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Wells Fargo Tops Q1 Earnings Estimates

By Dave Kovaleski - Updated Apr 14, 2021 at 11:03AM

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The nation's third largest bank benefited from a $1 billion reserve release.

Wells Fargo (WFC -1.50%) beat earnings estimates in the first quarter, boosted by higher revenue and a significant release of loan loss reserves.

The nation's third largest bank posted earnings of $4.7 billion, or $1.05 per share, which was up substantially from a year ago when the pandemic shut down the economy and led to massive provisions for credit losses, which dragged its net income down to $653 million, or $0.01 per share.

Wells Fargo generated $18.1 billion in revenue in the first quarter, up about 2.2% from a year ago, while non-interest expenses rose 7.7% year over year to $14 billion. The big difference was the build-up in the loan loss reserve.

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Last year, the company set aside $4 billion in provision of credit losses to cover potential losses caused by the pandemic.

This year, the company had a $1.05 billion release of the loan loss reserves, meaning conditions have improved to the point that the extra reserve to cover losses is not required, and thus that amount was put back toward earnings. The overall change to the allowance for credit losses is $1.6 billion. The reduction was due to lower net charge-offs and an improving economy. 

The reserve release was the major reason that Wells Fargo was able to beat the consensus estimates by analysts of $0.70 in earnings per share.

"Our results for the quarter, which included a $1.6 billion pre-tax reduction in the allowance for credit losses, reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities," CEO Charlie Scharf said. "Charge-offs are at historic lows and we are making changes to improve our operations and efficiency, but low interest rates and tepid loan demand continued to be a headwind for us in the quarter."

The stock price was down slightly in early trading on Wednesday, but is up 30% year to date.

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