Shares dropped over 7% during trading! Wells Fargo's first-quarter results missed expectations, net interest margin narrowed, and exposure to private credit was revealed | Earnings Report Insights

``` Wells Fargo's net interest income and non-interest income for the first quarter of 2025 both fell short of market expectations, causing its stock price to drop as much as 7.3% intraday, marking the largest single-day drop in a year. For the first quarter, Wells Fargo's net interest income (NII) was $12.1 billion, higher than the same period last year but below analysts' expectations of about $12.3 billion; non-interest income was $9.35 billion, also missing the market expectation of $9.5 billion. Net interest margin narrowed to 2.47%. Chief Financial Officer Mike Santomassimo noted that the net interest margin may come under further pressure in the second quarter as the bank shifts more balance sheet resources toward market activities and increases the share of interest-bearing deposits. After the announcement, Wells Fargo's stock price once fell more than 7.3% intraday—the largest decline in nearly a year—before recovering to a 4.77% drop at press time. Keefe, Bruyette & Woods analyst Christopher McGratty pointed out that with interest rates likely to remain higher for longer, the market originally expected this would support Wells Fargo, which is more sensitive to interest rates. However, with NII missing estimates and full-year guidance unchanged, there may be disappointment in the market, dragging down the stock's performance. This quarter, Wells Fargo disclosed details of its loan portfolio to non-bank financial institutions, drawing investor attention. Of the bank’s total $210.2 billion in loans to non-bank financial institutions, about $36.2 billion went to private credit institutions. Net interest margin under pressure, transition pains evident in growth strategy Wells Fargo’s first-quarter net interest margin narrowed further from the previous quarter to 2.47%. Mike Santomassimo explained the compression mainly comes from two aspects: the bank has increased repo financing to expand its market operations, and there is a rising proportion of interest-bearing deposits. CEO Charlie Scharf said during the earnings call, "I want to be clear, our confidence in this is as strong as ever, nothing has changed," adding, "This is actually a good thing because our business model should not swing quarter to quarter based on such viewpoints." Both loan balances and deposit balances grew this quarter, but floating-rate assets were dragged down by declining interest rates, partially offsetting the benefits of scale expansion. Loans to non-bank financial institutions under scrutiny Wells Fargo disclosed details this quarter about its loan exposure to non-bank financial institutions, drawing investor attention. Of the bank’s total $210.2 billion in loans to non-bank financial institutions, about $36.2 billion went to private credit firms, with the rest comprising subscription loans to private equity funds, as well as financing in real estate and consumer lending sectors. Wells Fargo had provided loans to the bankrupt UK company Market Financial Solutions and participated in a syndicated loan to the Canadian subprime lender Goeasy—the latter is currently facing rising bad loan pressure. Mike Santomassimo said on a media call Tuesday morning, "These loan structures are quite robust and provide good risk/reward in each underlying portfolio. We’re comfortable with the risks in this portfolio." Trading business growth, credit quality remains stable High market volatility continued to benefit trading; Wells Fargo's first-quarter net trading revenue rose 38% year-on-year to $1.35 billion. As capital markets business continues to expand, trading has become a bigger contributor to NII, at about $481 million for the quarter. In other business lines, investment advisory fees and brokerage commissions grew 10% year-on-year to $3.49 billion, mainly due to higher market valuations, increased retail brokerage commissions, and more active client trading. Credit quality remained generally stable. Net charge-offs of bad loans totaled $1.1 billion in the quarter, in line with analyst expectations. Provisions rose 22% year-on-year to $1.14 billion, slightly above analysts’ expectation of $1.13 billion. Growth execution ability remains market focus after asset cap lifted Wells Fargo's stock has continued to underperform the KBW Bank Index this year. Last June, the Federal Reserve lifted Wells Fargo’s asset cap after more than seven years. Since then, market attention has shifted from regulatory compliance to growth execution. Last October, the company raised its medium-term core return target, but management has repeatedly emphasized that growth will be gradual. With inflation concerns rising, expectations of rate cuts this year cooling, and the Iran situation driving up oil prices, the macro environment remains complex. For Wells Fargo, how to accelerate business transformation amid greater uncertainty in interest rates remains a core concern for investors. Risk Warning and Disclaimer The market has risks, and investment needs caution. This article does not constitute personal investment advice nor does it take into account individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Invest at your own risk. ```