Wells Fargo Net Income Grows 57%

Wells Fargo beat Wall Street estimates on the top and bottom lines for the second quarter, and the bank said its net interest income would be stronger than expected for 2023.

The bank’s total net income was $4.9 billion, up from $3.1 billion in the same quarter last year, a 57% increase.

Higher interest rates helped fuel the increase. Net interest income rose 29% year over year to $13.2 billion. Consumer and small business banking saw earnings of nearly $6.6 billion, up 19% from $5.5 billion last year.

Wells Fargo hiked its full-year guidance for net interest income, saying it expected the metric to rise 14% in 2023 instead of the previous projection for 10%. Entering the earnings report, the stock was up about 5.9% year to date.

Despite the growth, the bank has continued to reduce headcount in the second quarter, down 37% from a year ago. CFO Michael P. Santomassimo indicated staffing levels will further decline during the second half of the year. The bank has reduced headcount each quarter since the third quarter of 2020.

Mortgage Origination

The increased earnings came despite Wells Fargo booking a $1.7 billion provision for credit losses. That is up from $580 million a year ago, and $1.2 billion in the first quarter.

Commercial real estate office loans were one significant contributor to that provision, according to CFO Mike Santomassimo.

“When you talk about commercial real estate, you’re really talking about the office part of commercial real estate, because the rest of the commercial real estate portfolio is performing quite well,” Santomassimo said on a media call.

Commercial net loan charge offs increased $137 million from the first quarter to 15 basis points of average loans. Approximately half of the increase was in commercial banking where the losses were borrower-specific with little signs of systematic weakness across the portfolio.

The rest of the increase was driven by higher losses in commercial real estate, primarily in the office portfolio. Consumer net loan charge-offs increased modestly, up $23 million from the first quarter to 58 basis points of average loans.

The increase primarily came from the credit card portfolio as residential mortgage loans continue to have net recoveries and auto losses declined. While consumer credit performance remained solid overall, management expects consumer net loan charge-offs will continue to gradually increase.

Home lending revenue declined 13% from a year ago, driven by lower net interest income due to loan spread compression and lower mortgage originations.