Q1 2026 Earnings Call Transcript

Welcome and thank you for joining the Wells Fargo & Company First Quarter 2026 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. If you would like to withdraw your question, press 2. Please note that today's call is being recorded.

I would now like to turn the call over to John Campbell, Director of Investor Relations. You may begin.

Good morning. Thank you for joining our call today where our CEO, Charles Scharf, and our CFO, Michael Santomassimo, will discuss first quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our first quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com.

I would 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 Charles Scharf.

Thanks, John. I am going to provide some brief comments about our results and update you on our priorities. I will then turn the call over to Michael Santomassimo to review first quarter results in more detail before we take your questions. Let me start with our first quarter financial highlights.

We saw continued positive impacts from the investments we have been making with diluted earnings per share increasing 15%, revenue increasing 6%, loans growing 11%, and deposits up 7% compared to a year ago. Revenue growth was driven by a 5% increase in net interest income and an 8% increase in noninterest income. Our consistent focus on investing across all of our businesses helped contribute to broad-based revenue growth with each of our operating segments increasing revenue from a year ago. Consumer Banking and Lending revenue grew 7% and Commercial Banking revenue grew 7% as well.

Within our Corporate and Investment Bank, we saw an 11% increase in banking revenue and a 19% increase in markets revenue. Wealth and Investment Management grew 14%. While expenses increased, driven by higher revenue-related expenses, we remain focused on expense discipline. At the same time, we are increasing our investments in areas like technology, including AI, as well as in advertising, while continuing to execute on our efficiency initiatives which has resulted in 23 consecutive quarters of headcount reductions.

With revenue growing faster than expenses, pre-tax, pre-provision profit grew 14% from a year ago. Credit performance remained strong, and our net charge-off ratio was stable from a year ago at 45 basis points. Given that nonbank financial lending has generated a lot of interest lately, Michael will do a deep dive into that portfolio later in the call. But I will say we like the risk-return profile of the portfolio, given our deep understanding of the collateral, the diversification across both clients and asset types, and structural protections in place.

And finally, we returned 5.4 billion dollars to shareholders in the first quarter, including 4 billion dollars in common stock repurchases, while continuing to operate with significant excess capital. Turning to the progress we made during the quarter on our strategic priorities. Last month, we closed our final outstanding consent order, bringing the total to 14 terminated since 2019. We are incredibly proud of the hard work and unwavering commitment that was required to reach this milestone and understand the importance of sustaining our risk and control culture. With this work behind us, we are now focusing more fully on accelerating growth and improving returns.

We are seeing momentum across many business drivers, which we highlight on Slide 2 of our presentation deck. Let me share some of them starting with our consumer franchise. In the first quarter, we launched two new travel-focused reward credit cards available exclusively to new and existing Premier and Private Wealth clients. Over the past five years, continued enhancements to our credit card offerings have driven higher purchase volume and loan balances, which were both up from a year ago.

New account growth remains strong, increasing nearly 60% from a year ago, driven by higher digital and branch-based openings. We also had continued strong growth in our auto business. Originations more than doubled from a year ago, benefiting from being the preferred financing provider for Volkswagen and Audi vehicles in the United States as well as our methodical return to broad-spectrum lending. Importantly, credit performance has remained strong and in line with our expectations.

We have continued to invest in marketing to help drive new primary checking accounts, and consumer checking account openings increased over 15% from a year ago. While this momentum is encouraging, we are not yet growing accounts at the pace we expect to over time. As customer expectations evolve, we continue to modernize our digital offering, complementing our in-person service with seamless mobile experiences. The momentum continued in the first quarter, as mobile active users surpassed 33 million, Zelle transactions increased 14% from a year ago, and Fargo, our AI-powered virtual assistant, reached over 1 billion customer interactions less than three years since its launch.

We had continued momentum in our Wealth and Investment Management business, with client assets growing 11% from a year ago to 2.2 trillion dollars. Company-wide net asset flows accelerated in the quarter, reaching their highest level in over ten years. Turning to our commercial businesses. In Commercial Banking, we continue to hire coverage bankers to drive growth, and we are seeing the early signs of success with higher new client acquisition as well as loan and deposit growth.

Average loans and deposits both grew by approximately 5 billion dollars in the first quarter, demonstrating accelerating momentum. We are also continuing to grow our Banking and Markets capabilities while not significantly changing the risk profile of the company. We continue to invest in senior talent to improve client coverage and broaden our product capabilities in investment banking. These investments helped drive 13% revenue growth from a year ago.

While market conditions can change, the outlook for investment banking remains strong, and we entered the second quarter with a strong pipeline driven by M&A and equity capital markets. We continue to grow our Markets business amid a mixed and volatile trading environment, with revenue up 19% from a year ago. Client sentiment is cautious but engaged as macro and geopolitical uncertainty has increased, and clients have largely shifted to a more selective and defensive posture. Finally, we completed the sale of our railcar leasing business at the beginning of the quarter.

We have now substantially completed our efforts to refocus and simplify the company by exiting or selling 12 businesses since 2019. Let me now turn to the future. I want to start by highlighting what we are watching in the economic data. The U.S. labor market continues to cool in an orderly but uneven fashion, with few signs of systemic stress. Layoff activity remains contained.

Weekly jobless claims reinforce this picture and are not signaling labor stress. The unemployment rate dipped to 4.3% in March, but this continues to reflect slower rehiring and longer job searches, not renewed labor market strain. Despite slowing employment momentum, U.S. economic growth has held up. The U.S. consumer remains resilient in the aggregate but increasingly bifurcated beneath the surface.

