Q3 2025 Earnings Call Transcript

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 speakers' remarks, there will be a question and answer session. 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 Scharf, and our CFO, Mike Santomassimo, 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-Ks 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 the 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 will then turn the call over to Mike to review third quarter results in more detail before we take your questions. Let me start by saying we are 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 have 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 have been making in our businesses on prior calls and the early signs of the positive impact on our results and the benefits were clear 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 & Company without the regulatory constraints and with the changes we have made is a significantly more attractive company than what we were several years ago. 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 for 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 is 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 core 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 have 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, have 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, 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 & Company. By the end of this year, we expect to have achieved approximately $15 billion of 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 the second quarter of 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 the goal to achieve best-in-class returns for each segment over time. In 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 invest for the long term. And as you can see on this 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 they 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've 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 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 the corporate and investment banking, which are up 50% since 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 booked 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 reaccelerating 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. Total 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 consumer 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 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 deals. 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 & Company has advised on half of them.

To help drive growth in our wealth and investment management business, we launched Wells Fargo 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.

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 adviser retention and the quality of the financial advisors we've been able to recruit. Advisor attrition has declined every quarter 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 constraints, 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 in our business are distinctive to Wells Fargo & Company 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 basis 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 the 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 the dividend payout ratio of 30% to 40% 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 have 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 & Company 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.

Thank you, Charlie, and good morning, everyone. I'm going to review our financial results starting on Slide 13 of our presentation. We earned $5.6 billion in the third quarter, up 9% from a year ago, and diluted earnings per common share was $1.66. Strong performance reflects the progress we have been making on the priorities that Charlie highlighted, including investing in our businesses, executing on our efficiency initiatives, maintaining strong credit discipline, and returning excess capital to our shareholders. Our third quarter results included $296 million or $0.07 per share of severance expense primarily for actions we will take this year as we continue to focus on streamlining the company and improving efficiency.

We continue to believe we have significant opportunities to get more efficient across the company. The areas of focus are broad-based, including third-party spend, real estate costs, and automation opportunities. Turning to Slide 15. Net interest income increased $242 million or 2% from the second quarter, driven by one additional day in the quarter, higher loan and investment securities balances, and fixed-rate asset repricing, which was driven by the turnover of debt securities, residential mortgage loans, and auto loans. While we grew net interest income, the net interest margin declined seven basis points from the second quarter, driven by growth in lower-yielding trading assets as we deployed more balance sheet after the lifting of the asset cap to support our strategy of growing our markets business.

Excluding the impact of the markets business, our net interest margin would have been flat from the second quarter. Given the growth in our business, we plan to start breaking up markets net interest income next year. I will update you on our expectations for full-year net interest income later in the call. Moving to Slide 16. Both average and period-end loans grew from the second quarter and from a year ago, and we had the strongest linked quarter growth in period-end loan balances in over three years.

Average loans increased $18.4 billion from a year ago, driven by growth in commercial and industrial loans in our corporate investment banking business. Securities-based lending and wealth and investment management, credit card, and auto loans also grew, while residential mortgage loans declined. Total average consumer loans grew from the second quarter after declining for ten consecutive quarters as growth in auto and credit card loans more than offset continued declines in residential mortgage loans driven by our strategy to primarily focus on our existing customers. Average deposits declined $1.8 billion from a year ago as we reduced higher-cost corporate treasury deposits by $37.5 billion, which more than offset deposit growth in our businesses.

The growth in average deposits from the second quarter reflected an increase in corporate treasury deposits as well as growth in wealth and investment management and corporate investment banking. Turning to Slide 17. Non-interest income increased $810 million or 9% from a year ago. Our results a year ago included losses from the repositioning of the investment securities portfolio. We had strong growth in the areas where we had focused our investments, including wealth and investment management and investment banking.

You can also see the momentum we are building in driving higher fee-based revenue when you look at our results versus the second quarter. Non-interest income increased 4% as growth across all business-related fee categories more than offset a decline in other non-interest income from the second quarter, which included a gain associated with our acquisition of the remaining interest in our merchant services joint venture. Turning to expenses on Slide 18. Non-interest expense increased $779 million or 6% from a year ago. Let me highlight the three primary drivers.

First, as I highlighted earlier, we had $296 million of severance expense in the third quarter. Second, we had $220 million of higher revenue-related compensation expense predominantly in the wealth and investment management business driven by strong market performance. Finally, we had higher technology and advertising expenses driven by the investment we're making in our businesses to help drive growth. Turning to credit quality on Slide 19. Credit performance remained strong and continued to improve.

