Wells Fargo (WFC) earnings growth accelerated in the fourth quarter, as a rebounding housing market lifted the largest U.S. mortgage lender. But low interest rates pressured margins, and the mortgage pipeline flagged at year-end.
The No. 4 U.S. bank by assets earned 91 cents a share, up 25% vs. Q4 2011 and 2 cents more than expected. It was the third quarter in a row of faster growth.
Revenue rose 5% to $23.16 billion, beating $21.29 billion forecasts.
Wells Fargo's net interest margin — the spread between what it pays on deposits and the interest it takes in on loans — declined in Q4 to 3.56%, from 3.89% a year ago, in part due to an influx of new deposits.
Shares fell 2.5% intraday but closed off less than 1% after hitting a 3-month high Thursday.
While macroeconomic challenges remain, Wells' core business appears strong, Morningstar analyst James Sinegal said.
"The rate at which Wells Fargo is expanding both sides of its balance sheet in the current environment is about as good as investors can expect for a bank of its size," he wrote in a client note.
CEO John Stumpf told analysts that there is "no doubt that a corner was turned" by the housing market in 2012.
Wells will pay $766 million as part of an industry foreclosure review settlement announced this month. But such deals with the Justice Department and various states are putting such litigation to bed , Stumpf noted.
The banking giant is still reviewing new "qualified mortgage" rules from the Consumer Financial Protection Bureau, though Stumpf said they don't appear to hurt banks' ability to make loans.
Wells originated $125 billion in mortgages in Q4, up from $120 billion a year earlier, but down from Q3's $139 billion. Customers refinancing at historically low rates accounted for 72% of Q4's mortgage volume.
With credit improving, Wells set aside less for souring loans.
RBC Capital Markets analyst Joe Morford noted Wells Fargo's commercial loan growth in Q4, despite the fears over the fiscal cliff. He said that bodes well for other banks still to come.
The No. 1 U.S. bank by assets, JPMorgan Chase (JPM), and investment bank Goldman Sachs (GS) are due to report earnings Jan. 16.
No. 2 Bank of America (BAC) and No. 3 Citigroup (NYSE:C) report Jan. 17.
Several regional banks also release results in the coming week.
Analysts expect banks to be among the Q4 earnings season standouts. S&P 500 profits are expected to rise just 1.9%, but big financials should report an 8.9% gain, said Thomson Reuters.