OREANDA-NEWS. Wells Fargo & Company (WFC) reported \\$5.8 billion in net income for an ROA of 1.38%, up \\$95 million from last quarter. Earnings were supported by lower tax expenses, trading gains, and some seasonally lower noninterest expenses. WFC remains within its targeted ranges for ROA, ROE and the efficiency ratio, which are 1.3% to 1.6%, 12% to 15%, and 55% to 59%, respectively. Fitch Ratings views these results as in line with expectations for WFC, one of the strongest and most consistent earnings profiles in the industry.

Reported earnings benefitted from a net \\$359 million discrete tax benefit due to the resolution of prior period matters with federal and state taxing authorities. Some of the sequential comparisons also include the absence of the \\$217 million gain on the sale of government guaranteed loans last quarter. Excluding these items, revenues were essentially flat on a sequential basis. Lower spread income and higher provision expenses were partially offset by lower noninterest expenses.

Revenues fell from the prior quarter due to a decline in spread income, primarily reflective of two fewer days in the quarter. The net interest margin (NIM) contracted 9bps in 1Q'15 to 2.95%. The compression was mainly attributed to deposit growth and lower variable income. WFC continues to report very strong core deposit growth with very low funding costs.

WFC reported 2% average loan growth in 1Q'15. Once again, citing a competitive market environment, loan growth was slower than prior quarters. Auto loan grew approximately \\$600 million in 1Q'15, down from around over a \\$1 billion a quarter during the first few quarters of 2014.

Overall noninterest income was essentially flat on a linked-quarter basis (up 2% when adjusting for the aforementioned gain on sale of the student loans). WFC reported strong trading gains, increased insurance premiums, and an improvement in mortgage banking revenues.

Market-sensitive revenues, which include gains and losses on equity investments, trading activities, and debt securities, increased 43% on a linked-quarter basis. WFC reported a very large increase in trading gains. These market-sensitive revenues, combined with investment banking fees, were around 7% of total revenues, once again well below the average for Bank of America, Citi and JPM, who typically average 25% of revenues.

Mortgage results were good during the quarter, and WFC reported very large increases in applications and the pipeline, suggesting that next quarter may also be favorable for the company. Mortgage banking revenues increased on both higher production revenue and an improved gain on sale margin. Applications were \\$93 billion in 1Q'15, while the pipeline was \\$44 billion, both at their highest levels since 2Q'13.

Expenses fell 1% on a sequential basis reflecting some seasonally lower expenses, as well a decline in salary expense reflecting less days during the quarter. This was partially offset by seasonally higher incentive compensation and employee benefits expenses.

WFC reported a smaller reserve release on a sequential basis of just \\$100 million as compared to \\$250 million last quarter. Net charge-offs (NCOs) reflected a still benign credit environment at just 33bps. Due primarily to loan growth, provision expenses increased 25% sequentially.

Loan loss reserves incorporate potential losses on WFC's oil and gas exposures. At March 31, 2015, total outstandings were \\$18.5 billion or around 2% of loans. Although loan balances increased by \\$65 million in 1Q'15, Fitch observes that there appears to be no observable large draws on existing lines by potentially stressed borrowers. WFC indicated that future loan loss reserve levels will depend on loan growth, portfolio performance, and general economic conditions.

The estimated Common Equity Tier 1 under Basel III Advanced Approach, fully phased-in, increased 10Bps to a solid 10.53% at quarter-end. WFC received no objection to its capital plan under CCAR, increasing its dividend to \\$0.375 per share, up from \\$0.35 per share, subject to Board approval.

WFC also recently received approval to exit parallel reporting, and will begin using the Advanced Approach for regulatory capital reporting beginning next quarter. The regulators did not require any increases to Advanced Approach risk-weighted assets, as has been the case with some of its large bank peers.