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Wells Fargo beats expectations with 3% increase in earnings

October 20, 2010 |  8:25 am

The Wells Fargo stagecoach continues to roll despite the weak economy, weathering the San Francisco bank's 2008 acquisition of Wachovia Corp. better than some critics had predicted.

Wells Fargo beat Wall Street expectations by reporting third-quarter net income of $3.34 billion Wednesday morning, up 3% from $3.24 billion a year earlier. Per-share earnings were 60 cents compared to 56 cents in the year-earlier quarter.

Wells' profit beat the consensus expectation of analysts by about 10 cents a share, Keefe, Bruyette & Woods analyst Frederick Cannon said in a note to investors, calling attention to strong mortgage banking results. Revenue outside of mortgages was "soft," Cannon said, characterizing the performance of the bank's loans as "mixed." 

Wells Fargo shares edged up by 18 cents to $24.72 in early morning trading.

Revenue fell from $22.5 billion to $20.9 billion, and loans totaled $754 billion at the end of the quarter, down from $800 billion a year earlier.

But Wells, the No. 1 originator of home loans, said rock-bottom interest rates had resulted in the second-highest quarter ever for mortgage applications -- $194 billion. The bank wrote $101 billion in new mortgages during the quarter, up from $81 billion in the second quarter.

Wells Fargo is No. 2 in mortgage servicing behind Bank of America Corp. That operation includes bill collection and handling delinquent borrowers in the giant portfolio of tricky adjustable rate loans acquired when Wells took over Charlotte, N.C.-based Wachovia at the height of the credit crisis.

With foreclosures on the rise across the nation, mortgage rivals including Bank of America and JPMorgan Chase & Co. have been forced in recent weeks to put evictions on hold to check and correct foreclosure paperwork that had been botched in haste. Lawsuits also have challenged foreclosures because of allegedly flawed procedures used in transferring title when loans were repeatedly sold and bundled to back mortgage securities.

Wells Fargo Chairman and Chief Executive John Stumpf said Wells has no plans for a similar freeze.

"We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate," Stumpf said in the earnings statement. "For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures."

Wells Fargo said delinquent loans and other nonperforming assets are still rising, reaching 4.6% of all assets during the quarter from 2.9% a year earlier. The trend has caught the eye of critics such as independent research firm Gradient Analytics, which contends Wells'
reserves against losses should be higher and which gives the bank a "D" grade as an investment.

But Wells Fargo reported that its overall loan losses fell, with Chief Risk Officer Mike Loughlin saying, "Absent significant deterioration in the economy, we currently expect future reductions in the allowance for loan losses.”

Wells Fargo said it wrote off $4.1 billion in loans as uncollectible during the quarter that ended Sept. 30, about $1 billion of that in first mortgages and another $1.1 billion in second mortgages and home-equity loans. But Wells said losses attributed to Wachovia were lower than original expectations.

The charged-off loans amounted to 2.14% of total loans, down from 2.50% a year earlier. The charge-offs were down 24% from the peak of $5.4 billion in the fourth quarter last year.

-- E. Scott Reckard