Wells Fargo & Company (WFC) reported a revenue of $18 billion for Q3 2021, beating expectations of $18.3 billion, although lower than previous Q3 2020 revenues of $19.3 billion.
WFC’s reported a net income of $4.98 billion for Q3 2021, compared to expectations of $4.04 billion, beating market expectations by 23%.
The share price closed –1.08% lower despite the bank reporting an EPS of $1.17 easily clearing expectations which were set at $1.00 in a quarter that was highlighted by modest loan growth in its consumer and banking division of 2% over the quarter to $325 billion as well as a boost from declining loan loss provisions which are non-recurring. Looking ahead, for the fourth quarter of 2021 the average analyst estimate is for EPS to decline -5% to $0.99 while the average broker price target is $51.67.
Additionally, a constraint on WFC’s balance sheet imposed by the Federal Reserve in the wake of sales practice scandal revealed in 2016 continues to cloud the outlook. The company has set a conservative tone for regulatory relief expectations with a time-line of over the next few years which includes a revamp of senior management and the board as well as other governance and risk control changes. On those regulatory issues, CEO Charlie Scharf said “We are a different company today and the operational and cultural changes we’ve made are enabling us to execute with significantly greater discipline than we have in the past. I believe we are making significant progress, and I remain confident in our ability to continue to close the remaining gaps over the next several years, though we may continue to have setbacks along the way.”
A healthier economy helped reduce the provision for non-performing loans, of which the bank had set aside $8.4 billion cash for non-performing loans at the peak of the pandemic in a proactive risk mitigation strategy, and has now moved $1.7 billion back into its cash (asset) balance helping boost earnings for the quarter. Higher interest rates hindered asset growth, but still provide an opportunity for earning higher interest income while auto loans remain a source of relative strength within its consumer unit with loan originations increasing 70% to $9.2 billion.
WFC’s commercial division are building a pipeline for their middle and upper client base as the bank noted ample capacity for growth as demand increases. Meanwhile costs are kept in check declining 13% as the bank progresses with efficiency incentives allowing the return of capital to shareholders through repurchasing $5.3 billion of stock and increasing the dividend to $0.20 per share for the quarter from $0.10 in Q2.
