Wells Fargo beat analysts' expectations and brought in record high earnings for the first quarter of 2013 even though its mortgage earnings declined.  The company reported net income of $5.2 billion for the quarter or $0.92 per share compared to $4 billion and $0.75 in the first quarter of 2012.

The bank's chief financial officer Tim Sloan said this was the 13^th consecutive quarter that per share earnings had grown and the 8^th when those earnings set new records.  The new results beat fourth quarter earnings by a penny but was four cents higher than analysts' consensus.    

Mortgage banking non-interest income was $2.8 billion, down $274 million from the fourth quarter.  The company said it had retained on balance sheet 1-4 family conforming first mortgage loans of $3.4 billion, forgoing approximately $112 million of revenue had it instead originated the loans for resale during the quarter along with other agency conforming loans.  The company provided $309 million for mortgage loan repurchase losses, down from $379 million in the fourth quarter.  Net mortgage servicing rights were $129 million compared to $220 million.  The company said the decline was primarily due to service rights valuations adjustments made in the first quarter for the impact of improving home prices on estimated prepayment speeds.

Wells Fargo reported both home loan applications and originations were down in the first quarter.  Applications were received for $140 billion in home loans compared to $152 billion in the fourth quarter while originations totaled $109 billion compared with $125 billion.  It had applications in the pipeline at the end of the quarter valued at $74 billion compared with $81 billion on December 31, 2012.

The residential servicing portfolio was valued at $1.9 trillion; the ratio of mortgage servicing rights to related loans serviced for others was 70 basis points compared with 67 in the prior quarter.  The average note rate on the servicing portfolio was 4.69 percent, down 8 basis points from Q4. 

Outstanding loans at the end of the first quarter totaled $800 billion, up $392 million from the end of the fourth quarter.  Included in this growth was the $3.4 billion in 1-4 family conforming first mortgages retained on the balance sheet and a decrease of $3.7 billion from the continued runoff in the liquidating/non-strategic portfolio.  The company said its asset-backed finance, commercial banking, corporate banking, credit card, government and institutional banking, mortgage, retail brokerage, real estate capital markets, and retail sales finance portfolios all experienced year-over-year growth in double digits.

Sloan said, "Interest income from the available-for-sale (AFS) securities portfolio increased modestly as we opportunistically purchased $17.8 billion in federal agency mortgage-backed securities (MBS) during periods of higher interest rates in the first quarter.  The benefit of these purchases outweighed the impact of continued runoff of higher yielding securities within the portfolio."  He said the retention of 3.4 billion in high quality conforming real estate first mortgages in the quarter largely offset reduced income from portfolio repricing.

Credit quality continued to improve with net charge offs dropping from $2.1 billion or 105 basis points of average loans in the fourth quarter of 2012 to $1.4 billion or 72 basis points.  Nonperforming assets declined by $1.6 billion or 7 percent to $22.9 billion and foreclosed assets were $3.4 billion compared to $4.0 billion in the fourth quarter.  The company released $200 million from its allowance for credit losses.  Chief Risk Officer Mike Loughlin said "We continue to expect future reserve releases in 2013 absent a significant deterioration in the economic environment."