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Wells Fargo (WFC) Q1 Earnings Beat Estimates on NII, Costs Dip

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Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.

Shares of WFC gained more than 2.5% in the pre-market trading on a better-than-expected quarterly performance. A rise in revenues and reduced costs have likely favored investor sentiments.
 
Results have benefited from higher net interest income (NII), rising rates and solid average loan growth. The fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors.

Net income was $4.99 billion, increasing from $3.78 billion in the prior-year quarter.

NII Rise on Higher Rates & Loans, Costs Decline

Quarterly total revenues were $20.73 billion, outpacing the Zacks Consensus Estimate of $20.08 billion. Also, the top line increased 17% from the year-ago quarter.

Wells Fargo’s NII was $13.4 billion, gaining 45% year over year. The increase was mainly driven by a rise in interest rates, higher loan balances and lower mortgage-backed securities premium amortization, partially offset by a decline in deposit balances.

Also, the net interest margin (on a taxable-equivalent basis) increased to 3.2% from 2.16.

Non-interest income plunged 13% to $7.4 billion. This was largely due to lower mortgage banking income, deposit-related fees and investment banking (IB) fees. These were partly offset by robust revenues from trading activities.

Non-interest expenses were $13.6 billion, down 1.3% year over year. The rise was mainly due to an increase in personnel, technology, telecommunications and equipment, and advertising and promotion expenses.

WFC’s efficiency ratio of 66% was higher than 78% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.

As of Mar 31, 2023, total loans were $947.99 billion, down 1% sequentially. Total deposits were $1.36 trillion, down 2%.

Credit Quality Worsening

The provision for credit losses was $1.2 billion against a provision benefit of $787 million in the prior-year quarter.

Net charge-offs were $604 million or 0.26% of average loans in the reported quarter, up from $305 million or 0.14% a year ago. However, non-performing assets decreased 12.3% to $6.1 billion.

Capital Ratio Deteriorate, Profitability Improves

As of Mar 31, 2023, the Tier 1 common equity ratio was 10.8% under the Standardized Approach, down from 10.5% in the corresponding period of 2022.

Return on average assets was 1.09%, up from the prior-year quarter’s 0.80%. Return on average equity was 11.7%, up from 8.7%.

Our Take

Wells Fargo is concentrating on maintaining its financial position, while focusing on risk and control improvements. Also, the company is working on its strategic initiatives, which will likely help regain the confidence of its clients and shareholders. Raised interest rates and manageable expense levels are encouraging. However, Wells Fargo is likely to face challenges in improving revenues due to macroeconomic and geopolitical concerns.

Wells Fargo & Company Price, Consensus and EPS Surprise

 

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

Webster Financial (WBS - Free Report) is scheduled to announce first-quarter 2023 numbers on Apr 20.

Over the past week, the Zacks Consensus Estimate for WBS’ quarterly earnings has moved marginally south to $1.56, implying a 25.8% rise from the prior-year reported number.

Texas Capital Bancshares (TCBI - Free Report) is scheduled to announce first-quarter 2023 numbers on Apr 20.

Over the past seven days, the Zacks Consensus Estimate for TCBI’s quarterly earnings has moved marginally upward to 89 cents, implying a 29% rise from the prior-year reported number.


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