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Wells Fargo Profits Rise to New Record, Defying JPMorgan Loss

  • Wells Fargo reports a first-quarter profit of 99 cents a share, beating the consensus estimate of 97 cents, according to data compiled by Bloomberg
  • GAAP Net income was $5.6 billion, beating the consensus estimate of $5.26 billion
  • Net revenue came in at $20.5 billion, a $900 million drop from the previous quarter and below estimates of $21.03 billion
  • Mortgage banking earnings of $1.6 billion fell sharply from second-quarter levels of $2.8 billion
  • Net interest margin fell 8 basis points to 3.38%, below estimates and second quarter levels of 3.46%
  • The firm repurchased approximately 50.9 million shares of common stock in the quarter, lowering its share count by 28.4 million shares

NEW YORK ( TheStreet) -- Wells Fargo (WFC - Get Report) beat third-quarter earnings expectations as the nation's fourth largest bank by assets was able to grow its earnings for a 15th consecutive quarter.

Consensus was that the lender could see a slight sequential drop-off in earnings for the first time since the worst of the financial crisis, as a 2012 mortgage refinancing boom petered out and interest rates surged at certain points in the quarter. Forecasts of falling earnings at Wells Fargo have proven misguided for most of 2013.

Wells Fargo's rising earnings and a net loss reported by JPMorgan (JPM - Get Report) on Friday, the first under CEO Jamie Dimon, have the lender poised to end 2013 as the most profitable bank in the U.S.

The San Francisco-based lender reported better-than-expected earnings of $5.6 billion, on revenue of $20.5 billion. Bottom-line earnings beat estimates of $5.26 billion however revenue fell short of estimates by $500 million, according to Bloomberg data.

Third-quarter earnings of 99 a share surpassed the consensus estimate of 97 cents, according to analyst forecasts compiled by Bloomberg.

Prior to earnings, Marty Mosby, a banking analyst at Guggenheim Securities said he expected the firm's earnings to rise sequentially even in a flat to declining revenue environment.

"We do think that Wells Faro can continue to show sequential growth in their earnings per share," Mosby said. He expected Wells Fargo's mortgage origination activity to drop substantially from second-quarter levels, but that the declines would be offset by expense reductions and other parts of the bank's business such as its credit quality.

Overall, Wells Fargo's earnings confirm a sharp slowdown in housing market activity across the U.S. as interest rates and home prices continue an upward trend. The nation's largest mortgage lender, however, has proven again that it can manage certain quarters of weak housing market activity with falling expense items.

Net charge-offs on loans continued to fall, dropping to their lowest level since 2006. Those charge-offs came in at $975 million, down significantly from year-ago levels of $1.4 billion.

Improving credit quality helped to offset a sharp sequential drop in Wells Fargo's mortgage banking earnings. Mortgage banking income fell over 40% sequentially to $1.6 billion compared with first and second quarter levels of $2.8 billion.

Wells Fargo reported a near 30% drop off in residential mortgage origination. The bank originated $80 billion in residential mortgages, down from second quarter origination levels of $112 billion.

The bank also reported a $900 million reserve release for the quarter.

Wells Fargo continued to make purchases to its available-for-sale (AFS) bond portfolio, helping to stabilize the bank's net interest income at $10.7 billion for the quarter, even as interest margins fell 8 basis points to 3.38% from second quarter levels.

"Wells Fargo continued to demonstrate strong and consistent financial performance in the third quarter," CEO John Stumpf said in a statement.

"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," he added.

Wells Fargo shares fell nearly 2% pre-market trading to $40.75.

-- Written by Antoine Gara in New York

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