Compass Point Reacts To Wells Fargo Earnings

Big bank earnings season is officially underway, and analysts at Compass Point issued a report Tuesday breaking down the numbers reported by Wells Fargo & Co (NYSE: WFC). Here’s a summary of analysts’ key takeaways from Wells Fargo’s Q1 report.

Earnings Miss?

While Wells Fargo’s top-line earnings number of $1.04 per share beat consensus estimates of $0.98 and Compass Point’s estimate of $1.00, analysts point out that there’s a caveat to the number. When adjusted for a $359 million tax benefit in Q1, analysts calculate that Wells Fargo’s actual earnings number from operations for the quarter was $0.97 per share, below estimates.

Analysts point to poor net interest income numbers during the quarter as the main cause for the disappointment.

Credit

Nonperforming assets of $14.8 billion during the quarter declined by 4 percent from Q4. About $100 million in credit reserve releases added $0.01 per share to earnings during the quarter.

NIM

Net interest income of $11 billion fell short of analysts’ expectation of $11.1 billion and short of the 4Q14 number by 1.7 percent. Net interest margin (NIM) compression of 9 bps and a decline in period-end loan balances were likely the main contributors to the decline in income.

Fee Income

Fee income of $10.3 billion came in above expectations and was driven by strong trading revenues. Mortgage originations of $49 billion were up $5 billion from 4Q14.

Capital

Wells Fargo repurchased 48.4 million shares in Q1 and entered into a transaction to purchase another 14.0 million shares in Q2. Wells Fargo’s common equity tier I capital ratio fell from 11.04 percent in 4Q14 to 10.86 percent in Q1.

Compass Point maintains its Neutral rating and $48 price target for Wells Fargo.

Disclosure: the author owns shares of Wells Fargo.