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Wells Fargo's (WFC) Q2 Earnings Beat Estimates as NII Rises
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Wells Fargo & Company’s (WFC - Free Report) second-quarter 2023 earnings per share of $1.25 has outpaced the Zacks Consensus Estimate of $1.15. The figure improved 66.7% year over year.
Shares of WFC have gained about 3% in the pre-market trading on a better-than-expected quarterly performance.
Results have benefited from higher net interest income (NII) and non-interest income. The improvement in capital and profitability ratios were other positives. However, higher provisions for credit losses and rise in expenses were the undermining factors.
Net income of $4.94 billion increased from $3.14 billion in the prior-year quarter.
NII Rises on Higher Rates, Costs Up
Quarterly total revenues were $20.53 billion, outpacing the Zacks Consensus Estimate of $20.27 billion. Also, the top line increased 20.5% from the year-ago quarter.
Wells Fargo’s NII was $13.16 billion, up 29.1% year over year. The upside was mainly driven by a rise in interest rates, partially offset by a decline in deposit balances.
Also, the net interest margin (on a taxable-equivalent basis) increased to 3.09% from 2.39%.
Non-interest income grew 7.7% to $7.37 billion. This was largely due to higher net gains from trading activities and a rise in investment banking fees. These were partly offset by lower deposit related fees, lower net gains from debt securities and a decline in card fees.
Non-interest expenses were $12.99 billion, up 1%. The rise was mainly due to an increase in personnel, technology, telecommunication and equipment, as well as advertising and promotion expenses. These were partially offset by lower operating losses.
WFC’s efficiency ratio of 63% was lower than 75% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2023, total loans of $947.96 billion decreased marginally on a sequential basis. Total deposits were $1.34 trillion, down 1.3%.
Credit Quality Worsens
The provision for credit losses was $1.71 billion compared with $580 million in the prior-year quarter. Net loan charge-offs were $764 million or 0.32% of average loans in the reported quarter, up from $344 million or 0.15% a year ago. Further, non-performing assets increased 14.6% to $7.02 billion.
Capital Ratio & Profitability Improves
As of Jun 30, 2023, the Tier 1 common equity ratio was 10.7% under the Standardized Approach, up from 10.4% in the corresponding period of 2022.
Return on assets was 1.05%, up from the prior-year quarter’s 0.66%. Return on equity was 11.4%, up from 7.2%.
Our Take
The company’s focus on expense management initiatives will likely support its financials. Raised interest rates will support NII growth while capital strength will likely aid capital deployment. Per management, the common stock dividend for third-quarter 2023 is expected to rise 16.7% to 35 cents per share, subject to approval by the board of directors.
Wells Fargo & Company Price, Consensus and EPS Surprise
Webster Financial (WBS - Free Report) is scheduled to announce second-quarter 2023 numbers on Jul 20.
Over the past week, the Zacks Consensus Estimate for WBS’ quarterly earnings has moved 2% south to $1.47 per share, implying a 14% rise from the prior-year reported number.
Texas Capital Bancshares (TCBI - Free Report) is scheduled to announce second-quarter 2023 numbers on Jul 20.
Over the past seven days, the Zacks Consensus Estimate for TCBI’s quarterly earnings has moved 2.1% downward to 94 cents per share, suggesting a 59.3% rise from the prior-year reported number.
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Wells Fargo's (WFC) Q2 Earnings Beat Estimates as NII Rises
Wells Fargo & Company’s (WFC - Free Report) second-quarter 2023 earnings per share of $1.25 has outpaced the Zacks Consensus Estimate of $1.15. The figure improved 66.7% year over year.
Shares of WFC have gained about 3% in the pre-market trading on a better-than-expected quarterly performance.
Results have benefited from higher net interest income (NII) and non-interest income. The improvement in capital and profitability ratios were other positives. However, higher provisions for credit losses and rise in expenses were the undermining factors.
Net income of $4.94 billion increased from $3.14 billion in the prior-year quarter.
NII Rises on Higher Rates, Costs Up
Quarterly total revenues were $20.53 billion, outpacing the Zacks Consensus Estimate of $20.27 billion. Also, the top line increased 20.5% from the year-ago quarter.
Wells Fargo’s NII was $13.16 billion, up 29.1% year over year. The upside was mainly driven by a rise in interest rates, partially offset by a decline in deposit balances.
Also, the net interest margin (on a taxable-equivalent basis) increased to 3.09% from 2.39%.
Non-interest income grew 7.7% to $7.37 billion. This was largely due to higher net gains from trading activities and a rise in investment banking fees. These were partly offset by lower deposit related fees, lower net gains from debt securities and a decline in card fees.
Non-interest expenses were $12.99 billion, up 1%. The rise was mainly due to an increase in personnel, technology, telecommunication and equipment, as well as advertising and promotion expenses. These were partially offset by lower operating losses.
WFC’s efficiency ratio of 63% was lower than 75% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2023, total loans of $947.96 billion decreased marginally on a sequential basis. Total deposits were $1.34 trillion, down 1.3%.
Credit Quality Worsens
The provision for credit losses was $1.71 billion compared with $580 million in the prior-year quarter. Net loan charge-offs were $764 million or 0.32% of average loans in the reported quarter, up from $344 million or 0.15% a year ago. Further, non-performing assets increased 14.6% to $7.02 billion.
Capital Ratio & Profitability Improves
As of Jun 30, 2023, the Tier 1 common equity ratio was 10.7% under the Standardized Approach, up from 10.4% in the corresponding period of 2022.
Return on assets was 1.05%, up from the prior-year quarter’s 0.66%. Return on equity was 11.4%, up from 7.2%.
Our Take
The company’s focus on expense management initiatives will likely support its financials. Raised interest rates will support NII growth while capital strength will likely aid capital deployment. Per management, the common stock dividend for third-quarter 2023 is expected to rise 16.7% to 35 cents per share, subject to approval by the board of directors.
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 second-quarter 2023 numbers on Jul 20.
Over the past week, the Zacks Consensus Estimate for WBS’ quarterly earnings has moved 2% south to $1.47 per share, implying a 14% rise from the prior-year reported number.
Texas Capital Bancshares (TCBI - Free Report) is scheduled to announce second-quarter 2023 numbers on Jul 20.
Over the past seven days, the Zacks Consensus Estimate for TCBI’s quarterly earnings has moved 2.1% downward to 94 cents per share, suggesting a 59.3% rise from the prior-year reported number.