Wells Fargo & Company

Welcome, and thank you for joining the Wells Fargo third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, press star 2. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf, and our CFO, Mike Santamassimo, will discuss third quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our third quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and earnings materials available on our website. I will now turn the call over to Charlie.

Thanks, John. I'm going to use my time slightly differently today on the call and talk very briefly about the quarter. Then I will spend more time talking about our growth opportunities, what is different with the lifting of the asset cap, our capital levels, and how we see our path to higher returns over time. I'll refer to the presentation posted on our website. I'll then turn the call over to Mike to view third quarter results in more detail before we take your questions. Let me start by saying we're very happy with our third quarter results. The momentum we are building across our businesses drove strong financial results with net income and diluted earnings per share, both up from a year ago and the second quarter. Our results benefited from the investments we've made in prior years. And we are now on a path to grow more broadly with the lifting of the asset cap. Revenue increased 5% from a year ago with growth in both net interest income and strong fee-based revenue. I pointed out the investments we've been making in our businesses on prior calls and the early signs of the positive impact on our results. And the benefits were cleared this quarter with investment banking fees increasing 25% from a year ago. Loan growth accelerated in the third quarter, increasing from both the second quarter and a year ago. Our credit performance was strong and continued to improve. And we increased our capital return, raising our common stock dividend and doubling our share repurchases from the second quarter. I want to spend the rest of my time today addressing the topics I mentioned earlier. First, a refresher on what our management team has accomplished since late 2019. We've talked much about our success in closing 13 regulatory orders and the removal of the asset cap by the Federal Reserve. And I want to reiterate the importance of continuing to build on that work and sustain our new culture. But I want to shift the conversation by reminding everyone that while we are incredibly proud of our success, we have worked in parallel to transform and reposition the company by changing our business mix and how we manage the company and this has resulted in significantly improved returns and margins. Wells Fargo, without the regulatory constraints and with the changes we have made, is a significantly more attractive company than what we were several years ago, and we believe this positions us for continued higher growth and returns. I'm going to be referring to the slides from our presentation deck, starting with slide three. We love the fact that we are a U.S.-focused bank that benefits from the strength of our nation's economy and markets. More than 95% of our revenues are from U.S. consumers and U.S.-based companies. Our global presence exists because of the strength we have in this country. And while we have opportunities to grow our wholesale businesses outside the U.S., our primary opportunity and focus is growing all businesses domestically. The U.S. is and will continue to be the most attractive market in financial services, and as a U.S.-focused bank, we will continue to benefit from the strength of the U.S. Scale matters, and as you can see on slide four, we have it in all of our businesses. In many of our businesses, such as consumer banking, wealth management, corporate banking, and commercial banking, we are top three. In these businesses, there's generally a gap between the top two or three and the rest of the market. In other businesses, such as credit card, investment banking, and markets, while we're not top three yet, we have enough scale to compete with the top three and have competitive advantages that we think support the ability to increase our share profitably. Turning to slide five. We have simplified and refined our business mix by selling or scaling back many businesses. We sold or exited businesses that generated approximately $5 billion of annual revenue, but these businesses were either not poor or did not produce high enough risk-adjusted returns over time, and we have targeted our investments in areas with higher growth and returns. While the asset cap constrained our ability to grow loans, deposits, and security financing and inventories, our strategic review uncovered areas across the company where we had room to invest to serve consumers and businesses more broadly and build our fee-based revenues without the need to grow the balance sheet. Moving to slide six, we've made progress diversifying our revenue mix and growing fee streams and now consistently see the benefits of our refined business mix and strategic investments. Several of the businesses we have invested in are listed on this slide, and revenue from these businesses alone increased almost $5 billion since 2019. More importantly, we can now more aggressively and broadly pursue growth in other areas of the company. As you can see on slide seven, we have also improved returns by reducing expenses, but at the same time, we've increased our investment in risk and control, infrastructure, and our strategic growth initiatives. In total, expenses have declined $3.6 billion since 2019. And just a reminder that I have said that we spent approximately $2.5 billion more on control