Earnings Call Transcript
WELLS FARGO & COMPANY/MN (WFC)
Earnings Call Transcript - WFC Q4 2025
Operator, Operator
Welcome to today's 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.
John Campbell, Director of Investor Relations
Good morning, everyone. Thank you for joining our call today where our CEO, Charles Scharf, and our CFO, Michael Santomassimo, will discuss fourth quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our fourth quarter earnings materials, including the release, financial supplement and presentation deck are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie.
Charles Scharf, CEO
Thanks, John. I'm going to provide an overview of our 2025 results and update you on our priorities. I'll then turn the call over to Mike to review fourth quarter results as well as our net interest income and expense expectations for 2026 before we take your questions. Let me start with our 2025 highlights. Our strong financial results reflected the significant momentum we're building across the company. Our net income increased to $21.3 billion and our diluted earnings per share grew 17% from a year ago. Our continued investments in our business helped drive revenue growth with fee-based revenue up 5% from a year ago. This growth was broad-based with increases in both our consumer and commercial businesses. Much of the investments we have been making have been funded by our disciplined approach to managing expenses. We had positive operating leverage in 2025, and we continue to have opportunities to generate efficiencies. Our ongoing focus has resulted in 22 consecutive quarters of headcount reductions, with headcount down over 25% since the second quarter of 2020. Since the lifting of the asset cap, we've been growing our balance sheet, and our assets grew 11% from a year ago, including broad-based loan growth and higher trading assets to help support our markets businesses. We also grew deposits, with higher balances in both our commercial and consumer businesses. Credit performance was strong, and net charge-offs declined 16% from a year ago. The economy and our customers remain resilient, but we continue to closely monitor our portfolios for signs of weakness. In addition to tracking credit metrics in our loan portfolios, such as early-stage delinquencies, we also monitor consumer behavior more broadly to help us understand consumer health. For example, we look at things like checking accounts with unemployment flows, direct deposit amounts, overdraft activity and payment outflows, and we've not observed meaningful shifts in trends. Our capital levels remain strong, while returning $23 billion of excess capital to shareholders. During 2025, we increased our common stock dividend per share by 13% and repurchased $18 billion of common stock. Given we have many opportunities to grow organically, we currently expect share repurchases to be lower in 2026. We will continue to focus on optimizing our capital levels as we manage to a CET1 ratio of approximately 10% to 10.5%. Let me turn to the progress we've made throughout the past year on our strategic priorities. The removal of the asset cap by the Federal Reserve was a pivotal moment for the company. This milestone combined with successfully closing 13 regulatory orders since 2019 underscores the significant progress we've made in transforming the organization. We are incredibly proud of our success and understand the importance of continuing to build on that work and sustain the culture that supports it. While executing on our risk and control initiatives, we simultaneously worked to position the company for stronger growth and improved returns. Let me walk you through how these actions are improving our business drivers, beginning with our consumer business. We have been investing in our credit card business since I joined Wells Fargo, and our focus has been driving strong outcomes. We opened nearly 3 million new credit card accounts in 2025, up 21% from a year ago. Credit card balances were up 6% from a year ago. And importantly, we've maintained our credit standards. After 2 to 3 years of absorbing the upfront costs of our new products, we are beginning to see the early vintages contributing to profitability. Our auto business returned to growth in 2025 with stronger origination volumes and 19% growth in loan balances from a year ago. Our results reflected growth across our portfolio, including benefiting and becoming the preferred financing provider for Volkswagen and Audi brands in the United States in the spring of last year. The auto business goes through cycles, and we have intentionally scaled back growth in recent years. With the investments we have made to improve our capabilities, we are now well positioned to methodically return to broad spectrum lending. Importantly, we're focused on making sure we have the right level of profitability in this business, not just growth. We have made good progress in transforming and simplifying the Home Lending business. Over the past 3 years, we've reduced headcount by over 50% and the amount of third-party mortgage loans serviced by over 40%, including