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NII to Aid Wells Fargo's (WFC) Q1 Earnings, Fee Income to Hurt
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Wells Fargo & Company (WFC - Free Report) is scheduled to report first-quarter 2023 results on Apr 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, the company’s earnings beat the Zacks Consensus Estimate on higher net interest income (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.
Over the trailing four quarters, Wells Fargo’s earnings surpassed the consensus estimate on three occasions and missed once, the surprise being 7.6%, on average.
Let’s take a look at factors that are expected to have influenced Wells Fargo’s first-quarter earnings.
Loans and NII: In the first quarter, the Fed hiked interest rates by 50 basis points, resulting in a policy rate of 4.75-5% in March 2023, the highest since 2008. Driven by interest rate hikes, Wells Fargo is expected to have witnessed a robust improvement in earning asset yields, margin and NII in the quarter. Also, lower mortgage-backed securities (MBS) premium amortization is expected to have aided NII.
Banks’ lending activities declined in the first quarter, with the pace of loan growth across most categories slowing as the quarter progressed. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans, and consumer loans declined in the first quarter.
Amid the considerations, the Zacks Consensus Estimate for Wells Fargo’s NII is pegged at $13.08 billion, suggesting a 41.9% rise from the prior-year quarter’s reported figure.
Mortgage Banking Revenues: Mortgage originations, both purchase and refinancing, continued to decline in the first quarter. Mortgage banking revenues have been facing tough comps from the prior year, which was boosted by low mortgage rates.
Also, in the first quarter, mortgage rates continued to increase, with the rate on the 30-year fixed mortgage reaching 6.32% in March, up from around 3% reported in the prior-year quarter. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market. 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.
The Zacks Consensus Estimate for Wells Fargo’s mortgage banking revenues is pegged at $191 million for the first quarter, suggesting a 72% 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.
Lending-related fees are expected to have decreased, reflecting lower commercial loan commitment fees.
Further, the company is expected to have seen lower deposit-related fees due to a likely decline in deposits amid regional bank collapses. The consensus mark for the same is pegged at $1.23 billion, implying a year-over-year decrease of 16.3%.
Global deal-making continued to shrink in the first quarter, with deal volume and total deal value numbers crashing in the first quarter. Geopolitical tensions, inflation, rising interest rates and fears of a global recession likely acted as headwinds for merger and acquisition deals.
Similarly, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. Accordingly, the consensus mark for investment banking fees is pegged at $322 million, implying a 28% year-over-year decrease.
The Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $7.05 billion, suggesting a 15.8% decline from the prior-year quarter’s reported number.
Expenses: Wells Fargo’s costs are expected to have continued to flare up in the first 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.
Asset Quality: With expectations of a worsening macroeconomic outlook and growing recession risk, Wells Fargo is expected to have continued building reserves in the first quarter.
The Zacks Consensus Estimate for non-performing assets of $6 billion implies a decline from the $7 billion reported in the prior-year quarter. Likewise, the consensus estimate for total non-accrual loans stands at $6 billion, implying a decline from the $6.87 billion reported in the prior-year quarter.
What Our Model Predicts
According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are high. This is because it has the right combination of the 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 +3.48%.
The Zacks Consensus Estimate for first-quarter earnings has been revised 2.5% downward the past month to $1.15. Also, it suggests a year-over-year rise of 30.7%.
Also, the consensus estimate of $20.12 billion for quarterly revenues indicates a 14.4% rise from the prior-year quarter’s reported number.
Other Banks That Warrant a Look
BankUnited (BKU - Free Report) and Citigroup (C - Free Report) are a couple of bank stocks that you also might want to consider, as these, too, have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for BankUnitedis +4.84% and the company carries a Zacks Rank #3 at present. BKU is slated to report first-quarter 2022 results on Apr 25.
The Zacks Consensus Estimate for BKU’s first-quarter earnings has moved marginally south over the past month.
Citigroup is scheduled to release first-quarter results on Apr 14. C currently has an Earnings ESP of +0.58% and a Zacks Rank #3.
The Zacks Consensus Estimate for C’s first-quarter earnings has moved south over the past week.
