4 Key Things From Wells Fargo's Earnings You Need To Know

Wells Fargo's earnings handily beat expectations, but the future might be even brighter.

Apr 12, 2014 at 7:00AM

Wells Fargo (NYSE:WFC) kicked off earnings season for the banks on Friday, April 11, and handily beat expectations. The company's earnings per share of $1.05 came in about 8% better than the $0.97 analysts had expected, and there was a lot of good news revealed in the report. Here are some of the key points to take note of, and what they could mean for the bank going forward.

Wfc

The mortgage business fell, but it's not necessarily a bad thing
With 30-year mortgage rates much higher than they have been over the past couple of years, it's no wonder less people want to refinance their loans. Mortgage rates and refinancing volumes move almost exactly opposite of one another, as you can see in the chart below. In fact, the number of refinancing applications is at its lowest level since July 2009.

US Mortgage Originations, Refinancing Chart

As a result, Wells Fargo's income from its mortgage business dropped sharply from $2.8 billion in the first quarter of last year to $1.5 billion now. It also doesn't look like it's going to pick back up anytime soon, with just $27 billion of mortgage applications in the pipeline now, a decline of $38 billion from last quarter.

However, don't worry too much about this. As the biggest mortgage lender in the country, it's actually a good thing to see Wells developing and growing other segments of its business. Over time, this will add diversity to the bank's income stream and produce less reliance on mortgage income.

But people are spending more on things other than homes
Despite the drop in the volume of mortgages; Wells Fargo was able to increase its loan portfolio by $4.2 billion year-over-year. According to the bank, the growth came mainly from more auto loans and growth in its commercial real estate lending business. This is very impressive growth in the face of declining mortgage lending, and indicates consumer spending is picking up -- a very positive thing for banks and the entire economy.

Wells Fargo's community banking unit made 31% more than it did a year ago, further confirming this "higher consumer activity" trend. Community banking includes such things as checking and savings accounts, as well as consumer lending activities.

Wealth management: the future of Wells Fargo?
Income from brokerage fees rose by 11.6%, and total client assets increased 8% over the past year to $1.4 trillion. For a part of the company's business which was virtually nonexistent before it acquired Wachovia, Wells has done a very impressive job of growing it over the past few years.

There is still tremendous potential for growth here. Despite the recent performance, Wells Fargo's wealth management business only represents less than 8% of the company's net income. The bank serves more than 70 million customers, only about 1 million of whom (or about 1.4%) have a brokerage account with Wells Fargo Advisors. In California alone, where it doesn't have a big wealth management presence, there are about half a million customers who could potentially be signed up for brokerage accounts.

Loan losses are getting dramatically better
Wells Fargo released $500 million from its loan-loss reserves during this past quarter, as it is seeing a remarkable low rate of loan losses. The bank's net charge-off rate was just 0.41%, very low on a historical basis and far below the 0.72% rate of just one year ago.

Between the extremely low loan losses, growing wealth management business, and thriving consumer banking business, Wells Fargo is proof that the financial crisis is in the rear view. With a very high-quality loan portfolio and tremendous growth potential, this bank is one of the best in the business and should deliver for its investors for years to come.

Is this bank going to be Wells Fargo's biggest competition?
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers