Wells Fargo & Company’s (WFC Quick QuoteWFC - Free Report) third-quarter 2023 adjusted earnings per share of $1.39 has outpaced the Zacks Consensus Estimate of $1.25. The figure improved 6.9% year over year. The adjusted figure excludes the impact of discrete tax benefits relating to the resolution of prior period’s tax matters.

Shares of WFC have gained about 2.92% in the pre-market trading on a better-than-expected quarterly performance.

Results have benefited from higher net interest income (NII) and non-interest income. An improvement in capital ratios and a decline in expenses were other positives. However, the worsening credit quality and a dip in loan balances were the undermining factors.

Net income of $5.77 billion increased from $3.59 billion in the prior-year quarter.

NII Rises on Higher Rates, Costs Down

Quarterly total revenues were $20.86 billion, surpassing the Zacks Consensus Estimate of $20.21 billion. Also, the top line climbed 6.6% from the year-ago quarter.

Wells Fargo’s NII was $13.11 billion, up 8.3% year over year. The upside was mainly driven by a rise in interest rates partially offset by lower deposit balances.

Also, the net interest margin (on a taxable-equivalent basis) expanded to 3.03% from 2.83%.

Non-interest income grew 3.8% to $7.75 billion. This was largely due to higher trading revenues and an improvement in investment banking fees. These were partly offset by lower deposit-related fees and lesser mortgage banking revenues.

Non-interest expenses were $13.11 billion, down 8.3%. The decline was due to lower operating losses and the impact of WFC’s efficiency initiatives. These were partially offset by higher severance, technology, telecommunication and equipment as well as advertising and promotion costs.

WFC’s efficiency ratio of 63% was lower than 73% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.

As of Sep 30, 2023, total loans of $942.42 billion declined 1% on a sequential basis. Total deposits were $1.35 trillion, up 1% on a sequential basis.

Credit Quality Worsens

The provision for credit losses was $1.2 billion compared with $784 million in the prior-year quarter. Net loan charge-offs were $850 million or 0.36% of average loans in the reported quarter, up from $399 million or 0.17% a year ago. Further, non-performing assets jumped 43.2% to $8.18 billion.

Capital Ratio & Profitability Improves

As of Sep 30, 2023, Tier 1 common equity ratio was 11% under Standardized Approach, up from 10.3% in third-quarter 2022. The divestment of around $2 billion of WFC’s private equity investments in late September had a positive impact of around 14 basis points on the metric.

Return on assets was 1.21%, up from the prior-year quarter’s 0.76%. Return on equity of 13.3% improved from 8.1%.

Our Take

The company’s focus on expense management initiatives will likely support its financials in the upcoming period. Also, capital strength is expected to aid capital distribution activities. However, business divestitures and volatile fee income are some headwinds.

Wells Fargo & Company Price, Consensus and EPS Surprise

Wells Fargo & Company price-consensus-eps-surprise-chart | Wells Fargo & Company Quote

Currently, Wells Fargo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates & Expectations of Other Banks

Webster Financial (WBS Quick QuoteWBS - Free Report) is scheduled to announce third-quarter 20         23 numbers on Oct 19.

Over the past week, the Zacks Consensus Estimate for WBS’ quarterly earnings has moved marginally north to $1.50 per share. It implies a 2.7% rise from the prior-year level.

Texas Capital Bancshares (TCBI Quick QuoteTCBI - Free Report) is scheduled to announce third-quarter 2023 results on Oct 19.

Over the past seven days, the Zacks Consensus Estimate for TCBI’s quarterly earnings has moved marginally downward to $1.02 per share. It suggests a 37.8% fall from the year-ago figure.