reducing the servicing portfolio by $90 billion in 2025 alone. We are continuing to reduce the size of this business while focusing on serving our bank and wealth management customers, which will help improve profitability. Within consumer, small and business banking, we had stronger growth in net checking accounts in 2025 than last year driven by digital account openings and an increase in marketing. We continue to refurbish our branches, completing approximately 700 branches in 2025. Over half of our network is now refurbished, and we are on track to complete the remaining branches over the next few years. We continue to make enhancements to our mobile app, including making it significantly easier to open accounts. And in 2025, 50% of our consumer checking accounts were opened digitally. We grew mobile active customers by 1.4 million in 2025, up 4% from a year ago. Wells Premier, our offering to serve our affluent clients, continued to build momentum in 2025. We increased the number of licensed bankers and grew branch-based financial advisors by 12% from a year ago, with a focus on increasing the number of bankers and advisors in the locations where we have the most opportunities. Premier deposit and investment balances grew 14% during 2025. This remains a significant area of opportunity for us. We also had continued momentum in our Wealth and Investment Management business with total hires increasing, attrition declining and net asset flows accelerating in the second half of 2025. Turning to our commercial businesses. In the Commercial Bank, while we are the market leader with strong returns, we still have plenty of opportunities for growth. We have hired 185 coverage bankers over the last 2 years, with over 60% of the bankers hired in 2025. We are starting to see early signs of success from these hires, with higher new client acquisition as well as loan and deposit growth. We also continue to be focused on providing investment banking and markets capabilities, with fees from providing these capabilities to our commercial banking clients growing over 25% in 2025. Our strategic partnership with Centerbridge Partners has enabled us to better serve our Commercial Banking customers with a direct lending product; since inception, we have helped our clients raise approximately $7 billion in financing. As I highlighted on our last call, our goal is to be a top 5 U.S. investment bank. We grew our share in 2025, and we're confident that we can continue to make progress over time by using our competitive advantages, including our long and deep relationships with large corporate and middle market companies, a complete product set, significant existing credit exposure, strong risk discipline and the capacity to support our clients through cycles. In M&A, we're winning increasingly bigger and more complex assignments. We advised on 2 of the largest M&A deals of 2025, increasing our announced U.S. M&A ranking to 8th in 2025, up from 12th in 2024. We entered 2026 with our deal pipeline meaningfully greater than it has been at any point in the last 5 years, although market conditions can always change. And with the lifting of the asset cap, we've been able to utilize our balance sheet to accelerate growth in our trading businesses, including increasing trading-related assets by 50% in 2025 to accommodate customer trading flows and financing activities. While many of the assets that have been added recently are lower margin, they also have lower risk and are less capital intensive. Our ability to support this client activity increases engagement and should lead to more business. In summary, our strong performance in 2025 reflects the meaningful progress we've made to transform Wells Fargo, and our actions position us for continued higher growth and returns. Our ROTCE increased to 15% in 2025. To put this in perspective, when we first started talking about increasing our returns in the fourth quarter of 2020, our ROTCE was 8%, and we set a goal of reaching 10%. Once we established that goal, we raised our target to 15%. As we discussed on last quarter's call, we have a new medium-term ROTCE target of 17% to 18%. While both the path and the timing to achieve our target is dependent on a variety of factors, including interest rates, the broader macroeconomic environment and the regulatory environment, we are confident that we can reach this goal by maintaining our expense discipline, realizing the benefits of our investments to drive stronger revenue growth and further optimizing our capital levels. As a reminder, 17% to 18% is not our final goal, but another stop along the way to achieving best-in-class returns by business; ultimately, our returns should be higher than this target. I want to end by thanking everyone who works at Wells Fargo for their hard work and dedication last year. Their unwavering commitment to our customers and to our transformation is what positions us to become a best-in-class company. I'm excited about our momentum and look forward to building on our success as we enter the new year from a position of strength. I will now turn the call over to Mike.
