10-QPeriod: Q2 FY2010

WELLS FARGO & COMPANY/MN Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 9, 2010For Securities:WFCWFC-PDWFC-PCWFC-PYWFC-PAWFC-PLWFCNPWFC-PZ

Summary

Wells Fargo & Company/MN (WFC) reported solid financial results for the second quarter of 2010, showcasing resilience in a challenging economic environment. The company achieved net income of $3.1 billion, or $0.55 per diluted share, marking the fourth quarter since the Wachovia merger where net income exceeded $3.0 billion. Despite a slight decrease in total revenue and net interest income compared to the prior year, driven by declining loan demand and lower mortgage hedging results, Wells Fargo demonstrated strength through its diversified business model, with notable year-over-year revenue growth in areas like commercial real estate brokerage, wealth management, and merchant services. The company also made significant progress on its merger integration with Wachovia, achieving approximately 80% of its targeted cost savings and reporting better-than-expected revenue synergies. Credit quality showed signs of improvement, with net charge-offs declining and a release of loan loss reserves reflecting improved portfolio performance. Capital ratios remained robust, with Tier 1 common equity increasing significantly, indicating a strengthened balance sheet. Management remains focused on building capital and managing risk effectively, positioning the company for sustained long-term growth.

Financial Highlights

36 data points
Beta

Net Income

$3.06B

EPS (Diluted)

$0.55

Total Assets

$1.23T

Free Cash Flow

$7.97B

Financial Statements
Beta
Interest Expense$2.02B
Net Income$3.06B
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)5.22B
Shares Outstanding (Diluted)5.26B

Key Highlights

  • 1Net income for Q2 2010 was $3.1 billion ($0.55/share), down slightly from $3.2 billion ($0.57/share) in Q2 2009, but reflecting strong performance post-Wachovia merger.
  • 2Total revenue was $21.4 billion, flat with the prior quarter but down 5% year-over-year, with growth in several business lines offsetting declines in mortgage banking.
  • 3Net interest margin improved to 4.38% from 4.30% a year ago, driven by PCI loan resolutions and lower funding costs.
  • 4Provision for credit losses decreased to $4.0 billion from $5.1 billion in the prior year, supported by a $500 million release of loan loss reserves due to improved loan portfolio performance.
  • 5Noninterest expense was stable year-over-year at $12.7 billion, though it included higher merger integration costs and litigation accruals.
  • 6Tier 1 common equity ratio strengthened to 7.61%, up from 6.5% at the end of 2009, demonstrating enhanced capital strength.
  • 7Wells Fargo is on track with Wachovia merger integration, having achieved 80% of targeted cost savings and expecting to realize $5.0 billion in annual cost savings.

Frequently Asked Questions

Wells Fargo reported a net income of $3.1 billion, or $0.55 per diluted common share, for the second quarter of 2010. This represents a slight decrease from the $3.2 billion, or $0.57 per diluted common share, reported in the second quarter of 2009.

Credit quality showed improvement. Net charge-offs declined to $4.5 billion, down 16% from the previous quarter and 17% from the previous year's peak. The company also released $500 million in loan loss reserves, reflecting improved loan portfolio performance and a belief that credit losses had peaked in the fourth quarter of 2009.

The integration of Wachovia is proceeding well. Wells Fargo has achieved approximately 80% of its targeted run-rate cost savings by the end of the second quarter of 2010 and expects to achieve 90% by year-end. Revenue synergies are also exceeding initial expectations, and merger integration costs were $498 million in the quarter.

Wells Fargo's capital position strengthened. Key capital ratios improved, with the Tier 1 common equity ratio reaching 7.61% at June 30, 2010, up from 6.5% at December 31, 2009. The company repurchased $540 million of warrants from the U.S. Treasury, demonstrating proactive capital management.