Spending has held up into early 2026 despite slower job growth, supported by higher-income households, steady wage growth for incumbent workers, and continued access to credit. However, confidence indicators and underlying balance sheet trends point to rising stress for less affluent consumers. Upper-income consumers continue to benefit from elevated equity prices, home equity, and cash buffers accumulated earlier in the cycle, allowing discretionary spending to remain firm. By contrast, lower-income households are more exposed to higher interest rates and energy prices.

Financial markets have absorbed these crosscurrents with resilience, but we expect continued volatility driven by geopolitical headlines and outcomes as well as the unfolding impact of higher commodities prices. Turning to what we are seeing from our customers. The financial health of consumers and businesses remains strong. Consumers are spending more than a year ago, which includes spending more on gas, but they have not slowed spending on everything else.

Gas represented 6% of our total debit card spend and 4% of our total credit card spend before the rise in oil prices. They now represent 75% of debit and credit card spend. Note that these numbers are higher for low-income households. We have seen historically that it often takes consumers several months to reduce their spend levels on other categories to adjust for higher oil prices.

And while we do not know the exact timing, we would expect to see the same in the second half of the year. We also expect that higher energy prices will impact other goods and services. The duration and severity will be driven by the level and duration of higher oil prices. The ultimate impact on credit performance is not yet clear due to the uncertainties I just mentioned, but the strength across our consumer portfolios, including lower charge-offs and improved early-stage delinquencies in our auto and credit card portfolios from a year ago, provide time for consumers to adjust their behaviors.

Having said that, at this point, it is likely there will be some economic impact based on what has already occurred, but there are both risks and potential mitigants, so it is hard to predict the ultimate impact. Middle market and large corporate clients are in a similar position. They have been resilient, and balance sheets are strong, but they tell us they are approaching the remainder of the year cautiously. As we grow our balance sheet, we are cognizant there are risks that we do not yet see in our data and will respond accordingly.

Putting all of this together, it is likely energy prices will have some impact on the economy, but we feel good about where our customers and our company stand today. We have managed credit well over many cycles and are well-positioned to support our customers and navigate a variety of economic scenarios. Turning to the recently proposed capital rules. We appreciate that the work our regulators have been doing is based on analysis, interagency coordination, public comment, and a focus on reforms that unlock economic potential.

Importantly, the proposals are designed to maintain a strong and resilient banking system that allows the industry to support the flow of credit and help grow the broader economy. We continue to work through the details, but view the proposals as a constructive step in supporting our role in serving households and businesses. If the proposals do not change, and based on our current balance sheet composition, we estimate that under the new rules, our risk-weighted assets could decrease by approximately 7%. Regarding the G-SIB surcharge, under the current proposal, we expect to remain around 1.5% for the foreseeable future even as we continue to grow.

In closing, we delivered solid financial results in the first quarter that were consistent with our expectations. We have clear plans in place and are focused on driving continued organic growth and increasing returns across the franchise using our broad set of capabilities. We are executing our plans, and I am encouraged by the momentum we have built and continue to have confidence that we can continue to deliver stronger results in all of our businesses. I will now turn the call over to Michael.

Thank you, Charlie, and good morning, everyone. Since Charlie covered the key drivers of our improved financial results and the momentum we are seeing across our businesses on Slide 2, I will start my comments on Slide 3. Our first quarter results included 135 million dollars, or 0.04 dollars per share, of discrete tax benefits related to the resolution of prior period matters. Income taxes also benefited from the annual vesting of stock-based compensation, and the amount of the benefit in the first quarter was similar to the amount in the first quarter of last year. Turning to Slide 5. Net interest income increased [inaudible] or 5% from a year ago and decreased 235 million dollars, or 2%, from the fourth quarter.

Most of the decline from the fourth quarter was driven by two fewer days in the first quarter. The reduction also reflected the full-quarter impact of the rate cuts in the fourth quarter of last year on our floating-rate loans and securities. This decline was partially offset by higher markets net interest income, higher loan and deposit balances, as well as continued fixed asset repricing. I also wanted to explain the 13 basis point decline in net interest margin from the fourth quarter.

As expected, the largest driver of the decline was the growth in the balance sheet in the Markets business. As we have highlighted in the past, while the majority of these assets are lower ROA, they also have lower risk and are less capital intensive. Our ability to support this client activity should lead to more business. Second is the growth in interest-bearing deposits and other short-term borrowings.

And lastly, the impact of lower interest rates. When we provided our full-year guidance last quarter, we anticipated some margin contraction for these reasons, and I would expect additional margin compression next quarter. I will update you on our full-year net interest income expectations later on the call. Moving to Slide 6. We had strong loan growth with both average and period-end loans increasing from the fourth quarter and from a year ago.

Period-end loan balances grew 11% from a year ago and exceeded 1 trillion dollars for the first time since 2020. Average loans increased 87.8 billion dollars, or 10%, from a year ago, driven by growth in commercial and industrial loans as well as growth across our consumer portfolios, except for residential mortgage. Turning to Slide 7. Last quarter, we provided more detail on our financials except banks loan portfolio. Today, I want to build on that by giving you an even deeper look into the portfolio's composition and risk profile. I will be anchoring my comments on how these loans are reported in our 10-Qs and 10-K, which we think is a better way to understand our portfolio.

