A full year after the outset of the coronavirus crisis, Wells Fargo reported $4.7 billion in net income for the first quarter of 2021 — a whopping 661% increase from $623 million in last year's same quarter.
The bank's provision for credit losses was down $5.1 billion year-over-year (YoY), and the first quarter also included a $1.6 billion decrease in the allowance for credit losses, which the bank attributed to improvements in the economy and lower net charge-offs.
Wells Fargo reported a 7.1% increase in noninterest expenses, at $14 billion. The bank said this was driven by higher incentive and revenue-based compensation, including impact of higher market valuations on stock-based compensation. Overall, the bank saw personnel expense hikes of 15%, which were partially offset by a lower headcount and lower professional services costs.
The San Francisco-based lender expressed optimism that a bounce back of the American economy is starting to show results.
"Our results for the quarter … reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities," CEO Charlie Scharf said in a statement. "Charge-offs are at historic lows and 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."
While Wells Fargo saw a significant bump in profits, it saw a notable decline in net interest income, which dropped 22% YoY. These results were partly driven by a low interest rate environment. Meanwhile, noninterest income was up 19% YoY and grew 6% quarter-over-quarter due to higher asset-based fees and retail brokerage transaction activity.
Average deposits were up 4% compared to the same period last year, at $1.4 trillion, while loans were down 9%, at $873.4 billion. Home lending was up 19% year over year.
Wells is still operating under an asset cap the Federal Reserve installed in 2018 as a result of the bank's fake-account scandal, The Wall Street Journal reported. The bank reaffirmed measures underway to improve its risk and control framework.
"This is a multiyear effort and there is still much to do, but I am confident we are making progress, though it is not always a straight line. We are steadfast in our commitment to do this work, which should ultimately satisfy our regulatory obligations," Scharf said.
Reducing operating costs is also an ongoing effort for Wells Fargo. The bank announced in January it would cut its gross expenses by 8% in the coming years, equal to about 14% of its total noninterest expenses in 2020, American Banker reported.
In a call with analysts, Scharf noted that the bank is undertaking an effort to focus on its key target markets — U.S. consumers and businesses of all sizes — while exiting areas it sees as non-core. The bank has floated plans to sell its asset-management business, its student-loan portfolio, its corporate-trust unit and more.
"Our strategy is about becoming even crisper about our target market, and taking actions necessary to leverage our strong competitive position," he said.
Looking ahead, the bank said it plans to continue to build its management team and put its historical issues, including customer remediation, behind it.