This summary is based on the second quarter fiscal 2007 earnings call conducted by Wells Fargo & Company (WFC) on July 17, 2007.
Management:
SVP, IR: Bob Strickland
Senior EVP & CFO: Howard Atkins
Key Investors Issues
- Earnings grew to 67 cents per share, which is 10% growth.
- Total revenue increased with 13% from a year ago.
- Long-term interest rates rose and added $30 billion in securities at attractive yields.
- The net income grew with 13% from a year ago, driven by 20% revenue growth.
Second Quarter Highlights
The earnings per share grew with 10% to 67cents, compared with 61 cents per share in the second quarter of 2006.
- The company has had earnings per share at a double-digit rate for 17 quarters out of the past 20.
- The diversity of the revenue sources differentiated the company from the rest of the industry.
- A combination of double-digit revenue growth, positive operating leverage and stable credit quality drove the results up.
- Business performance was balanced across the diverse business segments with most of the 80 plus consumer and commercial businesses, producing double-digit earnings or revenue growth.
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Total revenue increased with 13% compared to a year ago.
- Businesses that generated double-digit year-over-year revenue growth included asset management, business direct, capital markets, corporate trust, credit and debit cards, global remittance services, home equity, consumer finance, insurance, international, personal credit management, real estate brokerage and wealth management.
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Operating leverage was positive with expenses increasing with 11%.
- It is 2% points below the 13% revenue growth.
- The year-over-year expense growth was directly or indirectly related to stronger sales in revenue.
The company opened 99 regional banking stores and 20 offices in the past year to serve existing and new commercial relationships.
- 4,000 team members were added to sales and service departments. This is 3% up from a year ago.
Sales commissions and related compensation increased in the fee-based businesses such as insurance, wealth management and real estate brokerage.
They all had strong revenue growth year-over-year.
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Non-personnel expenses were flat and declined in some categories. It reflected the ongoing discipline in containing expenses that don''t directly add to revenue growth.
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The net interest margin among the peers is at 4.89%, which is 13 basis points up from a year ago.
The company began to invest in longer-term securities, after selling lower yielding ARMs and securities over a year ago.
This is due to a rise of long-term interest rates, which added $30 billion in securities at attractive yields. These yields are higher than those at which the company sold their lowest yielding ARMs and long-term securities between mid 2004 and mid 2006. Half of the added securities were in the mortgage company, which uses mortgage-backed securities to hedge the interest rate risk in the mortgage servicing portfolio.
The company expects the additional assets to increase the net interest income. The higher average earning asset growth will reduce net interest margin in the third quarter.
The return on assets after all expenses and credit costs remained at 1.82%. It improved with 11 basis points from the second quarter of 2006 despite the increase in charge-offs from a year ago.
The return on equity remained at 19.6%. It reflected the double-digit earnings growth and the focus of the company to achieve high risk-adjusted returns in all of the business activities.
