Friday, April 13, 2012

Wells Fargo Reports 1st Quarter 2012 Earnings

From the Wells Fargo (WFC) quarterly earnings release:

Wells Fargo & Company (NYSE: WFC) reported record net income of $4.2 billion, or $0.75 per diluted common share, for first quarter 2012, compared with $3.8 billion, or $0.67 per share, for first quarter 2011...

Net interest income after provision for credit losses did grow to $ 8.89 billion from $ 8.44 in 1st quarter of 2011 but was basically flat compared to 4th quarter of 2011.

The bank's net interest margin increased to 3.91 percent from 3.89 percent in the 4th quarter of 2011. On that key measure, Wells continues to have a big advantage over most peers. Over the long haul, it should provide a big boost to returns on capital if combined with smart credit underwriting.

In the 1st quarter, the key driver of earnings growth was noninterest income:

Noninterest Income
Noninterest income was $10.7 billion, up from $9.7 billion in fourth quarter 2011. The $1.0 billion increase was driven by increases of $506 million in mortgage banking, $458 million in market sensitive revenue, and $181 million in trust and investment fees.

In the 1st quarter of 2011, noninterest income was just under $ 9.7 billion.

Wells Fargo will likely earn roughly $ 3.20/share this year. That compares to peak earnings prior to the financial crisis of $ 2.47/share. The fact that they are already displaying relatively strong earnings power in a still somewhat fragile economic environment would seem to imply they'll do just fine as conditions improve.

Yesterday's closing price was within 2% of a 52-week high yet, using the $ 3.20/share estimate, the stock currently sells for under 11x earnings.

Adam

Established a long position in WFC at much lower than recent market prices
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