Financial Controls: Wells Fargo Reports Record Q3 Earnings (Charts, Video) *Strong financial performance & position* WFC

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Wells Fargo (WFC) reported Q3 2011 financial results on October 17, 2011
* Charts and commentary have been updated for Wells Fargo Q3 2011 financial results *

Wells Fargo Reports (WFC) Record Q3 Earnings: Strong financial performance & position

Wells Fargo Summary Q3 2011 Well Fargo reported record quarterly net income of $4.1 billion and record earnings per share of $0.72. This was an overall strong financial performance, even though net revenues decreased QoQ and YoY. Wells Fargo continues a conservative strategy which has maintained strong levels of capital, decreased credit losses, and resulted in a very good return on assets of 1.21%. The latest quarter reported continues the improvement of earnings and the balance sheet.

Wells Fargo Income Statement Q3 2011 Wells Fargo reported net revenues of $19.63 billion, record net income of $4.06 billion, and record earnings per share of $0.72. From the prior quarter Q2 2011, net revenues were down -3.72%, net income up +2.71%, and earnings per share up +2.86%. From the prior year Q3 2010, net revenues were down -5.71%, net income up +21.44%, and earnings per share up +20.00%, respectively. The operating and net margins increased again to multi-year highs of 31.28% and 20.66%, respectively. The increase in net income was mostly attributable to the ongoing decrease in provision for credit losses and a decrease in noninterest expense, operating expenses..

Wells Fargo Balance Sheet Q3 2011 Total assets increased QoQ +3.6% and YoY +6.9% to $1.305 trillion. The capital to assets ratio (total stockholders' equity divided by total assets) dipped to a continued very good 10.67%. Return on Assets improved to a very strong 1.21%. Gross Loans increased QoQ +1.1% and YoY +0.85%, but Net Loans are a decreasing share of the asset mix. The ALL/Loans ratio (Allowance for Loan Losses divided by Gross Loans) was 2.64%, should be adequate, and is the lowest since March 2009.

Wells Fargo Financial Performance by the Quarters (Charts)

Below are financial performance charts for Wells Fargo after the merger of Wachovia in late 2008.

Wells Fargo Earnings per Share (Chart) Below is a chart of quarterly earnings per diluted share. Current Earnings per Share of $0.72 is another record high and have increased for 7 consecutive quarters. The chart average EPS is $0.55.

Wells Fargo Net Revenues, Operating Income, Net Income (Chart) Below is a chart of quarterly net revenues, operating income, and net income. Consolidated revenues are reported net of interest expense. Current Net Revenues of $19.63 billion are a multi-year low and continue below the historical average. Current Operating Income of $6.14 billion is at another all-time high, the result of a decrease of Provision for Credit Losses and NonInterest Expense (operating expenses). As a result, current Net Income of $4.06 billion is also at another all-time high. The chart averages for NR, OI, and NI are $21.29 billion, $4.96 billion, and $3.31 billion, respectively.

Wells Fargo Operating Margin and Net Margin (Chart) Below is a chart of quarterly operating margin and net margin. Both the operating margin and net margin are at multi-year, post-recession, if not all-time, highs of 31.28% and 20.66%, respectively. The chart averages for OM and NM are 23.41% and 15.75%, respectively.

Wells Fargo Capital to Assets Ratio and Tier 1 Capital Ratio (Chart) Below is a chart of the capital to assets ratio and Tier 1 capital ratio. The capital to assets ratio is the stockholders' equity to total assets ratio. The current Tier 1 Capital Ratio of 11.28% decreased after steadily increasing in prior quarters. The The current Capital to Assets Ratio of 10.67% is strong, though decreasing slightly. The current Tier 1 Common Ratio of 9.35% continues increasing. All 3 ratios are financial regulatory ratios and measurements and are adequate. The chart averages for T1 Capital, Capital, and T1 Common Ratios are 10.78%, 10.20%, and 8.12%, respectively.

