Despite a sharp downturn in its market-leading mortgage business, Wells Fargo & Co. reported a 10% improvement in fourth-quarter earnings as loan losses declined and the San Francisco bank collected higher fees in other businesses.
Wells, which wrote about a fifth of all U.S. home loans last year, said Tuesday that it earned $5.6 billion, $1 a share, up 10% from $5.1 billion, 91 cents a share, a year earlier. Revenue fell more than 5% to $20.7 billion, but deposits increased, as did loans on the bank's books.
Wells, the fourth-largest U.S. bank by assets, earned $21.9 billion for the year, up from $18.9 billion in 2012.
That exceeded the $17.9 billion 2013 profit reported Tuesday by JPMorgan Chase & Co., the largest U.S. bank. JPMorgan was socked by enormous legal settlements in 2013, and saw its investment-banking returns slump in the fourth quarter along with its mortgage results.
Wells wrote $50 billion of mortgages in the quarter, down 60% from $125 billion in the fourth quarter of 2012. Its pipeline of home loans fell 69% from $81 billion a year earlier to $25 billion, and profit on home lending fell from $3.1 billion to $1.6 billion.
Rising long-term interest rates have choked off a refinancing boom in the mortgage business.
The trend has affected Wells greatly because it collects payments on more home loans than any other bank. That gave it more chances to sell borrowers lower-rate mortgages, collecting origination fees and profits on sale of the loans. About a third of the bank's home loans during the fourth quarter were refinances compared with two-thirds a year earlier.
In a conference call with analysts, Wells Chief Executive John Stumpf said he is optimistic that the housing recovery will continue this year, albeit with home prices rising at a slower pace. That will boost the overall economy, he said.
Chief Financial Officer Tim Sloan said the rising rates should improve the bank's overall profit margins. Most of the loans on its books have variable rates that will rise faster than the rates Wells is paying for deposits, Sloan said. It was paying an average of 0.11% annual interest for deposits in the fourth quarter compared with 0.16% a year earlier.
Service charges on deposit accounts were 3% higher year-over-year, with brokerage results up 10% and credit-card fees 12% higher. Delinquent and foreclosed loans fell from $24.5 billion to $19.6 billion, while provisions for loan losses and charge-offs of soured loans both fell sharply.
Stumpf, the highest-paid of all bank CEOs in 2012, emphasized that Wells continues to benefit from its diversified businesses and the ability of its employees to sell customers multiple financial products and add-ons.
That sales culture has caused many employees at Wells branches to unethically inflate sales, a Times investigation has found, often by pushing unnecessary accounts or services, sometimes without customer permission.
Wells officials said they hold employees to high standards and deal harshly with employees who do not put the customers' interests first. The bank decided recently to conduct a company-wide review of its ethical standards.
Wells Fargo's total return to shareholders over the past year has been a hefty 30%, although it was outpaced by a widely watched index of bank stocks.
Its shares were down by 3 cents at $45.53 in midday trading Tuesday.