Wells Fargo Earnings Call Marks Clear Shift to Growth

Wells Fargo & Company ((WFC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Wells Fargo Signals Confident Shift From Repair to Growth in Earnings Call

The tone of Wells Fargo & Company’s latest earnings call was notably constructive, with management emphasizing that the bank is moving decisively from a period of constraint toward a growth phase. Executives pointed to strong 2025 profit and earnings-per-share gains, higher returns on equity, broad-based loan and deposit growth, and significant cost-efficiency progress. At the same time, they acknowledged near-term expense headwinds from severance and stepped-up investments, potential margin pressure if interest rates fall, and pockets of credit stress in office commercial real estate. Overall, the call framed Wells Fargo as a capital-strong franchise leaning into growth and modernization, while remaining candid about execution and macro risks.

Record Profitability and EPS Growth

Wells Fargo delivered robust bottom-line performance, reporting full-year net income of $21.3 billion and a 17% year-over-year increase in diluted EPS. Fourth-quarter net income was about $5.4 billion, with Q4 EPS of $1.62, up 13% from a year earlier. Adjusting for severance charges, Q4 EPS would have been $1.76, underscoring that the core earnings engine is running ahead of the headline figures. Management used these results to argue that profitability is now sustainably higher than in the immediate post-scandal recovery years.

Higher ROTCE and Ambitious Medium-Term Return Targets

Returns have improved sharply, with return on tangible common equity (ROTCE) rising to 15% in 2025, compared with just 8% in late 2020. Management set a new medium-term ambition of 17%–18% ROTCE, signaling confidence that earnings power and efficiency can be pushed further. Hitting this range would put Wells Fargo solidly in line with or ahead of many large-bank peers, and it underpins the bank’s narrative that its restructuring and risk clean-up phase is largely behind it.

Revenue Growth Driven by Fee-Based Businesses

Beyond interest income, fee-based revenue showed healthy momentum. Noninterest income grew about 5% year over year, or $419 million, with particular strength in investment advisory, brokerage, and asset-based fees. Investment advisory fees rose roughly 8%, helped by higher market levels and accelerating net asset inflows. This mix shift toward more recurring, fee-based streams is important for investors because it can help stabilize revenue through rate cycles and reduce the bank’s reliance on interest margins.

Net Interest Income Expansion and 2026 Outlook

Net interest income (NII) reached $47.5 billion in 2025, and management outlined a constructive outlook for 2026. The bank expects total NII of around $50 billion next year, with NII excluding markets businesses rising from $46.7 billion to approximately $48 billion and markets NII targeted at about $2 billion. While they flagged some early-2026 headwinds—including a typical seasonal dip in Q1 NII and the impact of fewer days in the quarter—the overarching message was that loan and deposit growth should more than offset modest rate declines.

Balance Sheet Expansion and Loan Growth

The balance sheet is growing again after years under an asset cap, with average loans up $49.4 billion, or about 5% year over year. Period-end loans jumped about 5% linked quarter, marking the strongest quarterly growth since early 2020. Assets are up 11% year over year since the cap was lifted, driven by both broad-based loan growth and increased trading assets. Management portrayed this as evidence that Wells Fargo is regaining share and reengaging with clients across consumer and commercial segments.

Deposit Growth and Lower Funding Costs

On the funding side, Wells Fargo grew average deposits by $23.9 billion year over year while actually lowering its average deposit costs by about 29 basis points. This combination of rising balances and cheaper funding is particularly favorable as the bank navigates a potentially lower-rate environment. Looking ahead, management expects mid-single-digit average deposit growth in 2026, with stronger gains in interest-bearing deposits as customers continue to seek yield.

Strong Capital Returns and a Solid Capital Base

The bank returned a hefty $23 billion of capital to shareholders in 2025, including an 13% increase in the dividend per share and $18 billion of share repurchases, $5 billion of which came in the fourth quarter alone. Even with these payouts, Wells Fargo’s common equity tier 1 (CET1) ratio stood at a robust 10.6%, comfortably above regulatory minimums and buffers. Management stressed that this capital strength gives them flexibility to support loan growth, invest in the franchise, and continue returning cash, albeit at a more measured pace.

Consumer Product Momentum and Digital Engagement

Consumer banking momentum was a bright spot. The bank opened nearly 3 million new credit card accounts in 2025, a 21% increase year over year, with card balances up about 6%. Auto lending also rebounded, with balances rising 19% and originations more than doubling compared with the prior year. Digital engagement continues to improve, as mobile active customers increased by roughly 1.4 million, or 4%, and half of new consumer checking accounts were opened digitally. These trends point to a more competitive and tech-enabled retail franchise.

Commercial and Capital Markets Expansion

In wholesale and markets businesses, Wells Fargo reported solid traction. Investment banking fees climbed 11% for the year, and the bank’s M&A advisory ranking improved to eighth in 2025 from twelfth in 2024. Trading-related assets surged about 50% as the firm expanded markets and client financing activities. Management framed this as carefully targeted growth rather than a shift toward outsized trading risk, aiming to deepen relationships with corporate and institutional clients while diversifying revenue.

