Wells Fargo reported today that its fourth quarter and full 2012 net income set new record highs.  Fiscal Year 2012 earnings were $18.9 billion; an increase of 19 percent from 2011 and fourth quarter earnings were up 24 percent compared to the fourth quarter of 2011 at $5.1 billion.

Revenue for the year was $86.1 billion, up 6 percent from $80.9 billion in 2011.  Fourth quarter income increased by 7 percent year-over-year to 21.9 billion.  Net Interest Income decreased $249 million or 2 percent from 2011 and was down slightly on a linked quarter basis to $10.6 billion.  Income from Wells Fargo's loan portfolio rose slightly from the third quarter both because of growth in consumer and commercial loans and the retention of $9.7 billion in high-quality, conforming first mortgages.  The available for sale (AFS) securities portfolio balance was essentially flat linked-quarter; income continued to be impacted by runoff in federal agency mortgage-backed securities (MBS) and a decision to replace the run-off with shorter term securities.  Interest income from the AFS securities portfolio declined by $69 million and interest income from the mortgage warehouse was down $63 million as the warehouse size declined with lower origination volume.

The company will take a $644 million or $0.09 per share operating loss from an incremental accrual to fully reserve for the costs associated with the Independent Foreclosure Review (IFR) settlement announced the first week in January and other remediation costs.

Mortgage banking noninterest income was $3.1 billion, up $261 million from the third quarter on $125 million in originations compared with $139 million of originations in the third quarter.  During the fourth quarter the company retained on its balance sheets approximately $340 million in 1-4 family conforming first mortgage loans, forgoing that amount that might have been generated had they been originated for sale during the quarter. 

The Company provided $379 million for mortgage loan repurchase losses, compared with $462 million in the third quarter (included in net gains from mortgage loan origination/sales activities). Net mortgage servicing rights (MSRs) results were $220 million, up from $142 million in third quarter of 2012, due primarily to MSRs valuation adjustments made in the third quarter for increased servicing and foreclosure costs. The ratio of MSRs to related loans serviced for others was 67 basis points and the average note rate on the servicing portfolio was 4.77 percent. The unclosed pipeline at December 31, 2012 was $81 billion, compared with $97 billion at September 30, 2012.

At the end of the fourth quarter the company had $11.5 in non-accruing or foreclosed 1 to 4 family residential loans, a rate of 4.58 percent, up slightly from 11.2 billion or 4.65 percent at the end of Quarter 2.  There were 2.92 billion in non-accruing or foreclosed junior residential liens (3.87 percent) compared to $3.14 billion or 4.02 percent the previous quarter. 

Net charge offs of real estate loans have steadily decreased over the last year.  Net charge-offs of 1 to 4 family mortgages totaled $649 million in the fourth quarter or 1.05 percent of average loans compared to $673 million in the third quarter (1.15 percent) and $743 million or 1.30 percent in the second quarter.  Junior liens charge offs totaled $690 million in Q4, $1.04 billion in Q3, and Q2.

As noted above, originations declined from $139 billion in the third quarter to $125 billion in the fourth; application volume was also down, from $188 billion in the prior quarter to $152 billion and the application pipeline stood at $81 billion at the end of the fourth quarter compared to $97 billion at the end of the third.  The residential servicing portfolio at year end was valued at $1.9 trillion.