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Wells Fargo (WFC) Q2 Earnings Coming Up: What's in the Cards?
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Wells Fargo & Company (WFC - Free Report) is scheduled to report second-quarter 2023 results on Jul 14, before the opening bell. The company’s quarterly earnings and revenues are expected to have improved year over year.
In the last reported quarter, WFC’s earnings beat the Zacks Consensus Estimate on higher net interest income (NII) and solid average loan growth. The fall in non-interest expenses acted as another tailwind. However, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors.
Over the trailing four quarters, Wells Fargo’s earnings surpassed the consensus estimate in three occasions and missed once, the average surprise being 7.17%.
Let’s take a look at factors that are expected to have influenced Wells Fargo’s second-quarter earnings.
Loans and NII: Banks’ lending activities are likely to have declined in the second quarter, as the challenging macroeconomic backdrop and high interest rates impacted consumer spending. Per Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans decreased in April and May from first-quarter end.
Nonetheless, in May 2023, Fed raised interest rates by 25 basis points to 5-5.25%, the highest since 2008. Further, in June it declared no changes in the given policy rate. Driven by interest rate hikes, Wells Fargo is expected to have witnessed an improvement in earning asset yields, margin and NII in the quarter to be reported. Also, lower mortgage-backed securities premium amortization is expected to have aided NII.
Amid these considerations, the Zacks Consensus Estimate for WFC’s NII is pegged at $12.94 billion, indicating a 26.9% rise from the prior-year quarter’s reported figure.
Mortgage Banking Revenues: In first-quarter 2023, Wells Fargo communicated its strategic plans to exit Correspondent business with an intention to reduce risks in mortgage business. Further, in the second quarter, mortgage rates continued to increase, with the rate on 30-year fixed mortgage reaching 6.81% in June, up from 4.6% reported in the prior-year quarter. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market, both purchase and refinancing compared with the prior-year quarter.
Hence, being one of the largest bank mortgage lenders in the United States, WFC is likely to have continued seeing declines in its home lending portfolio and mortgage banking income in second-quarter 2023.
The Zacks Consensus Estimate for WFC’s second-quarter 2023 mortgage banking revenues is pegged at $250 million, implying a 12.9% fall on a year-over-year basis.
Overall Non-Interest Revenues: Wells Fargo’s investment advisory and other asset-based fee revenues are likely to have borne the brunt of weaker equity and fixed-income market performance. A dip in market valuations and lower transactional activities are expected to have been headwinds too.
Further, the company is likely to have seen lower deposit-related fees due to an expected decline in deposits given the impact of regional bank collapses. The consensus mark for the same is pegged at $1.15 billion, implying a year-over-year decrease of 16.2%.
Global deal making is likely to have continued shrinking in the second quarter from the prior year, with deal volume and total deal value numbers crashing. Geopolitical tensions, inflation, high interest rates and fears of a global recession are likely to have acted as headwinds for merger and acquisition deals.
Similarly, IPOs and follow-up equity issuances are expected to have dried up in the to-be-reported quarter. Bond issuance volume might have witnessed a decline too as investors turned pessimistic.
Nonetheless, the Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $7.23 billion, suggesting a 5.9% increase from the prior-year quarter’s reported number.
Expenses: Wells Fargo’s costs are expected to have continued flaring up in the second quarter, given its franchise investments in technology and digitalization efforts. Additionally, amid the rising inflation, salary expenses are anticipated to have led to elevated non-interest expenses. This is likely to have hindered bottom-line growth during the quarter under review.
Asset Quality: With expectations of a worsening macroeconomic outlook and growing recession risk, Wells Fargo’s credit quality is likely to have deteriorated. Moreover, given the heighted market volatility, commercial loan defaults are expected to have risen. Hence, as WFC has a substantial exposure to commercial loans, it is likely to increase reserves in the second quarter.
What Our Model Predicts
According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Wells Fargo is +0.16%.
Zacks Rank: WFC currently carries a Zacks Rank of 4 (Sell).
The Zacks Consensus Estimate for second-quarter earnings has been revised 2.5% downward in the past week to $1.16 per share. Nonetheless, it suggests a year-over-year rise of 56.8%.
Also, the consensus estimate for quarterly revenues of $20.28 billion indicates a 19.1% increase from the prior-year quarter’s reported number.
Other Banks That Warrant a Look
The PNC Financial Services Group, Inc. (PNC - Free Report) and M&T Bank Corporation (MTB - Free Report) are a couple of bank stocks that you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
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Wells Fargo (WFC) Q2 Earnings Coming Up: What's in the Cards?
Wells Fargo & Company (WFC - Free Report) is scheduled to report second-quarter 2023 results on Jul 14, before the opening bell. The company’s quarterly earnings and revenues are expected to have improved year over year.