Michael Santomassimo, CFO
Thanks, Charlie, and good morning, everyone. We earned $5.4 billion in the fourth quarter, up 6% from a year ago. Diluted earnings per common share were $1.62, up 13% year-over-year. Excluding the severance expense, our diluted earnings per share were $1.76. The fourth quarter included $612 million of severance expense, primarily for actions we will take throughout 2026. We also had severance expense in the third quarter for a total of $908 million in the second half of 2025. As Charlie highlighted, we have reduced headcount every quarter since the third quarter of 2020, and we continue to have opportunities to further streamline the company and become more efficient. Turning to Slide 4. Net interest income increased $381 million, or 3% from the third quarter, driven by higher market NII. Net interest income, excluding markets, increased $167 million from higher loan and deposit balances, as well as fixed asset repricing, partially offset by changes in deposit mix. I will update you on our expectations for 2026 net interest income later in the call. Moving to Slide 5. We had strong loan growth, with both average and period-end loans increasing from the third quarter and from a year ago. Period-end loans grew 5% in the third quarter, the strongest linked quarter growth since the first quarter of 2020 when we had COVID-related growth. Average loans increased $49.4 billion, or 5% from a year ago, driven by growth in commercial and industrial loans, in Corporate Investment Banking as well as growth in Commercial Banking. As you can see on this slide, one of the industry categories driving commercial loan growth has been financial institutions. While it is often referred to as one category, it's actually fairly broad. In our 10-Qs and K, we have traditionally broken down these loans into 4 types: lending to asset managers, commercial finance, consumer finance and real estate finance. Let me walk through each of these categories briefly to give you a better understanding of what they include. Asset managers and funds is the biggest piece of this category, as well as the driver of most of the growth from our fund finance group, which is largely subscription or capital call facilities for alternative asset managers, targeting larger funds with strong investment track records where we have long-standing strategic relationships and that are generally backed by a diversified pool of limited partner commitments to the fund. Within commercial finance, the biggest piece is our corporate debt finance business, which is secured lending to asset managers and private equity funds that is typically backed by middle-market and broadly syndicated loans. We underwrite, approve and monitor the performance of each underlying loan. Consumer finance, the smallest category, lends to clients engaged in auto lending, credit card issuers and other types of consumer lending. Finally, the real estate finance portfolio includes secured lending to mortgage REITs and private equity funds that originate or purchase commercial real estate mortgage loans and secured lending to asset managers and specialty finance companies backed by agency residential mortgage loans and residential mortgage-backed securities. Since this portfolio has been growing, we are now providing additional detail by category earnings rather than just in our 10-Q filings as we've done in the past. While this type of lending has picked up across the industry recently, we have made these kinds of loans for many years, they are generally secured and have features to help manage credit risk, such as structural credit enhancements and collateral eligibility requirements as well as collateral advance rates that generally get us to the equivalent of investment-grade risk. Given these features and our experienced underwriting for these loans, as well as the collateral that supports them, we have found this type of lending to offer an attractive risk-return. Now turning to consumer loans, which also grew from a year ago with growth in auto, securities-based lending and wealth and investment management and credit cards. While residential mortgage loans continued to decline, driven by our strategy to primarily focus on our bank and wealth management customers, the rate of decline slowed. Turning to deposits on Slide 6. Average deposits increased $23.9 billion from a year ago, as growth in consumer and commercial deposits more than offset declines in higher-cost corporate treasury deposits. We achieved this growth while reducing average deposit costs by 29 basis points from a year ago, with lower interest-bearing deposit yields across all of our businesses. Turning to Slide 7. Noninterest income increased $419 million, or 5% from a year ago. Our results from a year ago included losses from the repositioning of the investment securities portfolio, as well as strong results from our venture capital investments. We grew fee-based revenue across multiple of our business-related fee categories, including 8% growth in investment advisory fees and brokerage commissions, our largest category, driven by growth in asset-based fees reflecting higher market valuations and wealth and investment management. Turning to expenses on Slide 8. Noninterest expense declined $174 million from a year ago. Let me highlight the primary drivers. We had lower FDIC assessment expense, lower operating losses, and we benefited from the impact of efficiency initiatives. Partially offsetting these declines was higher revenue-related compensation expense, primarily in Wealth and Investment Management, driven by strong market performance. We also had higher advertising and technology expense driven by the investments we are making in our businesses to generate growth. I would note that while our fourth quarter 2025 expenses included the $612 million of severance expense I highlighted earlier in