and regulatory work in 2024 than when I arrived at Wells Fargo. By the end of this year, we expect to have achieved approximately $15 billion in gross expense saves, and this has funded the large increases in spend to make us a better and stronger company and allowed us to reduce overall expenses. Savings have come from across our businesses, but let me highlight just a few examples. Our headcount has declined from a peak of approximately 276,000 in second quarter 2020 to approximately 211,000 in the third quarter of 2025, down 24%, with headcount reductions every quarter for five years. I want to note that this was not driven by business sales or outsourcing, but in fact, real improvement in our efficiency. We've also significantly reduced how much we spend on professional and outside services, as well as non-branch real estate. Turning to slide eight, we have made progress improving returns with a goal to achieve best in class returns for each segment over time. In the fourth quarter of 2020, our ROTCE was 8% and we wanted to put a stake in the ground by setting what we thought was an achievable higher return goal of 15%. We said that this was not our final aspiration and would relook at it after we achieved it. We've made significant progress and are approaching this goal And while we are proud of our progress, each of our lines of business still have the opportunity to improve further. All should eventually have returns comparable to our best peers who continually to invest for the long term. And as you can see on the slide, this is not the case in all lines of business. Our progress will continue to come from both continued efficiencies and the higher revenues driven by our investment in growth. Given our progress and the lifting of the asset cap, we believe now is the time to update our return goal and describe our aspirations. First, our aspirations. To be the top U.S. consumer and small business bank and wealth manager, providing industry-leading deposit, loan, investment, and payments products. Also, to be the top U.S. bank to businesses of all sizes, with the goal of being a top five U.S. investment bank. We expect all of our businesses to eventually generate returns and growth equal to our best competitors while continuing to invest for the longer term. We have the scale necessary in all of these businesses today. We have a strong and disciplined management team that has proven it can execute on our priorities. And with the regulatory constraints lifted, we have more degrees of freedom to grow and achieve our goals. Let me now talk about what has changed since the asset cap was lifted on slide nine. I have consistently said that the lifting of the asset cap would not be a light switch moment where we would immediately expand the balance sheet significantly and change our risk tolerances. Instead, I've said that it would remove the constraints that we have had to grow our balance sheet intensive businesses and allow us to compete more effectively, as I just outlined. Having said that, we are now beginning to use this increased capacity and have started to grow our balance sheet. Our total assets at the end of the third quarter were over $2 trillion for the first time in the company's history. We have grown our trading-related assets in corporate and investment banking, which are up 50% since the end of 2023. This is a client-focused, flow-based business where we serve corporate and institutional investors, most of which have broader relationships with us. We expect this growth to continue as we continue to onboard new clients and accommodate customer trading flows and financing activity without significantly increasing our risk profile. We have not actively grown consumer deposits, and we both limited and at times reduced commercial and corporate deposits due to the asset cap. Within consumer and small business banking, We are now focused on re-accelerating checking account growth through enhanced marketing and expansion of digital account openings. Average deposit balances have now grown year over year for three consecutive quarters. We are also investing in our branch network and remain on track to have over half of our branches refurbished by the end of this year. consumer check account openings, and branch-based credit card openings grew during the first nine months of 2025 compared to a year ago. We have highlighted in the past the biggest opportunity in our consuming lending business is credit cards. We've been making enhancements to our product offerings over the past several years, which has started to increase the size of our credit card portfolio, and new accounts grew 9% during the first nine months of 2025 compared to a year ago. We are focused on better penetrating the consumer and wealth management client base and are seeing progress. Just as a reminder, growing credit card portfolios are a drag on earnings and returns until approximately the third year before starting to add to earnings. Over the life of the portfolio, they have strong returns as long as spend, balances, and credit results are in line with expectations. And this is consistent with what we are seeing. So we are confident that this will become more accretive to our results. Within commercial banking, with the asset cap lifted, we are now focused on growing deposits through our global payments and liquidity business through targeted calling efforts and improved product and digital capabilities. More broadly, we've targeted 19 high-density markets for growth where we have less market share than other parts of the country. While our hiring is not complete, we have hired 160 coverage bankers over the last two years and