Wells Fargo: Sum of All Earnings Fear Loser

NEW YORK ( TheStreet) -- Wells Fargo ( WFC) was Friday's financial loser, with shares down 1% to close at $35.10.

The broad indexes ended mixed, but the KBW Bank Index ( I:BKX) was down 1% to close at 53.18, after Wells Fargo kicked off fourth-quarter earnings season by reporting a record profit of $5.1 billion, or 91 cents a share, but also reported that its net interest margin continued to decline and declines in mortgage banking revenue.

Wells Fargo's earnings grew from $4.9 billion, 88 cents in the third quarter, and $4.1 billion, or 73 cents a share, during the fourth quarter of 2011.

Wells Fargo's fourth-quarter profit beat the consensus estimate of 89 cents among analysts polled by Thomson Reuters, and its fourth-quarter revenue of $21.9 billion also beat the consensus estimate of $21.3 billion. The company was certainly not the weakest name on Friday among the 24 components of the KBW Bank Index, but what may have disappointed investors and set a negative tone for earnings season was that the company's net interest margin -- the difference between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 3.56% from 3.66% in the third quarter and 3.89% a year earlier, reflecting "deposit growth of $30 billion in the quarter (12 percent annualized)," which "caused cash and short term investments to increase."

The company said that the inflow of deposits was "neutral" to net interest income, which was $10.6 billion in the third quarter, declining from $10.7 billion the previous quarter, and $10.9 billion a year earlier.

Wells Fargo reported third-quarter mortgage banking revenue increased to $3.1 billion from $2.8 billion in the third quarter and $2.4 billion in the fourth quarter of 2011, however, a coming slowdown in mortgage lending volume was signaled, as "unclosed pipeline of new residential mortgage loans at December 31, 2011, was $72 billion compared with $84 billion at September 30, 2011." When discussing the pipeline during the company's earnings call with analysts, Wells Fargo CFO Tim Sloan said "we would expect to benefit from seasonally stronger applications in the first quarter.

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