We also report loans to nondepository financial institutions in our call reports. Since we often get questions on how these disclosures differ, we have included a reconciliation in our appendix to illustrate the differences. At the end of the first quarter, financials except banks loans totaled approximately 210 billion dollars, or 21% of our total loan portfolio. While our financials except banks category is large and has been growing, it is comprised of many different types of lending and collateral.

We have been making these types of loans for many years, and we typically have broader relationships with these institutional clients. As with any loan portfolio, there are inherent risks, but we are comfortable with our exposure based on the profile of borrowers, the diversity of collateral, our historical loss experience, and our underwriting practices and lending structures. The lending structures and overall risk management are run by specialist groups with expertise in assessing and structurally mitigating the risks associated with these types of customers, products, and collateral. Our underwriting reflects the specific risk profiles of the counterparty, as well as our assessment of the collateral.

These loans are generally secured with advance rates that provide significant margins of protection against expected losses during periods of stress. From a year ago and increased two basis points from the fourth quarter. Commercial credit continues to perform well, and we are not seeing signs of systemic weakness. Commercial net loan charge-offs increased modestly from the fourth quarter to 24 basis points of average loans.

Lower commercial real estate losses were offset by higher losses in our commercial and industrial portfolio, driven by a single fraud-related loss in the real estate finance category in the financials except banks portfolio. After this issue emerged, we reviewed the portfolio and believe this was an isolated incident. Consumer net loan charge-offs increased modestly from the fourth quarter to 78 basis points of average loans, reflecting seasonally higher credit card losses. Compared to a year ago, consumer net loan charge-offs declined eight basis points with improvements across our consumer portfolios as well as continued net recoveries in our residential mortgage portfolio.

As Charlie highlighted, consumers remain resilient. We continue to closely monitor our portfolios for signs of weakness but have not observed recent deterioration or meaningful shifts in trends. Nonperforming assets as a percentage of total loans were stable with the fourth quarter and declined modestly from a year ago. A modest increase in our allowance for credit losses for loans was driven by higher commercial and industrial and auto loan balances, largely offset by lower allowance for commercial real estate office and credit card loans.

As we highlighted last quarter, if loan growth remains strong, all else equal, we will have to continue to add to the allowance to support higher loan balances. Turning to capital and liquidity on Slide 15. Our capital levels remain strong with our CET1 ratio of 10.3%, within our stated 10% to 10.5% target range, and well above our CET1 regulatory minimum plus buffers of 8%. We repurchased 4 billion dollars of common stock in the fourth quarter, and common shares outstanding were down 6% from a year ago. We continue to have excess capital to support clients and to repurchase shares.

Moving to our operating segments, starting with Consumer Banking and Lending on Slide 16. Of note, to better align branch-based activities, the financials associated with Wells Fargo Premier clients that primarily receive wealth management and financial planning services in our consumer bank branches are now included in Consumer, Small, and Business Banking results instead of Wealth and Investment Management. Prior period results have been revised to reflect this change. Consumer, Small, and Business Banking revenue increased 9% from a year ago driven by lower deposit pricing, higher deposit and loan balances, as well as growth in noninterest income.

Credit card revenue grew 5% from a year ago due to the higher loan balance driven by higher purchase volume and new account growth. Home Lending revenue declined 9% from a year ago. Third-party mortgage loans serviced for others was down 18% from a year ago as we continue to reduce the size of our servicing business. While originations increased from a year ago, loan balances have continued to decline.

The rate of reduction has slowed and should continue to moderate throughout the rest of the year. Auto revenue increased 24% from a year ago due to higher loan balances, and auto originations more than doubled from a year ago. Turning to Commercial Banking results on Slide 17. Revenue increased 7% from a year ago, driven by higher revenue from tax credit investments and equity investments. Loans grew 4% from a year ago with broad-based growth from new and existing customers.

As a reminder, the growth rate was impacted by the business customers that were transferred to Consumer Banking and Lending in the third quarter of last year. Absent this impact, the growth rate would have been 7%. Turning to Corporate and Investment Banking on Slide 18. Banking revenue increased 11% from a year ago, driven by higher loan and deposit balances and growth in investment banking revenue. Commercial Real Estate revenue declined 21% from a year ago, reflecting the gain from the sale of our commercial mortgage servicing business included in our results last year.

Markets revenue grew 19% from a year ago, driven by higher revenue across most asset classes, reflecting disciplined balance sheet usage, supportive market conditions, and higher customer activity. Average loans grew 23% from a year ago with strong growth in Markets and Banking. On Slide 19, Wealth and Investment Management revenue increased 14% 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. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so second quarter results will reflect market valuations as of April 1, which were down from January 1 but up from a year ago.

Turning to our 2026 outlook on Slide 21. So far, our net interest income for 2026 is largely playing out as expected. We are retaining our guidance of 50 billion dollars, plus or minus, of net interest income this year. As I pointed out earlier, we had strong customer engagement in the first quarter with growth in both loans and deposits as we continue to transition back to growth, which we have supported with investments in marketing and bankers. In addition, similar to last year, we expect net interest income to grow over the course of the year, including Markets.

Looking at the key drivers of NII, starting with loans, our outlook was based on average loan growth of mid-single digits from fourth quarter 2025 to fourth quarter 2026. Average loans grew 4% in the first quarter from the beginning of the year, and if demand remains strong, average loan growth could be higher than the mid-single-digit increase we had previously assumed. We have also grown deposits, and as we said when we provided our outlook last quarter, much of the growth was from interest-bearing deposits, particularly in our commercial businesses. As a reminder, when the asset cap was in place, these deposits were limited, and now that it has been lifted, we are successfully growing these deposits.

