Wells Fargo & Company’s (WFC: 26.32 +0.41 +1.58%) second quarter 2010 operating earnings were 55 cents per share, topping the Zacks Consensus Estimate of 49 cents. Net income applicable to common stock came in at $2.88 billion, compared with $2.58 billion in the prior-year quarter.
During the quarter, Wells Fargo earned $21.4 billion (down 4.9% year over year and flat sequentially). Pre-tax pre-provision profit was $8.6 billion.
Commercial and corporate banking, investment banking, commercial real estate brokerage, asset-based lending, auto dealer services, merchant service and debit cards had double-digit sequential revenue growth. The growth in all businesses signifies growth prospective of the company.
Behind the Headlines
Behind the Headlines
Net interest income for the quarter came in at $11.4 billion, up from $11.1 billion in the prior quarter. Net interest margin (NIM) increased to 4.38% from 4.27% sequentially. Additional purchased credit-impaired (PCI) loan resolution income was attributed to a significant increase in NIM in the reported quarter. However, the decline in loans impacted income and margins, which was offset by continued sturdy growth in consumer and commercial checking and savings accounts.
Total non-interest income came in at $9.9 billion, 3.9% from $10.3 billion in the prior quarter primarily due to lower trading revenue, partially offset by increase in net gains from equity investments. Non-interest expense for the quarter came in at $12.7 billion, up 5% from $12.1 billion in the prior quarter. Expenses augmented due to increased merger-related costs and severance costs related to Wells Fargo Financial restructuring.
Total core deposits of $761.8 billion as of June 30, 2010 were up 0.3% from $759.2 billion as of March 31, 2010. Growth in average mortgage escrow deposits and consumer checking accounts improved the deposit base.
Credit Quality
Credit quality improved more than expected during the reported quarter. Credit losses declined 16% sequentially to $4.49 billion from $5.33 billion in the prior quarter, attributed to significant and broad based improvement across the consumer portfolios, with condensed losses in home equity, Wells Fargo Financial, Pick-a-Pay, consumer lines and loans, auto dealer services and credit card portfolios.
Credit performance improvement was facilitated by slowly improving economy together with steps taken by Wells Fargo over the past several years to advance underwriting standards and exit portfolios with unattractive credit metrics.
Net charge-offs declined to $4.5 billion or 2.33% of average loans compared with $5.3 billion or 2.71% of average loans in the prior quarter.
Non-accrual loans increased to $27.8 billion or 3.63% of total loans compared with $27.3 billion or 3.49% of total loans in the prior quarter. Allowance for credit losses was $25.1 billion as of June 30, 2010 compared with $25.7 billion as of March 31, 2010. Wells Fargo’s total assets as of June 30, 2010 were $1.23 trillion and total loans were $741.7 billion.
Evaluation of Capital
As of June 30, 2010, Wells Fargo shareholders’ equity was $119.8 billion, compared with $116.1 billion as of March 31, 2010. Capital ratios remained strong, with Tier I capital and total capital ratio at 10.4% and 14.4%, respectively, compared with 10.0% and 13.9% sequentially. Book value per share improved to $21.35, up from $20.79 in the prior quarter and $17.91 year over year.
Three of Wells Fargo’s closest competitors — JPMorgan Chase & Co. (JPM: 38.80 -0.83 -2.09%), Citigroup Inc. (C: 3.98 -0.01 -0.25%) and Bank of America Corporation (BAC: 13.46 -0.31 -2.25%) — have reported impressive results with positive net income and improved credit quality for the corresponding quarter.
We think Wells Fargo is well positioned compared to its peers as the Wachovia acquisition and the demise of some smaller players helped it garner a large share in the mortgage markets. However, an improved credit performance is expected to have positive impact in the upcoming quarters
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| Stifel Nicolaus | $42 |
| Buy | |
| Friday, April 23, 2010 | |
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| Collins Stewart LLC | $39 |
| Hold | |
| Monday, April 05, 2010 | |
| ThinkPanmure, LLC | $26 |
| Mkt Perform | |
| Thursday, January 21, 2010 | |
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