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Last Update: 11-Jan-13 08:18 ET
Wells Fargo shares fall despite beat on EPS and revenues; NIM declines
Wells Fargo (WFC $35.00 -0.40) reported fourth quarter earnings of $0.91 per share, $0.03 better than the Capital IQ Consensus Estimate of $0.88, while revenues rose 6.3% year/year to $21.9 billion versus the $21.26 bln consensus. Net interest margins declined 10 bps q/q to 3.56%. The Efficiency Ratio rose 170 bps to 58.8%. One time items included were: $393 million, or $0.05 per share, in above-average quarterly equity gains $(644) million, or $(0.09) per share, in operating losses from an incremental accrual to fully reserve for the costs associated with the Independent Foreclosure Review (IFR) settlement.
Additional remediation-related costs $(250) million, or $(0.03) per share, in noninterest expense for a contribution to the Wells Fargo Foundation $332 million, or $0.06 per share, in lower tax expense due to a benefit associated with the realization for tax purposes of a previously written-down Wachovia life insurance investment. Tier 1 common equity under Basel I increased $3.3 billion from prior quarter to $109.1 billion, with Tier 1 common equity ratio of 10.12 percent under Basel I at December 31, 2012. Estimated Tier 1 common equity ratio of 8.18 percent under current Basel III capital proposals.Net Interest Income Net interest income in the fourth quarter decreased $249 million, or 2 percent, from a year ago, and was down slightly on a linked-quarter basis to $10.6 billion in fourth quarter. Income from our loan portfolios rose slightly from prior quarter, reflecting both organic growth in consumer and commercial loans and the retention of $9.7 billion in high-quality, conforming first real estate mortgages in the fourth quarter.
While the available-for-sale (AFS) securities portfolio balance was essentially flat linked-quarter, income continued to be impacted by runoff in federal agency mortgage-backed securities (MBS) and a decision to replace that runoff with shorter duration securities. Interest income from the AFS securities portfolio declined by $69 million. Interest income from the mortgage warehouse was down $63 million in the quarter as the size of the warehouse declined in line with lower origination volume. Noninterest Income Noninterest income of $11.3 billion increased $1.6 billion, or 16 percent, from fourth quarter 2011 and increased 28 percent (annualized) from third quarter 2012. The linked-quarter increase reflects growth in service charges, trust and investment fees, and mortgage banking. Noninterest income was also bolstered by above-average equity gains, driven by gains in our private equity businesses. Noninterest Expense Noninterest expense increased $388 million, or 3 percent, from fourth quarter 2011 and increased $784 million from third quarter 2012. The increase in noninterest expense from the prior quarter was due primarily to $644 million in operating losses from an incremental accrual to fully reserve for the costs associated with the IFR settlement (discussed below) and additional remediation-related costs, and $250 million for a contribution to the Wells Fargo Foundation.
The Company continued to operate within its targeted efficiency ratio range of 55 to 59 percent, with an efficiency ratio of 58.8 percent in fourth quarter 2012, compared with 57.1 percent in third quarter 2012 and 60.7 percent in fourth quarter 2011. The Company is well positioned to remain within this targeted range in 2013. Loans Total loans were $799.6 billion at December 31, 2012, up $16.9 billion from September 30, 2012, including double-digit annualized loan growth in commercial banking, credit card, mortgage, and retail brokerage. Included in the total loan growth was $9.7 billion of 1-4 family conforming first mortgage production retained on the balance sheet.
The growth in core loan portfolios more than offset the reduction in the non-strategic/liquidating portfolios, which declined $4.1 billion in the quarter. Deposits Deposits Average core deposits of $928.8 billion for fourth quarter 2012 increased $63.9 billion, or 7 percent, from fourth quarter 2011. On a linked-quarter basis, average core deposits grew $33.5 billion, or 15 percent (annualized).
Additional remediation-related costs $(250) million, or $(0.03) per share, in noninterest expense for a contribution to the Wells Fargo Foundation $332 million, or $0.06 per share, in lower tax expense due to a benefit associated with the realization for tax purposes of a previously written-down Wachovia life insurance investment. Tier 1 common equity under Basel I increased $3.3 billion from prior quarter to $109.1 billion, with Tier 1 common equity ratio of 10.12 percent under Basel I at December 31, 2012. Estimated Tier 1 common equity ratio of 8.18 percent under current Basel III capital proposals.Net Interest Income Net interest income in the fourth quarter decreased $249 million, or 2 percent, from a year ago, and was down slightly on a linked-quarter basis to $10.6 billion in fourth quarter. Income from our loan portfolios rose slightly from prior quarter, reflecting both organic growth in consumer and commercial loans and the retention of $9.7 billion in high-quality, conforming first real estate mortgages in the fourth quarter.
While the available-for-sale (AFS) securities portfolio balance was essentially flat linked-quarter, income continued to be impacted by runoff in federal agency mortgage-backed securities (MBS) and a decision to replace that runoff with shorter duration securities. Interest income from the AFS securities portfolio declined by $69 million. Interest income from the mortgage warehouse was down $63 million in the quarter as the size of the warehouse declined in line with lower origination volume. Noninterest Income Noninterest income of $11.3 billion increased $1.6 billion, or 16 percent, from fourth quarter 2011 and increased 28 percent (annualized) from third quarter 2012. The linked-quarter increase reflects growth in service charges, trust and investment fees, and mortgage banking. Noninterest income was also bolstered by above-average equity gains, driven by gains in our private equity businesses. Noninterest Expense Noninterest expense increased $388 million, or 3 percent, from fourth quarter 2011 and increased $784 million from third quarter 2012. The increase in noninterest expense from the prior quarter was due primarily to $644 million in operating losses from an incremental accrual to fully reserve for the costs associated with the IFR settlement (discussed below) and additional remediation-related costs, and $250 million for a contribution to the Wells Fargo Foundation.
The Company continued to operate within its targeted efficiency ratio range of 55 to 59 percent, with an efficiency ratio of 58.8 percent in fourth quarter 2012, compared with 57.1 percent in third quarter 2012 and 60.7 percent in fourth quarter 2011. The Company is well positioned to remain within this targeted range in 2013. Loans Total loans were $799.6 billion at December 31, 2012, up $16.9 billion from September 30, 2012, including double-digit annualized loan growth in commercial banking, credit card, mortgage, and retail brokerage. Included in the total loan growth was $9.7 billion of 1-4 family conforming first mortgage production retained on the balance sheet.
The growth in core loan portfolios more than offset the reduction in the non-strategic/liquidating portfolios, which declined $4.1 billion in the quarter. Deposits Deposits Average core deposits of $928.8 billion for fourth quarter 2012 increased $63.9 billion, or 7 percent, from fourth quarter 2011. On a linked-quarter basis, average core deposits grew $33.5 billion, or 15 percent (annualized).