While they are higher cost, they are important to our strategy of deepening relationships with our clients. We expect this trend to continue throughout the year. We have also successfully grown interest-bearing deposits in our consumer businesses, while we are enhancing marketing and increasing activity in the branches to drive stronger, low-cost checking account growth. Balances in these accounts are smaller than commercial balances and can take longer to grow.

If interest rates stay higher for longer, we will have to monitor deposit mix trends to see if there is any impact on noninterest-bearing deposits, which could put some pressure on net interest income, excluding Markets. In terms of interest rates, our outlook assumed two to three cuts by the Federal Reserve. The market currently expects fewer cuts, which, all else being equal, is positive for NII excluding Markets. However, interest rate expectations are constantly changing.

The rate cuts we assumed were expected to occur later in the year, so if we get fewer cuts, it would be beneficial but would only have a modest impact on this year's net interest expectations. Also, longer-term rates are currently a little above the expectations at the beginning of the year but have been volatile year to date, so that could be a small positive if rates remain elevated. In terms of Markets NII, as we all know, it is always hard to forecast but even harder in a dynamic macroeconomic environment like the one we are in now. Higher rates could result in lower Markets NII from what we expected at the beginning of the year, but as of now, our expectation of approximately 2 billion dollars in 2026 seems appropriate.

Regarding our expense outlook, first quarter expenses were in line with our expectations, and therefore, our guidance has not changed, and we still expect 2026 noninterest expense to be approximately 55.7 billion dollars. In summary, our improved first quarter financial results reflect the continued momentum across the company. We delivered broad-based revenue growth with increases in both net interest income and noninterest income from a year ago. We maintained strong credit discipline, grew loans and deposits, returned capital to shareholders, and maintained our strong capital position.

I am encouraged by the growth we are seeing across key business drivers in both our commercial and consumer businesses and excited to continue building on this momentum to deliver even better results going forward. We will now take your questions.

At this time, we will begin the question and answer session. If you would like to ask a question, please first unmute your line and then press star 1. Please record your name at the prompt. If you would like to withdraw your question, you may press star 2 to remove yourself from the question queue. Once again, press star 1 and record your name if you would like to ask a question at this time.

We will now open the call for questions. Our first question will come from John McDonald of Truist Securities. Your line is open.

Hi, thanks. Good morning. Mike, I was hoping you could give a little more color on the estimated impact of the new regulatory proposals. I think you said your initial estimate is a 7% decline in RWA. Could you give us a sense of the breakdown there between credit risk RWAs and what is driving any potential improvement there, as well as your initial take on op risk and market risk?

Sure, John. Thanks for the question. If you just take the big broad categories, market risk is not a big driver. It is not moving much for us in the proposal, so it is kind of flattish.

Op risk is going to go up for sure, but much less than we thought from the original proposal. The big decline is on credit risk, and that is given the nature of our portfolio. The biggest driver in the credit risk portfolio is getting the benefit for investment-grade credits, both public and nonpublic investment-grade credits. That is going to be the biggest driver in the commercial loan space.

Then you do get a significant benefit on the mortgage portfolio and to a lesser degree on auto and a couple other portfolios. That is how you get to about a 7% decline overall. Obviously, you did not ask about it, but also on G-SIB, it feels like we will be around where we are, plus or minus a little bit depending on how the proposal plays out for a period of time, given the recalibration that was done there. So net-net overall, very constructive for us, and it seems like it is heading in the right direction and allows us to continue to do really smart things to support clients across all of the portfolios.

Okay. Thanks. And then on a related note, the outlook for ongoing NIM compression presumably continues to weigh a bit on ROA. So kind of wondering how does that interact with your goal of improving the ROTCE towards your medium-term goal? And do you expect to be able to lower the TCE because of these possible changes and the mix in your balance sheet?

There is a lot in there, so let me try to unpick some of it. As we came out of the period when the asset cap was in place, we knew that the place we were going to see the growth first is in repo, for the vast majority of it Treasury repo, and then there are other aspects to it. It is low ROA, low risk, good returns, and it then allows us to do much more with those clients as we provide them what they think of as valuable financing capacity. I think as we go through this period, you are going to see ROA come down.

As that stabilizes and matures and we get a little further into this growth period, that will start to moderate and you will start to see it either stabilize or start to grow as we start to add in the other business activity that we expect to see. It should not be dilutive to our TCE. We are starting to see some of the onboarding come to a conclusion. Some are in process.

Some of the clients that are going to do more with us as a result of the financing take time to ramp up. They do testing with you, and we are starting to see that come through, whether it is prime, other trading that they do with us, and across a number of the asset classes. You will start to see that incrementally get added into the mix overall. I will point out we are seeing some of it.

Markets revenues are up 19% from last year, so we are starting to see some of that come through. And as Charlie noted, we expect to grow the Markets business in the context of also improving overall returns for the company and do not believe it will be dilutive or get in the way of us getting to that 17% to 18% return. We are either going to get the increased flows at a strong ROTCE or we are not going to use the balance sheet for it, and we are very confident at this point that we will get the returns for it based on the conversations and the things we have seen with our clients so far. There is a lag in terms of adding the customers and then them building up the business, whether it comes in NII or fees.

It takes a while to do the onboarding with a lot of the brand name clients that you would all recognize. It generally comes in and then kind of chunks along the way once you are onboarded. But all of it is going pretty smoothly right now, and we are expecting to start to see more of that come through over the coming quarters. So you will see that incrementally come in each quarter.

The next question will come from Ken Usdin of Autonomous Research. Your line is open.