the call, severance expense was slightly lower than a year ago. Turning to credit quality on Slide 9. Credit performance remained strong. Our net loan charge-off ratio declined 10 basis points from a year ago and increased 3 basis points from the third quarter. Commercial net loan charge-offs increased 4 basis points from the third quarter, driven by higher commercial real estate losses predominantly in the office portfolio. Office valuations continue to stabilize, and although we expect additional losses, which can be lumpy, they should be well within our expectations. Consumer net loan charge-offs increased modestly from the third quarter to 75 basis points of average loans, with higher losses in credit card and auto. Since there is seasonality in these portfolios, I would note that both credit card and auto losses were lower than a year ago. As Charlie highlighted, we closely monitor our portfolio for signs of weakness, and consumers continue to be resilient as income growth has generally kept pace with increases in inflation and debt levels. Our nonperforming asset ratio declined modestly from a year ago and increased 3 basis points from the third quarter, driven by higher commercial real estate and commercial and industrial nonaccrual loans. The drivers of this increase were borrower-specific, and we do not see any signs of systemic weakness across the portfolio. Moving to Slide 10. Our allowance for credit losses for loans was relatively stable from the third quarter. Our allowance coverage ratio was down modestly and included a decline in the coverage ratio for our corporate investment banking and commercial real estate office portfolio to 10.1% in the fourth quarter. Turning to capital and liquidity on Slide 11. Our capital levels remain strong, with our CET1 ratio at 10.6%, down from the third quarter but well above our CET1 regulatory minimum plus buffers of 8.5%. We added approximately 45 basis points from earnings, which was more than offset by approximately 40 basis point reduction from common stock repurchases and an approximately 45 basis point decline from risk-weighted asset growth. We repurchased $5 billion of common stock in the fourth quarter. Average common shares outstanding were down 6% from a year ago and have declined 26% over the past 6 years. Moving to our operating segments, starting with Consumer Banking and Lending on Slide 12. Consumer Small and Business Banking revenue increased 9% from a year ago, driven by lower deposit pricing and higher deposit and loan balances. Home lending revenue declined 6% from a year ago due to lower net interest income from lower loan balances. Credit card revenue grew 7% from a year ago from higher loan balances and an increase in card fees. Our new account growth has been strong, and approximately 50% of our loan balances are now from the new products we've launched since 2021. Auto revenue increased 7% from a year ago due to the higher loan balances, with auto originations more than doubling from a year ago. The decline in personal lending revenue from a year ago was driven by lower loan balances and loan spread compression. Turning to Commercial Banking results on Slide 13. Revenue was down 3% from a year ago, as lower net interest income was partially offset by growth in noninterest income driven by higher revenue from tax credit investments and equity investments. Average loan balances in the fourth quarter grew $4.6 billion, or 2% from the third quarter, driven by higher client activity. Turning to Corporate and Investment Banking on Slide 14. Banking revenue declined 4% from a year ago, driven by lower investment banking revenue and the impact of lower interest rates. I would note that while investment banking revenue declined in the fourth quarter, it was up 11% for the full year. Investment banking revenue will vary from quarter to quarter based on the timing of when deals close, so looking out over a longer time frame is a more meaningful way to see the momentum we are generating in this business. Commercial real estate revenue was down 3% from a year ago, driven by the impact of lower interest rates, reduced mortgage banking servicing income resulting from the sale of our non-agency third-party servicing business in the first quarter of 2025, as well as lower loan balances. Markets revenue grew 7% from a year ago, driven by higher revenue in equities, higher commodities-related revenue from increased market volatility, as well as higher revenue in structured products. Average loans grew 14% from a year ago and 6% in the third quarter, with growth in markets and banking driven by new originations, as utilization rates on existing facilities were relatively stable from the third quarter. On Slide 15, Wealth and Investment Management revenue increased 10% from a year ago, driven by growth in asset-based fees from increased market valuation, and as well as higher net interest income due to lower deposit pricing and the growth in deposit and loan balances. Underlying business drivers continue to show momentum in the fourth quarter with growth in loan and deposit balances as well as growth in total client assets, which benefited from market valuations as well as net asset flows. As a reminder, the majority of wind advisory assets are priced at the beginning of the quarter, so first quarter results will reflect the higher January 1 market valuations. Turning to our 2026 outlook on Slide 17, we provide our expectations for net interest income. We reported $47.5 billion of net interest income in 2025, and we currently expect total net interest income to be $50 billion, plus or minus, in 2026. Additionally, for the first time, we are providing our net interest income expectations for our markets business. We also enhanced our disclosures related to this activity in our financial supplement by providing more details on trading assets and liabilities