Wells Fargo (WFC): Strong Quality Growth Across the Board

Posted on Oct 16 2015 - 12:42pm by Sharpe Trade

For years, I have stated that new retail investors should tune into companies quarterly conference calls, presented to Shareholders. The benefits are numerous and many.

It only generally takes one hour or so, every three months.

One can become familiar with the business with which one is invested.

One can listen to the board members of various corporations around the planet, as they attempt to manage businesses worth billions of dollars. You’re not listening to some doofus and his thoughts on the economy who has no stake in issues facing the economy. You’re not listening to my thoughts on the economy. You are listening to board members discuss the very real issues they face as they manage corporations worth billions.

When I listen to the conference call of a company, I take some notes. And therefore … I thought that to help out new folks as they navigate conference calls, I would start posting my notes, as I’ve taken them. Perhaps, we can make this a continual feature here at Sharpe Trade with the stocks that we have mentioned in the Sharpe Income project.

Wells Fargo (WFC) reported earnings on the 14th of October, after which the stock’s price has risen 3.113%. As I have mentioned previously here on Sharpe Trade, this is a stock that I use in the equities section of my own personal income accounts.

Wells Fargo (WFC) – Daily Chart

Wells-Fargo-WFC-Chart-10-16-2015

So what’s ‘the low-down’?

A few notes from my desk as I listened to the conference call

Wells Fargo (WFC) – October 14, 2015

  • $1.03(7) Est. / $1.05 in Actual EPS.
  • Net Income … 5.3 Billion in Net Income, up 1% from the same time last year.
  • Earnings per share (EPS) of $1.05 up 3%.
  • Revenue of 21.9 Billion, up 3%.
  • Strong growth in loans and deposits. Total Average Deposits at 1.2 Trillion, up 71.8 Billion, or 6% increase.
  • Loan growth strong, with average loans up 7% from the same time last year.
  • Strength in credit quality as charge off rate dropped from 0.32 to 0.31 annualized
  • Returning capital to shareholders with a dividend payout ratio of 35%, with buybacks of 52 million shares.
  • Global economy showed weakness this quarter obviously through emerging markets and the strong U.S. Dollar. With WFC as a U.S. centric company, Wells Fargo has proven resilient. As U.S. consumers have benefited somewhat from lower gas prices, WFC see’s benefits to their customer base somewhat though the environment is challenging
  • Increasing households they serve, adding consumer and commercial relationships, and growing loans and deposits remains focus for growth.
  • Commerical and consumer business loan growth doing well, and has good momentum. Portfolio split 50/50 between commercial and consumer loans.
  • Growth in 7% in assets from a year ago, and 2% from second quarter, and on the Income Statement side of things, they have experienced expense declines.
  • Mortgage originations down, but this is seasonal and expected and expect it lower next quarter, in-line with seasonal expectations and tendencies.
  • Operating losses a little higher than the average due to litigation matters, but efficiency ratios are improving.
  • 32 Billion being used for largest acquisition, wherein Wells Fargo (WFC) is acquiring certain GE Capitals Commercial Distribution finance and Vendor finance business along with certain Corporate Loan and Lease assets. Hundreds of analysts and months have been spent on the due diligence of this acquisition. Expect to close this on the 1st quarter of 2016 with very little impact on liquidity to Wells Fargo (WFC).
  • They expect this acquisition to be neutral to moderately accretive to their 2016 results.
  • Also acquiring GE Rail lease. . Lease and loan assets…
  • Questions and Answers: Began at 26 minutes into the 1 hour call. Questions revolved around modeling for profitability on acquisitions, legal expenses, economic outlook (which they see as improving, but only incrementally).  With improving charge off rate and environment, rather than making bad loans, they are actually buying them in this environment.

If I was forced to put this quarter into a few sentences?

Wells Fargo (WFC) enjoyed a strong quarter across almost every segment of their business, despite lingering within a ZIRP environment. Naturally, when interest rates raise, the outlook for Wells Fargo (WFC) would only improve. As the stock has pulled back recently, this is a stock that I currently (as of today) view as a ‘buy’ …

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