Wells Fargo Boosts Profits, Despite Plummeting Mortgage Sales

Wells Fargo (WFC) said its net income rose 13% year over year in the third quarter, despite a 42% drop in its mortgage banking income.

But while the third-quarter decline in mortgage originations is a "significant negative," it's not lethal, according to Richard Bove, vice president of equity research at Rafferty Capital.

"From an operating standpoint, the company is doing actually pretty well," Bove said on CNBC. "And therefore I don't think one has to worry about the fact that refinancing mortgages caused some difficulty in this quarter."

Wells Fargo reported net income of $5.6 billion, or $0.99 a share, vs. $4.9 billion, or $0.88 a share, last year. Analysts had estimated Wells Fargo would earn $0.97 per share. Revenue was $20.5 billion, compared with $21.4 billion in the second quarter of 2013.

Wells Fargo made $80 billion in home loans, down from $139 billion last year, and mortgage banking income fell 43% to $1.61 billion.

Scott Siefers, a bank analyst at Sandler O'Neil & Partners says the good news is that Wells Fargo beat estimates, the credit environment is improving and its expenses are down.

(Also on Friday, JPMorgan (JPM) reported its first quarterly loss under CEO Jamie Dimon after incurring $9.2 billion in legal expenses.)

"Wells Fargo continued to demonstrate strong and consistent financial performance in the third quarter," said Chairman and CEO John Stumpf, in a press release. "As our economy continues to transition to higher interest rates, our diversified business model and strong risk discipline contributed to record earnings per share along with continued strength in return on assets, return on equity and capital."

Wealth Management

Wealth, Brokerage and Retirement reported net income of $450 million, up $16 million, or 4%, from the previous quarter. Revenue of $3.3 billion increased $46 million, or 1%, from the prior quarter.

The retail brokerage segment had client assets of $1.3 trillion, up 8% from the prior year. Managed account assets increased $53 billion, or 18%, from a year ago, "driven by strong market performance and net flows," the bank says.

Client assets in wealth management totaled $209 billion, up 5% year over year. IRA assets were $326 billion, up 10%, and Institutional Retirement plan assets hit $288 billion, a year-over-year jump of 11%.

The unit also says its cross-sell ratio of 10.41 products per household improved from 10.27 last year.

Its headcount of client-facing professionals stands at 18,632 — including 15,285 financial advisors and 3,347 licensed bankers.

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Check out JPMorgan Reports First Loss Under Dimon; Analysts Say Not to Fear on ThinkAdvisor.