Pressure on net interest margins are an obvious concern for most banks, as the Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008, and has recently been making monthly purchases of $85 billion in long-term securities, in an effort to hold long-term rates down. This means that most banks have already realized the bulk of the benefit on the cost side, while their assets continue to reprice.
One of the major reasons for the decline in Wells Fargo's net interest margin is the company's success in growing deposits. Wells Fargo CFO Tim Sloan said during the company's earnings conference call that "last year we were able to grow our net interest income by over $0.5 billion; and our expectation is that we should be able to grow it this year." He added that on a quarterly basis, "net interest income has more or less bottomed at about $10.6 billion."
When discussing Wells Fargo's first-quarter mortgage results, KBW analyst Frederick Cannon said in a note to clients that the lender's gain-on-sale margin was down only moderately, but "we view this as a lagging indicator since the company does not recognize revenues at the time of the rate lock, as most originators do."
Wells Fargo's shares were down 1% to close at $37.21.-- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn