Wells Fargo jumps on upbeat NII outlook

Wells Fargo reported adjusted earnings per share (EPS) of $1.43 for Q4 2024, exceeding the $1.35 consensus estimate. Revenue for the quarter came in at $20.38 billion, slightly below the $20.59 billion expectation but still reflecting strong performance across multiple segments. Net interest income (NII) totaled $11.84 billion, surpassing the $11.7 billion estimate, driven by solid loan yields and improving deposit mix.

Key Metrics: Loans, NCOs, and the Balance Sheet

Average loans were $906.4 billion, in line with expectations, while average deposits stood at $1.35 trillion. The net interest margin (NIM) of 2.7% was marginally above the 2.67% estimate. Noninterest expenses were $13.90 billion, slightly higher than the estimated $13.29 billion due to higher personnel costs and technology investments. Net charge-offs (NCOs) increased to $1.21 billion, reflecting higher credit card and commercial real estate losses. The common equity Tier 1 (CET1) ratio remained robust at 11.1%, slightly below the 11.2% forecast.

Consumer and Community Banking Performance

The Consumer and Community Banking division posted total revenue of $8.98 billion, bolstered by higher credit card and mortgage banking income. Credit card revenues increased 3% year-over-year, supported by higher balances and increased point-of-sale volume. Home lending revenue grew 2% due to higher mortgage banking fees, although this was offset by lower loan balances. Auto lending revenue dropped 21%, reflecting loan spread compression and reduced demand. Noninterest expense for the segment declined by 2%, aided by cost-saving initiatives.

Corporate and Investment Banking Highlights

Corporate and Investment Banking revenue totaled $4.61 billion, with investment banking fees rising 59% year-over-year to $725 million. Equity and debt capital markets activity were significant contributors to this growth, as were higher advisory fees. Fixed Income, Currencies, and Commodities (FICC) trading revenue experienced modest gains, while equity trading saw a slight dip due to seasonally lower activity. Commercial real estate revenues declined slightly, reflecting pressure from ongoing challenges in the office sector.

Balance Sheet and Credit Trends

Nonperforming assets fell 5% to $7.9 billion, driven by declines in commercial real estate and residential mortgage nonaccrual loans. However, commercial real estate charge-offs increased, particularly in the office portfolio. Consumer net charge-offs rose to 0.85% of average loans, led by higher credit card losses. The bank reported a provision for credit losses of $1.1 billion, below the $1.22 billion estimate, indicating stable credit conditions.

Outlook for 2025

Wells Fargo anticipates NII growth of 1% to 3% in 2025, slightly higher than 2024's $47.7 billion. Noninterest expenses are projected at approximately $54.2 billion, reflecting investments in growth and technology. The bank aims for a return on tangible common equity (ROTCE) of 15%, up from 13.4% in 2024. CEO Charlie Scharf emphasized the bank's progress in streamlining operations, improving customer service, and addressing risk and control issues.

Valuation and Market Reaction

Shares of Wells Fargo rose nearly 2% in premarket trading following the results. Despite the earnings beat, the stock remains undervalued compared to peers, providing room for potential upside. With a focus on efficiency and growth, coupled with the possibility of the Federal Reserve lifting the asset cap in 2025, investors are optimistic about the bank's trajectory.

Conclusion

Wells Fargo delivered a strong quarter, capping a year of substantial progress under CEO Charlie Scharf. The bank's ability to exceed earnings expectations, maintain solid credit metrics, and provide encouraging guidance for 2025 underscores its improving financial health. However, ongoing challenges in commercial real estate and rising expenses warrant close monitoring. Investors will also watch for updates on the potential removal of the asset cap, which could unlock significant growth opportunities. With a solid balance sheet and strategic focus, Wells Fargo is well-positioned for continued performance in the coming year.