Buoyed by strong top-line growth, Wells Fargo & Company’s WFC first-quarter 2016 earnings recorded a positive surprise of about 1%. Earnings of 99 cents per share beat the Zacks Consensus Estimate by a penny. However, it compared unfavorably with the prior-year quarter’s earnings of $1.04 per share. Shares of Wells Fargo declined more than 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. Wells Fargo witnessed organic growth aided by higher revenues along with strong loans and deposit balances. Moreover, a strong capital position and returns on assets and equity acted as positives. However, higher provisions and expenses were a concern. Notably, reserve build of $200 million was recorded in the quarter as oil and gas portfolio deteriorated. First-quarter net income applicable to common stock came in at $5.1 billion, down 7% year over year. The quarter’s total revenue came in at $22.2 billion, beating the Zacks Consensus Estimate of $21.6 billion. Further, revenues inched up around 4.2% on a year-over-year basis. Furthermore, on a year-over-year basis, revenue generation at the business segments was impressive. Community Banking and the Wholesale Banking segments’ quarterly total revenue jumped around 4.1% and 9.4%, respectively, while Wealth, Brokerage and Retirement segment’s revenues decreased 3.3%. Wells Fargo & Company (WFC) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany Performance in Detail Wells Fargo’s net interest income in the quarter came in at $11.7 billion, up 6% on a year-over-year basis. Increased interest income from trading assets and investment securities, along with lower other interest expenses, drove the results. However, net interest margin decreased 5 basis points year over year to 2.90%. Non-interest income at Wells Fargo came in at around $10.5 billion, up 2% year over year, mainly due to elevated lease income and other income. These negatives were partially mitigated by reduced net gains from debt securities, trading activities and equity investments. Notably, higher lease income reflects operating leases acquired in the GE Capital transactions. As of Mar 31, 2016, total loans were $947.3 billion, increasing 10% on a year-over-year basis. Growth in both the commercial and consumer portfolios contributed to the rise. Total deposits were $1.2 trillion, up 4% from the prior-year quarter. Non-interest expense at Wells Fargo was $13 billion, up 4% from the prior-year quarter. The rise in expenses was primarily attributable to higher salaries and equipment expenses along with elevated other expenses. The company’s efficiency ratio of 58.7% was below 58.8% recorded in the prior-year quarter and within the targeted efficiency ratio range of 55%–59%. A fall in efficiency ratio indicates a rise in profitability. Wells Fargo hopes to operate at the high end of its targeted efficiency ratio range in 2016. Credit Quality Wells Fargo reported mixed credit quality metrics in the quarter. Allowance for credit losses, including the allowance for unfunded commitments, totaled $12.7 billion as of Mar 31, 2016, waning from $13.0 billion as of Mar 31, 2015. Non-performing assets fell 8.8% to $13.5 billion in the quarter from $14.8 billion in the prior-year quarter. However, provision for credit losses was $1.09 billion, up 78.6% year over year from $608 million. Net charge-offs were $886 million or 0.38% of average loans in the reported quarter, up from the prior-year quarter net charge-offs of $708 million (0.33%). Capital Position Wells Fargo has maintained a solid capital position. The company purchased 51.7 million shares of its common stock in the first quarter. Wells Fargo’s Tier 1 common equity under Basel III (fully phased-in) increased to $142.7 billion from $142.5 billion in the prior quarter. The Tier 1 common equity to total risk-weighted assets ratio was estimated at 10.6% under Basel III (fully phased-in) as of Mar 31, 2016, compared with 10.5% as of Mar 31, 2015. Book value per share increased to $34.58 from $32.70 in the prior-year quarter. Our Viewpoint Though Wells Fargo has reported decent revenue growth, we expect top-line headwinds to persist, given the protracted economic recovery and further interest rate hike uncertainty. With the thrust of banking regulations, there will be pressure on fees and loan growth. Moreover, rise in expenses and higher provisions were a major drag. We believe that in the long term, investors will not be disappointed with their investment in Wells Fargo, given its diverse geographic and business mix, which enables it to sustain consistent earnings growth. Going forward, we believe that strategic acquisitions will help the company expand its business and boost profitability. Currently, Wells Fargo carries a Zacks Rank #4 (Sell). Meanwhile, banking major – JPMorgan Chase & Co. JPM – which kicked started the first-quarter earnings reported $1.35 per share surpassing the Zacks Consensus Estimate of $1.26, which was pretty conservative given the number of downward revisions over the last couple of months. However, the figure reflects a 7% decline from the year-ago period, indicating the impact of challenging market conditions. Among other Wall Street giants, Citigroup Inc. C is scheduled to report first-quarter 2016 earnings on Apr 15, while U.S. Bancorp USB will report on Apr 20. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report JPMORGAN CHASE (JPM): Free Stock Analysis Report US BANCORP (USB): Free Stock Analysis Report WELLS FARGO-NEW (WFC): Free Stock Analysis Report CITIGROUP INC (C): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research