A customer uses an ATM outside a Wells Fargo branch in Charlotte, N.C., Tuesday, Jan. 17, 2012. Wells?Fargo & Co. said Tuesday, Jan. 17, 2012, its fourth-quarter profit rose 20 percent, helped by better performance of its loans, growth in deposits and a steadying mortgage business. (AP Photo/Chuck Burton)
A customer uses an ATM outside a Wells Fargo branch in Charlotte, N.C., Tuesday, Jan. 17, 2012. Wells?Fargo & Co. said Tuesday, Jan. 17, 2012, its fourth-quarter profit rose 20 percent, helped by better performance of its loans, growth in deposits and a steadying mortgage business. (AP Photo/Chuck Burton)
A customer uses an ATM outside a Wells Fargo branch in Charlotte, N.C., Tuesday, Jan. 17, 2012. Wells?Fargo & Co. said Tuesday, Jan. 17, 2012, its fourth-quarter profit rose 20 percent, helped by better performance of its loans, growth in deposits and a steadying mortgage business. (AP Photo/Chuck Burton)
NEW YORK (AP) ? A steadier mortgage business, higher commercial lending and an increase in deposits lifted Wells Fargo & Co.'s fourth-quarter profit by 20 percent.
The San Francisco-based bank reported Tuesday that the amount of mortgages it wrote in the last three months of 2011 jumped 35 percent compared with the third quarter, to $120 billion.
Overall loan balances rose to $769.6 billion, up 2 percent from a year ago. Wells Fargo, which is the largest consumer lender in the U.S., reported a 2 percent increase in commercial loans, to $5.6 billion, reflecting both direct lending and the purchase of portfolios from other lenders.
Most of that growth came from new business, Chief Financial Officer Tim Sloan said in an interview. "We've been seeing good opportunities to grow the commercial loan business for a long time," he said. "We think there's a lot of opportunity there, and we think it will continue."
Commercial loans now make up 40 percent of Wells' overall portfolio, helping to balance out its income and spread its risk.
The bank also benefited as more of its customers paid their bills on time. Wells Fargo wrote off $2.6 billion in loans as uncollectible, including $2.17 billion in consumer loans. That was down from $3.84 billion last year, but did represent a slight increase from the third quarter.
"That's something we're going to watch," said Paul Miller, an analyst with FBR Capital Markets. While the figure shows gains from a year ago, he said, the improvements in overall credit quality slowed down considerably toward the end of the year, he said.
Loans considered past due and likely to default ended the year at $25.6 billion, compared with $32.4 billion last year.
The improvement in Wells Fargo's loan portfolio allowed the bank to release $600 million from its reserves to cover uncollected loans. That money flowed directly to the bank's bottom line.
Wells Fargo's net income for the quarter rose to $4.11 billion, or 73 cents per share, compared with $3.41 billion, or 61 cents per share, in the year-ago period.
Revenue slipped 4 percent to $20.61 billion from $21.49 billion a year earlier.
Analysts, on average, were expecting profit of 72 cents per share, on total revenue of $20 billion, according to data provided by FactSet.
The results contrasted with other major banks, particularly Citigroup Inc., which posted disappointing results early Tuesday. Citi and other large banks depend more heavily on Wall Street trading operations and overseas business, and were stung during the quarter by market volatility and the European debt crisis. Wells, whose business is concentrated in the U.S., benefited from the slowly improving domestic economy and a brighter consumer outlook.
CFO Sloan said that Wells Fargo has minimal exposure to Europe ? about $14 billion, very little of which is sovereign debt. "We just have a different kind of risk picture relative to our peers," Sloan said.
"As we think about Europe, what we worry about is the impact that a European recession, which seems like it's going to happen, has on the US economy, because Europe is our biggest trading partner," Sloan said.
Wells thinks that most of the risk of a European recession is already factored into growth projections for the U.S. He said Wells Fargo expects to see opportunities to acquire certain U.S.-based assets from faltering European banks in the months ahead.
Wells Fargo's stock gained 38 cents, more than 1 percent, to $29.99 in midday trading.
Wells said its average deposits rose 9 percent to $864.9 billion. That reflected a 3.2 percent jump in consumer checking accounts and a 12 percent rise in checking and savings deposits from last year.
The growth in deposits at Wells Fargo came as the bank's customers set aside more money as a precaution against uncertainty in the economy.
In another bright spot, the bank reported an improvement in its net interest margin, or the difference between the money Wells earns on interest and that which it pays out. The measure improved to 3.89 percent, from 3.84 percent in the third quarter, an increase during a period when many banks are seeing their net interest margin narrow because of low interest rates. Wells said the increase reflected lower deposit costs, less long-term debt and positive results from short-term investments.
FBR's Miller said the strong increase in net interest margin was surprising. "We would expect it to continue to feel pressure in this interest rate environment," he said.
Noninterest income, or earnings from fees and charges, fell 7 percent to $9.7 billion. Card fees dropped 28 percent from last year, largely because of a new law limiting the fees banks can charge merchants for processing debit card transactions.
For the full year, Wells Fargo posted net income of $15.87 billion, or $2.82 per share, up from $12.36 billion, or $2.21 per share, for 2010.
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