SAN FRANCISCO, California: Wells Fargo reported a seven percent decline in first-quarter profit, surpassing analysts’ forecasts despite increased costs associated with customer deposits and a drop in borrower demand.

The bank’s stock experienced a 2.1 percent decline, reflecting investor concerns over the uncertain outlook for interest payments in the near future.

The bank anticipates a seven percent to nine percent decrease in net interest income (NII) for the year, citing volatility in market conditions and uncertainties surrounding customer behavior.

“It is certainly challenging these days to forecast NII, given all of the volatility that we have seen across a lot of the different data points, as well as some of the uncertainty that is out there relative to how our clients are going to behave,” finance chief Michael Santomassimo told reporters on a call.

However, some analysts view the bank’s guidance as conservative and believe that Wells Fargo could generate higher income if interest rates remain elevated for an extended period.

Adjusted earnings per share came in at US$1.26, exceeding analysts’ expectations of $1.11, driven by robust revenue growth in corporate and investment banking, which saw a nearly 5% increase.

Despite the challenging environment, Bank of America analyst Ebrahim Poonawala maintained a buy rating on Wells Fargo’s stock, citing positive results and an optimistic outlook.

The bank’s performance is closely tied to the shifting U.S. interest rate landscape, with recent data indicating a delay in rate cuts until September. While higher rates had previously bolstered earnings, the first quarter of 2024 saw a diminishing impact.

Wells Fargo’s forecast for NII is based on expectations of three rate cuts this year, which would increase costs for maintaining customer deposits and potentially dampen borrower demand.

In addition to financial pressures, the bank also contributed $284 million to replenish a Federal Deposit Insurance Corp fund following the failure of three regional lenders last year.

Despite these challenges, Wells Fargo remains focused on managing credit risks and enhancing its control framework. CEO Charlie Scharf emphasized the bank’s commitment to addressing regulatory concerns and completing outstanding risk and control work.

“We reached an important milestone in the first quarter when the OCC announced the termination of a consent order it issued in 2016 regarding sales practices misconduct,” CEO Charlie Scharf said in a statement.

“The remaining risk and control work continues to be our top priority, and we will not be satisfied until all work is complete,” he added.

Looking ahead, the bank continues to operate under an asset cap imposed by regulators, limiting its growth prospects until regulatory requirements are fully addressed.

While uncertainties persist, Wells Fargo’s stock has outperformed the broader banking sector this year, reflecting investors’ confidence in the bank’s ability to navigate challenges and deliver positive results.