Wells Fargo & Co. benefited from an improving U.S. economy - particularly more customers being able to pay their bills on time during the pandemic - in posting Wednesday $4.74 billion in first-quarter net income.
By comparison, Wells Fargo had just $653 million in net income for the first quarter of 2020. That quarter included the first two weeks of the economic impact of the COVID-19 pandemic.
A loan-loss provision has a direct impact on a bank's bottom lines because it is setting aside money for individual customer and business loans that it projects won't be repaid as scheduled.
During the first quarter of 2020, Wells Fargo took a $4 billion loan-loss provision.
A year later, Wells Fargo reported a $1.05 billion provision recovery.
Diluted earnings for the first quarter of 2021 were $1.05, compared with 1 cent a year ago.
The average earnings forecast was 69 cents by 11 analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.
Wells Fargo typically serves as a bellwether for financial stocks each quarter because it is among the first, along with Citigroup and JPMorgan Chase & Co., to file its report.
The starkest comparison will come in the second quarter considering Wells Fargo had a $2.38 billion loss - its first since the Great Recession of 2008 as it was taking over a collapsing Wachovia Corp.
The board of directors responded by drastically reduced the quarterly dividend from 51 cents to 10 cents that remains in effect.
Wells Fargo chief executive Charles Scharf cited the provision recovery in saying the bank's result "reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities.
"(Net) charge-offs are at historic lows (at $532 million), 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."
Loan revenue was $9.26 billion, up 7% from $8.65 billion in the fourth quarter and up 45% from $6.4 billion a year ago.
Fee revenue was $8.8 billion, down 5% from $9.27 billion in the fourth quarter and down 22% from $11.31 billion a year ago.
Investment advisory and other asset-based fees were up 10% year over year to $2.76 billion.
Mortgage banking fees rose 250% to $1.33 billion, reflecting the appeal of lower mortgage rates for home purchases and refinancing.
Deposit-related fees were down 13% to $1.25 billion, and card fees were up 6% at $949 million.
Non-performing assets were at $8.19 billion on March 31, compared with $8.89 billion as of Dec. 31 and $6.41 billion on March 31, 2020.
Net charge-offs were at $513 million on March 31, compared with $584 million on Dec. 31 and $909 million on March 31, 2020.
The bank spent $596 million to repurchase 17.2 million shares during the quarter.
CFRA analyst Kenneth Leon responded to the report by maintaining his $33 share-price target, but raising his fiscal 2021 earnings forecast by 45 cents to $3 a share.
"Wells Fargo can lower costs and enhance efficiency, but may be challenged with revenue growth," Leon said.
"We see total net revenue 2% to 3% lower in 2021, as we think net interest income will decline year over year.
"We think lower loan activity for consumer loans, home lending and weak commercial loan revenue are major risks to loan revenue growth and higher net interest income contributions."
The bank's profitability also benefited from the initial stages of a multi-year $8 billion cost-reduction initiative announced in January.
Much of the savings involves eliminating management layers, selling off non-core business units, making additional branch and workforce cuts, reducing by up to 20% its office space by the end of 2024.
Wells Fargo listed having 264,513 employees on March 31, down from 268,531 on Dec. 31 and 272,617 on March 31, 2020.
From the fourth to first quarters, there was a 1,487 reduction in consumer banking/retail jobs to 123,547, along with a loss of 2,536 in corporate jobs to 82,067, a net gain of 247 in commercial banking to 22,657, a loss of 313 in wealth and investment banking to 27,993, and a net gain of 71 in corporate and investment banking to 8,249.
Wells Fargo said that beginning in the first quarter, employees who were notified of being laid off or let go "remained in their respective operating segment rather than included in corporate."
The bank said it has more than 250 "efficiency initiatives" involved in the restructuring.
For example, the bank said Wednesday it had a $208 million net gain on the sale of student loans during the quarter. It also sold its asset management and corporate trust businesses during the quarter.
"We are keenly focused on the priorities I outlined last quarter," Scharf said.
"Our work to build the appropriate risk and control environment remains our top priority. We are steadfast in our commitment to do this work, which should ultimately satisfy our regulatory obligations," Scharf added.
"We are increasing resources dedicated to initiatives to help drive growth in our core franchises."
However, analysts don't expect the initiative to result in Wells Fargo exiting this year the $1.9 trillion asset cap set by the Federal Reserve since Feb. 3, 2018.
Wells Fargo has been facing investor and political pressure over its response - or lack thereof - to regulatory orders addressing its fraudulent customer-account scandal that surfaced in September 2016.