on Pages 6 and 7, and including disclosures in the Corporate & Investment Banking segment on Pages 14 and 15, as well as providing net interest income, excluding markets on Page 27. We believe these disclosures will provide additional transparency and insight. As you know, we've been investing in the markets business, and while it is still a relatively small contributor to our total net interest income, its contribution has grown and it can cause volatility in our NII outlook, given changes in interest rates and other market factors. We currently expect markets NII to grow to approximately $2 billion in 2026, driven by lower short-term funding costs and balance sheet growth, including increased client financing activities, which, as Charlie highlighted, tend to be lower margin and lower risk assets, but are accretive to net interest income. As a reminder, while markets NII is expected to be higher, this growth is expected to be partially offset by lower noninterest income. Our focus is on growing markets revenue, which we expect to increase in 2026. Net interest income, excluding markets, was $46.7 billion in 2025, and we currently expect NII, excluding markets, to be approximately $48 billion in 2026. Key assumptions used for our expectations include 2 to 3 rate cuts by the Federal Reserve in 2026, with 10-year treasury rates remaining relatively stable throughout the year, which would be a modest headwind to NII. However, this expected headwind should be more than offset by loan and deposit growth as well as continued fixed asset repricing. Average loans are expected to grow mid-single digits from the fourth quarter of 2025 to the fourth quarter of 2026, driven by growth in commercial, auto, and credit card loans; all else equal, our provision expense would increase in 2026 as we set aside reserves to support this expected loan growth. Average deposits are also expected to grow mid-single digits over this period, with growth in all of our operating segments, with stronger growth in interest-bearing versus noninterest-bearing deposits. We currently expect net interest income, excluding markets, to decline in the first quarter due to the impact of 2 fewer days. Ultimately, the amount of net interest income we earned in 2026 will depend on a variety of factors, many of which are uncertain, including the absolute level of interest rates, the shape of the yield curve, deposit balances, mix and pricing, loan demand, and the ultimate mix of activity and volatility in markets. Turning to our 2026 expense expectations on Slide 18. We continue to focus on efficiency as we simplify the company for our customers and employees, while at the same time investing for the future. Following the waterfall on the slide from left to right, our noninterest expense in 2025 was $54.8 billion. Looking at the next bar, our assumptions do not include significant additional severance for 2026, which would result in an approximately $700 million decline in severance expense. We expect revenue-related expenses in 2026 to increase by approximately $800 million in our Wealth and Investment Management business. As a reminder, this is a good thing, as these expenses are more than offset by higher noninterest income. Actual revenue-related expenses will be a function of market levels, with the biggest driver being the equity markets. Our outlook assumes the S&P 500 will be up modestly from current levels, but clearly, the ultimate performance of the market is uncertain. We expect our FDIC assessment expense to increase by approximately $400 million in 2026, driven by expected deposit growth and the absence of the approximately $200 million special assessment credit that reduced FDIC expense in the fourth quarter. We expect all other expenses to increase approximately $300 million in 2026, with the impact of efficiency initiatives more than offset by higher investments in other expenses. We expect approximately $2.4 billion of gross expense reductions in 2026 due to efficiency initiatives. We successfully delivered approximately $15 billion in gross expense savings since we started focusing on efficiency initiatives 5 years ago, and we continue to believe we have opportunities to get more efficient across the company. There are 3 primary expense drivers that we expect will more than offset the gross expense savings in 2026. First, we expect approximately $1.1 billion of incremental technology expense, including investments in infrastructure and business capabilities. Second, we expect approximately $800 million of incremental other investments, including in the specific areas highlighted on the next slide. And finally, we expect other expenses to increase by approximately $800 million, including expected merit and benefit increases, as well as performance-based discretionary compensation. Additionally, other expenses reflect approximately $400 million of lower expense following the sale of our railcar leasing business in the first quarter of 2026. However, this benefit will be offset by a reduction in noninterest income. Putting this all together, we currently expect noninterest expense to be approximately $55.7 billion in 2026. And as a reminder, the first quarter personnel expenses are seasonally higher and are expected to be approximately $700 million. On Slide 19, we provide our key areas of focus for our 2026 investments across the company. And in summary, our results in 2025 reflected continued momentum in improving our financial performance. We generated strong fee-based revenue growth, maintained strong expense and credit discipline, grew our balance sheet, returned significant amounts of capital to shareholders, retained our strong capital position and increased our return on tangible common equity. I'm excited about the opportunities ahead as we build on our momentum and further improve our results. We will now take your questions.
