Wells Fargo Q1 2021 earnings are ahead of analyst forecasts with revenue ahead by 1.9% year-on-year to $18.1bn.

But the effects of the pandemic are sharply brought into focus by a 8% drop y-o-y in consumer lending. It is even worse in commercial banking lending, with average loans down by 19% y-o-y.

Meantime, average consumer deposits rise by 21%. At the same time, commercial deposits are ahead by 8% y-o-y.

For the three months to end March, Wells Fargo reports net income of $4.7bn (Q1 2020: $653m).

Wells Fargo CEO Charlie Scharf says: “Our results include a $1.6bn pre-tax reduction in the allowance for credit losses. They reflect an improving US economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities. Charge-offs are at historic lows. 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.”

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Wells Fargo Q1 2021: ongoing margin pressure hammers net interest income

Net interest income drops sharply by $2.5bn, or 22%, y-o-y reflecting the impact of lower interest rates. Specifically the bank’s net interest margin drops by 53 basis points y-o-y from 2.58% to 2.05%.

The bank also takes a hit with non interest expense ahead by 7%, with personnel costs up by 15% y-o-y.

For example, higher incentives and revenue-related compensation, including the impact of higher market valuations on stock-based compensation, results in such a rise.

This is primarily due to the impact of lower interest rates and lower deposit-related fees on higher average checking account balances and higher Covid-19 related fee waivers.

Home lending is up 19% y-o-y on higher retail originations and gain on sale margins. But this is partially offset by lower gains on loan portfolio sales and lower net interest income.

Wells Fargo Q1 2021 distribution highlights

Wells ends the first quarter with 4,944 branches. This represents a net reduction of 385 outlets or 7% of its 5,329 units a year ago. Meantime, active mobile banking users rise by 7% from a year ago from 24.9 million to 26.7 million. Total digital banking users rise by 6% to 32.9 million.

Wells Fargo’s share price of $39.80 is ahead by 31.3% for the year to date. giving a market cap of $164.5bn.