Our net loan charge-off ratio declined nine basis points from a year ago and four basis points from the second quarter. Commercial net loan charge-offs were stable from the second quarter with lower losses in our commercial and industrial loan portfolio largely offset by higher commercial real estate losses. Office valuations continued to stabilize, and although we expect additional losses, which could be lumpy, they should be well within our expectations. Consumers continue to be resilient as income growth has generally kept pace with increases in inflation and debt levels.

Consumer net loan charge-offs declined $58 million from the second quarter to 73 basis points of average loans, with improvements across all of our consumer portfolios with the exception of auto. Non-performing assets declined 2% from the second quarter, driven by lower commercial real estate non-accrual loans. Moving to Slide 20. Our allowance for credit losses for loans declined $257 million from the second quarter, driven by lower allowance reflecting improved credit performance and lower commercial real estate loans, partially offset by higher commercial and industrial, auto, and credit card loan balances.

Our allowance coverage for our corporate investment banking commercial real estate office portfolio declined from 11.1% in the second quarter to 10.8% in the third quarter. Turning to capital and liquidity on Slide 21. We maintained our strong capital position with our CET1 ratio at 11%, well above our new CET1 regulatory minimum plus buffers of 8.5%, which became effective in the fourth quarter. We repurchased $6.1 billion of common stock in the third quarter. Given that we are now managing to a CET1 ratio of approximately 10% to 10.5%, we continue to have capacity to repurchase shares, and we currently expect fourth-quarter repurchases to be roughly in line with the third quarter.

During the 94% they've declined 24% since 2019. Moving to our operating segments starting with consumer banking and lending on Slide 22. Consumer, Small, and Business Banking revenue increased 6% from a year ago, driven by lower deposit costs and higher deposit and loan balances. Results also reflected the transfer of approximately $8 billion of loans and approximately $1 billion of deposits related to certain business customers previously included in the Commercial Banking operating segment. Home lending revenue increased 3% from a year ago due to higher mortgage banking fees. We continue to reduce headcount in this business, which has declined over 50% since 2022 as we have simplified the business and reduced the amount of third-party mortgage loans serviced for others by 36% over the same period.

Credit card revenue grew 13% from a year ago and included higher loan balances and card fees. While we had strong new account growth, adding over 900,000 accounts in the third quarter, up 49% from a year ago, benefiting from the strong digital engagement and better production in the branches. Auto revenue declined 6% from a year ago due to loan spread compression from previous credit tightening actions, but increased 6% from the second quarter driven by higher loan balances. Auto originations more than doubled from a year ago, and loan balances have grown for two consecutive quarters, reflecting the benefit from being the preferred financing provider for Volkswagen Audi vehicles that began in the second quarter as well as growth in the rest of the portfolio.

The decline in personal lending revenue from a year ago was driven by lower loan balances. Turning to Commercial Banking results on Slide 23. Revenue was down 9% from a year ago as lower net interest income due to the impact of lower interest rates and lower deposit loan balances 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 third quarter declined $7.1 billion or 3% from the second quarter, reflecting the transfer of the business customer accounts to consumer small and business banking.

Turning to corporate and investment banking on Slide 24. Banking revenue grew 1% from a year ago driven by higher investment banking revenue with strong performance across leveraged finance, equity capital markets, and M&A. Our results benefited from the favorable market as well as the investments we've been making to help increase our market share. Commercial real estate revenue was down 13% from a year ago, driven by lower loan balances, the impact of lower interest rates, as well as reduced mortgage banking servicing income resulting from the sale of our non-agency third-party servicing business in the first quarter.

Markets revenue grew 6% from a year ago with growth across most asset classes. Average loans grew 8% from a year ago and 4% from the second quarter. Growth reflected higher balances in Markets and Banking driven by new originations as utilization rates were relatively stable. On Slide 25, Wealth and Investment Management revenue increased 8% 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 loan balances.

Underlying business drivers showed solid momentum from the second quarter in advisor recruiting, net asset flows, loan and deposit balances, and total client assets. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so fourth-quarter results will reflect the higher October 1 market valuation. Slide 26 highlights our corporate results. Revenue increased year over year, largely reflecting losses we had a year ago from the repositioning of the investment securities portfolio.

