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    WFC
    Earnings call· Mar 2025(Q1 FY25)

    WELLS FARGO & COMPANY/MN WFC

    Apr 11, 2025 Source

    Executive summary

    Wells Fargo Q1 FY25 — Strong Capital Returns and Consent Order Progress

    Wells Fargo delivered solid Q1 FY25 results, marked by significant progress in resolving consent orders and robust capital returns. While net interest income faced headwinds, the company saw growth in fee-based revenue and continued expense discipline. Management expressed confidence in the company's strategic direction and strong balance sheet, despite ongoing macro and regulatory uncertainties.

    Highlights

    5

    • Diluted earnings per share increased 16% from a year ago.

    • Five consent orders were terminated in Q1 FY25, bringing the total to 11 since 2019.

    • Returned $4.8 billion of capital to shareholders through dividends and share repurchases.

    • Net charge-off ratio improved, down 5 basis points YoY and 8 basis points QoQ to 45 basis points.

    • Debit card spending remained strong, up 4% from a year ago.

    Concerns

    3

    • Revenue declined from a year ago, driven by lower net interest income.

    • Full-year 2025 net interest income is now expected to be at the low end of the 1% to 3% growth range.

    • Market volatility and economic uncertainty persist, with preparation for a slower economic environment in 2025.

    Guidance & targets

    2
    CategoryTargetConfidence
    Full-year 2025 Net Interest Income (NII)
    Low end of 1% to 3% higher than 2024
    high materiality
    Medium
    Full-year 2025 Noninterest Expense
    Approximately $54.2 billion
    high materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Consumer Banking and Lending
    Revenue declined due to higher deposit costs and customer migration to higher-yielding products, though deposit balances saw year-over-year growth.
    Deposit balances: Grew YoY (first since Q4 2022)Average balance per checking account: StabilizedPace of migration to higher-yielding products: SlowedDebit card spending: Up 4% YoY
    		—-2%——
    Home Lending
    Revenue was stable, with significant increases in mortgage originations and continued streamlining of the business.
    Mortgage loan originations: Increased 26%Headcount: Down 47% since end of 2022Third-party mortgage loans serviced for others: Down 31% since end of 2022
    		—Stable——
    Credit Card
    Revenue grew driven by increased loan balances, with credit results within expectations.
    Loan balances: Increased
    		—2%——
    Auto
    Revenue decreased due to lower loan balances and spread compression, reflecting previous credit tightening actions.
    Loan balances: LowerLoan spread compression: Due to increased concentration of higher FICO borrowers
    		—-21%——
    Commercial Bank
    Revenue declined as growth in noninterest income was offset by lower net interest income due to lower rates. Average loan balances saw slight quarter-over-quarter growth.
    Noninterest income: Growth (higher treasury management fees, tax credit investments, investment banking fees)Average loan balances: Stable YoY, Up 1% QoQ
    		—-7%——
    Corporate and Investment Banking
    Banking revenue was down due to lower interest rates, partially offset by lower deposit pricing and higher investment banking revenue. Commercial real estate revenue benefited from a sale gain, and markets revenue was stable year-over-year.
    Commercial real estate revenue: Grew 18% YoY (due to sale gain)Markets revenue: Stable YoY, Up 22% QoQAverage loans: Declined 2% YoY, Increased 1% QoQ
    		—-4%——
    Wealth and Investment Management
    Revenue increased due to higher asset-based fees, partially offset by lower net interest income from higher deposit costs. Average deposit balances continued to grow.
    Asset-based fees: Higher (due to increased market valuations)Average deposit balances: Continued to increaseMigration of deposits to cash alternatives: Continued to slow
    		—4%——
    Corporate
    Revenue declined due to lower venture capital results and higher net losses from debt securities repositioning.
    Venture capital investments: Lower resultsNet losses on debt securities: Higher (related to repositioning)
    		—Declined——

    Operational metrics

    19
    Diluted Earnings Per Share
    $1.39Up 16% from a year ago
    Q1 FY25

    Includes $0.09 per share of discrete tax benefits and $0.06 per share gain on sale, partially offset by $0.03 per share losses from investment portfolio repositioning.

    Capital Returned to Shareholders
    $4.8 billion
    Q1 FY25

    Through dividends and share repurchases.

    Headcount Reductions
    19 consecutive quarters
    Q1 FY25

    Driven by efficiency initiatives.

    Active Mobile Customers
    4%Grew from a year ago
    Q1 FY25

    Reflects investments in digital channels.

    Average Loans Growth
    SlightlyFrom the fourth quarter
    Q1 FY25

    Driven by growth in commercial and industrial loans.

    Corporate Treasury Deposits Reduction
    $69 billion58%
    Q1 FY25

    Enabled by increased average deposits across commercial and consumer businesses.

    Average Deposit Costs Decline
    15From the fourth quarter
    Q1 FY25

    Declines across all businesses.

    Noninterest Expense Decline
    3%From a year ago
    Q1 FY25

    Driven by lower operating losses, lower FDIC Special Assessment, and efficiency initiatives.

    Nonperforming Assets Increase
    4%From the fourth quarter
    Q1 FY25

    Driven by an increase in commercial and industrial nonaccrual loans.

    Allowance for Credit Losses for Loans Decline
    $84 millionFrom the fourth quarter
    Q1 FY25

    Reflecting a lower allowance for commercial real estate loans on lower loan balances, partially offset by a modest adjustment for potential economic weakness.

    Commercial Real Estate Office Portfolio Allowance Coverage
    11.2%
    Q1 FY25

    In line with coverage ratio for most of the last year.

    Common Stock Repurchased
    $3.5 billion
    Q1 FY25

    Part of the capital return program.

