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Wells Fargo's (WFC) Q4 Earnings Beat on NII, Mortgage Hurts
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Wells Fargo’s (WFC - Free Report) fourth-quarter 2022 earnings per share of 67 cents outpaced the Zacks Consensus Estimate of 63 cents. Results included several non-recurring items like the $3.3 billion or 70 cents per share of operating losses related to “litigation, regulatory, and customer remediation matters.”
Shares of WFC are down more than 3.5% in pre-market trading despite better-than-expected quarterly performance. Macroeconomic concerns and disappointing mortgage performance seem to be weighing on investor sentiments to some extent.
Results benefited from higher NII, rising rates and solid average loan growth. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors. Also, the rise in non-interest expenses acted as a headwind.
Net income came in at $2.86 billion, down from $5.75 billion in the prior-year quarter.
In 2022, earnings of $3.14 per share beat the consensus estimate of $3.10 but declined 37% year over year. Net income was $13.18 billion, down 39% from the prior-year quarter.
NII Up on Higher Rates & Loans, Costs Jump
Quarterly total revenues came in at $19.66 billion, missing the Zacks Consensus Estimate of $19.89 billion. Also, the top line fell 6% from the year-ago quarter.
In 2022, total revenues came in at $73.79 billion, which missed the Zacks Consensus Estimate of $74.06 billion. Also, the top line declined 6% year over year.
Wells Fargo’s NII came in at $13.4 billion, surging 45%. The increase was mainly driven by a rise in interest rates, higher loan balances and lower mortgage-backed securities premium amortization.
Also, the net interest margin (on a taxable-equivalent basis) increased 103 basis points to 3.14%.
Non-interest income plunged 46% to $6.2 billion. This was largely due to lower mortgage banking income and investment banking (IB) fees. Also, weak results in its affiliated venture capital and private equity businesses and the impact of divestitures hurt fee income. These were partly offset by robust Markets business performance.
Non-interest expenses were $16.2 billion, up 23% year over year. The rise was mainly due to the above-mentioned one-time charges and an increase in severance expenses. This was partially offset by a fall in revenue-related compensation and the impact of efficiency initiatives.
WFC’s efficiency ratio of 82% was higher than 63% recorded in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.
As of Dec 31, 2022, average loans were $948.5 billion, stable sequentially. Average deposits came in at $1.38 trillion, down 2%.
Credit Quality Worsening
The provision for credit losses was $967 million against a provision benefit of $452 million in the prior-year quarter. This was mainly due to higher loan balances and “a less favorable economic environment.”
Net charge-offs were $560 million or 0.23% of average loans in the reported quarter, up from $423 million or 0.19% a year ago. However, non-performing assets decreased 21% to $5.8 billion.
Capital & Profitability Ratios Deteriorate
As of Dec 31, 2022, Tier 1 common equity ratio was 10.6% under Basel III (fully phased-in), down from 11.4% in the corresponding period of 2021.
Return on assets was 0.61%, down from the prior-year quarter’s 1.17%. Return on equity was 6.4%, down from 12.8%.
Our Take
Wells Fargo is focused on maintaining its financial position despite a number of legal tensions. Also, the company is working on its strategic initiatives (including shrinking mortgage banking operations), which will likely help regain the confidence of its clients and shareholders. Improving loan demand, rise in interest rates and manageable expense levels are encouraging.
Despite a rise in loan demand, WFC is likely to face challenges in improving revenues, given the tough operating backdrop due to macroeconomic and geopolitical concerns.
Wells Fargo & Company Price, Consensus and EPS Surprise
Morgan Stanley (MS - Free Report) is scheduled to announce fourth-quarter and full-year 2022 numbers on Jan 17.
Over the past week, the Zacks Consensus Estimate for MS’ quarterly earnings has moved 7.4% south to $1.25, implying a 39.9% plunge from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2022 numbers on Jan 19.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.5% lower to $1.28. This indicates a 7.3% fall from the prior-year quarter.
