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On Friday, Wells Fargo (NYSE:WFC) announced that the last quarter was the company's best quarter ever in terms of net income, even though the company's revenue didn't impress the analysts. The bank has posted a $11.9 billion growth in core loans and $4.9 billion in net earnings, which indicates a growth rate of 21% compared to the same quarter a year ago. The company posted better return on assets and better return on investment compared to the last quarter. The company's net interest income grew very little and this was mostly due to the historically low long-term interest rates we are seeing today.

The company's deposits grew faster than its loans did. The deposit rate is up to $952 billion whereas the loan rate is up to $765 billion. The growth rate in deposits was 3% whereas the growth rate in loans was 2%. This allows the bank to have some free cash to invest in order to obtain returns from the market; however, the company's investment options are very limited in an environment of very low interest rates. Wells Fargo's business model limits the company's exposure to the equity markets and the company will not find a lot of good quality investments with high yields elsewhere in this environment. The company's interest margin was down from 3.91% to 3.66%, whereas the analysts were expecting a number closer to 3.75%. This number represents the difference between the interest rate the company pays and the interest rate it receives. It looks like the short-term interest rates are already at or near zero, which gives them no room to fall further; however, the long-term interest rates still have some room to fall, which hurts the interest margin of companies like Wells Fargo.

The company earned 88 cents per share as opposed to the average analyst estimates of 87 cents, and the 72-cents obtained in the same quarter a year ago. Even though the company's total revenue grew by 8% compared to the same quarter a year ago, it disappointed the analysts. The analysts were expecting the company to generate $21.47 billion in revenues whereas it ended up generating $21.21 billion. Last year in the same quarter, the company's total revenue was $19.63 billion. The company saw a 27% fall in the fees it collects from credit and debit cards, which accounts for some of the revenue miss. As the company's consumer loans increased, its corporate loans decreased for the quarter.

The company's mortgage unit reported revenue of $2.8 billion, which represents an increase of 50% compared to the last year. Also, the company decided against selling some of its mortgage holdings to Fannie Mae and Freddie Mac. The mortgage package that Wells Fargo could have sold away but did not is reportedly as large as $9.8 billion. The company could have made $200 million in loan fees if it were to sell these packages to Fannie Mae and Freddie Mac, but its loan holdings would have shrank significantly. It looks like the company opted to have larger loan holdings than have some more cash. Wells Fargo is considered to be the largest mortgage lender in the country, and the improving trends in this company's mortgage business might signal some recovery in the housing market, as consumers who are able to afford to buy or refinance are taking advantage of historically low long-term interest rates.

This is the sixth consecutive quarter where Wells Fargo reached record profits. Every quarter, the company breaks its record and carries it higher. The analysts expect the company to end the year with a profit of $3.33 per share, followed by $3.63 in 2013 and $4.01 in 2014. The company is expected to achieve double-digit annual revenue growth for the foreseeable future. Because Wells Fargo's income depends more on housing recovery than the equity market, things might look good for the company as long as mortgage rates remain low, even though having too low mortgage rates can also work against the company.

Despite being down by more than 3% today, Wells Fargo's stock price has appreciated by 24% since the beginning of the year. The company currently trades for very close to its 52-week high of $36 as its current price is $34. Last year, during the European debt crisis, the company did not lose as much market value as other banks but it still fell all the way down to $23 at some point. I don't expect the company's stock price to fall to those levels again anytime soon unless we have a market crash.

Wells Fargo continues to be a good investment as the company is well run, it has far less risk than other big banks, it has a nice dividend yield of 2.6%, and the company will continue to grow at a decent rate for the foreseeable future. I invest a small percentage of my portfolio in banks due to their complexities, but Wells Fargo would be one of the few banks I would invest without a lot of concern. The company will do particularly well as the housing recovery gains some velocity.

Source: Wells Fargo Continues To Perform Well