Wells Fargo earnings announcement

Wells Fargo’s Earnings Top Estimates as Loan Losses Ease

Excerpt:

The bank’s $3.06 billion profit, which amounts to 55 cents a share, beat analyst expectations. However, it compares with a profit of $3.17 billion, or 57 cents a share, a year earlier. Revenue in the quarter was $21.4 billion, down 5 percent. Net income applicable to common shareholders rose 12 percent, to $2.88 billion.

Mr. Stumpf said that the bank was making “strong progress” on its merger with the Wachovia Corporation, the troubled lender it acquired during the financial crisis to give it a foothold in the Eastern United States. The process, Mr. Stumpf said, was about half finished, and had already achieved about 80 percent of the projected annual cost-savings. By the end of July, Wells Fargo expects to have converted Wachovia branches in markets like California, Texas and Kansas where the two banks competed. The bank is expected to convert Wachovia branches in the New York area in early 2011.

Bank executives were also pleased with the improvement in credit performance. The bank said charge-offs fell 16 percent in its consumer and corporate loan books, and fewer borrowers were falling behind on their credit card, home equity and mortgage loans.

“We have seen credit quality improve earlier and to a greater extent than we had previously expected,” Michael J. Loughlin, Well Fargo’s chief credit and risk officer.

In particular, the so-called Pick-a-Pay option-ARM mortgages and commercial loans that it acquired with the purchase of Wachovia are performing better than expected. That will allow the bank to book a gain of $506 million in the quarter, and could result in at least another $1.8 billion in additional income over the next several years.

Comment: Good news for WFC investors!