Wells Fargo & Company reported record net income of $12.3 billion, or $1.75 per common share, for the full fiscal year 2009.

The company’s fourth quarter diluted earnings came to $394 million, or $.08 per share. The bank’s numbers blew analysts’ expectations out of the water – they were looking for a loss of $.01 cent a share.

Even with Wells Fargo’s repayment of $25 billion in bailout dollars last month, the quarterly figures were a decisive victory compared to a net loss of $2.7 billion, or $0.84, in the last three months of 2008.

The California-based bank said both its fourth quarter and full year 2009 diluted earnings per share were reduced by $0.47 and $0.76, respectively, because of cash dividends and the full repayment of its TARP debt to the U.S. government.

Wells Fargo’s results got a big boost from its mortgage business. In the fourth quarter, the bank produced $3.4 billion in mortgage banking income, compared with a loss of $195 million one year earlier.

The company says its quarterly results also demonstrate that losses on consumer loans are beginning to moderate. According to Wells Fargo’s earnings report, growth in nonperforming loans was concentrated in secured real estate portfolios, with all other loan categories showing stability, including flat or declining commercial and industrial (C&I) loans.

Growth in net charge-offs declined significantly in the quarter. Fourth quarter net charge-offs were $5.4 billion, or 2.71 percent of average loans (annualized), compared with third quarter net charge-offs of $5.1 billion, or 2.50 percent of average loans.

In addition, almost all major loan categories had relatively flat, losses, with the exception of commercial real estate. Total credit losses in Q4 included $1.7 billion of commercial real estate loans (2.15 percent of average loans) and $3.7 billion of consumer loans (3.24 percent of average loans). Almost all of the increase in charge-offs was in commercial and consumer real estate.

Wells Fargo noted in its report that it has stepped up its home retention efforts. As of December 31, 2009, nearly half a million Wells Fargo mortgage customers were in active trial or completed loan modifications started in the prior 12 months, the bank said.

Of this total, 119,000 were under the administration’s Home Affordable Modification Program (HAMP), including 8,400 completed modifications. The rest were non-HAMP modifications.

In addition, Wells Fargo said that over 30 percent of the purchased credit-impaired (PCI) Pick-a-Pay portfolio, which it inherited from its acquisition of Wachovia, has been modified.