Wells Fargo & Company

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 one. If you would like to withdraw your question, press star two. 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.

Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Sharp, and our CFO, Mike Sanisimo, will discuss fourth quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our fourth 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 be found in our SEC filings and the earnings materials available on our website.

I will now turn the call over to Charlie. Thanks, John. I'm going to provide an overview of our 2025 results and update you on our priorities. I'll then turn the call over to Mike to review fourth quarter results, as well as our net interest income and expense expectations for 2026 before we take your questions. Let me start with our 2025 highlights. Our strong financial results reflected the significant momentum we're building across the company. Our net income increased to $21.3 billion and our diluted earnings per share grew 17% from a year ago. Our continued investments in our business helped drive revenue growth with fee-based revenue up 5% from a year ago. This growth was broad-based with increases in both our consumer and commercial businesses. Much of the investments we have been making have been funded by our disciplined approach to managing expenses. We had positive operating leverage in 2025, and we continue to have opportunities to generate efficiencies. Our ongoing focus has resulted in 22 consecutive quarters of headcount reductions, with headcount down over 25% since second quarter 2020. Since the lifting of the asset cap, we've been growing our balance sheet, and our assets grew 11% from a year ago, including broad-based loan growth and higher trading assets to help support our markets businesses. We also grew deposits with higher balances in both our commercial and consumer businesses. Credit performance was strong and net charge-offs declined 16% from a year ago. The economy and our customers remain resilient, but we continue to closely monitor our portfolios for signs of weakness. In addition to tracking credit metrics in our loan portfolios, such as early-stage delinquencies, We also monitor consumer behavior more broadly to help us understand consumer health. For example, we look at things like checking accounts with unemployment flows, direct deposit amounts, overdraft activity, and payment outflows, and we've not observed meaningful shifts in trends. Our capital levels remain strong while returning $23 billion of excess capital to shareholders. During 2025, we increased our common stock dividend per share by 13% and repurchased $18 billion of common stock. Given we have many opportunities to grow organically, we currently expect share repurchases to be lower in 2026. We will continue to focus on optimizing our capital levels as we manage to a CET1 ratio of approximately 10 to 10.5%. Let me turn to the progress we've made throughout the past year on our strategic priorities. The removal of the asset cap by the Federal Reserve was a pivotal moment for the company. This milestone, combined with successfully closing 13 regulatory orders since 2019, underscores the significant progress we've made in transforming the organization. We are incredibly proud of our success and understand the importance of continuing to build on that work and sustain the culture that supports it. While executing on our risk and control initiatives, We simultaneously worked to position the company for stronger growth and improved returns. Let me walk you through how these actions are improving our business drivers, beginning with our consumer business. We have been investing in our credit card business since I joined Wells Fargo, and our focus has been driving strong outcomes. We opened nearly 3 million new credit card accounts in 2025, up 21% from a year ago. Credit card balances were up 6% from a year ago. And importantly, we've maintained our credit standards. After two to three years of absorbing the upfront costs of our new products, we are beginning to see the early vintages contributing to profitability. Our auto business returned to growth in 2025 with stronger origination volumes and 19% growth in loan balances from a year ago. Our results reflected growth across our portfolio including benefiting from becoming the preferred financing provider for Volkswagen and Audi brands in the United States in the spring of last year. The auto business goes through cycles, and we have intentionally scaled that growth in recent years. With the investments we have made to improve our capabilities, we are now well-positioned to methodically return to broad-spectrum lending. Importantly, we're focused on making sure we have the right level of profitability in this business, not just growth. We have made good progress in transforming and simplifying the home lending business. Over the past three years, we've reduced headcount by over 50% and the amount of third-party mortgage loans serviced by over 40%, including reducing the servicing portfolio by $90 billion in 2025 alone. We are continuing to reduce the size of this business while focusing on serving our bank and wealth management customers, which will help improve profitability. Within consumer, small, and business banking, we had stronger growth in net checking accounts in 2025 than last year, driven by digital account openings and an increase in marketing. We continue to refurbish our branches, completing approximately 700 branches in 2025. Over half of