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Wells Fargo's (WFC) Q4 Earnings Beat on Higher Fee Income

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Wells Fargo’s (WFC - Free Report) fourth-quarter 2021 earnings per share of $1.38 surpassed the Zacks Consensus Estimate of 1.09. Also, the bottom line improved 86% year over year.

Results included the impact of an $875-million decline in allowance for credit losses, backed by an improving economic environment and a $943-million net gain on the sales of Corporate Trust Services business and Wells Fargo Asset Management, offset by a $268-million loss of impairment of certain leased rail cars.

Improved investment banking and other asset-based fees, and strong equity gains in WFC’s affiliated venture capital and private equity businesses as well as lower costs, supported the bank. Yet, reduced net interest income (NII) due to low yields from earning assets and lower loans affected the results.

In 2021, earnings per share came in at $4.99 compared with 43 cents per share in 2020. The reported figure also surpassed the Zacks Consensus Estimate of $4.68.

In the fourth quarter, net income came in at $5.75 billion compared with $3.09 billion recorded in the prior-year quarter. In 2021, net income was $21.5 billion compared with $3.4 billion reported in the prior year.

The quarter’s total revenues came in at $20.86 billion, surpassing the Zacks Consensus Estimate of $18.73 billion. Moreover, the top line was higher than the year-ago quarter’s $18.5 billion.

Quarterly revenue generation from the business segments improved on a year-over-year basis. The Consumer Banking and Lending as well as Commercial Banking segment’s total quarterly revenues increased 1%, respectively. Further, revenues in the Corporate and Investment Banking as well as the Wealth and Investment Management units rose 11% and 6%, respectively.

Revenues for the full year came in at $78.5 billion, surpassing the Zacks Consensus Estimate of $76.1 billion. Revenues also rose 6% year over year.

NII Drops on Lower Loans, Costs Fall

Wells Fargo’s NII for the fourth quarter came in at $9.3 billion, down 1% year over year due to low yields on earning assets and lower loan balances, largely offset by a reduced mortgage-backed securities premium amortization, higher interest income from loans purchased from securitization pools and Paycheck Protection Program loans and a decrease in long-term debt. Also, net interest margin (NIM) (on a taxable-equivalent basis) shrank 5 basis points to 2.11%.

Non-interest income at Wells Fargo came in at $11.6 billion, up 26.9% year over year. This was steered by robust results in its affiliated venture capital and private equity businesses, and net gains from the sales of divested businesses. Higher card, deposit-related and investment banking fees, debt underwriting and advisory fees were partially offset by lower mortgage banking revenues, impairment of certain leased rail cars and lower trading activity in spread products.

Non-interest expense was $13.2 billion for the fourth quarter, down 11% year over year. This decrease was due to lower personnel expense, consultant spend and occupancy expense as well as lower restructuring charges and operating losses.

WFC’s efficiency ratio of 63% was below 80% recorded in the year-ago quarter. A fall in efficiency ratio indicates a rise in profitability.

As of Dec 31, 2021, average loans were $875 billion, 2.5% up, sequentially. Average deposits came in at $1.47 trillion, up 1.3% from the prior quarter’s figure.

Credit Quality Strong

Wells Fargo’s credit quality metrics were robust during the December quarter. The provision for credit losses was a benefit of $452 million as of Dec 31, 2021 compared with the benefit of $179 million in the prior-year quarter. Non-performing assets decreased to $7.3 billion for the fourth quarter from $8.9 billion reported in the year-earlier period.

Net charge-offs were $423 million or 0.19% of average loans for the reported quarter, down 27.6% from $584 million of 0.26% a year ago.

Capital Position Decent, Profitability Ratios Improve

Wells Fargo maintained a sturdy capital position. Its Tier 1 common equity under Basel III (fully phased-in) increased to $140.6 billion from $138.3 billion witnessed in the prior-year quarter. However, the Tier 1 common equity to total risk-weighted assets ratio was reported at 11.4 % under Basel III (fully phased-in) as of Dec 31, 2021, down from 11.6% in the corresponding period of 2020.

Return on assets was 1.17%, up from the prior-year quarter’s 0.64%. Return on equity was 12.8%, comparing favorably with the year-ago quarter’s 6.6%.

Capital-Deployment Activities

Wells Fargo repurchased 139.7 million shares or $7 billion in the fourth quarter of 2021.

Our Viewpoint

Wells Fargo is focused on maintaining its financial position despite a number of legal tensions. In addition, WFC is working on its strategic initiatives, which might help regain the confidence of its clients and shareholders. Improving credit quality, lower expenses and strong capital-deployment activities are encouraging.

Nevertheless, top-line headwinds along with lower NII and NIM are expected to prevail amid an uncertain economic environment.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates & Expectations of Other Banks

BOK Financial (BOKF - Free Report) is slated to report fourth-quarter 2021 results on Jan 19.

Over the past 30 days, the Zacks Consensus Estimate for BOKF’s quarterly earnings has moved marginally southward. This indicates an 18.1% decline from the prior-year quarter’s actuals.

The PNC Financial Services Group, Inc. (PNC - Free Report) is scheduled to announce quarterly numbers on Jan 18.

Over the past 30 days, PNC’s fourth-quarter earnings estimates have been revised marginally downward over the past month. However, the same is likely to witness a 10.7% rise from the prior-year reported number.

Bank of America (BAC - Free Report) is scheduled to announce quarterly numbers on Jan 19.

Over the past 30 days, the Zacks Consensus Estimate for Bank of America’s quarterly earnings has moved 2.6% south to 76 cents, calling for a 28.8% jump from the prior-year reported number.