Wells Fargo May Just Be The Best House In The Money Center Banks Neighborhood

| About: Wells Fargo (WFC)

Summary

Revenues were essentially flat from a year ago and last quarter.

Provisions for credit loss decreased 74% from last year.

Tangible book value increased 8% from last year.

The last time I wrote about Wells Fargo & Co. (NYSE:WFC), I stated:

"Due to the low dividend yield, bearish technicals, and high valuation based on earnings growth potential I will not be pulling the trigger on this name right now." Since that article was published the stock has dropped 3.38% while the S&P 500 (NYSEARCA:SPY) has dropped 3.98%. Wells Fargo 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 11Apr14 and on the surface all the results were good with the company reporting earnings of $1.05 per share (beating estimates by $0.08) on revenue of $20.6 billion (in-line with estimates). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Community Banking

Community Banking

1Q14

4Q13

1Q13

Q/Q

Y/Y

Total revenue

$ 12,593

$ 12,254

$ 12,899

3%

-2%

Provision for credit losses

$ 419

$ 490

$ 1,262

-14%

-67%

Non-interest expense

$ 6,774

$ 7,073

$ 7,377

-4%

-8%

Net income

$ 3,844

$ 3,222

$ 2,924

19%

31%

Click to enlarge

Community Banking is the segment which includes Regional Banking, Diversified Products, and the Consumer Deposits groups, as well as Wells Fargo Customer Connection. This segment of the company accounts for 58.19% of the company's total revenues. What I noticed right off the bat is that provision for credit losses decreased by 67% from last year or decreased 14% from the previous quarter. The decrease in this number was primarily due to a $119 million decline in net charge-offs. Net income increased an eye opening 31% from last year or 19% from last quarter.

Wholesale Banking

Wholesale Banking

1Q14

4Q13

1Q13

Q/Q

Y/Y

Total revenue

$ 5,580

$ 5,972

$ 6,086

-7%

-8%

Reversal Provision for credit losses

$ (93)

$ (125)

$ (58)

-26%

60%

Non-interest expense

$ 3,215

$ 3,020

$ 3,091

6%

4%

Net income

$ 1,742

$ 2,111

$ 2,045

-17%

-15%

Click to enlarge

Wholesale Banking is the side of the business which contains products sold to large and middle market commercial companies, as well as to consumers on a wholesale basis. These products include lending, treasury management, mutual funds, asset-based lending, commercial real estate, corporate and institutional trust services, and capital markets and investment banking services through Wells Fargo Securities. This segment of the business accounts for 25.78% of total revenues. I noticed that provision for credit losses decreased 60% from last year but increased 26% from the prior quarter. This was primarily due to a $51 million reduction in credit losses. Net income however decreased by 15% from last year and 17% from last quarter.

Wealth, Brokerage, and Retirement

Wealth, Brokerage, and Retirement

1Q14

4Q13

1Q13

Q/Q

Y/Y

Total revenue

$ 3,468

$ 3,438

$ 3,197

1%

8%

Provision for credit losses

$ (8)

$ (11)

$ 14

-27%

-157%

Non-interest expense

$ 2,711

$ 2,655

$ 2,639

2%

3%

Net income

$ 475

$ 491

$ 337

-3%

41%

Click to enlarge

This segment of the business provides investment products through its subsidiaries, Wells Fargo Investments, LLC and Wells Fargo Advisors, LLC and accounted for 16.02% of total revenues for first quarter 2014. Off the bat there is a decrease of 157% in provision for credit losses from last year. Net income however increased a whopping 41% from last year but decreased 3% from last quarter.

Conclusion

Wells Fargo

1Q14

4Q13

1Q13

Q/Q

Y/Y

Total revenue

$ 21,641

$ 21,664

$ 22,182

0%

-2%

Provision for credit losses

$ 318

$ 354

$ 1,218

-10%

-74%

Non-interest expense

$ 12,700

$ 12,748

$ 13,107

0%

-3%

Net income

$ 6,061

$ 5,824

$ 5,306

4%

14%

Diluted EPS

$ 1.05

$ 1.00

$ 0.92

5%

14%

Shares Outstanding (millions)

5353.3

5358.6

5353.5

0%

0%

Tangible Book Value

$ 30.48

$ 29.48

$ 28.27

3%

8%

Total Assets on Balance Sheet (millions)

$ 1,546,707

$ 1,527,015

$ 1,435,030

1%

8%

Click to enlarge

The decrease in provision for credit losses for the company as a whole was at 74%, which is a great thing I believe. What I like is that net income increased 14% from the prior year and 4% from the prior quarter. Diluted earnings per share also increased 14% from last year and 5% from the prior quarter while shares were left relatively unchanged. The company tabulates that tangible book value increased 8% from last year and 3% from last quarter while total assets on the balance sheet increased 8% from a year ago and 1% from three months ago.

Personally I don't like that total revenue for the company decreased 2% from last year and was flat from last quarter but Wells is the best house in the neighborhood when compared to JPMorgan (NYSE:JPM) which saw revenues decline 8% from a year ago. Wells' share price was up 4.66% from the prior earnings release excluding dividends. The share count was flat from the prior year and from the prior quarter. Another important measurable metric for bank stocks is tangible book value and that value has increased from $28.27 to $30.48 in one year while total assets on the balance sheet increased from $1.435 trillion to $1.546 trillion.

This was the company's 17th consecutive quarter to see earnings growth and the company has been able to do this by focusing on the core of their business, their customers. The company has excellent cross-selling techniques which ropes a prospective client and makes it difficult for the client to leave. The earnings increase was pretty good, but I loathe decreased revenues. I will give this quarter a pass on the decreased revenues because it was only a 2% decline. This was a decent quarter for the company and I'll continue to purchase small batches of it for my dividend portfolio as I see fit till the next earnings call.

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, JPM, SPY. 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.