Wells Fargo & Company (WFC) reported net income of $5.7 billion, or $1.02 per diluted common share, for third quarter 2014, up from $5.6 billion, or $0.99 per share, for third quarter 2013.
Wall Street analysts forecasted that the largest mortgage banker would be able to deliver $1.02 in earnings per share on $21.2 billion in revenue for the third quarter, and the company did exactly that.
Wells Fargo is the largest mortgage provider in the United States.
The bank’s mortgage unit suffered a profit decline of 46% over the past quarter and its new origination mortgages fell to its lowest level since the financial crisis.
For the first nine months of 2014, net income was $17.3 billion, or $3.08 per share, up from $16.3 billion, or $2.89 per share, for the same period in 2013.
“The company’s third-quarter results demonstrated strength in the fundamental drivers of our long-term growth,” said Chairman and CEO John Stumpf. “Loan and deposit growth was strong and diversified across both commercial and consumer businesses. Capital levels increased even as we returned more capital to shareholders through higher dividends and share repurchases from a year ago. We continue to see signs of a steadily improving economy, and I remain optimistic about the opportunities ahead for Wells Fargo. Our team remains committed to meeting the financial needs of our customers, and this focus will continue to drive our performance over the long term.”
Here is a summary of the all-important home lending segment’s performance in the third quarter:
- Originations of $48 billion, up from $47 billion in prior quarter
- Applications of $64 billion, down from $72 billion in prior quarter
- Application pipeline of $25 billion at quarter end, down from $30 billion at June 30, 2014
- Residential mortgage servicing portfolio of $1.8 trillion; ratio of MSRs to related loans serviced for others was 82 basis points, compared with 80 basis points in prior quarter
- Average note rate on the servicing portfolio was 4.47%, compared with 4.49% in prior quarter
“This was a strong quarter for Wells Fargo and again demonstrated the benefits of our diversified business model. Despite the low interest rate environment, revenue and pre-tax pre-provision profit increased linked quarter, and we continued to operate within our target ranges for ROA, ROE, efficiency ratio, and capital return to shareholders,” Chief Financial Officer John Shrewsberry said. “We also remain well positioned to benefit from higher rates in the future, and our balance sheet has never been stronger, with higher levels of capital and liquidity, and improved asset quality.”
Revenue was $21.2 billion, up from $21.1 billion in second quarter 2014, reflecting an increase of $150 million in net interest income and stable noninterest income. Revenue sources remained balanced between spread and fee income and the sources of fee income were diversified among the consumer, commercial and brokerage businesses.
Net interest income in third quarter 2014 increased $150 million on a linked-quarter basis to $10.9 billion. The increase in net interest income resulted from balance sheet growth driven by commercial and consumer loan originations, larger mortgages held for sale balances and higher interest income from trading assets, as well as higher purchased credit-impaired accretion. Net interest income also benefited from one additional business day in the quarter.
Net interest margin was 3.06%, down 9 basis points from second quarter 2014, primarily due to higher cash and short-term investment balances. Strong customer driven deposit growth, which is essentially neutral to net interest income, diluted net interest margin by approximately 4 basis points. Liquidity funding actions also diluted the margin by 4 basis points, but with minimal impact to net interest income. The net impact of all other balance sheet growth and repricing was minimal, causing approximately 1 basis point of dilution.
Mortgage banking noninterest income was $1.6 billion, down $90 million from second quarter 2014.
Mortgage origination gains were up largely due to an increase in the gain on sale margin, but this was more than offset by a decrease in servicing income, which was driven by lower net mortgage servicing rights results and an increase in unreimbursed direct servicing costs. During the third quarter, residential mortgage originations were $48 billion, up $1 billion linked quarter, while the gain on sale margin was 1.82%, compared with 1.41% in second quarter.
Over the past 52-week range, the shares of Wells Fargo traded from $41.10 to $53.80 per share.
Seventeen analysts have Buy rating, 16 have Hold rating and two others have Sell recommendation for the shares of Wells Fargo.