The biggest U.S. banks posted mixed results for the first quarter as growing loan books and higher interest rates clashed with headwinds from slowing investment banking and residential mortgage activity.

Net interest income increased by 3.5% to 13.5% year over year across the Big Four, but operating revenue and pre-provision EPS fell at each of the banks except for Bank of America Corp., according to data from S&P Global Market Intelligence.

Guidance from the group pointed to large additional gains in spread income if the rapid rate hikes expected by markets come to pass, but the banks acknowledged substantial new uncertainties from the war in Ukraine and the prospect for an overshoot by the Federal Reserve as it tries to cool the economy.

Revenue crosscurrents

BofA, which posted the biggest year-over-year increase in net interest income among the group, forecast that its net interest income would increase another 5.6% sequentially in the second quarter and go up significantly from there.

Wells Fargo & Co. roughly doubled its forecast for net interest income growth in 2022 to a mid-teens percentage, partly reflecting expectations for stronger lending. But the bank also reported a sharp decline in mortgage banking income — a 47.7% year-over-year decline to $693 million — as mortgage rates surged and refinancings plummeted.

Heavy market volatility in the first quarter was both bad and good for capital markets operations. Price swings inhibited debt and equity issuance, and investment banking fees fell 24.4% to 41.9% year over year across the Big Four, according to data from S&P Global Market Intelligence.

But trading revenue broadly held up, declining just 3.5% against a blowout year-ago period across the five biggest Wall Street banks, according to data compiled by Jefferies.

Credit expenses resurface

Credit loss provisions returned to positive territory for each of the Big Four except for Wells Fargo.

JPMorgan Chase & Co., which had been the first to record a large negative provision after the onset of the pandemic in the fourth quarter of 2020, was the only one of the banks that built its allowance in the quarter, however.

Like its peers, JPMorgan Chase's net charge-offs remained low, and it said one-third of its build was related to its Russia exposure and the rest reflected a higher probability of an economic downturn under current expected credit loss accounting.

Despite the economic uncertainties, the bank said it has yet to see any signs of fundamental credit deterioration in its portfolios.

Both BofA and Citigroup Inc. added reserves for Russia exposure despite the net releases.

Overall, allowance ratios have fallen considerably from their pandemic peaks and room is running out for further reductions.