NEW YORK -- Wells Fargo, one of the largest lenders to consumers among U.S. banks, Wednesday said its fourth-quarter profit shot up as its customers opened more accounts and improved their loan paying habits.
Better results from lending also meant Wells Fargo was able to lower the amount of reserves set aside to cover souring loans.
CEO John Stumpf said all the bank's business segments contributed to earnings as the economy started to gain strength.
But the bank said its net interest income, or the money earned from deposits and loans, fell 4 percent to $11.06 billion. Noninterest income, or earnings from fees and charges, fell 7 percent to $10.4 billion.
It also posted a 27 percent plunge in service charges on its deposit accounts, to $1.04 billion. That indicates that new government regulations restricting fees like overdraft charges had a big impact.
During a conference call to discuss results, Chief Financial Officer Howard Atkins said the rule that took effect last summer requiring customers opt-in for overdraft coverage on checking accounts alone cut revenue in the fourth quarter by $270 million. Credit card regulations that took effect last year cut an additional $50 million off revenue.
One major strategy for addressing the cuts to revenue resulting from new regulations is an effort to increase the number of accounts or products sold to each customer. Wells Fargo boasted about a 7.5
percent increase in the number of consumer checking accounts and said its customers now average 5.7 accounts or products like credit cards each with the bank, up from an average of 5.47 a year ago.Known as "cross selling," that's long been one of Wells Fargo's strengths, and a model that other banks are trying to duplicate. Wells has been able to export the tactic to its Wachovia branches.
"When we bought Wachovia two years ago, we acquired a retail customer base that was roughly the same size as the legacy Wells Fargo customer base, but the product penetration Wachovia had was not as deep or as extensive as on the Wells Fargo side," Atkins said in an interview. Adding more sales people to the former Wachovia branches has enabled the bank to employ a "very deliberate strategy" to increase those customer relationships.
While investors sent Wells' stock lower, there were significant highlights in the results, including strong mortgage origination.
Wells Fargo wrote $128 billion in new mortgages in the fourth quarter -- up from $101 billion in the third quarter -- with refinancing representing about 70 percent of the total, Atkins said.
Edward Jones analyst Shannon Stemm said that is an area to watch, as interest rate increases and a smaller pool of customers looking to refinance will likely mean that source of revenue will shrink in coming quarters.
But Atkins said that situation may be helped by a pickup in the housing market. "If the economy continues to recover, as it seems to be, then purchase volume should pick up as opposed to refinance volume," he said.
Wells Fargo also reported a notable improvement in collecting payments on outstanding lending, as the total loans it had to write off as uncollectable fell to $3.84 billion from $5.9 billion in the 2009 quarter.
Loans considered past due and likely to default declined for the first time since Wells Fargo bought Wachovia in late 2008, ending the quarter at $32.4 billion. Early stage delinquencies, a sign of future default, also fell.
Those positives meant Wells Fargo was able to reduce its loan-loss reserves, the money it sets aside to cover soured lending, by $850 million during the fourth quarter, boosting its profit for the period.
In all, the San Francisco-based bank said its net income attributable to common stockholders was $3.2 billion, or 61 cents a share.
Last year, the company earned $394 million, or 8 cents a share, as its results were affected by a large preferred dividend paid to the government, which was not necessary this year. In December 2009, Wells Fargo paid back the bailout money it received during the financial crisis, and the government handed back the preferred shares it held.
The latest results matched the 61 cents a share forecast by analysts polled by FactSet.
For the full year 2010, Wells Fargo's net income attributable to common stockholders soared 46 percent to $11.63 billion, or $2.21 a share, from $7.99 billion, or $1.75 a share, for 2009.
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