Turning to our 2025 outlook on Slide 27. Starting with net interest income, we still expect net interest income for full year 2025 to be roughly in line with full year 2024 net interest income of $47.7 billion. Fourth-quarter net interest income is expected to grow from the third quarter to approximately $12.4 billion to $12.5 billion. The drivers of the expected growth in the fourth quarter include continued loan growth, particularly in our commercial, credit card, and auto portfolios, as well as the benefit of the growth we had in the third quarter. Continued repricing of fixed-rate assets at higher rates, including investments in the investment securities portfolio, and higher markets net interest income.

Turning to expenses, at the beginning of this year, we expected our full-year 2025 non-interest expense to be approximately $54.2 billion. We currently expect our full-year 2025 non-interest expense to be approximately $54.6 billion and fourth quarter to be approximately $13.5 billion. There are two primary drivers for the increase in our full-year expectation. First, approximately $200 million of higher severance expense than we expected at the beginning of the year.

We had assumed approximately $100 million in severance expense in the 2025 guidance we provided at the beginning of the year. As we highlighted, we had $296 million in the third quarter. As we finish our budget for 2026 and plan for our efficiency initiatives next year, we could have additional severance expense in the fourth quarter that is not included in our outlook. Second, approximately $200 million of higher revenue-related compensation expense predominantly in wealth and investment management due to strong market performance in the second half of the year.

As a reminder, this is a good thing as higher expenses are more than offset by higher non-interest income. In summary, our improved financial performance in the third quarter reflected the consistent progress we've been making on our strategic priorities. Compared with a year ago, we had strong growth in net income and diluted earnings per share, increased revenue by 5%, including growth in net interest income and fee-based revenue across both our consumer and commercial businesses, continued to execute on our efficiency initiatives, improved credit performance, and reduced common shares outstanding by 6% and increased our dividend.

These efforts helped improve our return on tangible common equity to 15.2% in the third quarter. And as Charlie highlighted, we believe we have an achievable path to a return on tangible common equity of 17% to 18% in the medium term. We'll now take your questions.

At this time, we will now begin the question and answer session. Please record your name at the prompt. If you would like to withdraw your question, you may press star 2 to remove yourself.

And our first question comes from Ken Usdin of Autonomous Research. Your line is open, sir.

Hey, thanks a lot. Good morning. Thanks for the updates. Just one clarification, I just wanted to wonder. Your new 17% to 18% medium term, do you have a general range of how far out you're thinking for that?

Not really. Yeah. I mean, yeah, Ken, think it's obviously longer than a year, but like it's a reasonable timeframe I think when you look at sort of medium term. Maybe I'll just circle back on that.

I think just one of the things and I said it in the remarks want to be a little careful about is it obviously is dependent on a bunch of things. So I want to make sure that people take that into account. We've got this substantial amount of excess capital. So depending on how the timing with which we choose to manage that can impact it.

And then it's continued positive results in the business. And so as I think it's not it's not next year, but not looking at any extended period of time either. And also note comments in there that it's not our final destination relative to our targets either.

Yes. Yes. Thank you for that Charlie. Appreciate that.

And second question just Mike, can I ask you if you look for a little color on the fourth quarter NII ramp? You mentioned the fixed repricing. Can you talk to us about like what you're still getting on what parts of the book on that fixed repricing? And then secondly, just do you expect market NII to be a meaningful helper to that?

And just I know you're going to give us more disclosure on that next year, but any help to kind of just help us understand the third to fourth ramp a little deeper would be great. Thank you.

Yeah. Sure, Ken. I'll try to do that. So just if you look at the drivers there's three or four things that are sort of driving increase from Q3 to Q4. First is overall market NII going up.

Part of that's driven by some lending that's in there, part of that's driven by a bunch of actions that we've taken as we've grown the business. And you get the benefit as like as rates start to come down on the front end, we've got higher coupons and bonds in like the mortgage book as an example. We're doing more hedging off balance sheet than on balance sheet in some of the asset classes. Some of our commodity balances are coming down, are dragged NII.

So there's a number of things that are sort of that underpin the market piece, but that a component of it. You then get the benefit of the loan growth we saw in the third quarter plus some more that we expect to see in the fourth quarter. And then you really then you get like a little bit of everything else including the fixed asset repricing that you get there. Part of that's in the securities portfolio, which you can see the AFS yields continue to grind up quarter on quarter.

You get a little bit of that in the auto book. And some of the other portfolios.