our network is now refurbished, and we are on track to complete the remaining branches over the next few years. We continue to make enhancements to our mobile app, including making it significantly easier to open accounts, and in 2025, 50% of our consumer checking accounts were opened digitally. We grew mobile active customers by 1.4 million in 2025, up 4% from a year ago. Wells Premier, our offering to serve our affluent clients, continued to build momentum in 2025. We increased the number of licensed bankers and grew branch-based financial advisors by 12% from a year ago, with a focus on increasing the number of bankers and advisors in the locations where we have the most opportunities. Premier deposit and investment balances grew 14% during 2025. This remains a significant area of opportunity for us. We also had continued momentum in our wealth and investment management business, with total hires increasing, attrition declining, and net asset flows accelerating in the second half of 2025. Turning to our commercial businesses, in the commercial bank, while we're the market leader with strong returns, we still have plenty of opportunities for growth. We have hired 185 coverage bankers over the last two years, with over 60% of the bankers hired in 2025. We are starting to see early signs of success from these hires, with higher new client acquisition, as well as loan and deposit growth. We also continue to be focused on providing investment banking and markets capabilities, with fees from providing these capabilities to our commercial banking clients growing over 25% in 2025. Overland Advantage, our strategic partnership with CenterBridge Partners, has enabled us to better serve our commercial banking customers with a direct lending product, and since inception, we've helped our clients raise approximately $7 billion in financing. As I highlighted on our last call, our goal is to be a top five U.S. investment bank. We grew our share in 2025, and we're confident that we can continue to make progress over time by using our competitive advantages, including our long and deep relationships with large corporate and middle market companies, a complete product set, significant existing credit exposure, strong risk discipline, and the capacity to support our clients through cycles. In M&A, we're winning increasingly bigger and more complex assignments. We advised on two of the largest M&A deals of 2025, increasing our announced US M&A ranking to eighth in 2025, up from 12th in 2024. We entered 2026 with our deal pipeline meaningfully greater than it has been at any point in the last five years, although market conditions can always change. And with the lifting of the asset cap, we've been able to utilize our balance sheet to accelerate growth in our trading businesses, including increasing trading-related assets by 50% in 2025 to accommodate customer trading flows and financing activities. While many of the assets have been added recently are lower margin, they also have lower risk and are less capital intensive. Our ability to support this client activity increases engagement, and should lead to more business. In summary, our strong performance in 2025 reflects the meaningful progress we've made to transform Wells Fargo, and our actions position us for continued higher growth and recurrence. Our ROTC increased to 15% in 2025. To put this in perspective, when we first started talking about increasing our returns in the fourth quarter of 2020, our ROTCE was 8%, and we set a goal of reaching 10%. Once we established that goal, we raised our target to 15%. As we discussed on last quarter's call, we have a new medium-term ROTCE target of 17% to 18%. While both the path and the timing to achieve our target is dependent on a variety of factors, including interest rates, the broader macroeconomic environment, and the regulatory environment, we are confident that we can reach this goal by maintaining our expense discipline realizing the benefits of our investments to drive stronger revenue growth and further optimizing our capital levels. As a reminder, 17 to 18% is not our final goal, but another stop along the way to achieving best-in-class returns by business, and ultimately our returns should be higher than this target. I want to end by thanking everyone who works at Wells Fargo for their hard work and dedication last year, their unwavering commitment to our customers, and to our transformation is what positions us to become a best-in-class company. I'm excited about our momentum and look forward to building on our success as we enter the new year from a position of strength. I will now turn the call over to Mike. Thank you, Charlie, and good morning, everyone. We earned $5.4 billion in the fourth quarter, up from 6% from a year ago. I alluded to earnings Her common share was $1.62 of 13% year-over-year, and excluding the severance expense, our diluted earnings per share was $1.76. Fourth quarter included $612 million of severance expense, primarily for actions we will take throughout 2026. We also had severance expense in the third quarter for a total of $908 million in the second half of 2025, As Charlie highlighted, we have reduced headcount every quarter since the third quarter of 2020, and we continue to have opportunities to further streamline the company and become more efficient. Turning to slide four, net interest income increased $381 million, or 3%, from the third quarter, driven by higher markets, NII. Net interest income, excluding markets, increased $167 million, from higher loan and deposit