Wells Fargo Bank (WFB) is reporting
record fourth quarter as well as fiscal year financial results while
scandal-plagued JP Morgan Chase (Chase) reported net income for the fourth
quarter that failed to improve on either the third quarter or the fourth quarter
of the previous year. Wells Fargo said its
2013 net income was $21.9 billion against revenue of 83.8 billion. This was a 16 percent increase from 2012
earnings of $18.90 billion even though revenue declined from $86.1 billion for
the year. Per diluted share earnings were also up 16 percent to $3.89 per
WFB's fourth quarter 2013 net income was
$5.6 billion, 10 percent higher than a year earlier against revenue of 20.7
billion, down from 21.9 billion in the linked quarter of 2012. Third quarter 2013 net income was 5.58
billion and revenue was $20.5 billion.
The company said revenue growth from the prior quarter was broad-based, with
several businesses generating year-over-year double-digit growth, including retail
brokerage, commercial real estate, credit card, insurance and asset-backed finance.
Net interest income in fourth quarter 2013
increased $55 million from the third quarter to $10.8 billion due to a larger securities
portfolio, higher interest income on trading assets, lower deposit costs, and organic
growth in commercial and consumer loans. These benefits were partially offset by
lower interest income from mortgages held for sale.
Noninterest income in the fourth quarter
was $9.9 billion, down from $11.3 billion from a year ago, primarily due to lower
mortgage banking revenue which dropped by $38 million in the third quarter to
$1.6 billion in the fourth. Mortgage
originations declined from $80 billion in the third quarter to $50 billion in
the fourth. The gain on sale margin strengthened
to 1.77 percent in the fourth quarter, compared with 1.42 percent in the third quarter.
The Company provided $26 million for mortgage loan repurchase losses, compared with
$28 million in third quarter 2013.
As previously announced on December 30, 2013,
the Company reached an agreement with Fannie Mae which was fully covered through
previously established mortgage repurchase accruals, that resolved substantially
all repurchase liabilities related to loans sold to Fannie Mae that were originated
prior to January 1, 2009. Net mortgage servicing rights (MSRs) results were $266
million, compared with $26 million in third quarter 2013.
Net loan charge-offs improved to $963 million
in fourth quarter 2013, or 0.47 percent of average loans, compared with $975 million
in third quarter 2013, or 0.48 percent of average loans. Charge offs for 1-4 family first mortgages
were $195 million or 0.30 percent of average loans compared to $242 million or
0.38 percent in the third quarter.
One-to-four family junior lien charge offs were $226 million (1.34
percent) compared to $275 million (1.58 percent).
Nonperforming assets decreased by $1.1 billion
from the prior quarter to $19.6 billion and those of residential first lien
assets from $10.45 billion (4.19 percent) to $9.80 billion (3.79 percent.) Nonperforming junior liens declined from $2.33
billion to $2.19 billion. Foreclosed assets
were $3.9 billion, up from $3.8 billion in third quarter 2013, reflecting an increase
in assets insured by the Federal Housing Administration (FHA) or guaranteed by the
Veterans Administration (VA). This increase was primarily driven by enhancements
to loan modification programs, slowing foreclosures in prior quarters.
The allowance for credit losses, including
the allowance for unfunded commitments, totaled $15.0 billion at December 31, 2013,
down from $15.6 billion at September 30, 2013. The allowance coverage to total loans
was 1.81 percent, compared with 1.93 percent in third quarter 2013. The allowance
covered 3.9 times annualized fourth quarter net charge-offs, compared with 4.0 times
in the prior quarter. The allowance coverage to nonaccrual loans was 96 percent
at December 31, 2013 compared with 93 percent at September 30, 2013.
Chief Financial Officer Tim Sloan said, "The
fourth quarter of 2013 was very strong for Wells Fargo, with record earnings, solid
growth in loans, deposits and capital, and strong credit quality. We also grew both
net interest income and noninterest income during the quarter, despite a challenging
rate environment and the expected decline in mortgage originations. Wells Fargo's
diversified model was again able to produce solid results for our shareholders."
Total loans were $825.8 billion at December
31, 2013, up $13.5 billion from September 30, 2013, driven by growth in all categories
except for junior lien mortgages-a portfolio the Company has intentionally been
reducing. Core loan growth was $16.7 billion, as non-strategic/liquidating portfolios
declined $3.3 billion in the quarter. Total average loans were $816.7 billion, up
$11.9 billion from the prior quarter, driven by commercial and industrial, 1-4 family
first mortgages and the full quarter benefit of portfolio acquisitions in the third
fourth quarter net income of $5.3 billion or $1.30 per share on revenue of
$24.1 billion compared to a loss of $380 million or ($0.17) per share in the
third quarter and $5.69 billion or $1.40 per share a year earlier. Revenue in the two previous quarters and the
fourth quarter were essentially flat. The
Firm's return on tangible common equity1 for the fourth quarter of 2013 was
14%, compared with 15% in the prior year. The banks results reflected a decrease of $1.1
billion or 0.27 per share for legal expenses including settlements arising out
of its involvement with Bernard Madoff and an increase of $775 million from
reduced real estate and credit card reserves.
