Key Points

• This year's edition of the Federal Reserve's bank stress test saw all tested institutions pass.

• Although Citizens didn't have to participate, it benefited from the positive results.

• The company also substantially added to its existing share repurchase initiative.

A seriously bulked-up share repurchase plan and good results of the Federal Reserve's latest banking industry stress test improved the share price of regional lender Citizens Financial Group (NYSE: CFG) in June. Over the course of the month, investors traded the bank's stock up by nearly 11% in reaction to this.

Not so stressed

The rally basically started in the middle of the month, when Citizens announced that stock buyback news. To the satisfaction of its shareholders, the company said it would bolster the existing program by a hefty $1.2 billion. As there was $300 million remaining from the previous authorization, granted in June 2024, the new total is $1.5 billion.

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For a stock with a sub-$21 billion market cap, that's substantial, and it should have a positive impact on the share price.

A more critical, industrywide development occurred at the end of the month with the stress tests. For those unfamiliar, these are an annual set of analyses in which major U.S. banks are tested to see how they would weather adverse economic conditions, some of which are quite drastic.

As has become the norm, the institutions under the microscope -- which include the "big four" American lenders, Bank of America, JPMorgan Chase, Wells Fargo, and Citigroup -- did quite well. All 22 passed their tests, albeit with the caveat that this year's edition was less rigorous than previous rounds.

Citizens Financial isn't sizable enough to go through this wringer annually, instead it's tested every two years, and in 2025 it got a break. Still, there were several regional banks not unlike itself among the 22 tested. All in all, the good results were taken to mean that mid- and large-sized banks in this country are generally doing well, and in the worst-case scenarios can probably cope with catastrophe.

A good Citizen?

I don't blame investors of Citizens Financial -- or any other bank of its size on this market -- for reacting positively to the stress test results. Despite some cuts and scrapes lately, our economy has been performing well, and the smart and disciplined approach of its better lenders is an ever-important factor in this.

Having said that, I'm not all that excited about Citizen Financial's performance recently. In its first quarter revenue was essentially stagnant, as was the company's end-quarter deposits figure. And average loans and leases slumped, even as a bump in non-interest income pushed headline net profit 12% higher to $374 million. To me, it's the larger banks that have better potential these days.

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Wells Fargo is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.

Wells Fargo (NYSE:WFC), one of America’s largest banks, released its Q1 2025 earnings on April 11. The key highlight was the earnings per share (EPS), which stood at $1.39, surpassing analysts' expectations of $1.23 by $0.16, a 13% beat. This quarter's EPS marked a 16% rise from the $1.20 recorded in Q1 2024. However, the company reported revenue of $20.1 billion, which fell short of the predicted $20.7 billion. Overall, while Wells Fargo demonstrated operational strengths through its EPS figures, challenges remain, as seen with its revenue performance.

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Strategic Focus

Wells Fargo stands as a key player in the banking sector with major operations spanning consumer banking, corporate and investment banking, and wealth and investment management. Recently, it has concentrated on enhancing its digital offerings and expanding consumer services. Key success factors include effective regulatory compliance, capital and liquidity management, and ongoing technological advancements.

The bank's serious attention to regulatory environment & compliance is underscored by the closure of consent orders. This focus not only enhances operational stability but also forms a critical strategic path for the company. Wells Fargo's capital and liquidity management are evident in its Common Equity Tier 1 (CET1) ratio of 11.1%, highlighting its financial stability.

Quarterly Achievements and Segment Performance

During Q1 2025, Wells Fargo displayed robust earnings, with its EPS exceeding expectations largely due to fee-based revenue growth and effective expense management. The EPS of $1.39 included discrete tax benefits, adding 9 cents per share, as per resolutions of prior periods.

Breaking down revenue performance, the company's different segments showed varied results. Consumer Banking and Lending revenue dipped by 2%, primarily due to increased deposit costs and dwindling home lending. Commercial Banking suffered a 7% revenue decline stemming from a 13% drop in net interest income. Bright spots appeared in Corporate and Investment Banking, which saw a 2% revenue increase, and Wealth and Investment Management, reporting a 4% uptick augured by asset-based fees.

Among notable events, CEO Charlie Scharf highlighted progress in strengthening business foundations, despite plans for a "slower economic environment." The bank maintained its shareholder-friendly capital return policy, repurchasing $3.5 billion of common stock. One-time tax benefits accounted for a notable contribution to the quarterly results, yet the company stressed on consistent revenue growth going forward.

Meanwhile, compliance improvements came as a noteworthy move with the closure of five consent orders. However, the company remains committed to maintaining and enhancing compliance work.

Looking Ahead

Looking forward, Wells Fargo braces for market ambiguities with cautious optimism. CEO Charlie Scharf spoke about the ongoing investment in innovation and digitization as strategic priorities. The bank is set to tackle a potential market slowdown through incisive risk management and revenue diversification strategies.

Importantly, management's outlook indicated anticipation for a refining economic and policy landscape, which could impact interest rates and market conditions. In response, the bank aims to bolster sustainable growth and enhance shareholder value through strategic investments in its core operations, maintaining positive financial integrity in the coming quarters.

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Wells Fargo is an advertising partner of Motley Fool Money. JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.