Driven by top-line growth, Wells Fargo & Company (WFC - Analyst Report) earned $1.02 per share in third-quarter 2014, thereby surpassing 99 cents earned in the year-ago quarter. However, the reported figure was in line with the Zacks Consensus Estimate.
Despite positive market sentiment, shares of Wells Fargo declined around 1% in the pre-market session, indicating that investors have been bearish on the results. The price reaction during the full trading session will give a fair idea about the extent of disappointment among investors.
Total loans and deposits grew and the company recorded higher revenues. Moreover, a strong capital position and returns on assets and equity acted as the positives.
Wells Fargo also reported $300 million in reserve release (pre-tax), attributable to its improved credit performance. However, the company experienced a slight rise in non-interest expenses and higher provisions.
Third-quarter net income applicable to common stock came in at $5.4 billion, up 2% year over year.
The quarter’s total revenue came in at $21.2 billion, outpacing the Zacks Consensus Estimate of $21 billion. Moreover, revenues jumped 4% year over year.
Furthermore, segment-wise, on a year-over-year basis, Community Banking, Wholesale Banking and the Wealth, Brokerage and Retirement segments’ total revenue jumped 4.9%, around 1% and 7.3%, respectively.
Wells Fargo & Company – Earnings Surprise | FindTheBest
Performance in Detail
Wells Fargo’s net interest income for the quarter came in at $10.9 billion, up 2% on a year-over-year basis. Increased interest income from trading assets and investment securities, along with lower deposits costs, aided the results. However, net interest margin decreased 33 basis points year over year to 3.06%.
Non-interest income at Wells Fargo came in at $10.3 billion, up 6% year over year, mainly due to net gains on debt securities and equity investments, higher card fees as well as trust and investment fees and a slight rise in mortgage banking revenues. These negatives were partially mitigated by reduced net gains from trading activities.
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As of Sep 30, 2014, total loans were $838.9 billion, increasing 3.7% on a year-over-year basis. Growth in both the commercial and consumer portfolios contributed to the rise. Total deposits were $1.1 trillion, up 8.7% from the prior-year quarter.
Non-interest expense at Wells Fargo was $12.2 billion, up 1% from the prior-year quarter. The rise in expenses was primarily attributable to higher commission and incentive compensation, FDIC and other deposit assessments along with other expenses. These were partially offset by lower core deposit and other intangibles as well as reduced employee benefits and equipment expenses.
The company’s efficiency ratio of 57.7% came in below 59.1% in the prior-year quarter and was within the targeted efficiency ratio range of 55%–59%. A fall in efficiency ratio indicates an improvement in profitability. Wells Fargo hopes to maintain its targeted efficiency ratio range in the fourth quarter of 2014.
Credit Quality