All right. Got it. Thanks a lot, Mike. The next question will come from Ebrahim Poonawala of Bank of America. Your line is open.

Hey, good morning. Guess two questions. One, I think Charlie, mentioned $15 billion of expense saves which were used to fund investments. I think as we think about the ROE improvement from here, just remind us where the opportunities are either on headcount rightsizing of technology, automation of processes, like how big is the opportunity on the cost free of side?

That would allow you to continue to invest the way you have while driving improved efficiency? If you could sort of put some framework around that.

Hey, Ebrahim. It's Mike. I'll I'll take a shot and can chime in if he's got anything to add. I think when you think about just the efficiency, it's agenda, as we keep saying over and over, I think we still think there's a significant amount to do across the company.

Some of that's people related, headcount related and you can see our headcount just gradually and coming down quarter after quarter after quarter. And we still have more to do there as you start to continue to automate more more processes. AI sort of helps on some of that for sure. But you'll see that I think just continue to get more and more efficient over time on headcount side.

And then there's a whole bunch of other stuff outside of the headcount whether it's third party spend, technology coming off over time. You've got more real estate costs coming down. So there's a whole significant amount of things that sort of will will continue to kind of grind down over over time. And then I think each year we'll decide on the investment side of how much we want to redeploy back into investments based on our ability to execute there.

And we'll give you sort of guidance as we go. But the efficiency work is definitely part of continuing to drive returns up. Outside of the efficiency though, it's really getting the benefit of the investments we've been making across each of the business investment banking cards, the rightsizing of the mortgage business, wealth management continuing to grow and and the rest of them. And then it's as Charlie said in his remarks, it's it's optimizing capital levels as well.

And I think when you add all that stuff, there's multiple paths to get there. And I think we just got to continue to execute on all the things that we've laid out.

That's helpful, Mike. Thank you. And I guess just on capital, so you talked about the fourth quarter buybacks. In India, give us a perspective on just inorganic growth like it is interesting like you emphasized being a U.S.

Bank and such in terms of your focus. It often comes up that could Wells do an M&A on wealth or global investment banking. And I'm not saying it one's right versus wrong, but would love to get your perspective if you think there are inorganic opportunities that would allow you to kind of accelerate some of these growth strategies in any of the businesses? Thank you.

Well, guess I start with we certainly have opportunities to think about things that we wouldn't have thought about in the past. And so it's always incumbent upon us to think about are there opportunities that would be additive to the strategy that we've laid out. What I would say is that anything that I think we would consider at this point we would think about in the context of what we've described this company as and what our strategy is. So it wouldn't be about going into something totally different.

It would be asking the question, does it help us get stronger in the businesses that we've said that we want to pursue. But I would say that like what is we spend almost all of our time thinking about are the organic opportunities that we have. Given how constrained we have been and our ability to think differently about those things now. So that certainly I think is the thing that we get most excited about.

But we'd be wrong not to about the inorganic things. But I just want to make sure we're not overthinking that at this point.

Okay. Thank you.

The next question will come from John McDonald of Truist Securities. Your line is open, sir.

Hi, good morning. I was wondering, Mike, if you could give some more color on loan growth, which seems to have good momentum. Specifically, you mentioned not having as much drag. From some areas like CRE and auto and some of it seems like the front book momentum as well.

Maybe you could give us a little color there and how much build out of the investment bank might be creating balance sheet opportunities too?

Yeah. Thanks John. Look I think starting on the consumer side, you're seeing less of a drag from residential mortgage coming down. And so that's certainly helpful.

And I think that will continue to likely decline in terms of the pace of decline there I think likely continues to get better. And you're seeing really good growth in card and auto. And for the first time in a while we saw overall consumer loans grow on a linked quarter basis. And we're seeing really good traction both on the card space and in auto.

So I think hopefully that will continue. So that's good. On commercial side of things, you still see a little bit of a decline in the commercial real estate book. We're seeing the office portfolio in particular pay off each quarter.

I think we're down roughly a third from just a couple of years ago in that portfolio. And so that's a good thing I think in that case. But we're seeing good demand across a lot of the other portfolios. So I think over a long slightly longer period of time, you'll start to see that overall grow again.

And then in the C&I space, I think what you're seeing is a couple of things. One, we are seeing some growth across the CIB space particularly in some of the non-bank financial loan categories. We're seeing growth there. But we're also seeing growth in a lot of the other sectors which is really good to see it be broad-based coming across the kind of general banking book there.

