Wells Fargo Fourth Quarter Earnings Analysis

Jan.16.14 | About: Wells Fargo (WFC)

Wells Fargo & Co (NYSE:WFC) is a bank holding company which operates in three segments: Community Banking, Wholesale Banking and Wealth, Brokerage and Retirement. The company reported earnings before the market opened on 14Jan14 and on the surface everything looks great with the company reporting fourth quarter earnings of $1.00 per share (beating analysts' estimates by $0.02) on revenue of $20.67 billion (also beating analysts' estimates by $0.04 billion). What I'd like to at this time is delve into the weeds and pick out some highlights from different segments of the company to see if the stock is worth buying at the present time.

Community Banking

Community Banking

4Q13

4Q12

Y/Y

Total revenue

$ 12,254

$ 13,782

-11%

Provision for credit losses

$ 490

$ 1,757

-72%

Non-interest expense

$ 7,073

$ 8,033

-12%

Net income

$ 3,222

$ 2,869

12%

Click to enlarge

Community Banking offers diversified financial products for consumers and small businesses. The biggest thing I noticed in this segment of the bank was that total revenue dropped -11% when compared to last year at this time due mainly to lower mortgage banking revenue. The next thing to notice was that provision for credit losses dropped 72% in large part to a $953 million decline in net charge-offs and a $314 million increase in the reserve release. Non-interest expense dropped -12% when compared to last year because of costs in 2012 associated with the Independent Foreclosure Review settlement and a $250 million contribution to the Wells Fargo Foundation. A huge positive is that net income increased 12% compared to 4Q12.

Wholesale Banking

Wholesale Banking

4Q13

4Q12

Y/Y

Total revenue

$ 5,972

$ 5,993

0%

Provision for credit losses

$ (125)

$ 60

-308%

Noninterest expense

$ 3,020

$ 3,007

0%

Net income

$ 2,111

$ 2,032

4%

Click to enlarge

Wholesale banking provides financial solutions to businesses all over the globe. Everything in this segment remained constant when comparing to 4Q12, but one thing to not is the provision for credit losses dropped -308% due in large part to a $152 million reduction in credit losses and $33 million of additional reserve release.

Wealth, Brokerage and Retirement

Wealth, Brokerage and Retirement

4Q13

4Q12

Y/Y

Total revenue

$ 3,438

$ 3,094

11%

Provision for credit losses

$ (11)

$ 15

-173%

Non-interest expense

$ 2,655

$ 2,513

6%

Net income

$ 491

$ 351

40%

Click to enlarge

This segment of the company provides financial advisory services for clients. The main things to note in this segment were that total revenue increased 11% because of strong growth in asset-based fees as well as higher net interest income. Provision for credit losses dropped -173% and net income increased 40%.

Conclusion

Wells Fargo

4Q13

4Q12

Y/Y

Total revenue

$ 21,664

$ 22,869

-5%

Provision for credit losses

$ 354

$ 1,832

-81%

Non-interest expense

$ 12,748

$ 13,553

-6%

Net income

$ 5,824

$ 5,252

11%

EPS

$ 1.00

$ 0.91

10%

Revenue (billions)

$ 20.67

$ 21.90

-6%

Click to enlarge

The company reported earnings which were 10% higher than a year before on less revenue while the share price was up 33.88% in all of 2013 excluding dividends. The share count has remained constant from 5.272 billion as of 31Dec12 to 5.270 billion as of 14Jan14. Another important measurable metric for bank stocks is tangible book value and that value has increased from $27.64 to $29.48 in one year while total assets on the balance sheet increased from $1.422 trillion to $1.527 trillion. On a fundamental basis this bank should do extremely well for the coming year and may outdo its 2013 self.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long WFC, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.