Jamie Dimon, Chairman and Chief
Executive Officer said, "We are pleased to have made progress on our
control, regulatory and litigation agendas and to have put some significant
issues behind us this quarter. We reached several important resolutions -
Global RMBS, Gibbs & Bruns, and Madoff. It was in the best interests of our
company and shareholders for us to accept responsibility, resolve these issues
and move forward. This will allow us to focus on what we are here for: serving
our clients and communities around the world. We remained focused on building
our four leading franchises, which all continued to deliver strong underlying
performance, for the quarter and the year."
Mortgage Banking Results:
The company originated more than 800,000
mortgages in the fourth quarter, a total of $23.3 billion, down 54 percent from
the prior year and 42 percent from the prior quarter. Purchase originations increased 6 percent
year over year but fell 35 percent from the third quarter. The total value of purchase originations was
$13.0 billion. The provision for credit
losses was $108 million, compared with $110 million in the prior year and $104
million in the prior quarter.
Mortgage banking net income was $562
million, an increase of $144 million, or 34%, compared with the prior year,
driven by lower noninterest expense and provision for credit losses,
predominantly offset by lower net revenue.
Net revenue was $2.2 billion, a decrease
of $1.1 billion compared with the prior year. Net interest income was $1.1
billion, a decrease of $58 million, or 5%, driven by lower loan balances due to
portfolio runoff. Noninterest revenue was $1.1 billion, a decrease of $1.0
billion, driven by lower mortgage fees and related income.
The provision for credit losses was a
benefit of $782 million, compared with a benefit of $269 million in the prior
year. The current quarter reflected a $950 million reduction in the allowance
for loan losses due to continued improvement in delinquencies and home prices.
The prior year included a $700 million reduction in the allowance for loan
losses. Net charge-offs were $168 million, compared with $431 million in the
Noninterest expense was $2.1 billion, a
decrease of $809 million, or 28%, from the prior year, due to lower servicing
Mortgage Production pretax loss was $274
million, a decrease of $1.1 billion from the prior year, reflecting lower
volumes, lower margins and higher legal expense, partially offset by lower
repurchase losses. Mortgage production-related revenue, excluding repurchase
losses, was $494 million, a decrease of $1.1 billion, or 69%, from the prior
year, largely reflecting lower volumes and lower margins. Production expense
was $989 million, an increase of $113 million from the prior year, due to
higher non-MBS related legal expense, partially offset by lower
Repurchase losses in the fourth quarter
reflected a benefit of $221 million, compared with a benefit of $53 million in Q4
2012 and a benefit of $175 million in the prior quarter. The current quarter
reflected a $1.2 billion reduction in repurchase liability primarily as a
result of the settlement with the GSEs for claims associated with loans sold to
them from 2000 to 2008. The Q4 2012 and
Q3 2013 figures were $249 million and $300 million reductions in repurchase
Mortgage servicing pretax income was $2
million, compared with a pretax loss of $913 million in the prior year. Mortgage
net servicing-related revenue was $689 million, an increase of $71 million. MSR
risk management was a loss of $24 million, compared with income of $42 million
in the prior year. Servicing expense was $663 million, a decrease of $910
million from the prior year, reflecting lower costs associated with the
Independent Foreclosure Review and lower servicing headcount.
Mortgage application volumes were $31.3
billion, down 52% from the prior year and 23% from the prior quarter. At the end of the reporting periods the
company was servicing third-party mortgage loans of $815.5 billion, down 5%
from the prior year and 2% from the prior quarter.
Real Estate Portfolios
Real Estate Portfolios pretax income was
$1.2 billion, up $410 million from the prior year, due to a higher benefit from
the provision for credit losses, partially offset by lower net revenue.
Net revenue was $850 million, a decrease
of $115 million, or 12%, from the prior year. This decrease was due to lower
noninterest revenue due to higher loan retention and lower net interest income
resulting from lower loan balances due to portfolio runoff.
The provision for credit losses was a
benefit of $783 million, compared with a benefit of $283 million in the prior
year. The provision reflected a $950 million reduction in the allowance for
loan losses, $750 million from the purchased credit-impaired allowance and $200
million from the noncredit-impaired allowance, reflecting continued improvement
in delinquencies and home prices.
Subprime mortgage net recoveries were $6
million (0.33% net recovery rate1), compared with net charge-offs of $92
million (4.35% net charge-off rate). Net recoveries of prime mortgage,
including option ARMs, were $8 million (0.06% net recovery rate), compared with
net charge-offs of $66 million (0.63% net charge-off rate).