Friday, January 21, 2011

Wells Fargo Reports Improved Earnings in Q4 (Financial Charts, Review) *Credit losses continue decreasing* WFC

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Wells Fargo reported Q4 2010 financial results on Wednesday, January 19, 2011

Wells Fargo Reports Improved Earnings in Fourth Quarter 2010

Wells Fargo reported quarterly financial results on Wednesday, January 19 before the market opened. Wells Fargo financial performance charts for Q4 2010 and prior quarters have been posted, along with commentary, on the Wells Fargo Financial Performance page. The charts are:

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

In addition, a Bonus Chart has been included below in this post, Wells Fargo Operating Expense Ratio. More charts have been posted on the Wells Fargo Financial Performance page.

Summary Q4 2010 Well Fargo continues a conservative strategy which has maintained adequate levels of capital, decreased credit losses, and resulted in a return on assets of 1%. The latest quarter reported, Q4 2010, continues the improvement of earnings and the balance sheet.

Income Statement Q4 2010 Wells Fargo reported net revenues of $21.5B, net income of $3.4B, and earnings per share of $0.61. From the prior quarter Q3 2010, net revenues were up +2.97%, net income up +2.25%, and earnings per share up +2.60%. From the prior year Q4 2009, net revenues were down -5.30%, net income up +20.94%, and earnings per share up +662.50% (from $0.08), respectively. The operating and net margins decreased slightly QoQ but increased YoY. The increase in net income was mostly attributable to a decrease in provision for credit losses. Therefore, net income and earnings per share improved due to declining credit losses.Wells Fargo Bonus Chart!

Balance Sheet Q4 2010 Total assets increased QoQ +3.06% to $1.258 trillion. The capital to assets ratio (total stockholders' equity divided by total assets) decreased slightly to 10.17%, but remains very good. Tier 1 capital was 11.39%, which is adequate and the highest since the Wachovia merger. Gross Loans increased QoQ +0.48%, the first increase after 7 consecutive quarterly decreases. The ALL/Loans ratio (Allowance for Loan Losses divided by Gross Loans) was 3.04%, should be adequate, and above 3% for the 6th consecutive quarter.

Asset Mix Q4 2010 Wells Fargo overall has not been retaining originated loans as total loans decreased for 7 consecutive quarters before the latest small increase. 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 had been offset previously by lowering expenses to maintain, and even increase, net income. This most recent quarter the net income increase was a result of a decrease in provision for credit losses. A chart of the asset mix is lower on this page.

Wells Fargo Performance by the Quarters (Operating Expense Ratio)

Wells Fargo Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio for Wells Fargo. The operating expense ratio is NonInterest Expense divided by Total Revenues which are NonInterest Income and Interest Income. The general trend has been upwards and Q4 2010 at 57.01% is the highest in 8 quarters, since the Wachovia merger. An increasing share of each dollar of revenues is being spent on operating expenses. Ultimately a continuation of this trend will negatively affect profitability and already has. The chart covers the past 8 quarters, from March 2009 through the latest quarter reported, December 2010. More charts have been posted on the Wells Fargo Financial Performance page. Recent chart data is:
Quarter, Operating Expense Ratio
Dec09: 51.51%
Mar10: 51.50%
Jun10: 54.43%
Sep10: 53.49%
Dec10: 57.01%

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