Heads and Tails at Wells Fargo on Earnings (WFC)

Wells Fargo & Company (NYSE: WFC) has posted its earnings this morning.  The bank gave a net income figure of $3.05 billion, with a net income applicable to common shares of $2.38 billion.  This translates to $0.56 EPS after merger-related and restructuring expenses and after a credit reserve build. Its revenue was $21.0 billion.  Thomson Reuters had estimates at $0.41 EPS and $19.37 billion in revenue.  So far it looks like shares are lower on some of the individual metrics and on more profit taking.

Warren Buffett’s favorite bank said this was the highest mortgage origination quarter seen since 2003, and claimed the highest peer net interest margin at 4.16%.  The company also noted that Wachovia contributed 41% of the combined revenue and it extended some $175 billion in loans, mortgages, and mortgage security purchases.

The tangible common equity ratio was 3.28%, up from 2.86% last quarter; and total tangible equity rose $4.5 billion to $41.1 billion.  Tier 1 Capital was $88.9 billion, and its tier 1 capital ratio rose 0.44% to 8.28%.

The credit metrics may be where some of the eyebrows get raised.  Allowance for credit losses was $22.8 billion, which covers 2.7% of total loans, 2.9% of non-SOP 03-3 loans, and 2.2-times non-performing loans.  It claims that the figure of a combined non-performing loans of 1.25% of total loans was the lowest among peers.  Higher-risk loan portfolios were cut by $4.5 billion and its trading assets were cut by $8.4 billion.

So far we are seeing Wells Fargo trade down by 1% to $18.65 in early trading. Shares are still up over 100% from the recent lows, so a move in either direction is of no surprise or concern as long as it is normal trading. This looks like profit taking still being the trend, although again we won’t be surprised if this trades up or down on the same reasons and on the same logic.

JON C. OGG