On Jan. 11, Wells Fargo announced its fourth-quarter and full-year results for 2012 — click here (link opens PDF in new window) for the report itself. Following the announcement, which was released before the bell, shares in the bank opened lower. Here's the reason why current and/or prospective investors in the nation's fourth largest bank by assets shouldn't be dismayed.
Wells Fargo is firing on all cylinders
Taking everything into consideration, Wells Fargo continues to bang on all cylinders. Its earnings for the fourth quarter and the 2012 fiscal year were both records, coming in at $5.1 billion and $18.9 billion, respectively. Both figures represented double-digit increases compared to the same periods in 2011.
Much of the success stemmed from Wells Fargo's mortgage-underwriting activity. For the quarter, it underwrote a staggering $125 billion in home loans and generated $3.1 billion in fees along the way. Although the former figure is less than the $139 billion it underwrote in the third quarter, it's nevertheless a monster figure and blows away the competition. By means of comparison, the second largest mortgage originator, JPMorgan Chase, underwrote only $47 billion in home loans in the third quarter.
In addition, Wells Fargo continued to notch victories on both the credit quality and capital fronts. Losses from bad loans in 2012 fell by 20% on a year-over-year basis, and nonperforming assets declined by 6%. At the same time, the company's Basel III Tier 1 common equity ratio improved to 8.18% — this is still behind the likes of Bank of Americaand Citigroup, but is there any question about which is the best among the three here? (In case you were actually wondering, the answer is "No.")
The reason Wells Fargo's shares are trading lower, in turn, is because it reported a 10-basis-point decrease in its net interest margin, or NIM. For any investor concerned about this, however, I'd make two points. First, Wells Fargo's fourth-quarter 3.56% NIM is far superior to any of its too-big-to-fail brethren — Bank of America, for example, came in at 2.3% in the third quarter of last year. And second, most of the decline (8 out of the 10 basis points) was the result of higher deposits, a fact that will pay off in spades in quarters and years to come.
In other words, if anything, the current pullback in Wells Fargo's share price may simply represent another buying opportunity, particularly if the trend continues — I believe the lender will increase its dividend payout in the first half of this year, once the Federal Reserve allows it do so.
For those of you looking for additional information about Wells Fargo, I encourage you to check out the following three articles:
Fool contributor John Maxfield owns shares of Bank of America. Matt Koppenheffer owns shares of Bank of America. The Motley Fool owns shares of Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup. Motley Fool newsletter services have recommended buying shares of Wells Fargo.