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Wells Fargo's Earnings Recap

|Includes: Wells Fargo & Co. (WFC)

Wells Fargo & Company(NYSE:WFC) reported its fourth quarter earnings this morning at 8:00 a.m. Wells Fargo currently provides retail, commercial, and corporate banking services across the country through many distribution channels. The company provides other financial services such as mortgage banking, insurance, venture capital, and brokerage services through its subsidiaries. Analysts estimated the company to report $0.89 in earnings per share with $21.3 billion in revenues. The company beat analyst estimates by reporting $0.91 earnings per share with $21.9 billion in revenues. Shares traded lower early in the session due to concerns over decreasing net interest margins. Below I will highlight information from the company's news release and conference call then give my conclusion.


The company reported full year 2012 revenue of $86.1 billion which is a 6% increase from last year. For the fourth quarter the company reported revenue of $21.9 billion which is a 7% increase from the fourth quarter of last year. Businesses generating linked-quarter, double-digit annualized revenue growth included capital finance, capital markets, commercial banking, commercial real estate, corporate banking, credit card, mortgage, and wealth management.

Net Interest Margins:

The company reported a fourth quarter net interest margin of 3.56% which is down slightly from 3.89% reported for the fourth quarter of 2011. The full year 2012 net interest margins came in at 3.76% which is also a slight decline from 3.94% seen last year. On a linked-quarter basis, the Company's net interest margin declined 10 basis points. An 8 basis point drop was caused by strong deposit growth in the quarter which diluted the net interest margins as cash and short term investments increased. The company also attributed the lower interest rate environment to have caused a 5 basis point drop. The company reported a 3 basis point gain from other high income variable sources.

Miscellaneous Information:

  • Return on Assets 1.46%
  • Return on Equity 13.35%
  • Deposit growth of $30 billion
  • Purchased 42 million common shares in the fourth quarter plans to purchase 6 million more shares in early 2013.
  • 27.4% effective tax rate for the fourth quarter.
  • Community Banking Net Income was up 14.34% from last year's quarter.
  • Wholesale Banking Net Income was up 24.20% from last year's quarter.
  • Wealth, Brokerage and Retirement Net Income was up 12.86% from last year's quarter.


I remain bullish on Wells Fargo as company executives seem positive on 2013 on the conference call. On the call the company stated that they believe net interest income will increase even in a low interest rate environment. The company also stated that the net interest margin compression due to low rates has moderated. If in fact we see the fed raise interest rates Wells Fargo stands in a great position to benefit as they continue to see strong loan growth. The company reported double-digit annualized loan growth in commercial banking, credit care, mortgage, and retail brokerage in the fourth quarter. I am also pleased to see increasing capital levels and expectations of lower expenses. I see net interest margins increasing in 2013 as interest rates may increase slightly or at least won't fall even lower. Any pullback in the stock due to decreasing net interest margins seems buyable. Wells Fargo looks attractive here as the company seems to be very well positioned for increasing future earnings.

Disclosure: I am long WFC.