What we're not seeing is growth in the commercial bank yet. And really that's just because the utilization rates and the revolvers continue to be pretty stable now for a number of quarters. I think that likely picks up over time as people continue to gain more confidence that the economy is going to end up in a really in a good place and some other factors there and rates start to come down help as well. So we're seeing good growth despite still not seeing that utilization pickup in the commercial banks.

So hopefully that will be a good enabler for more growth as we go into next year.

And then maybe a follow-up specifically on credit card. Are you seeing new customers to the bank in card? Or are they mostly growth in existing Wells Fargo customers?

Both. And I think depending on the week, it could be, you know, fifty fifty, sixty forty, the majority are still existing customers coming through, but there are a lot of new to bank customers coming through there. And I think you may have noticed in supplement, did see a big uptick in card originations this quarter relative to last quarter. And the really good part about that is that that's coming out of our branches and coming from our own digital properties.

So wellsfargo.com. So it's really good to see that the majority of that growth is actually coming from our own assets, which obviously is the lowest cost way to originate stuff and usually has pretty good credit self-selection there in terms of credit profile. So overall we're pretty happy with what we're seeing there and it's bringing both new customers and sort of deepening what we're doing with the rest of the base.

And just to remind you of what we said in the past, but tacking on to this quarter, what Mike said is important, which is like it is continued really good execution inside of the broader bank relative to who the card business is pursuing. And not focused on well, on continued strong credit performance. As part of what this is like we're not chasing credit to get growth in accounts or growth in receivables.

Got it. Thank you.

The next question will come from Scott Siefers of Piper Sandler.

Good morning, Thanks for taking the question. So wanted to start on credit. All the indicators are excellent. Was just hoping you could expand a little on your thoughts on the overall health of the consumer.

And then just within there, there are just sort of more emerging concerns on auto in particular. I know you all have been working to become more of a kind of more fulsome lender. How you feeling about sort of the credit box? So maybe broadly thoughts on the consumer and then how it trickles down to you all in particular?

Sure. I'll start Mike and then you can pick up. It's one of these things that's have very little to say that's different from what we said last quarter. And it's because it's the performance of the consumers just very, very consistent.

Consumer spend kind of week after week is up the same amount on that we've seen over the past bunch of months. On both credit and debit. If fuel prices go up, then you see less discretionary spending and vice versa. And we don't see any meaningful changes across different affluence levels.

And again, we don't have any real subprime to speak of in our book. So it might not be representative of necessarily what everyone else might see out there. But we just see a lot of consistency. In fact, when we look at it, payment rates are better as opposed to even flat or worse.

Deposits remain strong. And so when you look at it, see really strong credit results. You see strong consumer spend. And stable deposits and those things just kind of paint a picture of a consistently strong consumer.

Even though what you read about is would lead you to believe that they're being more cautious. Our results just say that there's a high degree of consistency there without any real pockets of slowing. On the corporate side, we do see consistency in terms of especially as Mike pointed out, middle market companies being cautious. Whether it's not replacing people, not building inventories, as they want to see the whole tariff outcome play out and anything on the broader market.

And then specifically in the auto business, the answer for us is we don't see any real change in our results. As we talk about becoming a broader spectrum lender, the volumes that we do at the credit levels below what we would have done in the past are very small. But are performing as we would have expected. So no negative surprises there at this point.

Perfect. Okay. Thank you. And then Mike, just on the NII, definitely appreciate all that color. I think a lot of your focus was sort of on the asset side, whether it's repricing or volume what have you. Just curious about sort of what you're seeing and expecting on the deposit cost side now that the Fed's in sort of this round two of easing?

Yeah. I mean, I you know, I think on the if you start on the commercial side, you know, the betas are are we still expect them to be, know, quite high. And that's been the experience that been the experience so far. And no reason to think that's not going be the case as we go through the rest of the year and into next year.

On the consumer side rates went up less, right? So the betas are going be lower just by definition. But I but we're not seeing any we're not seeing any meaningful competition that's pushing pricing up for sure. And so I think you'll see that grind down a little bit as we go through the year.

But so pretty much as we expected so far.

Perfect. Okay, good. Thank you all very much.

The next question will come from Erika Najarian of UBS. Your line is open.

Hi, thank you. My first question is a bit of a two-parter, Mike, on the efficiency agenda towards 17% to 18%. The first, you mentioned third-party spend in your prepared remarks. I think that year to date it's about $3.3 billion annualizing of $4.4 billion.0 unchanged from last year.

