What happened
Shares of Wells Fargo (WFC 1.36%) traded as much as 5.5% lower earlier this morning after the bank announced earnings results for the fourth quarter of 2022. However, as of 11:03 a.m. ET today, the stock had pared most of those losses and only traded slightly down for the day.
So what
In the fourth quarter, Wells Fargo reported $0.67 per diluted common share on total revenue of $19.7 billion. Earnings slightly beat analyst estimates, but revenue missed.
The quarter was significantly impacted by $3.3 billion in charges related to litigation, regulatory, and customer remediation issues, primarily tied to past matters relating to the phony-accounts scandal. As you might recall, Wells Fargo reached a $3.7 billion settlement with the Consumer Financial Protection Bureau in December 2022 due to past transgressions in its mortgage and auto lending units.
The somewhat good news is that Wells Fargo said its current estimate for reasonable possible losses for legal actions beyond recent accruals fell from $3.7 billion in the third quarter to $1.4 billion in Q4.
Elsewhere on the balance sheet, Wells Fargo reported strong net interest income (NII) for the quarter, which is the money banks make on loans and securities after funding those assets. NII reached more than $13.4 billion, up more than $1.3 billion from the prior quarter. Average deposit costs also only rose from 0.12% to 0.46%, which is very good considering how much the Federal Reserve has increased interest rates.
The bank took a provision for credit losses of $957 million in the fourth quarter, reflecting $560 million of net charge-offs -- a good indicator of loan losses -- and a $497 million build in reserves. Credit is starting to normalize, but it is still, by and large, quite healthy.
Now what
It was a messy quarter with all of the regulatory charges, but Wells Fargo needs to get through these issues to get into the good graces of regulators.
Additionally, the bank built regulatory capital and now expects to resume share repurchases in the current quarter. Management is also guiding for, potentially, 10% growth in NII in 2023 and for keeping core expenses flat. I continue to like the stock.