are beginning to see increased production from this new group. We've also been investing to grow our corporate and investment bank. We're using our competitive advantages, including decades-long deep relationships with large corporates and middle market companies, a complete product set, significant existing credit exposure, strong risk disciplines, and the capacity and resilience to support our clients and invest through cycles. We have driven growth through investments in talent. Since 2019, we have hired over 125 managing directors across corporate and investment banking. These investments have translated into real growth. In investment banking, we have gained over 120 basis points of share in the U.S. since 2022, the most of any investment bank. In M&A, we are winning increasingly bigger and more complex assignments. We recently advised Union Pacific's $85 billion acquisition of Norfolk Southern, the largest announced deal of 2025 so far. When you look more broadly at the industrial sector, of the top M&A transactions that have either been announced or closed in 2025, Wells Fargo has advised on half of them. To help drive growth in our wealth and investment management business, we launched WealthTargo Premier, helping us to better serve our affluent clients. We are starting to see benefits with net investment flows into Premier up 47% during the first nine months of this year. The opportunities remain significant. We estimate that our existing bank customers have trillions in assets at other financial institutions And we are not fully meeting the lending deposit and payment needs of our existing wealth clients. And in our wealth advisor channels, we've been investing to improve the advisor and client experience, including making improvements to our independent platform, which has helped to increase advisor retention and the quality of the financial advisors we've been able to recruit. Advisor attrition has declined every quarter of this year. You can see on slide 10, that we are now targeting a 17 to 18% ROTCE over the medium term and managing to a 10 to 10.5% CET1 ratio. We believe our ability to grow the balance sheet after years of the asset cap constraint, the opportunities I've discussed to grow in each of our businesses and our excess capital position should be catalysts for continued improved returns over time. Our new ROTCE target is obviously dependent on a variety of factors, including interest rates, the broader macroeconomic environment, and the regulatory environment. This is not our final goal, but another stop along the way to achieve best-in-class returns by businesses, and ultimately, our returns should be higher than this target. Our confidence in reaching this range is driven by several factors, including... Our commercial businesses are already achieving industry-leading returns, but will be more sizable as we continue to benefit from our growth investments. Our consumer businesses are currently generating returns below the industry. We've made good progress on transforming and simplifying our home lending business, and the remaining actions should generate a higher return business than we see today. I spoke earlier of the negative impact on our financial results of growing our card business in the early years of investment. But as these vintages mature, we expect our card business to drive increased returns. In addition, as we now seek to grow consumer, small, and business banking, the increased returns in this business should also contribute to higher returns. Many of these opportunities to drive higher returns through our business are distinctive to Wells Fargo, given the constraints we were under for many years. Finally, we have significant excess capital today. The results of our recent CCAR exam reduced our stress capital buffer by 120 basic points. We are now managing to a CET1 ratio of approximately 10 to 10.5%. and we may have the opportunity to manage our capital levels even lower pending further changes from our regulators. Our CET1 ratio has been at or above 11% for nine quarters, including third quarter, even after we grew our balance sheet, increased our common stock dividend, and repurchased $6.1 billion in common stock. We ended the third quarter with over $30 billion of capital above our regulatory minimums, Not only do we have excess capital today, but we continue to generate more excess capital as well. At today's run rate, we generate over $20 billion in after-tax earnings per year and pay approximately $6 billion annually in dividends. The remaining $14 billion provides us with a lot of additional flexibility to grow our businesses and support our clients and communities, manage through economic volatility, and return capital to shareholders. We believe a dividend payout ratio of 30 percent to 40 percent is still appropriate. We are at the lower end of that range today. Optimizing our excess capital provides us with the real opportunity to improve our returns. I want to close by turning to slide 11, repeating how excited I am about the momentum we are building and for all the opportunities we have to produce higher growth and returns. We have made meaningful progress and those actions position us well for the future. I've often said that we have one of the most enviable financial services franchises in the world. We have a breadth of both consumer and commercial products that few can match, and now we are able to compete and do more for our customers and clients and build a best-in-class company. This is what attracted me to Wells Fargo in the first place, and I look forward to executing this next phase of our transformation. I will now turn the call over to Mike.