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NII to Aid Wells Fargo's (WFC) Q1 Earnings, Fee Income to Hurt
Wells Fargo & Company (WFC - Free Report) is scheduled to report first-quarter 2023 results on Apr 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, the company’s earnings beat the Zacks Consensus Estimate on higher net interest income (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.
Over the trailing four quarters, Wells Fargo’s earnings surpassed the consensus estimate on three occasions and missed once, the surprise being 7.6%, on average.
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 first-quarter earnings.
Loans and NII: In the first quarter, the Fed hiked interest rates by 50 basis points, resulting in a policy rate of 4.75-5% in March 2023, the highest since 2008. Driven by interest rate hikes, Wells Fargo is expected to have witnessed a robust improvement in earning asset yields, margin and NII in the quarter. Also, lower mortgage-backed securities (MBS) premium amortization is expected to have aided NII.
Banks’ lending activities declined in the first quarter, with the pace of loan growth across most categories slowing as the quarter progressed. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans, and consumer loans declined in the first quarter.
Amid the considerations, the Zacks Consensus Estimate for Wells Fargo’s NII is pegged at $13.08 billion, suggesting a 41.9% rise from the prior-year quarter’s reported figure.
Mortgage Banking Revenues: Mortgage originations, both purchase and refinancing, continued to decline in the first quarter. Mortgage banking revenues have been facing tough comps from the prior year, which was boosted by low mortgage rates.
Also, in the first quarter, mortgage rates continued to increase, with the rate on the 30-year fixed mortgage reaching 6.32% in March, up from around 3% reported in the prior-year quarter. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market. 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.
The Zacks Consensus Estimate for Wells Fargo’s mortgage banking revenues is pegged at $191 million for the first quarter, suggesting a 72% 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.
Lending-related fees are expected to have decreased, reflecting lower commercial loan commitment fees.
Further, the company is expected to have seen lower deposit-related fees due to a likely decline in deposits amid regional bank collapses. The consensus mark for the same is pegged at $1.23 billion, implying a year-over-year decrease of 16.3%.
Global deal-making continued to shrink in the first quarter, with deal volume and total deal value numbers crashing in the first quarter. Geopolitical tensions, inflation, rising interest rates and fears of a global recession likely acted as headwinds for merger and acquisition deals.
Similarly, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. Accordingly, the consensus mark for investment banking fees is pegged at $322 million, implying a 28% year-over-year decrease.
The Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $7.05 billion, suggesting a 15.8% decline from the prior-year quarter’s reported number.
Expenses: Wells Fargo’s costs are expected to have continued to flare up in the first 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.
Asset Quality: With expectations of a worsening macroeconomic outlook and growing recession risk, Wells Fargo is expected to have continued building reserves in the first quarter.
The Zacks Consensus Estimate for non-performing assets of $6 billion implies a decline from the $7 billion reported in the prior-year quarter. Likewise, the consensus estimate for total non-accrual loans stands at $6 billion, implying a decline from the $6.87 billion reported in the prior-year quarter.
What Our Model Predicts
According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are high. This is because it has the right combination of the 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 +3.48%.
Zacks Rank: WFC currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for first-quarter earnings has been revised 2.5% downward the past month to $1.15. Also, it suggests a year-over-year rise of 30.7%.
Also, the consensus estimate of $20.12 billion for quarterly revenues indicates a 14.4% rise from the prior-year quarter’s reported number.
Other Banks That Warrant a Look
BankUnited (BKU - Free Report) and Citigroup (C - Free Report) are a couple of bank stocks that you also might want to consider, as these, too, have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for BankUnitedis +4.84% and the company carries a Zacks Rank #3 at present. BKU is slated to report first-quarter 2022 results on Apr 25.
The Zacks Consensus Estimate for BKU’s first-quarter earnings has moved marginally south over the past month.
Citigroup is scheduled to release first-quarter results on Apr 14. C currently has an Earnings ESP of +0.58% and a Zacks Rank #3.
The Zacks Consensus Estimate for C’s first-quarter earnings has moved south over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.