balances, as well as fixed asset repricing, partially offset by changes in deposit mix. I will update you on our expectations for 2026, then interesting from later in the call. Moving to slide five, we had strong loan growth with both average and period end loans increasing from the third quarter and from a year ago. Period-end loans grew 5% in the third quarter, the strongest linked quarter growth since the first quarter of 2020 when we had COVID-related growth. Average loans increased $49.4 billion, or 5% from a year ago, driven by growth in commercial and industrial loans, in corporate investment banking, as well as growth in commercial banking. As you can see on this slide, one of the industry categories driving commercial loan growth has been financials except banks. While it is often referred to as one category, it's actually fairly broad. In our 10 Qs and Ks, we have traditionally broken down these loans in four types, lending to asset managers, commercial finance, consumer finance, and real estate finance. Let me walk through each of these categories briefly to give you a better understanding of what they include. Asset managers and funds. The biggest piece of this category, as well as driver of most of the growth, is from our fund finance group, which is largely subscription or capital call facilities for alternative asset managers targeting larger funds with strong investment track records where we have longstanding strategic relationships and that are generally backed by a diversified pool of limited partner commitments to the fund. Within commercial finance, the biggest piece is our corporate debt finance business, which is secured lending, to asset managers and private equity funds that is typically backed by middle market and broadly syndicated loans. We underwrite, approve, and monitor the performance of each underlying loan. Consumer finance, the smallest category, lends to clients engaged in auto lending, credit card issuers, and other types of consumer lending. Finally, the real estate finance portfolio includes both secured lending to mortgage REITs and private equity funds that originate or purchase commercial real estate mortgage loans and secured lending to asset managers and specialty finance companies backed by agency residential mortgage loans and residential mortgage-backed securities. Since this portfolio has been growing, we are now providing this additional detail by category earnings rather than just in our 10 key filings as we've done in the past. While this type of lending has picked up across the industry recently, we have made these kinds of loans for many years. They are generally secured and have features to help manage credit risk, such as structural credit enhancements and collateral eligibility requirements, as well as collateral advance rates that generally get us to the equivalent of investment-grade risk. Given these features and our experience underwriting these loans, as well as the collateral that supports them, we have found this type of lending to offer an attractive risk return. Now turning to consumer loans, which also grew from a year ago, with growth in auto, securities-based lending and wealth and investment management, and credit cards. While residential mortgage loans continue to decline, driven by our strategy to primarily focus on our bank and wealth management customers, the rate of decline slowed. Turning to deposits on slide six. Average deposits increased $23.9 billion from a year ago, as growth in consumer and commercial deposits more than offset declines in higher-cost corporate treasury deposits. We achieved this growth while reducing average deposit costs by 29 basis points from a year ago with lower interest-bearing deposit yields across all of our businesses. Turning to slide seven, non-interest income increased 419 million or 5% from a year ago. Our results a year ago included losses from the repositioning of the investment securities portfolio as well as strong results from our venture capital investments. We grew fee-based revenue across both of our business-related fee categories, including 8% growth in investment advisory fees and brokerage commissions, our largest category, driven by growth in asset-based fees reflecting higher market valuations and wealth in investment management. Turning to expenses on slide eight. Non-interest expense declined 174 million from a year ago. Let me highlight the primary drivers. We had lower FDIC assessment expense, lower operating losses, and we benefited from the impact of efficiency initiatives. Partially offsetting these declines was higher revenue-related compensation expense, primarily in wealth and investment management, driven by strong market performance. We also had higher advertising and technology expense driven by the investments we were making in our businesses to generate growth. I would note that while our fourth quarter 2025 expenses included the $612 million of severance expense I highlighted earlier in the call. Severance expense was slightly lower than a year ago. Turning to credit quality on slide nine, credit performance remains strong. Our net loan charge-off ratio declined 10 basis points from a year ago and increased three basis points from the third quarter. Commercial net loan charge-offs increased four basis points from the third quarter, driven by higher commercial real estate losses, predominantly in the office portfolio. Office valuations continue to stabilize, and although we expect additional losses, which could be lumpy, they should be well within our