Wells Fargo & Co, the largest US home lender, reported a 24 percent rise in fourth-quarter earnings as the bank extended more credit. The shares slipped as margins narrowed and mortgage applications waned.
Net income advanced to a record US$5.09 billion, or US$0.91 a share, from US$4.11 billion, or US$0.73, a year earlier, the San Francisco-based bank said on Friday in a statement.
Results beat the US$0.89 average estimate of 27 analysts surveyed by Bloomberg.
Revenue increased 7 percent to US$21.9 billion, outpacing the 3 percent gain in non-interest expense.
Chief executive officer John Stumpf, 59, has used deposits to lower the bank’s cost of funding as it makes more loans, softening the impact of meager yields. The narrower margins have come as the bank takes a bigger share of mortgage and commercial markets while betting on an economic turnaround.
“They are relatively aggressive on the lending side,” said Bill Smead, who oversees about US$280 million including Wells Fargo shares, as chief investment officer at Seattle-based Smead Capital Management Inc. “Why grab a big market share at lousy interest rates unless you thought things were going to be a lot better in five or 10 years?”
Quarterly profit at the community-banking division, which includes the branch network and mortgage business, rose 14 percent to US$2.87 billion.
Net income in wholesale banking jumped 24 percent to US$2.03 billion from a year earlier, while profit from the wealth and brokerage unit climbed 13 percent to US$351 million. Average loans and deposits both showed gains, even as net interest margins narrowed more than some analysts predicted.
The margin, which represents the gap between what banks pay depositors and what is earned on loans, fell 10 basis points from the third quarter to 3.56 percent.
The decline was due in part to “outsized deposit growth” that came toward the end of the quarter, chief financial officer Timothy Sloan said.
The lender can continue to build interest income, helping the margin, he said.
“Growing net interest income remains our focus and we believe we can continue to generate growth even in this low-rate environment,” Sloan said on the company’s conference call.
For the full year, profit rose 19 percent to a record US$18.9 billion on a 6.4 percent revenue gain to US$86.1 billion.