Wells Fargo Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. Current Return on Assets is at a multi-year high of 1.21%. This is very good considering the conservative strategy discussed at the beginning of this post. An ROA of 1.00% is a banking performance benchmark. The chart average ROA is 1.03%.

Wells Fargo Income Statement Components (Chart) Below is a chart of the major income statement components: NonInterest Revenue, Net Interest Income, Provision for Credit Losses, and NonInterest Expense. Current NonInterest Expense, operating expenses, of $11.68 billion is at a multi-year low. Current Net Interest Income of $10.54 billion is a multi-year low. Current NonInterest Revenue of $9.09 billion is a multi-year low. Current Provision for Credit Losses of $1.81 billion is a multi-year low and has decreased for 8 consecutive quarters.

Wells Fargo Asset Mix (Chart) Below is a chart of quarterly asset mix, the major asset categories as a percentage of total assets: Cash & Securities, Mortgages & Loans for Sale, Net Loans (Gross Loans less Allowance for Loan Losses), Mortgage Servicing Rights, and NonEarning Assets (Premises & Equipment, Goodwill, and Other Assets). Wells Fargo reported $1.305 trillion in total assets in the current quarter, so percentage points add up fast. Higher yielding Net Loans of 56.71% continue decreasing and are down from a peak of 63.87% in March 2009. There has been a corresponding increase in lower yielding Cash and Investment Securities. These are at a multi-year high of 28.59%. The other categories (Mortgages and Loans for Sale, Mortgage Servicing Rights, and NonEarning Assets) are relativity stable and comprise the remaining 14.70% of total assets.

Wells Fargo Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio (NonInterest Expense divided by Total Revenues which are NonInterest Income and Interest Income). The current Operating Expense Ratio of 54.91% is historically high, but continues the downtrend from the Q1 2011 multi-year high of 57.49%. This is a positive trend for Wells Fargo. NonInterest Expense decreased in the current quarter, even as Net Revenues decreased. An increasing share of each dollar of revenues is reaching the bottom line and earnings per share. The chart average OER is 53.10%.

Monday, October 17, 2011

WELLS FARGO REPORTS RECORD QUARTERLY NET INCOME OF $4.1 BILLION

Increased Loans and Deposits, Lower Expenses from Second Quarter

SAN FRANCISCO – Wells Fargo & Company (NYSE: WFC) reported record net income of $4.1 billion, or $0.72 per diluted common share, for third quarter 2011, up from $3.3 billion, or $0.60 per share, for third quarter 2010, and up from $3.9 billion, or $0.70 per share, for second quarter 2011.

“The economic recovery has been more sluggish and uneven than anyone anticipated,” said Chairman and CEO John Stumpf. “We can’t change the economic environment, yet we have worked hard to control the variables we can – making our products and services more relevant to individuals and businesses, focusing on the customer, making as many loans as possible and growing new relationships – as well as fostering longtime ones. We see the results of this focus in growing cross-sell, deposits, and loans. Customers need a trusted financial partner, especially in challenging economic times. Wells Fargo has proven to be that partner over and over again.

“We are nearing the completion of our three-year Wachovia integration process. To date, Regional Banking has now completed its store conversions and our retail stores are Wells Fargo coast-to-coast on a single platform. Thank you to every single team member who has been involved in this remarkable effort.”

“This was a strong quarter for Wells Fargo, with solid growth in loans, deposits, investment securities and capital, along with improved credit quality and lower expenses,” said Chief Financial Officer Tim Sloan. “While our industry continued to face challenges due to economic conditions during this quarter, Wells Fargo’s diversified model was again able to produce solid results for our shareholders.”

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.2 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com and wachovia.com), and other distribution channels across North America and internationally. With approximately 280,000 team members, Wells Fargo serves one in three households in America.Wells Fargo & Company was ranked No. 19 on Fortune’s 2009 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.

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