Wells Fargo Earnings Higher with Net Interest Income Up 45% on Higher Rates

Wells Fargo reported better than expected first quarter earnings before the bell Friday. Wells Fargo reported its net income rose by more than 30% to nearly $5 billion in the first quarter from a year ago as the bank benefited from higher interest rates, despite building up loan loss reserves $1.2 billion after reducing its provisions by $787 million a year ago. The bank said its net interest income increased 45% on the back of soaring interest rates and Revenue rose 17%. WFC reported along with three of the largest U.S. lenders, JPMorgan Chase (JPM), Citigroup (C) and PNC (PNC).


Wells Fargo Earnings Preview

Q1 2023 earnings released at 7 a.m. ET; conference call at 12 p.m. ET

  • Net income rose more than 30% to nearly $5 billion in the first quarter from a year ago, or $1.23 per share GAAP versus 90 cents a year ago and $1.13 expected.
  • Revenue: $20.73 billion versus $20.08 billion expected. Revenue rose 17%.
  • Net Interest Income: increased 45% on the back of soaring interest rates.
  • Provision For Credit Losses: $1.2 billion for credit losses after reducing its provisions by $787 million a year ago. The provision included a $643 million increase for potential losses related to commercial real estate, credit card and auto loans.
  • Noninterest income decreased 13% in the quarter, driven by lower results in its affiliated venture capital and private equity businesses as well as a decline in mortgage banking income.
  • Wells Fargo resumed its share repurchase program during the quarter, buying back 86.4 million shares, or $4.0 billion, of common stock.

WFC: Stock Market Reaction

  • 39.72 ▲ +0.055 (+0.14%) Morning
  • 39.72 ▼ -6.63 (-14.3%) past year
  • 39.72 ▼ -12.85 (-24.45%) past 5 years
  • 52wk High $49.49
  • 52wk Low $35.25

“We had strong results in the first quarter including revenue growth from both the fourth quarter and a year ago, and we continued to make progress on our efficiency initiatives,” CEO Charlie Scharf said in a statement.

Cautions Remains

Investors remain cognizant that WFC has a multiyear effort to satisfy regulatory requirements, with setbacks likely to continue along the way. There is that reputational risk hangs over the bank after a series of scandals that included creating fake customer accounts.

Wells Fargo penalties:

  • $3.7 billion in 2022 for consumer abuses
  • $3 billion in 2020 for fraud
  • $2 billion in 2018 for toxic securities abuses
  • $1.9 billion in 2013 for banking violations
  • $5.3 billion in 2012 for mortgage abuses


“Looking ahead, we continue to move forward on our risk and control agenda, which is our top priority,” Scharf said. “While we have made progress, our work is not done, and we remain focused on completing the work in a timely fashion.”

Wells Fargo was once the No. 1 player in mortgages, has stepped back from the housing market. It recently laid off hundreds of mortgage bankers as part of a sweeping round of cuts triggered by the bank’s recent strategic shift.

Wells Fargo Last Quarter Earnings

Higher rates increase margins

The brighter outlook for bank profits coincides with higher Treasury yields. The benchmark 10-year Treasury yield has risen dramatically for the year-to-date, with higher interest rates boosting banks income from their core lending businesses.  The bank’s net interest margin, a measure of what it collects on loans minus what it pays for deposits rises with rates.

The Federal Reserve’s rate-boosting campaign, producing more revenue as rates rise, allowing banks to generate more profit from their core activities of taking in deposits and making loans. With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues are expected to rise from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.

However, there is a price for this, the clearest is the housing market which with the collapse in affordability through higher rates and inflation has dropped off dramatically in activity. For banks this means the fee income from home lending has fallen right off.

Rising rates have also had another big impact for Banks, and Central banks alike, the higher rates have seen huge losses on the bond paper they hold. When interest rates go up, bond prices go down, meaning there are significant unrealized losses at current prices. JPMorgan took a loss of almost $1 billion from selling Treasurys and mortgage-backed securities in the third quarter.

Source: WFC, TV, WSJ

From The TradersCommunity Research Desk