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Article updated: 10/12/2012 9:28 AM

Wells Fargo earnings rise in 3Q as loan book grows

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Wells Fargo posted record earnings in the third quarter as the bank increased mortgage lending and pocketed more fees.

Wells, the nation's biggest mortgage lender, expanded its loan portfolio by making new loans to consumers. It collected more interest on loans than in the same period a year earlier.

Revenue was lower than analysts were expecting, however, and Well's stock fell 3 percent in early trading.

Fees from the bank's booming mortgage business also added to its revenue. Wells said it originated $139 billion of mortgage loans, up from $89 billion in last year's third quarter. More homeowners refinanced at record-low mortgage rates.

Wells' net income in the quarter ended Sept. 30 rose 23 percent, to $4.72 billion from $3.84 billion in the same period last year.

That amounts to 88 cents per share, a penny higher than the average estimate of analysts surveyed by FactSet. Wells earned 72 cents per share in last year's third quarter.

Overall revenue rose 8 percent to $21.21 billion, slightly lower than analysts expected. Wells' stock fell $1.07, or 3 percent, to $34.11 in early trading.

Net interest income, which includes interest on loans, edged up 1 percent to $10.66 billion from $10.54 billion.

Non-interest income, which includes fees, insurance and mortgage banking revenue, rose 16 percent. Card fees rose modestly, while mortgage banking accounted for the bulk of the increase.

That category also includes trading gains, another bright spot for Wells this quarter. Wells reported net gains from trading of $529 million, compared with a loss of $442 million a year earlier. Wells' trading business is smaller than those of its big competitors on Wall Street.

The bank's average outstanding loans to consumers rose 4 percent from the prior quarter, to $335.28 billion from $322.30 billion in the period ended June 30.

Much of that increase came from new mortgages. Wells said it offered $139 billion in new mortgages, compared with $131 billion in the second quarter and only $89 billion in last year's third quarter.

Wells also offered consumers more loans for autos, credit cards and education.

Average loans to companies rose from a year earlier, but declined slightly from the previous quarter.

More people parked their money at Wells, boosting core deposits by 7 percent from a year earlier, $895.4 billion from $836.8 billion a year earlier.

With more deposits on hand, banks have a stronger capital position and can lend more easily.

Wells, based in San Francisco, appears more confident that those loans will be repaid. It released $200 million that it had set aside earlier to cover possible loan losses.

One sign that loan repayments are improving: Wells gave up on collecting 1.2 percent of its average loan balance, down from 1.4 percent a year earlier.

On Tuesday, the federal government sued Wells Fargo, accusing it of misleading regulators about the quality of thousands of loans in order to qualify for federal loan insurance. The lawsuit seeks to recover hundreds of millions of dollars paid to Wells by the Federal Housing Administration after borrowers defaulted on their loans.

The earnings don't include dividend payments to preferred stockholders.

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