Although its mortgage orignation volume is only half of what it was one year ago, Wells Fargo & Co. on Tuesday reported a better-than-expected 11% jump in fourth quarter profit.
As per a bank press release, Wells Fargo had net income of $21.9 billion in 2013 – up 16% compared to 2012. Earnings per share were $3.89 for the year.
For the fourth quarter, the bank earned net income of $5.6 billion, up 10% year-over-year. Earnings per share were $1.00.
The bank reports that its residential mortgage lending volume was the lowest since the fourth quarter of 2008. Total mortgage volume for the quarter was about $50 billion, less than half the $125 billion it made in the fourth quarter of 2012, and down from the $80 billion it made in the third quarter.
During a conference call with investors on Tuesday, Tim Sloan, chief financial officer for Wells Fargo, said the bank expects mortgage volume to continue to fall in the first quarter, though not as much as in the third and fourth quarters, Reuters reports.
‘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,’ Sloan said in the release. ‘We also grew both net interest income and non-interest income during the quarter, despite a challenging rate environment and the expected decline in mortgage originations.’
Most of the decrease in origination volume is in refinances, which have been falling steadily for the past six months due to rising interest rates.
At the end of December, Wells Fargo had $25 billion of mortgage applications that it had not yet processed, down from $35 billion at the end of the third quarter.
Helping to improve the bank's balance sheet in the fourth quarter was the approximately 6,200 positions it eliminated in its mortgage division in the third quarter. This led to a reduction in operating expenses and pushed the bank's efficiency ratio, or expenses relative to revenue, to 58.5%, thus bringing its efficiency ratio within the targeted range of 55% to 59%.
Net income also got a boost when the bank released $600 million from its loss reserves to cover bad loans. That's more than double the $250 million the bank released in the fourth quarter of 2012 – but less than the $900 million released in the third quarter of 2013.
To view the bank's full fourth quarter earnings report, click here.