Wells Fargo reported $2.9 billion in fourth-quarter profits to finish 2019 with $19.5 billion in net income for the year. The bank’s earnings report for the fourth quarter was the first released since Charlie Scharf was tapped to be Wells Fargo’s new CEO and president in September.
The bank recorded $19.9 billion in revenue in the fourth quarter of 2019, which was down from $21 billion the year before, according to the bank’s latest earnings statements.
Litigation accruals accounted for $1.5 billion of the company’s $1.9 billion in operational expenses for the fourth quarter, including funds set aside for litigation pertaining to its previously disclosed retail sales practices issues.
“Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders,” Scharf said in the report. “During my first three months at Wells Fargo my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results. This work is necessary to build the appropriate foundation for us to move forward. Wells Fargo plays an important role for our country, and we know that ultimately our actions and results will dictate when that trust is fully regained.”
The company originated $60 billion in mortgages in the fourth quarter, up 58 percent from the fourth quarter of 2018, the best fourth quarter for originations at Wells since 2016. Half of the originations in the fourth quarter were purchases.
For the full year, Wells originated $204 billion in loans, up from $177 billion in 2018, a 15.2 percent increase year-over-year.
Wells Fargo held $17.8 billion in first mortgage loan originations in the fourth quarter, up 79 percent from the previous year. The bank’s positive mortgage numbers helped offset declines in other areas, the report indicates.
For example, the bank saw a drop in noninterest income as well in the fourth quarter of 2019 at $8.7 billion, $1.7 billion less than the third quarter, but noted in its report that higher mortgage banking income was among the factors that helped partially offset the decline in noninterest profits, along with service charges on deposit accounts.
“Mortgage banking income was $783 million, up from $466 million in third quarter 2019,” the report states. “Net mortgage servicing income was $23 million, up from a loss of $142 million in the third quarter which included a residential mortgage servicing rights asset valuation adjustment reflecting the impact of higher prepayment rates. Net gains on mortgage loan origination and sales activities were $760 million, up from $608 million in the third quarter, primarily due to an increase in residential held-for-sale mortgage loan originations to $42 billion from $38 billion in the third quarter and higher gains associated with exercising servicer cleanup calls in the fourth quarter.”
Shortly after taking over top executive duties at the bank, Scharf said he wanted to prioritize putting the company’s regulatory issues behind it and focusing on future growth opportunities. In the report, Scharf said he believes the company’s “cost structure is too high,” pointing to a $425 million decline in net interest income from the third quarter to the fourth and attributing that fact largely to the lower interest rate environment. He also said he sees “many areas where we will be able to increase our rate of growth.”
“While we are spending what is necessary in order to improve risk management, our other expenses were too high and becoming more efficient remains a top priority,” Scharf said. “However, we continued to have positive business trends with both loans and deposits growing from the third quarter and a year ago.”
Wells Fargo’s third-quarter earnings report for 2019 was released under the direction of interim CEO Allen Parker, who left the bank in November. That report indicated that the company recorded $4.6 billion in third-quarter profits, a $6 billion uptick from the same period in 2018 but down from $6.2 billion in the second quarter of 2019.