Thanks. Mike, I was just wondering if you could follow that point that you talked about and John mentioned about the NIM going forward. Is it just a mix of assets that you are seeing in terms of on the commercial side related to your Markets business versus commercial? Can you talk us through what you are seeing in terms of earning asset mix going forward and the types of loans and if that is what is weighing on the NIM?

Sure, Ken. On the NIM, what you really saw are three things in the quarter. First is the impact of the growth in the Markets balance sheet impacting the NIM. Again, that is not going to grow at the same pace forever, so you will see that moderate.

We are getting some netting benefits now as it gets bigger, and you will start to see some of that come through in a little bit of a different trajectory as you look at the coming quarters. Second, you see interest-bearing deposits grow, so they become a bigger percentage of the overall deposit mix, and that is exactly what we expect to be seeing right now. As we came out of the asset cap, we knew that was the place we were going to be able to grow first. So they become a bigger percentage of the overall mix.

It is great to see that clients across the Commercial Bank and the Corporate and Investment Bank are moving business, in some cases back to us that we had pre-asset cap, and the engagement has been really good. Those deposits are priced where the market is, which is competitive, but we are not leaning in on price to grow there. Third, you got a little impact from rates coming off the back of the fourth quarter. You will see a little bit more compression from the first two drivers, but it will be less as we go into the second quarter.

That will start to moderate as we go and we see other parts of the balance sheet grow and repo growth trajectory slow a bit. When you look at the loans side of things, while there is always a little compression happening across different pockets of the portfolio, that is not the place that is driving the NIM compression. It is a competitive environment for loans, but we are not seeing irrational things, and we are not chasing spreads across the loan portfolio just to see growth. I think that is really important to note.

Okay, great. And follow-up on your point you made about taking a deeper look through the finance portfolio and thinking that that one-off item was a one-off. Can you talk to us about what you went through there? And thank you for all the color you gave on those extra slides.

Your relative confidence that that one got caught and that the rest of the book looks pretty good underneath it. Any comment on any migration you might be seeing at all?

I will reiterate that was a fraud situation. We took all of the lessons we saw coming off the back of that individual circumstance and sent teams in to all the clients, particularly in the European portfolio, and did an in-depth review of the procedures within the firm and the collateral perfection that we have across the different portfolios. We spent a lot of time and effort across the different teams. We brought in independent people and teams.

We have done a lot of work to revalidate the processes, and then as you do in these things, you follow the money trail and trace back all the flows that you expect to see coming through the different bank accounts. At this point, we feel confident that was an isolated event.

The next question will come from Scott Siefers of Piper Sandler. Your line is open.

Really appreciate the expanded disclosures on the NDFI exposure, and then it looks like the credit performance and overall risk profile certainly seem to be holding up. In a sense, NDFI reminds me a little of where we might have been with office CRE a few years ago, not necessarily in the actual quality, but in that for most banks, it does not have the potential to do meaningful damage, yet it generates so much distraction that a lot of banks a few years ago decided it was not worth participating in that CRE given the distraction caused from other good things that were going on. I wonder if you can maybe add a thought or two about with NDFI, how you balance the good quantitative risk-reward against the qualitative aspects of the amount of airtime it consumes and how that discussion goes, if at all.

Thanks for the question. I think it is totally different than CRE exposure. When you look at the risk characteristics of a CRE loan and what our protections are, what the attachment points are, all that kind of stuff, and then go through a lot of the stuff Michael walked through in terms of the different pieces of lending we have here, really bad things need to happen for us to lose money in most of these portfolios. We can go deeper on some of these things to the extent you want to do it.

We feel really good about the way these things are structured and the client selection we have. I would say I would put your question into two categories. Number one, we are not reacting today relative to where we are lending to the amount of airtime it is getting. Over time, we do have to be thoughtful about how large any one asset class should be, including who the borrowing base is and things like that.

Those are the types of conversations we are very much engaged in, as we are in everything that we do, to make sure as a company we have the right kind of diversification. Hopefully, by providing the kinds of disclosures we did here and continuing to be as transparent as we can, investors will feel as good about what we are doing as we do.

Perfect, thank you very much for that. Then, I think we have all been surprised at how well lending momentum has performed year to date for the industry, particularly on the commercial side. It certainly seems to be the case for you all as well. If anything, Mike, from your comments it sounds like you are feeling better about how the full year could play out.

Maybe a thought or two about what it would take for customers to start to pull back on some of their borrowing plans given all the volatility, macro concerns, etc. It has been kind of confounding to see how well trends have held up.

It is an interesting point. We are not actually seeing utilization increase in people’s revolvers yet. A lot of the growth we have been seeing is coming either from some growth in the nonbank financial space, some growth from new clients we have added, and some other drivers that then spread across the commercial book. What we have not really seen yet is that increase in the utilization of revolvers.

It is not necessarily that we expect a pullback. It could be quite the opposite. If people start to get more comfortable, then you could see some growth come from the core commercial banking middle market-type client who has been somewhat cautious now for the better part of a year plus, waiting to see how the environment develops. So I think the probabilities are maybe more weighted that way than a pullback, given we have not seen a lot of utilization increases so far.

The next question will come from Ebrahim Poonawala of Bank of America. Your line is open.

Hey, good morning. Just wanted to follow up very big picture, Charlie and Mike. The path to the 17% to 18% ROTCE is looking quite tough given what is happening with the margin. I get the repo book growing and the deposit mix on interest-bearing.