I guess the first question is, is that an opportunity to fund future sort of more revenue-related comp or initiatives? And second, it's clear the momentum in IB and trading and even card. But I'm wondering as we think about WIM, and sort of a sub-twenty pretax margin, obviously your peers are higher than that. I'm wondering if that's an opportunity as well as you march towards 17% to 18%.

And should we be thinking about that pretax margin improvement on the revenue side or the expense side?

Okay. There's a lot there. I guess if I don't hit it all just remind me. Maybe I'll start at the end first.

On wealth management margins, there's certainly an opportunity to improve our margins in wealth management. And if you think about what drives margins, in that business, it's actually doing a lot more banking and lending business with customers. That's near that's one of the priorities that the team has had now for a while is to continue to do more. And if you look at our lending per dollar of assets or however you want to look at the penetration of lending in that business.

It's well below where our peers are on really any way to measure it. So I think as you sort of look at that business that's certainly going be one of them. Second is continuing to make the advisors more productive. That could be through more alternatives, products or other tools that we give them to continue to grow their books.

So there's a whole bunch of initiatives that underpin some of that. But we do expect to see a margin improvement in that business and that will contribute to overall returns as we look forward. And then just broadly on efficiency in the professional services, some of that some of the professional services line is driven by volumes in places like markets think market data and other pieces of it. But there is opportunity to continue to get more efficient across the number of vendors we use, There was still cost for completing some of the regulatory work this year.

And so there's a whole number of things that will continue. But professional on-site services is definitely one of them. But as I said earlier, there's a there's hundreds of projects that are ongoing at any given point that drive the efficiency work that we're doing. Some of that's going to be the third-party spend, but a lot of it is also going to be continuing to rationalize some of our own costs around real estate continue to drive automation, which not only saves us money, but improves client experience in most of what we do.

And so there's a whole range of things that I think will drive that efficiency agenda over time.

Great. And my second question, I am unfortunately, it's not any less complicated. But in the previous two peer calls this morning, NDFI came up as a significant topic. And wealth has clearly been a big player here for a very long time, no issues.

And this is a little bit a deja vu from a call. John will probably recall this from five years ago. And I'll ask this, the question the same way I asked JPMorgan for both you, Charlie and Mike. NEFI is clearly a sort of a broad swath, a broad definition.

What should investors be asking banks in terms of assessing NDFI exposure and risk as it relates to future credit quality, And second, should investors be concerned about SSFA in terms of its role in allowing NDFI when wrapped in different structures to have an RWA that could be well less than 100%?

Yeah. Maybe I'll take a shot and then I'm sure Charlie may have a view as well. You know, I think Eric it first starts with understanding what the exposures are. Not all lending to non-bank financials is the same, right?

And it's not all credit equal. And so for our portfolio, it really is the biggest by far the biggest piece of that is lending that we do to the big private equity firms and providing capital call facilities through our fund finance group. And I think if you look at we very much focus that lending on the big established players which obviously reduces potential issues that you have when you lend in that area. And it's all pretty plain vanilla stuff that we do for that.

And then when you start going down below that, the next piece is the lending we do against middle market loans or commercial loans there. And really our teams have been at this for a long time. They have a really good track record. We underwrite every single loan.

We don't lend against portfolios at large. We underwrite all of them. So we underwrite 2,500 to 3,000 loans as an example in that business. And really have a good perspective on what's happening across a pretty broad borrower base there and that informs how we do underwriting.

We're cross collateralized against if there's any issues with individual loans that get marked regularly. And so I think that so that we feel really good about the kind of risk return profile that sits on that book. Then the rest of it is spread across a whole multitude of different asset classes, whether it's consumer-oriented, receivables, vendor finance, supply chain. And so when you're really unpicking each component of it, you really need to make sure that you understand sort of the risks that are embedded in there and that you're managing it appropriately.

And I think the regulatory capital framework is just one of those inputs into making sure you're thinking about how much capital you need and how comfortable you should be relative to the underlying risk that sits there.

Great. I'm sure I have a lot of follow-up questions, but I'll save it for my follow-up call with IR. Thank you so much.

The next question will come from Betsy Graseck of Morgan Stanley. Your line is open.

Hi, good morning. So thanks for the update on the RoTCE trajectory from here. Two-part question. One is on the trading, you indicated, look, NIM came down because trading leaned into trading, makes a ton of sense.