expectations. Consumer net loan charge-offs increased modestly from the third quarter to 75 basis points of average loans, with higher losses in credit card and auto. Since there is seasonality in these portfolios, I would note that both credit card and auto losses were lower than a year ago. As Charlie highlighted, we closely monitor our portfolios for signs of weakness, and consumers continue to be resilient as income growth has generally kept pace with increases in inflation and debt levels. Our non-performing asset ratio declined modestly from a year ago and increased three basis points from the third quarter, driven by higher commercial real estate and commercial and industrial non-accrual loans. The drivers of this increase were borrower-specific, but we did not see any signs of systemic weakness across the portfolio. Moving to slide 10, our allowance for credit losses for loans was relatively stable from the third quarter. Our allowance coverage ratio was down modestly and included a decline in the coverage ratio for our corporate investment banking commercial real estate office portfolio to 10.1% in the fourth quarter. Turning to capital and liquidity on slide 11, our capital levels remained strong with our CET1 ratio at 10.6% down from the third quarter. but well above our CET1 regulatory minimum plus buffers of 8.5%. We added approximately 45 basis points from earnings, which was more than offset by approximately 40 basis point reduction from common stock repurchases and an approximately 45 basis point decline from risk-weighted asset growth. We repurchased $5 billion of common stock in the fourth quarter. Average common shares at the standard were down 6% from a year ago and have declined 26% over the past six years. Moving to our operating segment, starting with consumer banking lending on slide 12. Consumer small and business banking revenue increased 9% from a year ago, driven by lower deposit pricing and higher deposit and loan balances. Home lending revenue declined 6% from a year ago due to lower net interest income from lower loan balances. Credit card revenue grew 7% from a year ago from higher loan balances and an increase in card fees. Our new account growth has been strong and approximately 50% of our loan balances are now from the new products we've launched since 2021. Auto revenue increased 7% from a year ago due to the higher loan balances with auto originations more than doubling from a year ago. The decline in personal lending revenue from a year ago was driven by lower loan balances and loan spread compression. Turning to commercial banking results in slide 13. Revenue was down 3% from a year ago as lower net interest income was partially offset by growth in non-interest income driven by higher revenue from tax credit investments and equity investments. Average loan balances in the fourth quarter grew 4.6 billion or 2% from the third quarter driven by higher client activity. Turning to corporate investment banking on slide 14. Banking revenue declined 4% from a year ago driven by lower investment banking revenue and the impact of lower interest rates. I would note that while investment banking revenue declined in the fourth quarter, it was up 11% for the full year. Investment banking revenue will vary from quarter to quarter based on the timing of when deals close, so looking at it over a longer time frame is a more meaningful way to see the momentum we are generating in this business. Commercial real estate revenue is down 3% from a year ago, driven by the impact of lower interest rates, reduced mortgage banking servicing income, resulting from the sale of our non-agency third-party servicing business, in the first quarter of 2025, as well as lower loan balances. Markets revenue grew 7% from a year ago, driven by higher revenue and equities, higher commodities-related revenue from increased market volatility, as well as higher revenue in structured products. Average loans grew 14% from a year ago and 6% from the third quarter, with growth in markets and banking driven by new originations, as utilization rates on existing facilities were relatively stable from the third quarter. On slide 15, wealth and investment management revenue increased 10% from a year ago, driven by growth in asset-based fees from increased market valuations, as well as higher net interest income due to lower deposit pricing and growth in deposit and loan balances. Underlying business drivers continue to show momentum in the fourth quarter with growth in loan and deposit balances, as well as growth in total client assets, which benefited from the market valuations, as well as net asset flows. As a reminder, the majority of William advisory assets are priced at the beginning of the quarter, so first quarter results will reflect the higher January 1st market valuations. Turning to our 2026 outlook on slide 17, we provide our expectations for net interest income. We reported $47.5 billion of net interest income in 2025, and we currently expect total net interest income to be $50 billion plus or minus in 2026. Additionally, for the first time, we are providing our net interest income expectations for our markets business. We also enhanced our disclosures related to this activity in our financial supplement by providing more details on trading assets and liabilities on pages 6 and 7, and including disclosures in the corporate investment banking segment on pages 14 and 15, as well as providing net interest income excluding markets on page 27. We believe these disclosures will provide additional transparency