But as investors think about the stock and how realistic it is that over the next, let us say, a year or two, Wells can be a 17% to 18% ROTCE company, that feels a bit tough. I am not sure if you agree, and maybe that two-year timeline was super aggressive. Would love some context around how you are thinking about this today.

Thanks, Ebrahim. We are actually really confident in the path to get from where we are, roughly 15%, to 17% to 18%. If you think about some of the key drivers: on the consumer side, our credit card business has seen really good growth across originations and balances, but it has not contributed a lot to profitability given the upfront cost of marketing and the allowance you have to put up. As long as we get the credit box correct, which we believe we do given the performance we are seeing, it is just a matter of time before that more meaningfully contributes to profitability, and you will start to see a little of that this year as the earliest vintages mature.

As more vintages mature, that will incrementally come into the P&L. We continue to grow the wealth business. Our Wells Fargo Premier offering that offers wealth management advice through the branch system will continue to add high-return fees, and we are seeing really good flows there. We have roughly 2,500 advisers across the branch system already, and that momentum is building.

As we increase branch productivity and grow core checking accounts again, you have a lot of growth drivers across the consumer side. In the wealth business, as that business grows through improving net flows and recruiting, you will see contribution as well. On the commercial side, in the Commercial Bank, we have been adding roughly a couple hundred commercial bankers over the last 18 to 24 months. We are really starting to see traction as we add new clients.

A bunch of the loan growth in the Commercial Bank is actually driven by those new clients. As we add payments and deposit work with them, that will grow. In the Corporate and Investment Bank, investment banking is making incremental progress, but we have a long way to go to monetize the investments we are making. We see really good progress quarter after quarter in terms of the deals we are involved in.

As we talked about, the Markets business will be a contributor. We are not overly reliant on any one thing to get us there. As we continue to have good expense control and optimize capital, including how Basel III is playing out, there are a bunch of different paths to get us to that 17% to 18%, which should give you a lot of confidence it is achievable in a reasonable amount of time. Once we hit that, we think there is more to do.

Let me just add a couple of things. We feel as confident as ever in that target. There is absolutely nothing that has changed. We do not have a business model where points of view like that should change quarter on quarter.

The only thing that would create dramatic changes is if we thought we got something very wrong or if there was some huge event that we missed. None of that is the case. We are building the underlying organic growth business by business. The reason we have confidence is because we are seeing KPIs across every one of our businesses growing in a reasonable way.

You do not want to grow too quickly. We want to see this consistently, business by business. We are transparent that we have room to improve performance in every one of these businesses. We are very confident the things we are doing will ultimately lead to increased profit, faster growth, and higher returns.

Nothing has changed from last quarter or the quarter before that in terms of how we feel about that.

That is very comprehensive. Thank you. Just one quick follow-up. On and off, there is a lot of chatter on what Wells can do on M&A in banking and wealth. I am not sure there are too many financially attractive deals available today given where the stock trades. Give us a mark-to-market on how you are thinking about deals.

We spend more time answering questions about it than we do actually thinking about doing deals. We are focused on organic growth. We think we have a differentiated opportunity versus the people we compete with because of where we have come from, being so constrained, and match that with the quality of the business and the opportunities that we have. We are entirely focused on that.

It does not mean that we will not look at smaller things, and you can never say never, but we are not spending time on it. We are not focused on it. This is the opportunity that we are focused on, and we feel really great about it.

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

Hi, good morning. On the Basel III endgame estimate, the 7% RWA decline, all else being equal, we are calculating that would give you about 80 basis points of net new excess capital. A couple of questions: is that the right way to think about it? If so, combined with the G-SIB of 1.5%, and assuming you sustain the floor on SCB, Wells would be at a minimum of 8.5%.

Contemplating all of that, would you run this company at lower than 10% CET1?

We are not at the point where we are going to put a new target out. We have to see how the rule gets finalized, and it is going to be a year plus before it gets implemented. In the future, if our capital requirements change, there is no floor at 10%, and blocks can change. We are still going to stick with the 10% to 10.5% target for now.

There is no magic to 10% to 10.5%. We do not want to put the cart before the horse and start talking about something before it is finalized. Things can change, but when these rules are finalized, we will look at what our requirements are. We will have the conversation about how much excess we want to run now that there is more certainty and then make a decision.

The trajectory is very favorable for us. We just do not want to get ahead of ourselves and say we are going to change where we are running at this point before things are finalized. Directionally, there is a place to go here.

Got it. Just wanted to add clarity to the RWA discussion given the positive direction on the denominator. My follow-up is thinking about the net interest income questions another way. You reported a year-over-year increase in net interest income of 5% despite 20 basis points of year-over-year net interest margin compression.

If we think about year-over-year net interest income growth as balance sheet-driven at the same pace, say 4% year over year, with maybe a little bit of stability in the NIM in the second half of the year, we get to that 50 billion dollars plus or minus. Is that the right different way to think about it rather than just the quarterly cadence?

Let me give you some of the drivers underneath it and see if that gets to what you are asking. As you look to how we get from where we are to the 50 billion dollars plus or minus, we expect to continue to see loan growth each quarter. Break that down: on the consumer side, mortgages should stop declining, you will see growth from the first quarter in card—first quarter has some seasonality coming off the holidays—and we expect continued growth in auto. Overall, consumer loans continue to grow throughout the year.

We expect growth in deposits, again largely interest-bearing. We are not relying on significant growth in noninterest-bearing this year. That will build over time as we are more successful growing checking accounts. We have not assumed a big deployment into securities; if we see we have a good amount of excess cash, we could do more in securities as well to pick up some extra NII.