I'm wondering, do you feel trading is maxed out relative to your risk profile and what you're interested in doing and what your client demand is? Or is there more that we should expect you're going to be leaning into trading same pace QQ or year on year? Or is it slowing from here?

Well, I don't think we're gonna get into exact pacing, but I think we still have a lot of opportunity across the markets business. Some of that will be in financing trades. And so a lot of what you saw in this quarter was us putting on financing trades with customers. A little bit of real trading inventory and growth there.

And I think we've got a lot of opportunity to do more of both of those over a period of time kind of all within the risk appetite that we have.

Okay. And then on the $2 billion of compliance expenses that you initially had to spend, has all of that come out? Are you now back to what you would argue is normalized level of expense run rate for that piece of the business? Or is there more to go there?

No. I think as Charlie said in his remarks, we're spending more now than we did before he got here. Right. And that cost is still in the run rate.

And as we've talked about over many quarters now is like over a long period of time, a longer period of time, we'll continue to look for ways to optimize that spend. A lot of what we built was built with plans that we put together five plus years ago at this point. And I think as we look into today, there's plenty of ways that we can make it more efficient whether it's through different use of technology or redefining different aspects of a process. But some of that just takes time for us to get out in a reasonable way.

So the only thing that we've really reduced what I'll call it just like some of the project spend the third-party consultants and whatnot that helped us alongside which in the big scheme of things relative to the total amount of money is not a lot of money. So most of that money is still being we're still spending on the things that we put in place. And as Mike said, over time, we do have the opportunity to figure out how to do those things more efficiently now that we're actually living with it.

Right. So that should be a material part of the improvement in expense ratio from here.

It should be an opportunity for us to figure out how we're going to be able to spend smartly on the things that we want to spend on and be smart about the overall expense base of the company.

Thank you.

The next question will come from Matt O'Connor of Deutsche Bank. Your line is open.

Good morning. I wanted to follow-up on the comments in the prepared remarks about targeting top five within investment banking. And I guess in short, just how do you get there? It's a pretty big step up from where you are now.

I know you made a bunch of hires a few years ago that probably still have some accusing benefits as the wall improves here, but maybe just talk to kind of that big leap from six to five and how much is, you know, already kind of baked in the franchise and how much do you need to hire or expand from here? Thank you.

Matt, it's Mike. Look, think we've added a lot of people over the last three point five years into the investment bank. And I think you're seeing that wallet share market share grow gradually each year. And I think we had a really good investment banking fee quarter this quarter.

I think it's our highest quarter we've ever had. And so you're starting to see some of that investment come through. And by the way some of the some of those fees are also generated by people who have been here a long time as well. And so it's a good combination of some of the newer folks and the team that's been in place.

And I think we'll just grind that up. I think grind up the wallet share over time. And I think we're going to continue to invest in sectors that we think we need to expand coverage. Think some of the technology sub-sectors I think we'll continue to look to add in people there.

And where we need, we'll add some folks some of the product areas like M&A. But it's just going to be a methodical sort of continued effort to get there. And I think we feel that it's more than achievable to get to top five.

And the only thing I would add maybe a couple of things would be first of all, we thought it would just be helpful to just kind of put a marker out there of we wanted to get to. We talk about being top five internally. There too, we don't necessarily talk about that as the endpoint as like a waypoint along the way. We don't have a time frame that we feel like we've got to get there by.

We're going to continue to do more of what we've been doing. Which is looking at where this franchise has strengths relative to the industries that we're good in, we lend, where we've got cash management relationships, where we have different levels of expertise across the company. Where we have underpenetrated customers like we have in our commercial banking franchise where there's opportunities to do more for them. And if we do that well, then given what we have to offer, then we think we'll continue to be able to not just grow share, make more money.

I mean, that's what this is all about. It's about higher returns and making more dollars of profit both of those things combined. We compete with really strong people. But when you look at the people that we still that are still in front of us, we think ultimately we can have as much if not more to offer.

And so it will be a continued disciplined build out. That we think we'll continue to do methodically and will help increase both our rankings but also profitability and returns.

Okay. Thank you. That's very helpful. And I don't have any follow-ups. Thanks.

The next question will come from John Pancari of Evercore ISI. Your line is open.

Regarding the 17 to 18% route to target, can you maybe help us in how to think about the efficiency ratio that you baked into that assumption? And could does it factor in that you're could reach the high 50s as you focus on the efficiency opportunity that you discussed earlier on the call?

