Wells Fargo & Company’s (WFC Quick QuoteWFC - Free Report) first-quarter 2024 adjusted earnings per share of $1.26 surpassed the Zacks Consensus Estimate of $1.10. The adjusted figure excludes the impacts of expenses from the FDIC special assessment. In the prior-year quarter, the company reported earnings per share of $1.23.

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

Net income was $4.6 billion, which decreased 7.5% from the prior-year quarter.

Quarterly Revenues Improve

Quarterly total revenues were $20.86 billion, surpassing the Zacks Consensus Estimate of $20.17 billion. Also, the top line rose 1.9% from the year-ago quarter.

Wells Fargo’s NII was $12.23 billion, down 4.3% year over year. NII was affected by higher interest rates on funding costs and lower loan balances, partially offset by higher yields on earning assets.

The net interest margin (on a taxable-equivalent basis) declined year over year to 2.81% from 3.20%.

Non-interest income grew 16.8% to $8.64 billion. The improvement was driven by higher trading revenues, increased investment banking and wealth management fees and reduced impairment.

Non-interest expenses were $14.34 billion, up 4.8% year over year. This was mainly due to a rise in operating losses, increased FDIC assessments, improved revenue-related compensation and investment in technology and equipment, partially offset by WFC’s efficiency initiatives.

Wells Fargo's efficiency ratio of 69% was higher than 66% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.

As of Mar 31, 2024, total loans of $922.8 billion declined 1.5% on a sequential basis. Total deposits were $1.38 trillion, up 1.8% on a sequential basis.

Credit Quality Deteriorates

The provision for credit losses was $938 million, down 22.3% from the prior-year quarter.

However, net loan charge-offs were $1.15 billion or 0.50% of average loans in the reported quarter, up 90.2% year over year. Further, non-performing assets jumped 34.2% to $8.24 billion.

Capital Ratio Improves

As of Mar 31, 2024, the Tier 1 common equity ratio was 11.2% under the Standardized Approach, up from 10.8% reported in the first quarter of 2023.

Profitability Ratio Deteriorates

Return on assets was 0.97%, down from the prior-year quarter’s 1.09%. Return on equity of 10.5% decreased from 11.7% year over year.

Share Repurchase Update

In the reported quarter, Wells Fargo repurchased 112.5 million shares for $6.1 billion. 

Our View

The company’s focus on growing deposit balance will likely support its financials in the upcoming period. Also, lower provisions and strong capital ratios are other positives. However, lower loan balance due to asset cap and an increase in expenses are major near-term concerns.
 

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

Earnings Dates & Expectations of Other Banks

M&T Bank Corporation (MTB Quick QuoteMTB - Free Report) is slated to report first-quarter 2024 results on Apr 15. It has a Zacks Rank #3 at present.

Over the past week, the Zacks Consensus Estimate for MTB’s quarterly earnings per share has moved marginally south to $3.12.

Fifth Third Bancorp (FITB Quick QuoteFITB - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 19. The company carries a Zacks Rank #3 at present.

The consensus estimate for FITB’s quarterly earnings has moved marginally north to 71 cents per share over the past seven days.