Then you have the path of rates. If rates stay higher for longer than people expected at the beginning of the year, that alone will be a net positive. We will see how that plays out across all the other variables, including any change in deposit mix. Ultimately, we have a really achievable path to 50 billion dollars, and if all works out, it could be better than that depending on how it all plays out through the rest of the year.

Markets-related NII will swing around a bit depending on the path of rates, but largely offset on the fee side.

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

Morning. On the expense topic, I know you saw about a 3% year-over-year increase. You cited investments in technology and advertising and ongoing business investments. You are confident in the 55.7 billion dollars guidance.

Can you talk to us about any pressures that you are seeing that may move you off that target, or give more detail on your confidence in attaining that target despite somewhat pressured levels in the near term?

The only real pressure we see would be revenue-related expenses to the extent that in our asset and wealth business we generate higher levels of revenues and have commissions tied to that. Everything else is continuing to track relative to what we thought in the guidance, and the revenue-related comp is still tracking to that. Nothing has changed relative to our views on overall expenses. It is a continuation of the story we have been talking about: we are increasing the level of investment in areas important for the franchise, and we are driving efficiencies in other parts of the organization.

We still see the opportunities to do that and contain the expense base while we are able to grow revenues and increase pre-tax, pre-provision profit.

Your question might have implied pressure relative to consensus, but in reality we are exactly where we thought we would be relative to the guidance we gave. We feel really confident about what we have given. The bulk of the roughly 440 million dollars year-over-year increase is really revenue-related comp in WIM. The rest is very small on a net basis across the company.

We feel good about the guidance we have.

Got it. Thanks for that. And then on the additional NDFI disclosures, appreciate the detail and the quantification of the BDC exposure at about 8 billion dollars. Can you help us frame the broader private credit exposure and any impact of regulatory input around this?

The short answer on the last piece is no. We are comfortable with our exposures, and that is where the conversation starts. The majority of our private credit exposure sits in the Corporate Debt Finance bucket, which is on page 10 of the presentation—about 36.2 billion dollars. That is the vast majority of the exposure.

The next question will come from Manav Gosalia with Morgan Stanley. Your line is open.

One clarification on your response to Erika's question. Just given the clarity on the capital rules, you are suggesting that the bias would be to eventually take down the 10% to 10.5% CET1 target. In other words, as you get the benefit of the lower RWAs, the excess capital you free up would be something available to deploy quickly?

What we said was that we are running our excess today based upon today’s capital rules. When the capital rules get finalized, we will reevaluate what that is and how big a buffer we think we need at that point in time. Period. End of story.

That is a positive. If our RWAs go down, we have to think about what is going on in the environment at that point in time and what we are comfortable doing, but directionally it is constructive for us relative to how much capital we ultimately need to hold.

All else equal, if our CET1 percentage goes up as a result of lower RWA, that gives us more capacity to deploy to support clients or return to shareholders. We are mixing RWAs, capital requirements, and dollars of excess capital. It will come down to how much dollar excess there is and how we expect to use it.

That is clear. Thank you. As we get some of these changes that benefit the mortgage banking business both on originations and servicing, is there anything that Wells would do to lean in, and is there more long-term opportunity for either of those businesses?

We are very comfortable with the plan we have in our Home Lending business today, which is focusing on people who are broader clients within the bank. It is not just capital levels that drive our desires in this business. It is the operational risk embedded in there. It is the reputational risk.

There is a note relative to making mistakes—foreclosing on behalf of others, following the rules, and whatnot. There is a certain level of sizing that we are comfortable with, and we do not see that changing. On the servicing side, the capital rules are not really changing much other than removal of a penalty rate if you get too big. That does not change much there on the servicing side of the capital.

The next question will come from Gerard Cassidy of RBC Capital Markets. Your line is open.

Thank you. Good morning, gentlemen. Mike, can you share with us what the scenario weighting was this quarter when you look at your loan loss reserves, including macro risks with the hostilities in the Middle East, and how that may have affected how you addressed the reserves this quarter?

For a while, we have had a significant weighting on our downside scenarios, and that weighting has not changed. Every quarter, the scenarios change a little. In this quarter, if you look at the unemployment rate as one example, the peak unemployment rate went up four basis points in our scenarios to a little over 6%—6.01% to be exact. When we look at all the different scenarios, as we know it today based on what we think can happen as a result of what we are seeing, we think the scenarios cover anything that is probable at this point.

Other variables moved around a little bit, but not a lot. We have maintained that significant downside weighting, and we will keep it that way at this point for the quarter. We think that is appropriate for where things stand.

As a follow-up, possibly for you, Charlie. You talked about organic growth—that is what you are focused on. You finally closed on the rail leasing deal, and all the regulatory orders with the exception of the one for BSA are behind you. Putting that one regulatory order aside, can you share with us this organic growth—are we going to see it really start to materialize more on the consumer side, commercial side?

What are you seeing over the next 12 to 24 months?

I will take that and Charlie can chime in. We are starting to see it everywhere. If you go back to page 2 of the presentation, we tried to summarize some of the key things we are seeing across each of the businesses. In Consumer Banking and Lending: new checking account openings up 15%, credit card accounts up 60%, auto originations up 2x what they were last year.

In the CIB, we saw banking revenue up 11%, markets up 19%. Our share was stable, but we had good growth in equity capital markets on the investment banking side. In Wealth, we continue to have really strong recruiting across the different channels, client assets up 11%, revenue up 14%. We saw good loan growth and deposit growth in that business.

