Wells Fargo

The knee-jerk selling of Wells Fargo shares after a largely strong second-quarter earnings report made no sense. Tuesday's results needed to shine following two quarters of disappointments and a struggling stock price. And they did. 84 billion. 71 consensus estimate. (Four cents worth of EPS was attributable to a one-time tax benefit. But even without that benefit, earnings still far surpassed estimates.) WFC YTD mountain Wells Fargo YTD In afternoon trading, Wells Fargo was off its lows for the session, moving nearly 3% lower. The stock did come into the print rather hot, relatively speaking — up 20%, as of Monday's close, since its 52-week low of nearly $73 on May 15.

Despite that gain, and now adding in Tuesday's decline, shares are down roughly 8% year to date. The S & P 500 , by comparison, is up more than 10% in 2026. Therein lies the source of Jim Cramer's frustrations with the stock. Bottom line While the quarter was strong enough to keep us invested, and perhaps pull Wells Fargo out of the penalty box, we reiterated our hold-equivalent 2 rating and $95-per-share price target. We want to see more consistency out of the management team going forward before making any moves to upgrade the stock and/or boost our price target.

While net interest margin and income both came up a tad short, that's not too surprising because the higher interest rates for longer from the Federal Reserve can have mixed effects. Banks can generate more on loan activity but must also pay out more to attract capital. Higher rates can also catalyze money to move out of noninterest-bearing (or minimal-interest-bearing) accounts, such as savings and checking accounts, in search of higher-yielding ones, like CDs. Back in April, CFO Mike Santomassimo warned us about this on the Q1 earnings call. On Tuesday's second-quarter call, Santomassimo addressed the upside of this dynamic.

"The success we are having growing interest-bearing deposits deepens our relationships with clients in the Commercial Bank and the Corporate Investment Bank, and gives us the opportunity to attract noninterest-bearing deposits in the future. … While financing balances in the markets business are lower spread, they have good returns and profitability and position us to grow other activities with those clients." As a result, we aren't too concerned about the compression here as deeper client relations are worth more in the long-term than a few extra basis points of net interest margin.

One way to think about it is that Wells Fargo is trading some interest-based profitability today for more robust fee-based revenue streams in the future. That will help to provide more earnings resiliency throughout the business cycle. Why we own it We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. He has delivered. 95 trillion asset cap in early June. 97% Most recent buy : March 17, 2026 Initiated : Jan. 8, 2021 The net interest income (NII) miss, which is probably the reason for Tuesday's stock decline, was more than offset by noninterest income, demonstrating the benefit of management's efforts to grow fee-based revenue streams.

Importantly, both NII and noninterest income were up year-over-year in all operating segments. On the call, Wells Fargo CEO Charlie Scharf took a moment to provide a high-level overview of the economic backdrop as it relates to business going forward. "Consumers and businesses remain strong. Consumer spending is higher, charge-offs are lower, and savings investments are growing across customer segments. Businesses are cautious, but balance sheets and cash flows remain strong, resulting in strong credit performance. Equity indices are at or near all-time highs, and credit spreads are narrow.

Concerns around affordability and inflation exist, but the labor market and wage growth remain strong. S. economy have absorbed macroeconomic and geopolitical uncertainty well." Good as that all sounds, Scharf was quick to add that "strong environments like this don't last forever, and we see large amounts of capital being deployed by both banks and non-banks across a broad range of risk assets." The CEO also stressed that he and his management company won't be complacent. "We will watch carefully for signs of outsized risks and stress, and continue to deploy our resources carefully and deliberately to serve our clients and build sustainable, high returns and higher growth that can endure the inevitable market shocks and economic cycles."

Quarterly commentary Wells Fargo's Efficiency Ratio was better than expected, falling 400 basis points year-over-year. Remember, this is one of those key metrics where lower is better because it's a measure of how much non-interest expense goes into each dollar of revenue generated. 7%, materially above expectations, driven by better-than-expected deposit and loan performance. 13, 40-cents ahead of what the Street was expecting. 5% regulatory minimum. As a result, the bank remains well-positioned with the capital needed to invest in the business while returning cash to shareholders.

4 billion in dividends. 2% year over year. Revenue streams from credit cards and auto loans were up 2% and 33%, respectively. Personal lending revenue fell about 2% while home lending revenue was down 7% versus the year-ago period. Helping to drive the results was the 13th consecutive quarter of year-over-year consumer primary checking account growth, a 46% increase in net new credit card accounts, a 41% increase in auto loan originations, and a 13% increase in premier client assets. On the call, Santomassimo said, "The asset cap came off last year, and we had double-digit growth in both average loans and deposits from a year ago."

95 trillion asset cap on the bank, which was put in place in 2018 for past misdeeds. Scharf became CEO in 2019 and worked diligently to clean up Wells Fargo's act. Commercial Banking saw revenue advance 6%, as NII increased 3% versus the year-ago period, while noninterest income increased 13% year-over-year. Net interest income benefited from an increase in loan activity as well as an increase in interest-bearing deposit balances. Noninterest income benefited from equity investments, tax credit investments, and investment banking. Corporate and Investment Banking revenue advanced the most out of the four operating segments, increasing just over 16% year over year.

Driving the strong result was a 20% increase in banking revenue on the back of growth in all three sub-revenue lines (lending, treasury management and payments, and investment banking). IB advanced nearly 36% year over year. On the call, the team noted that this was a record quarter for fees from investment banking, which the bank has been building up in recent years.