In the last reported quarter, WFC’s earnings beat the Zacks Consensus Estimate on higher net interest income (NII) and solid average loan growth. The fall in non-interest expenses acted as another tailwind. However, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors.
Over the trailing four quarters, Wells Fargo’s earnings surpassed the consensus estimate in three occasions and missed once, the average surprise being 7.17%.
Wells Fargo & Company Price and EPS Surprise
Wells Fargo & Company price-eps-surprise | Wells Fargo & Company Quote
Let’s take a look at factors that are expected to have influenced Wells Fargo’s second-quarter earnings.
Loans and NII: Banks’ lending activities are likely to have declined in the second quarter, as the challenging macroeconomic backdrop and high interest rates impacted consumer spending. Per Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans decreased in April and May from first-quarter end.
Nonetheless, in May 2023, Fed raised interest rates by 25 basis points to 5-5.25%, the highest since 2008. Further, in June it declared no changes in the given policy rate. Driven by interest rate hikes, Wells Fargo is expected to have witnessed an improvement in earning asset yields, margin and NII in the quarter to be reported. Also, lower mortgage-backed securities premium amortization is expected to have aided NII.
Amid these considerations, the Zacks Consensus Estimate for WFC’s NII is pegged at $12.94 billion, indicating a 26.9% rise from the prior-year quarter’s reported figure.
Mortgage Banking Revenues: In first-quarter 2023, Wells Fargo communicated its strategic plans to exit Correspondent business with an intention to reduce risks in mortgage business. Further, in the second quarter, mortgage rates continued to increase, with the rate on 30-year fixed mortgage reaching 6.81% in June, up from 4.6% reported in the prior-year quarter. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market, both purchase and refinancing compared with the prior-year quarter.
Hence, being one of the largest bank mortgage lenders in the United States, WFC is likely to have continued seeing declines in its home lending portfolio and mortgage banking income in second-quarter 2023.
The Zacks Consensus Estimate for WFC’s second-quarter 2023 mortgage banking revenues is pegged at $250 million, implying a 12.9% fall on a year-over-year basis.
Overall Non-Interest Revenues: Wells Fargo’s investment advisory and other asset-based fee revenues are likely to have borne the brunt of weaker equity and fixed-income market performance. A dip in market valuations and lower transactional activities are expected to have been headwinds too.
Further, the company is likely to have seen lower deposit-related fees due to an expected decline in deposits given the impact of regional bank collapses. The consensus mark for the same is pegged at $1.15 billion, implying a year-over-year decrease of 16.2%.
Global deal making is likely to have continued shrinking in the second quarter from the prior year, with deal volume and total deal value numbers crashing. Geopolitical tensions, inflation, high interest rates and fears of a global recession are likely to have acted as headwinds for merger and acquisition deals.
Similarly, IPOs and follow-up equity issuances are expected to have dried up in the to-be-reported quarter. Bond issuance volume might have witnessed a decline too as investors turned pessimistic.
Nonetheless, the Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $7.23 billion, suggesting a 5.9% increase from the prior-year quarter’s reported number.
Expenses: Wells Fargo’s costs are expected to have continued flaring up in the second quarter, given its franchise investments in technology and digitalization efforts. Additionally, amid the rising inflation, salary expenses are anticipated to have led to elevated non-interest expenses. This is likely to have hindered bottom-line growth during the quarter under review.
Asset Quality: With expectations of a worsening macroeconomic outlook and growing recession risk, Wells Fargo’s credit quality is likely to have deteriorated. Moreover, given the heighted market volatility, commercial loan defaults are expected to have risen. Hence, as WFC has a substantial exposure to commercial loans, it is likely to increase reserves in the second quarter.
What Our Model Predicts
According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Wells Fargo is +0.16%.
Zacks Rank: WFC currently carries a Zacks Rank of 4 (Sell).
The Zacks Consensus Estimate for second-quarter earnings has been revised 2.5% downward in the past week to $1.16 per share. Nonetheless, it suggests a year-over-year rise of 56.8%.
Also, the consensus estimate for quarterly revenues of $20.28 billion indicates a 19.1% increase from the prior-year quarter’s reported number.
Other Banks That Warrant a Look
The PNC Financial Services Group, Inc. (PNC - Free Report) and M&T Bank Corporation (MTB - Free Report) are a couple of bank stocks that you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for PNC is +1.41% and the company carries a Zacks Rank #3 at present. It is slated to report second-quarter 2023 results on Jul 18. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PNC’s second-quarter earnings has moved 1% south over the past month.
MTB is scheduled to release second-quarter 2023 results on Jul 19. It currently has an Earnings ESP of +1.84% and a Zacks Rank #3.
The Zacks Consensus Estimate for MTB’s second-quarter earnings has moved 1.9% south over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.