In Commercial Banking, we are seeing the benefit of the investments we have been making come through with both loans and deposits up, and even better, new clients added to the platform are up substantially from prior years. These things take time. We are not claiming victory. We have a lot more to do to improve performance across each of these businesses, but a lot of that organic activity is coming through in the numbers, and you can see it in many of the metrics we put out.

The next question comes from Chris McGratty of KBW. Your line is open.

Good morning. Thank you. Mike, on the NII, when you talk about the fluidity of the cuts in the forward curve—two to three cuts last quarter and maybe nothing now—how much of an impact does it have on the fourth quarter exit run rate? It is more of a jumping-off question for 2027.

That is going to have a bigger impact for next year than this year. Where we end the year will matter a lot more as we go into 2027. You can annualize it. When you look at our 10-Q and see the sensitivities there, that is a good way to start to dimension what it means for a full year, particularly coming out of the fourth quarter. I would start there with your modeling.

Any changes in the forward curve will have a little bit of an impact this year, but not super big because they were all back-weighted.

Thanks for that. And the 7% reduction in risk-weighted assets—was that better or worse than you thought you might see from the proposals?

It is hard. We had a bunch of stuff we made up anticipating what we might see, but as others have put it, it is like a 1,200-page proposal, so any of those estimates we had going in were kind of meaningless. The areas that we benefit from are the areas we had commented on, and we believe they got it right. Do we think it is perfect and they got everything exactly right?

No. But it was directionally where we thought.

The next question will come from Vivek Janaeja of JPMorgan. Your line is open, sir.

Mike, a quick clarification. The private credit exposure—majority of it is in the Corporate Debt Finance of 36 billion dollars. Is that all private credit exposure, and the BDCs are a subset of that?

Vivek, that is all private credit exposure, and it is the vast majority of our private credit exposure—the 36 billion dollars. The BDCs are a subset of that.

Got it. That is all I wanted to check. Thanks.

The next question will come from Saul Martinez of HSBC. Your line is open.

Hey, thanks for squeezing me in. Sorry to beat a dead horse with the net interest income, but NII ex-Markets was only up 2% year on year. If I look at loan growth excluding Markets lending, it was up 8%. Deposit growth has been good.

It does seem like you are seeing some core margin pressure there. More color on what is driving that? Is this competitive dynamics in deposits? Are you competing on pricing on lending and deposits?

Is there a risk that you are pricing loans and deposits in a way that is sacrificing returns in order to foster growth?

Rates are driving it, number one. Interest rates coming down year on year is driving it. We saw rate cuts last year. We are seeing growth in the interest-bearing deposit side.

Noninterest-bearing are slower to grow as we build the checking account growth we talked about. On the lending side, on the consumer side we are not seeing compression there. Spreads are in a little bit on loans across some of the commercial side, but nothing super significant. We are not out there competing on price to try to grow the balance sheet.

You are seeing those things come through in the underlying results, which is exactly what we thought would be happening as we rolled out the guidance in January. On competition on pricing in deposits, we are not seeing competition on pricing that is unusual. We are growing interest-bearing stuff faster than noninterest-bearing, but it is all at rates within where we thought they would be. If we do a good job, as I alluded to, we should be growing the noninterest-bearing further down the line as we bring on more of these relationships and have more balances to work with customers both on the consumer and business side.

Got it. On reserving, maybe a follow-up. Your reserve rate for C&I is about 1%. It has been about 1% for a while.

NDFI is a big part of that. It sounds like the NDFI portfolio generally has a lower loss content than the balance of the book. Do reserves reflect that? Has there been any change in your views of loss content in those portfolios which would influence how you are reserving for those books?

No change in our thinking as we look forward in terms of loss content. In most of those portfolios, losses have been virtually nothing for a long period of time. The allowance is lower and not changing materially at this point.

Our final question will come from David Chiaverini with Jefferies. Your line is open.

Hi, thanks for taking the question. Starting on the capital markets outlook and the pipeline, can you frame the outlook following a strong first quarter here?

We still expect that the financing markets are wide open, so we expect to see a lot of activity on the debt side—both investment grade and leveraged finance. There is plenty of money on the sidelines to be put to work there, and that has been the case for a while. On the equity capital markets side, you have seen some delay in IPO activity in the latter part of the first quarter. Assuming some of the volatility subsides or stabilizes, you may see some of that start to come back.

There is certainly a pipeline of companies waiting to go. In the meantime, you have seen a lot of activity on convertibles and other parts of the ECM wallet. Overall, the pipeline and the expectation is still to see a pretty active rest of the year.

Great, thanks for that. Shifting over to your credit card account growth, which is very strong. What are the drivers behind that? Is it more rewards, more marketing, better rate? What are some of the drivers there?

It starts with really good, compelling, simple products. Over the last five years, the team has replatformed every product we had in the market, starting with our Active Cash card, which is a very simple 2% cash-back value proposition, and then adding a series of products since then. We have had really good reception from both existing and new clients to the bank for products that are very easy to understand and compelling. Over the last three quarters, we have seen an uptick in originations as our branches become more productive in helping customers get the right card.

We have also seen an increase in customers coming to us directly looking for the cards as awareness grows and the size of the portfolio increases. We are increasing advertising—both targeted and more general—in the card business and the broader consumer business. That, plus more targeted efforts in digital, is driving increases. It is a combination of the products we have and us getting better at targeting originations, and our credit quality is still really strong.

Thanks everyone for the questions. We will see you next time.

Thank you all for your participation in today's conference call. At this time, all parties may disconnect.