Wells Fargo Reports Better Than Expected Earnings, Weak Revenue

 
on April 12 2013 8:43 AM
Wells Fargo
Wells Fargo downgraded its evaluation of Apple stock. Reuters

Banking behemoth Wells Fargo (NYSE: WFC [FREE Stock Trend Analysis]) reported first quarter earnings that beat forecasts on the bottom-line but revenue was slightly weaker than expected.

The company also announced that the dividend was increased in the first quarter and that the company bought back 17 million shares of stock.

For the first quarter of 2013, Wells Fargo reported EPS of $0.92, beating consensus forecasts of $0.88 by $0.04 or 4.5 percent. However, revenue was slightly weaker than expected at $21.26 billion compared to the estimate of $21.6 billion, a miss of 1.57 percent.

Importantly for investors, Wells Fargo was able to grow its return on equity in the quarter. ROE grew 145 basis points to 13.59 percent while return on assets was up 18 basis points to 1.49 percent.

Loan growth continued in the quarter as total loans grew 4.175 percent. Importantly, core loans, as classified by the company, grew 7.16 percent to $709.1 billion in the quarter. Also, the net charge-off rate of loans fell to the lowest since the second quarter of 2006 and non-performing assets fell $3.8 billion from the prior quarter.

Under Basel I capital rules, Wells Fargo reported a Tier 1 Capital Ratio of 10.38 percent having $113.6 billion in Tier 1 Capital. Under the new Basel III rules, the Tier 1 Capital Ratio falls to 8.39 percent.

Wells Fargo also reported that it increased its dividend in the first quarter to $0.25 per share and is expected to keep the dividend the same in the current quarter. Also, the bank announced that it had bought back 17 million shares of common stock, or 0.3 percent of shares outstanding in the first quarter.

“Wells Fargo delivered outstanding first quarter 2013 results for our shareholders,” said Chairman and CEO John Stumpf. “Quarterly earnings and EPS increased at double-digit rates compared with first quarter 2012, while loans and deposits demonstrated continued growth in a challenging economic environment. In addition, expenses continued to decline as we improved efficiency across the franchise, and returns on assets and equity increased and remained among the highest in our industry."

"Capital levels remained strong and we were very pleased to increase our dividend to $0.25 per common share in first quarter 2013 and to receive a non-objection to our 2013 Capital Plan which will allow us to return even more capital to shareholders in the year ahead. Our success in the quarter, as always, was driven by helping our customers succeed financially, and I am very proud of the dedication and hard work of our team members.”

“Our company earned $5.2 billion in first quarter 2013, the highest quarterly profit in our history—another milestone demonstrating how Wells Fargo's diversified business model continued to produce outstanding results,” said Chief Financial Officer Tim Sloan. “This is our 13th consecutive quarter of EPS growth and 8th consecutive quarter of record EPS. Average loans and deposits increased in the quarter, expenses were lower, and credit metrics improved with the net charge-off ratio down to the lowest level since second quarter 2006.”

“Revenue was down linked quarter largely due to the absence of the higher than average equity gains we recognized last quarter, the expected cyclicality in the mortgage business, and two fewer days in the quarter, which had a negative impact on both net interest income and noninterest income linked quarter trends,” said Sloan. “We continue to be pleased with the revenue growth in many of our core businesses, as evidenced by the strong year-over-year growth in brokerage advisory and commission fees, investment banking, card fees, and deposit service charges, all of which were up over 10 percent. That's the benefit of our diversified business model and among the many drivers of our continued success.”

Wells Fargo shares traded lower by almost two percent to $36.79 pre-market on the news.

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