Operator, Operator
The first question will come from Scott Siefers of Piper Sandler.
Scott Siefers, Analyst
Mike, I was hoping you could just expand a little on your thoughts on NII, particularly ex-markets. It looks like 2026 should be basically flat with the fourth quarter annualized level despite the outlook for pretty good loan growth. It sounds like from what you said, that's mostly going to be a function of the rate outlook, but I would just love to hear your expanded thoughts on sort of the puts and takes.
Michael Santomassimo, CFO
Yes, thank you for the question. You need to adjust for the day count, so it’s slightly higher when you annualize the fourth quarter. As you mentioned, there are really three factors at play. First, rates are decreasing, which will be a challenge for net interest income excluding markets. Second, deposit and loan growth will continue throughout the year, and it's about gradual progress. So, the results will improve as we move towards the end of the year. Currently, our rate curve assumptions align closely with the forward curve, anticipating two rate cuts, possibly another at year-end, which will have minimal effect. We’re experiencing loan growth across the board; however, some of the growth in areas like credit cards will come with introductory rates or zero rates as we expand the portfolio. Overall, we see strong growth in the rest of the portfolio that should persist throughout the year. Regarding deposits and pricing, we aren't noticing anything unexpected as we start the year on the commercial side. The betas are in line with our expectations as rates decrease; they are elevated. Our consumer rates have already adjusted downward, and we don't see any significant changes in trends compared to what we anticipated. These are the main factors driving the situation.
Scott Siefers, Analyst
Perfect. And then I guess to the extent that you can, given how new this issue, I was hoping you could please maybe address sort of this increased volume around credit card rate caps, how you're thinking about this newer issue. It doesn't sound like it's affected your appetite for growth here at all, but I would just love to hear how you're sort of framing that internally.
Charles Scharf, CEO
I believe we all recognize that the focus on affordability, which many people have been facing for a while now, is a significant concern. We've highlighted that those with less savings are particularly affected. However, determining the appropriate response requires careful consideration. Regarding the implications for us, it's still too early to assess, as we are unsure of the actions that the administration or Congress may take. We are committed to finding solutions to assist as many people as possible, while ensuring that our efforts do not lead to negative consequences.
Operator, Operator
The next question will come from Ken Usdin of Autonomous Research.
Ken Usdin, Analyst
Good morning, everyone. It's encouraging to see the anticipated growth in the balance sheet. Can you explain how you plan to manage the trade-offs between growing lower net interest margin assets and risk-weighted asset growth compared to your buyback options and the utilization of CET1 capital? What is your approach to balancing the different types of growth in the balance sheet as you consider the overall mix?
Michael Santomassimo, CFO
Yes. Sure, Ken. I'll take a shot at that because there are a few pieces that I'll try to disaggregate for you. When you look at what's happening in the markets business and adding some of the lower ROA financing repurchase trades, those don't attract a lot of capital or RWA because of the collateral that sits behind them. So a lot of treasury collateral and other general collateral that sits there. Those are an important piece of the puzzle as you look to do more across the client base in the markets business. You'll see that grow throughout the year, for sure. But again, it doesn't attract a lot of capital to bring with it. What you're seeing across the rest of the balance sheet is growth in loans. I think those bring varying degrees of capital depending on what they are. Even when you look at some of the growth we've seen in the nonbank financial space, given the way they're structured and the collateral behind them, they don't necessarily attract as much capital as a regular way, commercial loan. I think as we look at the opportunity there, we want to support clients across the broad spectrum of businesses we have. We're going to continue to focus on the consumer side in the card space and in the auto space, where we think we will remain within our risk appetite. On the commercial side, we'll continue to be very thoughtful about what we go after. But just to point out something we've said a lot is our risk appetite really hasn't changed and we're not looking to change that significantly. Now that the asset cap is gone, we've got more opportunity to continue to do more with clients. That should create this good virtuous circle where they do more fee-based business with us as well.
