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[video] Wells Fargo Ends 2013 as America's Most Profitable Bank

  • Wells Fargo reports a fourth-quarter profit of $1.00 a share, beating the consensus estimate of 98 cents, according to data compiled by Bloomberg.
  • Net revenue came in at $20.7 billion, a rising slightly from the previous quarter and beating estimates of $20.68 billion.

  • Mortgage banking income of $1.6 billion,unchanged from the third quarter.

  • Net interest margin narrowed by 12 basis points to 3.26%, significantly below estimates and the third-quarter margin of 3.38%.

  • The firm repurchased approximately 30 million shares of common stock in the quarter, lowering its share count by 16.6 million shares.

Updated from 10:07 a.m. ET with afternoon share prices, CEO, CFO comment and additional information throughout.

NEW YORK (TheStreet) -- Wells Fargo  (WFC) ended 2013 as America's most profitable bank, surpassing profits at JPMorgan  (JPM), as the nation's largest mortgage lender was able to grow its earnings while competitors struggled to pick up share in the mortgage market and were weighed down by legal issues.

The San Francisco-based lender reported better-than-expected earnings of $5.6 billion, on revenue of $20.7 billion. Analyst estimates compiled by Bloomberg forecast Wells Fargo would earn 98-cents a share in earnings on revenue of $20.68 billion.

Ken Usdin, a Jefferies analyst, characterized Wells Fargo's earnings as a sign of strong performance across the bank's core loan, deposit and investment management operations. Usdin said in a client note that the bank's fourth quarter performance was supportive of the idea Wells Fargo could earn $4 a share in 2014.

Prior to earnings, Bill Smead, chief investment officer at mutual fund firm Smead Capital Management said he expected positive gross domestic product growth in the second half of 2013 to positively impact Wells Fargo. Smead also brushed off fears that rising mortgage interest rates could negatively impact the bank's earnings prospects, noting that large bank earnings have historically risen in decades where interest rates rise.

"Wells Fargo's diversified model was again able to produce solid results for our shareholders," Timothy Sloan, Wells Fargo's CFO said in a statement.

Wells Fargo continued to benefit from falling credit expenses as charge-offs fell and the bank released $600 million in loan loss reserves during the fourth quarter. Overall, the bank's non-interest expense fell to $12.1 billion.

Those expense reductions combined with Wells Fargo's continued loan growth and rising fee income from its disparate products and services allowed the bank to weather a turbulent 12-months in the mortgage market and post a record profit for 2013.

The bank's origination revenue fell quarter-over-quarter on a slowdown in the housing market as interest rates rose sharply in the second half of 2012. Mortgage originations of $50 billion were down 38% quarter-over-quarter, while its pipeline fell by 29%, indicating further pressure Wells Fargo, according to Goldman Sachs analysts.

Still, Wells Fargo's total loans grew $26.2 billion to over $825 billion in the third quarter, buoyed by acquisitions even as legacy Wachovia assets continued to run off the bank's books.

Overall, the bank posted a $21.9 billion profit for 2013, increasing 16% 2012 and surpassing the profits of JPMorgan, America's largest bank by assets.  Earnings-per-share for 2013 came in at $3.89, increasing from $3.36 during 2012.

Shares in Wells Fargo were little changed in Tuesday trading afternoon trading at $45.59, recovering from losses in the morning.

The bank's net interest margin (NIM) fell a greater-than-forecast 12-basis points to 3.26%, an issue that came up repeatedly on Wells Fargo's Tuesday morning conference call with investors. Falling NIM's have plagued the bank through 2013, however the firm has continued to see its net interest income rise.

One issue for Wells Fargo, which could turn to a benefit in coming quarters, is a continued inflow of deposits to the bank. Deposits at the bank grew by $50 billion, putting total deposits at $1.05 trillion, having risen for many successive quarters. Those deposits have depressed Wells Fargo's NIM, but could generate business and cross-selling opportunities for the bank in the future.

New deposits depressed Wells Fargo's NIM by 6 basis points, CFO Timothy Sloan said in a call with investors. The other 6 basis points of NIM reduction came from Wells Fargo's strategy to build its liquidity coverage ratio in the quarter, ahead of a phase-in of new regulations.

On the regulatory and economic front, Wells Fargo struck an optimistic tone.

The bank said its current capital plan stipulates an increase to the bank's dividend and share repurchase activity in 2014, subject to Federal Reserve approval.

CEO John Stumpf said Wells Fargo enters 2014 in far better shape than a year ago, a sentiment that also carried over to the broader U.S. economy. 

"We do not see anything in today's release that will change investor's long-term thesis on WFC and believe that 2014 consensus EPS of $4.03 appears achievable," Goldman Sachs analysts said in a client note.

Wells Fargo continued to grow its market share against larger rivals like JPMorgan in 2013. That augurs strongly for 2014, a year where many expect economic activity to grow at the strongest pace since the financial crisis.

For now, the bank can say it is the most profitable lender in the U.S., eclipsing JPMorgan.

-- Written by Antoine Gara in New York Follow @antoinegara

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