Wells Fargo (NYSE:WFC) has dramatically underperformed the financial sector in recent years. Over the past year, the bank's stock rose by just 5% compared with 26% for the sector as a whole, and over the past three years, the underperformance is more than 40 percentage points.

This is certainly understandable, given the bank's massive fake-accounts scandal and numerous other regulatory and legal issues that have taken place. Plus, the bank's third quarter and other recent results left much to be desired.

However, a new CEO was finally brought in this past October, a move that many experts said was necessary for the bank to truly move forward. Now, Wells Fargo just released its fourth-quarter results, the first numbers since Charles Scharf took the helm at the bank. Here's what investors need to know.

Wells Fargo CEO Charles Scharf headshot.

Wells Fargo CEO Charles Scharf. Image source: Wells Fargo.

The headline numbers were a disappointment

The top-line revenue and bottom-line earnings figures rarely tell the full story of how any company is doing, but it's certainly a discouraging sign when these numbers are disappointing. And that appears to be the case with Wells Fargo in the fourth quarter.

In a nutshell, the bank missed expectations on both the top and bottom lines. Fourth-quarter earnings of $0.93 per share came in $0.19 shy of expectations and were down significantly from $1.21 per share in 2018's fourth quarter. Revenue of $19.86 billion failed to live up to estimates as well, and was a significant decline from $21 billion in the same quarter a year ago. 

What's more, this is the adjusted earnings figure; if you include the bank's litigation expenses, EPS drops to just $0.60.

For the full year 2019, Wells Fargo generated $4.05 in earnings per share, a decline of 5.4% from 2018.

Important things to know

Digging a little deeper, here are some of the highlights that investors should know:

  • For the year, Wells Fargo generated a 10.2% return on equity (ROE) and 1.02% return on assets (ROA). While these numbers are above the generally accepted industry benchmarks of 10% and 1%, respectively, they are significantly lower than the 11.5% ROE and 1.19% ROA the bank generated in 2018.
  • Thanks to the lower profitability, Wells Fargo's efficiency ratio has worsened by 3.4 percentage points to 68.4%. It's still early in earnings season, but this is likely to be among the worst in the sector.
  • Net interest margin declined to 2.53% in the fourth quarter from 2.94% a year ago. To be clear, this was largely expected given the declining interest rate environment and is likely a big driver of Wells Fargo's lower profitability.
  • On a positive note, Wells Fargo's deposit base grew by 4% year over year, the best growth in some time.
  • Wells Fargo repurchased 141.1 million shares of stock during the fourth quarter. This is roughly 3.4% of the bank's total outstanding shares, and represents an annualized pace of 13.6%, a very aggressive rate of buybacks, presumably to take advantage of the underperforming stock price. Combined with the bank's 3.9% dividend yield, it's fair to say that Wells Fargo is returning lots of capital to shareholders.

Should investors be concerned?

Take these numbers with a big grain of salt. The Federal Reserve's penalty limiting the bank's growth efforts is still in effect for the time being, so it's not an apples-to-apples comparison with other bank stocks that can largely grow unrestricted.

Plus, keep in mind that it's still very early in Scharf's tenure, so the impact of the leadership change may not be reflected in the bank's numbers just yet. If Scharf succeeds in turning the bank around, the current valuation of just 12.5 times trailing 12-month earnings could end up looking very cheap.