Wells Fargo (NYSE:WFC) stock is in the spotlight after the bank’s net income fell over 7% in the first quarter to $4.6 billion. Spurring the drop was a significant decline in Wells Fargo’s net interest income.
On the other hand, sales increased 1% year-over-year (YOY), per The Wall Street Journal.
WFC Stock: Wells Fargo and the Q1 Results
In addition to the 7% decline for net income, deteriorating credit trends pulled down Wells Fargo’s bottom line. Specifically, the bank “released $219 million from its reserves to cover potential loan losses.” Meanwhile, loan charge-offs surged almost 100% versus the same period a year earlier to $1.1 billion.
Wells Fargo’s net interest income declined 8% YOY. This downturn was caused by “higher interest rates on funding costs and lower loan balances,” per Investopedia.
On a positive note, however, the firm’s noninterest income climbed 17% YOY. Moreover, the bank’s top and bottom lines both came in above analysts’ average estimates.
Specifically, Wells Fargo generated Q1 revenue of $20.86 billion versus the average analyst estimate of $20.17 billion. Diluted EPS also came in at $1.20 per share, well above the estimate for $1.03 per share.
Finally, also noteworthy is the fact that regulators still impose a $1.95 trillion asset cap on Wells Fargo due to past wrongdoing. According to Reuters, the asset cap “prevents it from growing until regulators deem it has fixed problems from a fake accounts scandal.”
What Investors Should Watch Going Forward
WFC stock investors and those thinking of buying shares should monitor the declines of Wells Fargo’s net interest income and the extent to which the trend is weighing on its bottom line. Investors should also keep an eye on how much deteriorating credit quality is undermining its financial performance.
Shares of WFC were down in pre-market trading but are now up just 0.1%. While the stock has fallen about 1% in the last month, shares remain up by more than 40% for the past six months.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
