Riding on higher revenues, Wells Fargo & Company (WFC - Analyst Report) delivered a positive earnings surprise of 6% in first-quarter 2015. The company reported earnings of $1.04 per share, outpacing the Zacks Consensus Estimate of 98 cents. However, the reported figure fell a penny below year-ago figure.
Shares of Wells Fargo declined over 1% in the beginning of the trading session. Perhaps, the investors have been bearish on the results as the company reported lower profits. First-quarter net income applicable to common stock came in at $5.5 billion, down 3% year over year. However, the price reaction during the full trading session will give a fair idea about the extent of disappointment among investors.
Results were aided by revenue growth, partially offset by higher expenses and increased provision for loan losses. Total loans and deposits continued to exhibit growth in this quarter as well. Also the quarter recorded improving credit quality and strong capital position.
The quarter’s total revenue came in at $21.3 billion, outpacing the Zacks Consensus Estimate of $21.1 billion. Moreover, revenues rose 3% year over year.
Segment-wise, on a year-over-year basis, Community Banking, Wholesale Banking and the Wealth, Brokerage and Retirement segments’ total revenue increased 2%, around 6% and 8%, respectively.
Quarter in Detail
Wells Fargo’s net interest income for the quarter came in at $11.0 billion, up 3% 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 25 basis points year over year to 2.95%.
Non-interest income at Wells Fargo came in at $10.3 billion, up 3% year over year, mainly due to higher trust and investment fees, mortgage banking revenues, card fees and higher net gains on debt securities and equity investments. These positives were partially offset by reduced net gains from trading activities and net gains from equity investments.
Non-interest expense at Wells Fargo was $12.5 billion, up 5% from the prior-year quarter. The rise in expenses was primarily attributable to higher commission and incentive compensation, employee benefits, FDIC and other expenses. These were partially offset by lower net occupancy costs as well as reduced costs related to core deposit and other intangibles.
The company’s efficiency ratio was 58.8%, up from 57.9% in the prior-year quarter. A higher efficiency ratio indicates a fall in profitability. Wells Fargo expects to maintain its targeted efficiency ratio in the range of 55%–59% for full-year 2015.