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Wells Fargo's (WFC) Q4 Earnings Beat on NII, Mortgage Hurts
Wells Fargo’s (WFC - Free Report) fourth-quarter 2022 earnings per share of 67 cents outpaced the Zacks Consensus Estimate of 63 cents. Results included several non-recurring items like the $3.3 billion or 70 cents per share of operating losses related to “litigation, regulatory, and customer remediation matters.”
Shares of WFC are down more than 3.5% in pre-market trading despite better-than-expected quarterly performance. Macroeconomic concerns and disappointing mortgage performance seem to be weighing on investor sentiments to some extent.
Results benefited from higher NII, rising rates and solid average loan growth. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors. Also, the rise in non-interest expenses acted as a headwind.
Net income came in at $2.86 billion, down from $5.75 billion in the prior-year quarter.
In 2022, earnings of $3.14 per share beat the consensus estimate of $3.10 but declined 37% year over year. Net income was $13.18 billion, down 39% from the prior-year quarter.
NII Up on Higher Rates & Loans, Costs Jump
Quarterly total revenues came in at $19.66 billion, missing the Zacks Consensus Estimate of $19.89 billion. Also, the top line fell 6% from the year-ago quarter.
In 2022, total revenues came in at $73.79 billion, which missed the Zacks Consensus Estimate of $74.06 billion. Also, the top line declined 6% year over year.
Wells Fargo’s NII came in at $13.4 billion, surging 45%. The increase was mainly driven by a rise in interest rates, higher loan balances and lower mortgage-backed securities premium amortization.
Also, the net interest margin (on a taxable-equivalent basis) increased 103 basis points to 3.14%.
Non-interest income plunged 46% to $6.2 billion. This was largely due to lower mortgage banking income and investment banking (IB) fees. Also, weak results in its affiliated venture capital and private equity businesses and the impact of divestitures hurt fee income. These were partly offset by robust Markets business performance.
Non-interest expenses were $16.2 billion, up 23% year over year. The rise was mainly due to the above-mentioned one-time charges and an increase in severance expenses. This was partially offset by a fall in revenue-related compensation and the impact of efficiency initiatives.
WFC’s efficiency ratio of 82% was higher than 63% recorded in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.
As of Dec 31, 2022, average loans were $948.5 billion, stable sequentially. Average deposits came in at $1.38 trillion, down 2%.
Credit Quality Worsening
The provision for credit losses was $967 million against a provision benefit of $452 million in the prior-year quarter. This was mainly due to higher loan balances and “a less favorable economic environment.”
Net charge-offs were $560 million or 0.23% of average loans in the reported quarter, up from $423 million or 0.19% a year ago. However, non-performing assets decreased 21% to $5.8 billion.
Capital & Profitability Ratios Deteriorate
As of Dec 31, 2022, Tier 1 common equity ratio was 10.6% under Basel III (fully phased-in), down from 11.4% in the corresponding period of 2021.
Return on assets was 0.61%, down from the prior-year quarter’s 1.17%. Return on equity was 6.4%, down from 12.8%.
Our Take
Wells Fargo is focused on maintaining its financial position despite a number of legal tensions. Also, the company is working on its strategic initiatives (including shrinking mortgage banking operations), which will likely help regain the confidence of its clients and shareholders. Improving loan demand, rise in interest rates and manageable expense levels are encouraging.
Despite a rise in loan demand, WFC is likely to face challenges in improving revenues, given the tough operating backdrop due to macroeconomic and geopolitical concerns.
Wells Fargo & Company Price, Consensus and EPS Surprise
Wells Fargo & Company price-consensus-eps-surprise-chart | Wells Fargo & Company Quote
Currently, Wells Fargo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates & Expectations of Other Banks
Morgan Stanley (MS - Free Report) is scheduled to announce fourth-quarter and full-year 2022 numbers on Jan 17.
Over the past week, the Zacks Consensus Estimate for MS’ quarterly earnings has moved 7.4% south to $1.25, implying a 39.9% plunge from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2022 numbers on Jan 19.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.5% lower to $1.28. This indicates a 7.3% fall from the prior-year quarter.