and insight. As you know, we've been investing in the markets business, and while it is still a relatively small contributor to our total net interest income, its contribution has grown, and it can cause volatility in our NII outlook given changes in interest rates and other market factors. We currently expect markets NII to grow to approximately $2 billion in 2026, driven by lower short-term funding costs and balance sheet growth, including increased client financing activities. which, as Charlie highlighted, tend to be lower margin and lower risk assets, but are accretive to net interest income. As a reminder, while markets NII is expected to be higher, this growth is expected to be partially offset by lower non-interest income. Our focus is on growing markets revenue, which we expect to increase in 2026. Net interest income excluding markets was $46.7 billion in 2025, and we currently expect NII excluding markets to be approximately $48 billion in 2026. Key assumptions used for our expectations include two to three rate cuts by the Federal Reserve in 2026, with 10-year Treasury rates remaining relatively stable throughout the year, which would be a modest headwind to NII. However, this expected headwind should be more than offset by loan and deposit growth, as well as continued fixed asset repricing. Average loans are expected to grow mid-single digits from fourth quarter 2025 to fourth quarter 2026, driven by growth in commercial, auto, and credit card loans. All else equal, our provision expense would increase in 2026 as we set aside reserves to support this expected loan growth. Average deposits are also expected to grow mid-single digits over this period with growth in all of our operating segments, with stronger growth in interest-bearing versus non-interest-bearing deposits. We currently expect net interest income excluding markets to decline in the first quarter due to the impact of two fewer days. Ultimately, the amount of net interest income we earn in 2026 will depend on a variety of factors, many of which are uncertain, including the absolute level of interest rates, the shape of the yield curve, deposit balances, mix in pricing, loan demand, and the ultimate mix of activity and volatility in markets. Turning to our 2026 expense expectations on slide 18, We continue to focus on efficiency as we simplify the company for our customers and employees while at the same time investing for the future. Following the waterfall on the slide from left to right, our non-interest expense in 2025 was $54.8 billion. Looking at the next bar, our assumptions do not include significant additional severance for 2026, which would result in an approximately $700 million decline in severance expense. We expect revenue-related expenses in 2026 to increase by approximately $800 million in our wealth and investment management business. As a reminder, this is a good thing, as these expenses are more than offset by higher non-interest income. Actual revenue-related expenses will be a function of market levels, with the biggest driver being the equity markets. Our outlook assumes the S&P 500 will be up modestly from current levels, but clearly the ultimate performance of the market is uncertain. We expect our FDIC assessment expense to increase by approximately $400 million in 2026, driven by expected deposit growth and the absence of the approximately $200 million special assessment credit that reduced FDIC expense in the fourth quarter. We expect all other expenses to increase approximately $300 million in 2026 for the impact of efficiency initiatives more than offset by higher investments and other expenses. We expect approximately $2.4 billion of gross expense reductions in 2026 due to efficiency initiatives. We've successfully delivered approximately $15 billion in gross expense saves since we started focusing on efficiency initiatives five years ago. We continue to believe we have opportunities to get more efficient across the company. There are three primary expense drivers that we expect will more than offset the gross expense saves in 2026. First, we expect approximately $1.1 billion of incremental technology expense, including investments in infrastructure and business capabilities. Second, we expect approximately $800 million of incremental other investments, including in the specific areas highlighted on the next slide. And finally, we expect other expenses to increase by approximately $800 million, including expected merit and benefit increases, as well as performance-based discretionary compensation. of lower expense following the sale of our rail car leasing business in the first quarter of 2026. However, this benefit will be offset by a reduction in non-interest income. Putting this all together, we currently expect non-interest expense to be approximately $55.7 billion in 2026. And as a reminder, the first quarter personnel expenses are seasonally higher and are expected to be approximately $700 million. On slide 19, we provide our key areas of focus for our 2026 investments across the company. And in summary, our results in 2025 reflected continued momentum in improving our financial performance. We generated strong fee-based revenue growth, maintained strong expense and credit discipline, grew our balance sheet, returned significant amounts of capital to shareholders, retained our strong capital position, and increased our return on tangible common equity. I'm excited about the opportunities ahead as we build on our momentum and further improve our results. We will now take your questions.