Refis Drive Wells Earnings
$89 billion 3rd quarter production
October 17, 2002
mortgagedaily.com
By MortgageDaily.com staff
Wells Fargo & Company reported increases Wednesday in its third quarter earnings and production.
Loans averaged $181.8 billion during the quarter, up a slight 1.5% from the $179.2 billion average during the second quarter and up 11% from the same time last year.
"We saw strong consumer loan growth, led by robust sales of home equity and home mortgage products," said chief financial officer Howard Atkins. "Our average consumer loans increased 24% from the third quarter of 2001 and 27%, annualized, from the second quarter of 2002."
Due to the ongoing strong mortgage refinancing activity, mortgage loans held for sale increased $11.8 billion from an average of $26.6 billion in the second quarter to an average of $38.4 billion during the third, he said. Although the company added new business customers, commercial loan demand remained essentially flat, he said.
Net interest income on a taxable equivalent basis was $3.7 billion during the third quarter, up 15% from last year, the report said. This is largely due to solid growth in loans and mortgages held for sale, and increases in net interest margin from 5.4% a year ago to 5.52% in third quarter 2002.
The earning asset growth of $9.9 billion included an increase of $11.8 billion in mortgages held for sale and $4.1 billion in consumer loans, offset by a $4.5 billion decline in the securities portfolio, the report said.
"The single largest driver of both the increase in earning assets and the decline in the margin during the quarter was the extraordinary volume we experienced with mortgage refinancing activity," Atkins said
As fundings built during the quarter, mortgage loans held for sale grew to $42.3 billion at Sept. 30 from $24.7 billion at June 30. While the increase in mortgage loans held for sale had a positive impact on income, it was also a principal factor for the reduction in net interest margin since the loans in the warehouse during the third quarter yielded 45 basis points less on average than the second quarter. This was due to the decline in mortgage interest rates, the report said.
"Mortgage loans held for sale grew throughout the quarter as we processed a quarterly record $158 billion in applications. Based on our record quarter-end mortgage pipeline at Sept. 30, 2002 of $89 billion, we expect mortgage loans held for sale to remain high throughout the fourth quarter 2002," Atkins said.
Wells said it set the mortgage industry record for originations last year at $202 billion. In nine months the company broke it again with 2002 year-to-date originations of $221 billion, said Mark Oman, group executive vice president, home and consumer finance.
"Originations for the third quarter 2002 were a record $89 billion, up $27 billion over second quarter 2002 and the mortgage pipeline ended the quarter at a record $89 billion, up $41 billion from June 30, 2002," he said.
Wells said its business model is showing positive results, and the company has been able to continue to grow its servicing portfolio throughout this period of decreasing mortgage interest rates, he added.
"The owned servicing portfolio now exceeds half-a-trillion dollars, ending the quarter at $510 billion, up $85 billion from year-end 2001. The portfolio's weighted average note rate dropped to 6.87%, down from 7.18% at Dec. 31, 2001," Oman said. "Reflecting the historically low rates, mortgage servicing rights were carried on the balance sheet at $4.4 billion on Sept. 30, 2002, down $1.8 billion from Dec. 31, 2001."
Wells also experienced positive growth in home equity loans, which increased to $34.1 billion at Sept. 30, up $10.2 billion, or 43% from one year ago. This is also up $2.8 billion, or 35% annualized, from June 30. The credit quality of this portfolio continued to be good, he said.
The company reported record net income of $1.44 billion, up 10 percent from last year's $1.31 billion. |
