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Wells Fargo & Company WFC continues to benefit from cost-efficiency initiatives, deposit growth and a solid liquidity profile. However, declining revenues due to business divestitures and volatile fee income are headwinds. Lower loan balance due to asset cap and declining mortgage banking income are other major drags.

Wells Fargo continues to build on its deposit base, which witnessed a three-year (ended 2023) compound annual growth rate (CAGR) of 1.1%. A large base of retail clients and a favorable deposit mix will likely support the deposit balance in the upcoming period.

The bank’s prudent expense management initiatives have resulted in WFC seeing a negative CAGR of 1.1% over the last four years (ended 2023). Since third-quarter 2020, the company has been actively engaging in cost-cutting measures, including the streamlining of its organizational structure, closure of branches and reduction in headcount. Such efforts are likely to support bottom-line growth.

As of Dec 31, 2023, Wells Fargo’s total debt (comprising long-term debt and short-term borrowings) was $297.15 billion. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $237.2 billion as of the same date. Given the decent liquidity position, Wells Fargo will be able to meet its near-term debt obligations, even if the economic situation worsens.

Following the clearance of the 2023 stress test, the company increased its dividend by 16.7% to 35 cents per share in July. It has a $30-billion share repurchase program in place. As of 2023 end, it had $26.7 billion remaining authorization. Given its robust capital position and ample liquidity, the company’s capital-deployment activities seem sustainable and will boost investor confidence in the stock.

However, the company’s revenues witnessed a negative CAGR of 1.2% over the last four years (2019-2023). Higher funding costs are likely to impede net interest income (NII) and revenue growth. Business divestitures have resulted in lost revenues. Notably, Wells Fargo divested around $2 billion of private equity investments in certain funds to a group of leading investors in September 2023. Also, volatility in fee income continues to affect the top-line performance.

The company’s loans witnessed a CAGR (2020-2023) of 1.8%. However, with the asset cap remaining in place until it complies fully with regulators’ demands regarding compliance and operational risk management, Wells Fargo’s loan balance is not likely to improve much. Moreover, the bank has stepped back from auto originations. These will, thereby, hamper NII growth.

Wells Fargo’s mortgage banking activities consist of residential and commercial mortgage originations, sales and servicing. Mortgage banking income saw a four-year (ended 2023) negative CAGR of 25.7%. High mortgage rates and low originations are likely to affect mortgage banking income in the upcoming quarters.

WFC currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 34.7% over the past six months against the industry’s decline of 30%.

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Stocks to Consider

Some better-ranked bank stocks are Simmons First National Corp. SFNC and Third Coast Bancshares, Inc. TCBX.

Simmon First’s 2024 earnings estimates have been revised 7.6% upward in the past 60 days. The company’s shares have gained 9.9% over the past six months. At present, SFNC sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Third Coast Bancshares’ 2024 earnings estimates have moved north by 13.8% in the past 60 days. The stock has gained 9.2% over the past six months. Currently, TCBX sports a Zacks Rank #1.

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