Wells Fargo & Co.'s Fourth-Quarter Earnings Prove Once Again That Boring Banking is Better Banking

Wells Fargo's biggest benefit stemmed less from what it does than from what it doesn't do. That is, all three of the nation's biggest banks -- JPMorgan, Bank of America , and Citigroup --saw their top lines fall thanks to double-digit declines in fixed-income trading . Because Wells Fargo sticks primarily to retail banking, it avoided the same fate.

There are a number of specific highlights from Wells Fargo's quarter. Looking at core banking activities, both lending and deposits were up on a year-over-year basis. Average loans at the California-based bank increased by 4%, while total average deposits rose by 8%, to $1.1 trillion.

Additionally, Wells Fargo followed in competitors' footsteps by reporting continued strength in credit quality. Net charge-offs and delinquent loans were both down, and the bank was confident enough to release $250 million more from its allowance for loan losses.

But most important for Wells Fargo's future performance was that first-time checking accounts increased by 5.2% from the previous year. This matters because one of Wells Fargo's greatest strengths is cross-selling fee-generating products to new customers. In the fourth quarter, for instance, its average retail client used 6.17 of the bank's financial products.

Results on the mortgage front were more muted. Wells Fargo originated a total of $44 billion in home loans last quarter versus $50 billion in the fourth quarter of 2013.

By contrast, when interest rates bottomed out in 2012-2013, Wells Fargo routinely underwrote more than $100 billion in mortgages each quarter -- though the majority of the volume stemmed from refinancing existing mortgages as opposed so-called "purchase-money" mortgages.

The good news is that lending activity could get soon get a renewed boost. According to data released this week by the Mortgage Bankers Association, applications for home loans soared by 49% on a seasonally adjusted basis in the first week of 2015. On an unadjusted basis, they were up by an incredible 119%.

The spike followed a sharp downturn in borrowing costs. In its latest survey of mortgage rates, Freddie Mac estimated that the average interest rate on a 30-year, fixed-rate mortgage is 3.66%, down from 3.87% at the end of last year. Suffice it to say that this could usher in considerable profits at a bank like Wells Fargo, which has historically originated a third of all mortgages in the United States.

Not only does the present look bright for Wells Fargo, the future looks equally promising. Come March, when results of this year's Federal Reserve stress tests are released, it seems safe to assume the bank's investors will be treated to yet another dividend boost and generous buyback program.

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The article Wells Fargo & Co.'s Fourth-Quarter Earnings Prove Once Again That Boring Banking is Better Banking originally appeared on

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup Inc, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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