Financial Controls: Wells Fargo Reports Record Q2 Earnings (Financial Charts) *Strong financial performance & position* WFC

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Wells Fargo reported Q2 2011 financial results on Tuesday, July 19, 2011

* Charts and commentary have been updated for Wells Fargo Q2 June 2011 financial results *

Wells Fargo Reports Record Q2 Earnings: Strong financial performance & position

Wells Fargo Summary Q2 2011 Well Fargo reported record Q2 2011 earnings of $3.95B and an overall strong financial performance. 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 1.16%. The latest quarter reported, Q2 2011, continues the improvement of earnings and the balance sheet.

Wells Fargo Income Statement Q2 2011 Wells Fargo reported net revenues of $20.39B, net income of $3.95B, and earnings per share of $0.70. From the prior quarter Q1 2011, net revenues were up +0.28%, net income up +5.03%, and earnings per share up +4.48%. From the prior year Q2 2010, net revenues were down -4.71%, net income up +28.94%, and earnings per share up +27.27%, respectively. The operating and net margins increased again to multi-year highs of 29.79% and 19.37%, 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 Q2 2011 Total assets increased QoQ +1.21% to $1.260 trillion. The capital to assets ratio (total stockholders' equity divided by total assets) increased to a very good 10.95%. Tier 1 capital was 11.70%, which is adequate and the highest since the Wachovia merger. Gross Loans increased slightly QoQ +0.10%. The ALL/Loans ratio (Allowance for Loan Losses divided by Gross Loans) was 2.78%, 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 beginning with the March 2009 quarter, 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 $0.70 is another record high and have increased for 6 consecutive quarters.

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 $20.39B continue below the Q4 December 2010 4-quarter high of $21.49B. Current Operating Income of $6.08B is at another all-time high, the result of a decrease of Provision for Credit Losses and NonInterest Expense (operating expenses). Current Net Income of $3.95B is also at another all-time high.

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 29.79% and 19.37%, 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 Tier 1 capital ratio is a financial regulatory ratio and measurement. The current Capital to Assets Ratio of 10.95% is strong and at another multi-year, post-recession, if not all-time, high. The Tier 1 Capital Ratio of 10.70% has also reached a multi-year, post-recession, if not all-time, high. Both are adequate.

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 1.16%. This is very good considering the conservative strategy discussed at the beginning of this post. An ROA of 1% is a banking performance benchmark.

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 Revenue of $9.71B continues slightly low but is stable. Current Net Interest Income of $10.68B is also slightly low but is stable. Current Provision for Credit Losses of $1.84B is a multi-year low and has decreased for 7 consecutive quarters. Current NonInterest Expense, operating expenses, of $12.48B is at a 3-quarter low.

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 $1.26 trillion in total assets at June 30, 2011 so percentage points add up fast. Higher yielding Net Loans of 58.03% continue a slight downtrend 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 28.06%. The other categories (Mortgages and Loans for Sale, Mortgage Servicing Rights, and NonEarning Assets) are relativity stable and comprise the remaining 13.91% 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 56.47% is slightly lower than the prior Q1 2011 multi-year high of 57.49%. This is a negative for Wells Fargo. Even though NonInterest Expense decreased in the current Q2 2011, Total Revenues were flat resulting in a slightly lower operating expense ratio. That is, the benefit of a lower NonInterest Expense was not fully realized because Total Revenues did not increase substantially. An unreasonable share of each dollar of revenues is being spent on operating expenses. Ultimately a continuation of a high operating expense ratio will result in profitability not being maximized.

Tuesday, July 19, 2011

WELLS FARGO REPORTS RECORD QUARTERLY NET INCOME OF $3.9 BILLION

Increased Revenue and Loans, Lower Expenses from First Quarter

SAN FRANCISCO – Wells Fargo & Company (NYSE: WFC) reported record net income of $3.9 billion, or $0.70 per diluted common share, for second quarter 2011, up from $3.1 billion, or $0.55 per share, for second quarter 2010 and up from $3.8 billion, or $0.67 per share, for first quarter 2011.

“Our business fundamentals were strong with increased revenues, loans and deposits, lower operating costs, improved credit quality and higher capital levels,” said Chairman and CEO John Stumpf. “While the economic recovery continues to be slower than expected, there are signs that businesses are investing for growth, and we’re here to help them. We’re enjoying strong loyalty and market share growth as we continue to focus on helping our customers emerge from the economic downturn. We’re right on track with our integration, having converted 2,215 Wachovia stores to date, including most recently one of our largest East Coast states, Florida. We continue to be focused on building and managing our diversified company for the long-term benefit of our team members, customers, shareholders and communities and feel we are very well positioned to capture future growth opportunities.”

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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