Wednesday, October 20, 2010

Wells Fargo Reports Increased Earnings (Financial Performance Charts & Review) *EPS $0.60* WFC

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Wells Fargo reported earnings today, October 20

Wells Fargo Reports Increased Earnings

Financial charts of Wells Fargo data and the related commentary have been updated on the Wells Fargo Financial Performance page for the September Q3 2010 financial results reported today by Wells Fargo. The charts are:

Wells Fargo Performance by the Quarters
Earnings per Share
Net Revenues, Operating Income, and Net Income
Operating Margin and Net Margin
Capital to Assets and Tier 1 Capital Ratios
Return on Assets
Income Statement Components
Asset Mix

Income Statement Q3 Wells Fargo reported net revenues of $20.9B, net income of $3.3B, and earnings per share of $0.60. From the prior quarter Q2 2010, net revenues were down -2.4%, net income up +9.1%, and earnings per share up +9.5%. From the prior year Q3 2009, net revenues were down -7.1%, net income up +3.25%, and earnings per share up +7.1%, respectively. The operating and net margins rebounded with the improved QoQ results. The increase in net income was due to a decrease in both provision for credit losses and noninterest expenses, operating expenses. Therefore, net income and earnings per share improved due to decreased expenses, not from top line growth, net revenues, which decreased.

Balance Sheet Q3 Total assets decreased QoQ -0.41% to $1.221 trillion. The capital to assets ratio (total stockholders' equity divided by total assets) increased to 10.1%, which is very good and the highest since the Wachovia merger in late 2008. Tier 1 capital was 10.9%, which is adequate and the highest since the Wachovia merger. Loans decreased QoQ -1.6%, for the 7th consecutive quarter. The ALL/Loans ratio (Allowance for Loan Losses divided by Gross Loans) was 3.2%, should be adequate, and above 3% for the 5th consecutive quarter.

Asset Mix Wells Fargo overall is not retaining originated loans as total loans have decreased for 7 consecutive quarters. Wells Fargo is increasingly originating loans for sale, but not retaining loans, net, on the books. Liquidity has increased significantly as a result of not retaining loans as evidenced by the increase in overnight funds, short term investments, and securities available for sale. This conservative strategy is good for financial condition and stability and for increasing capital ratios. However, profitability is ultimately affected negatively as the asset mix shifts from higher yielding loans to lower yielding investments. The eventual result is lower net revenues which have been offset so far by lowering expenses to maintain, and even increase, net income. A chart of the asset mix is at the Wells Fargo Financial Performance page.

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