There's a lot to digest in the 43 pages of Wells Fargo's (NYSE: WFC ) most recent earnings report. But The Motley Fool is here to help you navigate through the numbers. Today, we'll look at find seven things you need to know but may have missed.
1. The bank saw its worst quarterly revenue since 2011
Wells Fargo's total revenue fell to its lowest level in two years.
A big part of that drop came from the community-banking business, which saw its revenue decline by almost $700 million, largely on a big drop in mortgage banking revenue. Investors knew this drop was coming for months -- so they shouldn't be too concerned with the fall.
And in fact, there was good news, too ...
2. Four businesses saw double-digit revenue growth
Although the bank as a whole saw its revenue drop by 4%, it had four businesses whose revenue grew by more than 10% over the past year:
- Credit card
- Personal credit management
- Retail sales finance
- Retirement services
While each of those individual businesses aren't broken out, it does give unique insight into different businesses where Wells Fargo is seeing significant growth and could begin devoting greater attention.
3. The credit card business is doing really well
Wells Fargo has seen credit card loans held on its balance sheet grow by almost $2 billion, or 7%, over the past year. Yet despite that growth in its loan portfolio, the amount of past-due credit card loans fell by 1%. It has also seen the amount of charges that its customers have made on their Wells Fargo credit cards grow 14% over the past year.
But even more interesting than the improving business metrics is its ability to get its credit cards into its customers' hands. As of the most recent quarter, 36% of Wells Fargo customers who have a checking account also have a credit card with the bank, an improvement of more than 12% from last year's 32.1%.
4. Wells Fargo is its paying employees more
Wells Fargo's employee numbers grew by about 1.5% over the past year -- but the surprise here is that the total of its salaries, commissions, and employee benefits expenses grew by 6%. That means each employee had a benefit package totaling a little over $1,000 more in the third quarter of this year compared with the third quarter of last year.
5. Mortgage purchase originations fell
It was widely understood that Wells Fargo would have lower mortgage originations thanks to a decline in refinancing, which fell 48% -- yet it also saw its mortgages issued for home purchases also fall by 4%. Compare that with JPMorgan Chase, which reported that its purchase originations were up 15% over last quarter -- and it suggests a somewhat alarming trend. In particular, keep an eye how banks such as Bank of America and US Bancorp report their originations to see whether Wells Fargo was simply in line with the broader market or if it was the outlier.
6. Noninterest income was both down and up
Wells Fargo saw its noninterest income (fees and other associated things) fall by $900 million from the second quarter to the third quarter of this year. Yet hidden in the presentation for its earnings call, there was a graph showing that, excluding its mortgage business, its noninterest income was up by almost $300 million. The high refinance volume probably inflated earnings, so it's encouraging to see its noninterest income apart from that outlier grow both quarter over quarter and year over year.
7. Expenses fell
The efficiency ratio is a measure of how much it costs to generate revenue -- a number that investors hope to see drop with each passing quarter -- and it's a metric that many are keen to monitor. Yet Wells Fargo surprisingly saw its rise to the highest level since the first quarter of 2012:
Yet it's important to note that the efficiency ratio's denominator is revenue -- so a decline in revenue with flat expenses would boost the efficiency ratio. In reality, while its efficiency ratio was up, Wells Fargo's expenses fell by $150 million from the second quarter to the third. While you always need to monitor the efficiency ratio, ensure that it isn't being clouded by other events outside of expense management.
Although the stock fell on the day it announced earnings, there were a lot of positive signs from Wells Fargo. In all of this, we can see that there is often more to an earnings announcement than simple top- or bottom-line numbers that traders often quickly react to. But as investors, not traders, we know that it's best to take a longer-term view.
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