    Mortgage Loan Originations Growth
    26%
    Q1 FY25

    Increases in both purchase and refinance volume.

    Home Lending Headcount Reduction
    47%
    Since end of 2022

    Part of streamlining the business.

    Third-Party Mortgage Loans Serviced for Others Reduction
    31%
    Since end of 2022

    Part of streamlining the business.

    Investment Portfolio Repositioning Losses
    $149 million
    Q1 FY25

    Related to $2.6 billion of debt securities.

    Discrete Tax Benefits
    $313 million
    Q1 FY25

    Related to resolution of prior period matters.

    Gain on Sale of Commercial Mortgage Servicing
    $263 million
    Q1 FY25

    From the previously announced sale of the non-agency third-party servicing segment.

    Unemployment Rate Assumption in CECL Models
    5.8%
    Future quarters

    Part of the conservative approach to allowance for credit losses.

    Industry KPIs

    9
    MetricValueDetails
    LoansSlightly
    DepositsIncreased
    Cet1 ratio11.1%%
    Capital returns$4.8 billionUSD
    Fee income linesGrowth
    Allowance reserves$84 millionUSD
    Net interest income$341 millionUSD
    Net charge offs npls45bps
    Total operating expenses3%%

    Product announcements

    1
    ProductTypeDetails
    Volkswagen and Audi brands purchase financingexpansion

    Deals & partnerships

    1
    UndisclosedSale of non-agency third-party servicing segment of commercial mortgage servicing business$263 million

    The company completed the previously announced sale of the non-agency third-party servicing segment of its commercial mortgage servicing business.

    Risks & headwinds

    4
    Market volatility and economic uncertainty2025

    Not quantified, but described as 'continued volatility and uncertainty'.

    Mitigation: Prepared for a slower economic environment, strong balance sheet, capital and liquidity levels, managed credit well over many cycles, prior credit tightening actions.

    Lower net interest incomeQ1 FY25, expected to continue impacting FY25 NII

    Down $341 million or 3% from Q4 FY24.

    Mitigation: Diversifying revenues through investments in fee-based businesses (card, wealth, investment banking, treasury management).

    Venture capital portfolio impairmentsQ1 FY25

    Not quantified, but noted as offsetting fee growth.

    Mitigation: Management remains confident in the overall portfolio and investments, acknowledging that monetization may take longer due to volatility.

    Impact of trade policy changesOngoing

    Not quantified, but noted as causing 'concern playing out in the markets and the economic uncertainty'.

    Mitigation: Monitoring trends and responding accordingly; company is predominantly a U.S. bank and prospers when the U.S. prospers.

    What to watch in Q2 FY25

    5

    Net Interest Income Trajectory

    Next quarter
    CurrentExpected at low end of 1-3% growth range for FY25
    TargetClarity on whether NII will remain at the low end or be impacted by rate path changes

    Why it matters

    NII is a significant driver of bank profitability, and its trajectory will indicate the impact of rate environment and loan/deposit dynamics.

    However, given what has occurred over the past 3 months, we currently expect our full-year 2025 net interest income to be in the low end of the range.

    Q&A highlights

    5

    Are customers eager to act once uncertainty resolves, or are they bracing for a prolonged slowdown?

    Customers are trying to figure it out, showing continued strength but cautious in the shorter term. There's hope for positive long-term outcomes from regulatory and trade changes, but current volatility leads to a 'wait-and-see' approach.

    “I think there is still a hope that the positives of regulation, positives of tax reform, the long-term positives of changes in trade can put us in a position to feel better about the future and a growing economy. But people are cautious. So I just kind of put it in the wait-and-see category. Cautious in the shorter term, but probably still bullish for the longer term.”

    asked by Robert Siefers · answered by Charles Scharf

    2 min read5 chapters

    Detailed Narrative

    01

    Consent Order Resolution Progress

    Wells Fargo terminated five consent orders in Q1 FY25, bringing the total to 11 since 2019. This progress reflects significant work on risk and control infrastructure, establishing appropriate processes and controls. Management expressed confidence in completing the remaining orders, noting that the closures free up management time and resources for other strategic priorities.

    02

    Strategic Investments and Business Growth

    The company continues to invest in key areas, driving growth in fee-based revenue. This includes the card business, a new partnership with Volkswagen and Audi for auto financing, and enhancements in digital and branch channels leading to increased active mobile customers and digital account openings. Investment banking fees also saw strong growth, particularly in debt capital markets, contributing to diversified revenue streams.

    03

    Customer Financial Position and Credit Quality

    Internal indicators show continued strength in customer financial positions, with resilient consumers and stable debit and credit card spending. Delinquencies have leveled at historical norms, and payment rates on unsecured portfolios remain strong. Commercial loan balances saw modest growth, the first since Q1 2023, driven by increased utilization and new clients, primarily in mid-corporate and asset-based lending segments.

    04

    Regulatory Environment and Macro Outlook

    Management supports the administration's willingness to re-evaluate regulatory changes, believing it could allow banks to better support customers by making more loans, taking more deposits, and providing liquidity. While acknowledging market volatility🌐 and uncertainty, the company is prepared for a slower economic environment in 2025, emphasizing its strong balance sheet and credit discipline as mitigants.

    05

    Capital Management and Shareholder Returns

    Wells Fargo returned $4.8 billion to shareholders in Q1 FY25 through dividends and $3.5 billion in share repurchases. The CET1 ratio remained strong at 11.1%, well above the regulatory minimum plus buffers of 9.8%. Management reiterated its capacity and commitment to continue share repurchases, viewing it as a priority and a flexible tool for capital allocation.

    AI-generated summary of the company’s earnings call. Not investment advice.