Expense Discipline and Efficiency Gains

Despite significant investment, Wells Fargo reduced noninterest expense by around $174 million in 2025 and has now delivered roughly $15 billion in gross expense savings over the past five years. For 2026, management expects about $2.4 billion of additional gross expense reductions from efficiency initiatives. These savings are being redeployed into technology and growth businesses, but they also support the bank’s improved profitability metrics and medium-term ROTCE targets.

Severance Costs and Near-Term Earnings Drag

The earnings story remains partially clouded by severance costs as the bank continues to reshape its workforce. In the fourth quarter alone, Wells Fargo recorded $612 million of severance charges, mainly tied to actions planned for 2026, and a total of $908 million in the second half of 2025. These charges represent a meaningful near-term headwind to EPS and mask some of the underlying operating leverage the bank is generating.

Expense Base Set to Rise in 2026

While efficiency efforts continue, overall noninterest expense is expected to edge up to about $55.7 billion in 2026 from $54.8 billion in 2025. The increase is driven by roughly $1.1 billion in incremental technology investments, about $800 million in other investments and merit increases, another $800 million in higher performance- and benefit-related costs as revenue grows, and around a $400 million increase in FDIC assessments. Management noted that severance costs should decline by about $700 million versus 2025, but investors should still expect a higher absolute expense base as the bank funds its strategic priorities.

Margin Pressure and Rate-Change Risks

Management acknowledged that net interest margins could face pressure if the Federal Reserve cuts rates, as they currently assume 2–3 cuts in 2026. While total NII is expected to grow, the mix will matter: expanding lower-margin markets financing assets could compress overall margins even as NII dollars rise. This underscores the bank’s push to grow fee revenue and keep funding costs in check as a buffer against a less favorable rate backdrop.

Commercial Real Estate Office Headwinds and Asset Quality

Credit quality remains generally sound, but commercial real estate—especially office properties—continues to create pockets of stress. Commercial net loan charge-offs rose quarter over quarter, with commercial NCOs up 4 basis points, primarily due to CRE office losses. Nonperforming assets also ticked up modestly, and coverage levels for CRE office exposures in the Corporate Investment Banking portfolio declined to 10.1%. Management emphasized that exposures are manageable and well identified, but investors should expect ongoing choppiness in this book as the office market adjusts.

Continued Run-Off in Home Lending

Home lending remains in contraction mode. Revenue from this segment fell about 6% year over year on lower loan balances, and the bank continued to shrink its mortgage servicing portfolio, reducing it by $90 billion in 2025. Headcount in home lending is now down more than 50% over three years, highlighting management’s strategy to deemphasize this business and redeploy capital and resources to higher-return areas.

Volatility in Fee Revenue and Markets-Driven Income

Although fee-based revenue grew overall, management reminded investors that certain lines—trading, investment advisory, and underwriting—are inherently volatile and sensitive to market conditions. They cautioned that growth in markets NII may at times be offset by weaker noninterest income in those same businesses, leading to lumpy quarter-to-quarter results. This is particularly relevant as the bank grows its capital markets footprint and expands trading-related assets.

Allowance Coverage and Provision Outlook

The allowance for credit losses remained relatively stable, though coverage ratios declined modestly given portfolio growth. Management indicated that provision expense could rise in 2026 as the bank builds reserves to support expected loan growth rather than in response to a broad deterioration in credit. In other words, the anticipated increase in provisions appears more about volume and prudence than a shift toward systemic credit issues, aside from the known CRE office pockets.

Capital Allocation and a More Measured Buyback Pace

After an aggressive year of capital returns, Wells Fargo signaled a more balanced stance for 2026. While the bank still targets a CET1 ratio in the 10.0%–10.5% range, it expects share repurchases to be lower than the $18 billion executed in 2025 as it supports balance-sheet growth and risk-weighted asset expansion. The trade-off reflects a pivot toward organic growth and investment, with capital management aimed at optimizing returns rather than maximizing near-term buybacks.

Guidance: Moderate Growth, Ongoing Investment, and Higher Returns

Looking ahead to 2026, Wells Fargo guided to total net interest income of about $50 billion, with markets NII at roughly $2 billion and NII ex-markets around $48 billion, assuming 2–3 Fed rate cuts and relatively stable long-term rates. Both average loans and deposits are expected to grow at a mid-single-digit pace from fourth-quarter 2025 to fourth-quarter 2026. On costs, noninterest expense is projected at approximately $55.7 billion, reflecting $2.4 billion of gross efficiency savings offset by higher technology spending, revenue-linked compensation in wealth and investment businesses, other investments, and a higher FDIC bill. First-quarter personnel costs will be seasonally higher by about $700 million. Capital targets were reaffirmed, with CET1 managed in the 10.0%–10.5% band and a medium-term ROTCE goal of 17%–18%, while capital actions, particularly buybacks, will be more measured than in 2025.

In sum, Wells Fargo’s earnings call painted a picture of a bank that has largely completed its repair work and is now leaning into growth with a stronger earnings base, better returns, and renewed balance-sheet expansion. Management is pairing disciplined expense control with heavier investment in technology and growth areas, even as near-term severance charges, rising operating costs, and CRE office stress weigh on the headline numbers. For investors, the story is one of improving profitability and clearer strategic direction, balanced by the usual macro uncertainties and execution risks that come with a large bank’s transition from turnaround to growth.