Wells Fargo & Co (NYSE:WFC, ETR:NWT) on Tuesday reported better-than-expected second-quarter earnings, driven by lower credit loss provisions and higher fee-based income, though shares fell 4.5% in early trading as investors reacted to a downward revision in the bank’s full-year net interest income (NII) guidance.
The San Francisco-based lender posted earnings per share of $1.60, exceeding analysts’ expectations of $1.40 and rising 20% from a year ago.
Revenue came in at $20.82 billion, just ahead of estimates and up 1% year-over-year.
However, NII — a key measure of earnings from loans and interest-bearing assets — declined 2% to $11.71 billion, slightly missing consensus expectations of $11.83 billion. The bank now expects full-year NII to be about $47.7 billion, down from prior guidance and below the $47.92 billion Wall Street estimate.
“Our second quarter results reflect the progress we are making to consistently produce stronger financial results,” said CEO Charlie Scharf.
Scharf added that the recent lifting of the Federal Reserve’s asset cap marked “a pivotal milestone” in the bank’s transformation, allowing Wells Fargo “to grow in ways we could not while the asset cap was in place.”
Non-interest expenses rose slightly to $13.38 billion, roughly in line with forecasts, while the provision for credit losses fell 19% year-over-year to $1.01 billion, indicating improved credit conditions. Average loans totaled $916.7 billion and deposits came in at $1.33 trillion, down 1% from a year earlier.
UBS analysts noted that the earnings beat was largely provision-driven, with core pre-provision net revenue slightly missing expectations. They pointed out that NII came in light due to a softer net interest margin and said the revised guidance may weigh further on sentiment.
“While the NII revision lower was largely anticipated and negative positioning here appears highly consensus, we still expect shares to open weaker given upward revisions at JPM and decent recent stock performance coming into the print,” UBS commented.
The bank also repurchased approximately $3 billion of stock during the quarter and posted a return on equity of 12.8%, up 1.3 percentage points year-over-year.