Wells Fargo Net Rises On Deposits, Lending Growth

Published January 17, 2012 2:45PM (EST)

NEW YORK (AP) — Wells Fargo & Co. reported Tuesday that its income rose 20 percent in the fourth quarter as its mortgage business steadied and deposits grew.

The San Francisco-based bank's net income for the last three months of 2011 rose to $4.11 billion, or 73 cents per share, compared with $3.41 billion, or 61 cents per share, in the year-ago quarter.

Revenue slipped 4 percent to $20.61 billion from $21.49 billion a year earlier.

Analysts, on average, were expecting profit of 72 cents per share, on total revenue of $20 billion, according to data provided by FactSet. Wells Fargo's stock rose 31 cents, about 1 percent, to $29.92 in morning trading.

Wells Fargo said its average deposits rose 9 percent to $864.9 billion. That reflected a 3.2 percent jump in consumer checking accounts and a 12 percent rise in checking and savings deposits from last year.

The growth in deposits at Wells Fargo came as the bank's customers set aside more money as a precaution against uncertainty in the economy.

The amount of loans on Wells Fargo's books edged up 2 percent to $768.6 billion as both commercial and consumer lending grew. Wells Fargo is the largest consumer lender in the U.S.

The bank also benefited as more of its customers paid their bills on time. Wells Fargo wrote off $2.6 billion in loans as uncollectible, including $2.17 billion in consumer loans. That was down from $3.84 billion last year, but did represent a slight increase from the third quarter.

"That's something we're going to watch," said Paul Miller, an analyst with FBR Capital Markets. While the figure shows gains from a year ago, he said, the improvements in overall credit quality slowed down considerably toward the end of the year, he said.

Loans considered past due and likely to default ended the year at $25.6 billion, compared with $32.4 billion last year.

The improvement in Wells Fargo's loan portfolio allowed the bank to release $600 million from its reserves to cover uncollected loans. That money flowed directly to the bank's bottom line.

Net interest income, or the money earned from deposits and loans, fell 2 percent to $10.9 billion. Net interest margin, or the spread between the money Wells earns on interest and that which it pays out, rose to 3.89 percent, from 3.84 percent in the third quarter, an increase during a period when many banks are seeing their net interest margin narrow because of low interest rates. Wells said the increase reflected lower deposit costs, less long-term debt and positive results from short-term investments.

FBR's Miller said the strong increase in net interest margin was surprising. "We would expect it to continue to feel pressure in this interest rate environment," he said.

Noninterest income, or earnings from fees and charges, fell 7 percent to $9.7 billion. Card fees dropped 28 percent from last year, largely because of a new law limiting the fees banks can charge merchants for processing debit card transactions.

The amount of mortgages the bank wrote jumped 35 percent compared with the third quarter to $120 billion.

For the full year, Wells Fargo posted net income of $15.87 billion, or $2.82 per share, up from $12.36 billion, or $2.21 per share, for 2010.

By Salon Staff

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