Wells Fargo & Co. (WFC, Financial) reported $5.5 billion in net income and $1.00 earnings per diluted share for the quarter ending March 31. These values were in line with results from first-quarter 2016 and slightly outperformed values from fourth-quarter 2016. Even though the company has work to do, management expects Wells Fargo to rebound from the account scandal seven months ago.
Brief summary of earnings report and earnings call
The San Francisco bank reported solid financial results during the quarter, including net income of $5 billion for each of the past 18 quarters and diluted earnings per share of about 2 cents higher than analyst estimates. The higher earnings are primarily driven by a 5% increase in net interest income and a 7% increase in total average deposits from the prior-year quarter.
CEO Tim Sloan praised the company’s efforts to “make meaningful progress in the first quarter in rebuilding trust with customers.” According to Sloan, the company’s senior management expects Wells to become a top financial services leader in six areas, including customer service, team member management, risk management and long-term shareholder value. The CEO also mentioned that the account scandal results allowed management to “identify areas for further improvement” and make changes to their business structure.
Company management addresses the bank’s efficiency ratio and net interest margin
Wells Fargo reported an efficiency ratio of 62.7%, which underperformed Sloan’s expectations. Although the company’s net interest income increased 5% year-over-year, first-quarter noninterest expense approximately $600 million from fourth-quarter 2016. In the earnings call, Sloan discussed possible reasons for the high efficiency ratio, including “seasonally higher employee benefits and incentive compensation expense.” The CEO also discussed two methods to improve the efficiency ratio: one in the short term and one in the long term.
According to management, Wells Fargo expects to reduce its noninterest expense by $2 billion and reinvest the cost savings for company growth. In the long term, Sloan and Chief Financial Officer John Shrewsberry expect to maintain a net interest income growth in the high single digits. Management expects these initiatives to decrease the bank’s efficiency ratio to about 58%, the high end of their desired range.
Disclosure:Ă‚ No position in Wells Fargo.
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