reported net income of $5.2 billion for the quarter or $0.92 per sharerncompared to $4 billion and $0.75 in the first quarter of 2012.</p

The bank’s chief financial officer TimrnSloan said this was the 13^th consecutive quarter that per sharernearnings had grown and the 8^th when those earnings set new records.  The new results beat fourth quarter earningsrnby a penny but was four cents higher than analysts’ consensus.    </p

Mortgage banking non-interest income wasrn$2.8 billion, down $274 million from the fourth quarter.  The company said it had retained on balancernsheet 1-4 family conforming first mortgage loans of $3.4 billion, forgoingrnapproximately $112 million of revenue had it instead originated the loans forrnresale during the quarter along with other agency conforming loans.  The company provided $309 million forrnmortgage loan repurchase losses, down from $379 million in the fourthrnquarter.  Net mortgage servicing rightsrnwere $129 million compared to $220 million. rnThe company said the decline was primarily due to service rightsrnvaluations adjustments made in the first quarter for the impact of improvingrnhome prices on estimated prepayment speeds.</p

Wells Fargo reported both home loanrnapplications and originations were down in the first quarter.  Applications were received for $140 billionrnin home loans compared to $152 billion in the fourth quarter while originationsrntotaled $109 billion compared with $125 billion.  It had applications in the pipeline at thernend of the quarter valued at $74 billion compared with $81 billion on Decemberrn31, 2012.</p

The residential servicing portfolio wasrnvalued at $1.9 trillion; the ratio of mortgage servicing rights to related loansrnserviced for others was 70 basis points compared with 67 in the prior quarter.  The average note rate on the servicingrnportfolio was 4.69 percent, down 8 basis points from Q4.  </p

Outstanding loans at the end of the firstrnquarter totaled $800 billion, up $392 million from the end of the fourthrnquarter.  Included in this growth was thern$3.4 billion in 1-4 family conforming first mortgages retained on the balancernsheet and a decrease of $3.7 billion from the continued runoff in thernliquidating/non-strategic portfolio.  Therncompany said its asset-backed finance, commercial banking, corporate banking,rncredit card, government and institutional banking, mortgage, retail brokerage,rnreal estate capital markets, and retail sales finance portfolios allrnexperienced year-over-year growth in double digits.</p

Sloan said, “Interest income from thernavailable-for-sale (AFS) securities portfolio increased modestly as we opportunisticallyrnpurchased $17.8 billion in federal agency mortgage-backed securities (MBS)</aduring periods of higher interest rates in the first quarter.  The benefit of these purchases outweighed thernimpact of continued runoff of higher yielding securities within the portfolio."  He said the retention of 3.4 billion in highrnquality conforming real estate first mortgages in the quarter largely offsetrnreduced income from portfolio repricing.</p