Yes, John, it's Mike. I'll probably give you a slightly unfulfilling answer, so I'm not going to give you an exact number. But I think as you sort of get to 17% or 18% returns, you should start getting to a more comparable efficiency ratio as part of that, right? And I think that would reasonable people can have a slightly different number, but that would get you to a number certainly much lower than it is right now.

And so whether that ends up in the high 50s or 60s, like we'll see, but like it should be a meaningful improvement as we get to a higher return.

Okay. All right. Thanks. And then on your CET1, the 10% to 10.5%.

Could you maybe just talk to us a little bit about the cadence of getting down to that 10% to 10.5% level versus the current 11%? In terms of how much would be ideally coming from organic opportunity versus buyback? And then separately, I know you also put in the comment there that you may have the opportunity to manage the CET1 below that level over time depending upon the regulatory backdrop. What specifically on the regulatory front is the key driver there?

Well, think we're still waiting on revised rules around regulatory capital all of Basel III and the correspondent G SIB and the rest of the package there. So I think we got to wait and see where that goes. But in terms of we've given you that we're to buy $6 billion or approximately about that in the fourth quarter. That's the intention at least at this point.

And then the rest is just it's going to be a function of the pacing of the growth that we can see. Coming from each of the businesses. And then I think we'll get down to where we're going to imagine it manage it in a kind of in a reasonable time period, some of it may be a function of the pace of growth.

Okay, great. Thanks, Mike.

The next question will come from Gerard Cassidy of RBC. Your line is open, sir.

Thank you. Good morning, Mike. Good morning, Charlie. Mike, you touched on credit quality how obviously you guys are seeing some stabilization in the office market and you're seeing lower non-accrual loans.

Can you share with us just any color outside of the office market in terms of multifamily or other commercial real estate properties, any trends that you guys are noticing that may be different than earlier in year?

Not really. I think there it's pretty stable overall. And I think the rest of the portfolio is performing quite well. And so you're not seeing any deterioration really or any real change in trend.

I think things have been quite stable. If anything in the multifamily space where there were pockets of excess supply in certain parts of the country that's seems to be getting work through in reasonable way. But otherwise, I'd say things have been pretty consistent across the rest of the different parts of the commercial real estate portfolio for a while now.

Okay. And it was a curse a year or two ago to grow commercial real estate mortgage. Do you think that we could see commercial real estate mortgage growth in 2026 for you guys? As if we see continued evidence of bottoming out of the commercial real estate markets?

Are you talking about office or are you talking about the broader commercial real estate portfolio?

In both areas generally speaking.

Yes. I don't anticipate the office portfolio to grow really at all or much. I think on the broader commercial real estate, think there's opportunity to continue to look at like areas of growth there for sure over some reasonable period of time. When that actually manifests itself will be a function of what opportunity there is.

But I do want to just come back and just be clear about one thing. Mike's talking about just overall total loans. We are lending across all the different categories in the commercial real estate space. Including office where we think their quality properties with the right sponsors and backing and things like that.

So we're actively and have been actively looking at where we can continue to add loans. And the only question is how much is that relative to the payoffs that we continue to see.

Very good. Thank you, Charlie. And then just as a follow-up, some of your peers are using security risk transfers to manage risk. Is that something that you guys have thought about or something that you might consider if you think you need to do it to manage risk?

We've done one Gerard in the past and in the not so distant future and you know we'll decide as we go if we think we need to do more.

Very good. Appreciate it Mike. Thank you.

But I'd just add like it is a tool used like in the right size the right way that we'd look at. But at the same time, when we underwrite something and when we do something inside the company, we do it with with the risk lens of we're going to keep it. And so so that's not going to change. And so the question is just as time goes on and we want to manage the overall risk profile of the company, doesn't make economic sense for us to do that.

Got it. Okay. Thank you, Charlie.

And the final question will come from Chris McGratty of KBW. Your line is open.

Great. Thanks for getting me in. Within your deposit growth expectations within retail specifically, could you speak to geographies or products you're pushing the hardest and maybe where there's the biggest opportunity for growth over the coming years? Thanks.

Well, I think on the consumer side, what we're most focused on is growing checking accounts. And grow and expanding sort of the Active core primary checking accounts. Households. And I think when you look out over a long period of time, that's that's our focus is.

Okay. Thanks everyone for the questions. We appreciate it. We'll see you next time. Thank you all for your participation on today's conference call. At this time, all parties may disconnect.