By Saabira Chaudhuri And Emily Glazer
Wells Fargo & Co. posted a 1.8% rise in fourth-quarter net
income as the bank saw stronger loan growth, overshadowing an
increase in expenses.
Although per-share earnings met analyst estimates, shares fell
1.6% as a key measure of lending profitability continued to tick
down and U.S. stocks across the board declined.
Wells Fargo reported net income of $5.71 billion, compared with
year-earlier income of $5.61 billion. Per-share earnings,
reflecting the payment of preferred dividends, were $1.02 versus $1
a year earlier.
Revenue increased 3.8% to $21.44 billion. Analysts polled by
Thomson Reuters expected per-share earnings of $1.02 on revenue of
$21.23 billion.
Wells Fargo, run by Chairman and Chief Executive John Stumpf,
has been a stock-market favorite among big banks in recent years.
The most valuable U.S. bank by market value, Wells Fargo has ridden
the recovery in the U.S. economy to 18 straight quarters of
year-over-year profit growth through 2014, according to
FactSet.
Still, analysts focused on the bank's exposure to oil-price
volatility, expenses driven higher in part by compliance costs and
changes in the mortgage business.
Much of the bank's earnings call was dominated by the impact
from oil volatility. Chief Financial Officer John Shrewsberry said
the bank's exposure is about 2% of its total loan portfolio. He
said the bank is examining loans on a "name by name basis" and
their risk ratings. The bank's long-tenured energy team is
examining customers' leverage, hedging, assets and management
capability. He added that customers' risk-rating changes could lead
to adjustments in the bank's reserves.
Mr. Shrewsberry on Wednesday also pointed to the bank's strong
net interest income, helped by loan growth, while adding that fee
income remained solid. Net interest income rose 3.5% to $11.18
billion, and fee income climbed 4.1% to $10.26 billion driven by a
jump in card fees.
Lending growth remained a bright spot for Wells Fargo. Total
loans grew 4.9% from a year ago to $862.55 billion. Auto loans, an
increasingly important business for Wells Fargo in recent years,
jumped 9.7% from a year earlier to $55.74 billion.
Wells Fargo reported its home lending originations amounted to
$44 billion, compared with $50 billion a year earlier and $48
billion in the prior quarter. Mortgage banking revenue totaled
$1.52 billion, down 3.5% from a year earlier.
Wells Fargo's mortgage banking results are closely watched,
since as the largest U.S. mortgage lender, the bank is viewed as a
bellwether for the U.S. housing market. A slump in refinancing in
recent quarters has outweighed any gains in new purchases, although
analysts at Jefferies have noted that refinancing activity has
spiked, while so-called gain-on-sale margins--or the revenue a bank
books divided by the value of mortgages originated--have
climbed.
Mr. Stumpf said the bank has no intention of returning to joint
ventures with its mortgage business and likes the mix of business
it currently has. He added that there have been improvements with
regulators, the mortgage industry and customers on mortgage loans
since it was "too restrictive" earlier.
The fourth biggest U.S. bank by assets, Wells Fargo is viewed by
many analysts as a conservative institution that didn't get swept
up with as many excesses of the previous bubble era and the
regulatory scrutiny that has plagued banks with significant
investment banking and trading businesses, although it's still on
the hook for mortgage litigation.
During the quarter, Wells Fargo saw expenses move higher even as
it has repeatedly worked to lower those costs. Noninterest expense
rose 4.7% from a year earlier to $12.65 billion.
Mr. Shrewsberry said the bank's expenses have grown in part due
to risk management and compliance-related issues, along with
cybersecurity. Mr. Stumpf added the bank has hired more consultants
and that it hopes to eventually transition that work back to its
own employees. He didn't detail what those consultants are working
on.
The San Francisco bank's net interest margin--a key
profitability figure that measures the difference between what a
bank makes on lending and what it pays depositors--narrowed to
3.04%, compared with 3.27% a year earlier and 3.06% in the prior
quarter. Wells Fargo has seen the margin squeezed for several
quarters, as deposit growth outstrips its loan growth.
Wells Fargo lost much of the tailwind it had previously seen
from improving credit quality on its loan books. Reserve releases
fell to $250 million from $600 million a year earlier and $300
million in the prior quarter. Banks generally release reserves as
credit conditions improve and they perceive less need to hold
reserves against potential loan losses.
Wells Fargo's credit-loss provisions ticked up to $485 million,
compared with $363 million a year earlier and $368 million in the
prior quarter.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Emily Glazer at emily.glazer@wsj.com
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