Wells Fargo beats by $0.02, misses on revs
Reports Q3 (Sep) earnings of $0.99 per share, $0.02 better than the Capital IQ Consensus Estimate of $0.97; revenues fell 3.5% year/year to $20.48 bln vs the $20.96 bln consensus.
Top Points:
* The Company's net interest margin declined 8 basis points from the prior quarter to 3.38 percent (expectations were for a low-mid single digit decline). * Co reproted Q3 residential mortgage originations of ~$80 bln versus guidance of ~$80 bln (At Barclays Conference on Sep 9).
Net Interest Income/Noninterest income/provisions
* Net interest income in third quarter 2013 at $10.7 bln, essentially unchanged from second quarter 2013. Net interest income benefitted from available-for-sale (AFS) securities portfolio purchases, which consisted largely of agency mortgage-backed securities, lower funding costs, organic growth in commercial and consumer loans, commercial real estate loan acquisitions, and one additional business day in the quarter. * The provision for credit losses decreased $87 mln from a year ago due to a $117 mln reduction in credit losses. The third quarter 2013 provision included an $80 mln reserve release, compared with $110 mln a year ago. * Noninterest income was $9.7 bln, compared with $10.6 bln in second quarter 2013, driven primarily by lower mortgage refinance volume and reduced gain on sale margins. Total loans were $812.3 bln at September 30, 2013, up $10.4 bln from June 30, 2013.
Mortgages/Loans
* Mortgage banking noninterest income was $1.6 bln, down from $2.8 bln in second quarter 2013. During the third quarter, residential mortgage originations were $80 bln, down from $112 bln in second quarter 2013. The Company provided $28 mln for mortgage loan repurchase losses, compared with $65 mln in second quarter 2013 (included in net gains from mortgage loan origination/sales activities). * Total average loans were $804.8 bln, up $4.5 bln from the prior quarter. Total average deposits were $1.0 trln, up 8 percent from a year ago and up 6 percent (annualized) from second quarter 2013. 2013.
Capital:
* Under Basel III capital rules, the Tier 1 common equity ratio was an estimated 9.54 percent. Net loan charge-offs improved to $975 mln in third quarter 2013, or 48 basis points of average loans, compared with $1.2 bln in second quarter 2013, or 58 basis points of average loans. The allowance for credit losses, including the allowance for unfunded commitments, totaled $15.6 bln at September 30, 2013, down from $16.6 bln at June 30, 2013. The allowance coverage to total loans was 1.93 percent, compared with 2.07 percent in second quarter 2013.
Divisions:
* Community Banking reported net income of $3.3 bln, up $96 mln, or 3 percent, from second quarter 2013. Wholesale Banking reported net income of $2.0 bln, down $31 mln, or 2 percent, from second quarter 2013. Revenue of $5.9 bln decreased $264 mln, or 4 percent, from prior quarter on lower sales and trading and investment banking results as well as seasonally lower crop insurance fees. Wealth, Brokerage and Retirement reported net income of $450 mln, up $16 mln, or 4 percent, from second quarter 2013.
Commentary:
"As our economy continues to transition to higher interest rates, our diversified business model and strong risk discipline contributed to record earnings per share along with continued strength in return on assets, return on equity and capital. The improvement in the housing market has been beneficial to our customers and significantly contributed to our broad-based credit improvement in the quarter...This was a solid quarter for Wells Fargo. As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses. Year-over-year, we had strong loan growth, double-digit increases in noninterest income across many of our businesses and continued to build capital and return more to shareholders through dividends and share buybacks."