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Wells Fargo: Financial Winner

Stocks in this article: WFCI:BKX

Wells Fargo currently pays a quarterly dividend of 25 cents a share, although the company plans to raise its dividend in the second quarter to 30 cents, subject to the approval of its board of directors. Based on the current payout, the shares have a dividend yield of 2.64%.

Following the completion of the Federal Reserve's stress tests of the largest U.S. banks in March, Wells Fargo announced that the regulator had approved "a proposed increase in common stock repurchase activity for 2013 compared with 2012." Wells Fargo's common share buybacks during 2012 totaled $3.9 billion.


Wells Fargo on April 12 reported a record profit of $5.2 billion, or 92 cents a share, for the first quarter, compared with 91 cents the previous quarter and 75 cents a year earlier.

All of the major U.S. big banks were expected to show significant sequential declines in mortgage revenue because of a slowdown in home-refinancing activity and because a rise in long-term interest rates had caused profit margins on the sale of newly originated loans to decline.

Wells Fargo's first-quarter mortgage revenue totaled $2.8 billion, down from $3.1 billion in the fourth quarter and from $2.9 billion in the first quarter of 2012. First-quarter mortgage loan originations declined to $109 billion from $125 billion the previous quarter. Net gains on mortgage-loan origination and sales totaled $2.5 billion in the first quarter, declining from $2.8 billion in the fourth quarter and from $2.6 billion in the first quarter of 2012.

Drops in credit costs and other expenses more than offset the company's mortgage revenue decline. Noninterest expense declined to $12.4 billion in the first quarter from $12.9 billion the previous quarter and $13 billion a year earlier. The company said that the sequential improvement was "primarily due to lower operating losses associated with the Independent Foreclosure Review settlement and a $250 million charitable contribution to the Wells Fargo Foundation in the fourth quarter."


Wells Fargo's gain-on-sale margin for mortgage loans sold during the first quarter was 2.56%, which matched the record margin for the fourth quarter. But this is a delayed indicator for the company, as it recognizes loan sales when they actually occur rather than when the new mortgage loan has its rate "locked," as most other large banks do.

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