Charles Scharf, CEO
Let me just add a couple of things, if I can, Ken. First of all, just agree obviously with everything that Mike said. As we increase the financing that we do in the markets business, our expectation is doing that because we will wind up getting paid in other ways as well. And those don't happen concurrently, but it's something that we track by client to ensure that we're actually seeing that payoff. This is not an either/or for us at this point. We have significant opportunities to be able to extend loans and use our balance sheet for customers and to continue to buy back stock. We're making trade-off decisions on the margin, but just given the amount of capital we generate and the amount of opportunity we have on both is significant. We still have to manage to our targeted range of capital, which has significant buffers on top of the regulatory buffers, and that's something that we'll evaluate as the regulators finalize the capital proposals and the other things.
Ken Usdin, Analyst
And Charlie, my follow-up just on that last point, exiting the year and you mentioned you have the 10, 10.5 range outlook. Does that mean that you're also comfortable guiding towards the lower end, which would still give you a lot of buffer to your earlier point?
Michael Santomassimo, CFO
Yes. I mean, look, we gave a range, Ken, of 10%, 10.5%. And so that would mean we're comfortable operating in the range, right?
Ebrahim Poonawala, Analyst
Good morning. I just want to follow up. I think there's – so I completely appreciate what you're saying in terms of focus on profitability while you're growing the businesses. Like we heard JPMorgan talk about investing in businesses and investing capital where the returns are probably sub-17%. I think maybe, Mike, Charlie, to the extent – I think that's one concern that you hear persistently over the last few months is how do you grow the business while improving the ROTCE capital leverage aside maybe if you don't mind, double-clicking on some of the expense and the efficiency initiatives you laid out on Slide 18. And I think you mentioned that even beyond 2026, you see that, just trying to get a better sense of the outsized efficiency opportunity that Wells has to achieve that ROTCE while delivering superior growth.
Charles Scharf, CEO
Yes. Let me start, Mike, and then I'll pass it to you for some specific information. What we are discussing is a continuation of our current efforts. We believe that we still have opportunities ahead of us. Over the past few years, we have managed to cut $15 billion in expenses. As we pointed out a couple of years ago, we increased our regulatory expenses by $2 billion to $2.5 billion annually. However, our overall expenses have decreased. This has allowed us to reinvest significantly and position ourselves for growth. We think we now have more tools than ever to improve efficiency, especially with AI. We are in a better position to leverage the benefits from increased efficiency to manage any growth in expenses while also reaping the rewards of our investments to boost revenue growth.
Michael Santomassimo, CFO
Ebrahim, I'd like to highlight a few trends we observed in 2025 that align with what Charlie mentioned. The credit card sector saw a 20% increase in new accounts year-on-year. Auto lending balances rose by 19%, and loans in the commercial sector increased by 12%. In Investment Banking, we experienced a 12% growth in fees, with win fees rising significantly. Looking at a longer time frame, trading has also seen substantial growth. Much of what Charlie discussed is reflected in our results as we become more efficient. We have only begun to tap into the opportunities available across all our business segments.
Ebrahim Poonawala, Analyst
That is helpful. And I guess maybe just a separate question on capital. M&A comes up a lot in the context of well rightly or wrongly now. I appreciate you're going to be disciplined and you should be looking for sort of strategic opportunities. But just remind us when you think about M&A, either Wealth Management or bank M&A, just how you're thinking about it what do you think makes strategic sense where it would not be a distraction from what you're trying to achieve organically?
Charles Scharf, CEO
Yes. I'll start with probably the most important thing, which is that we feel no pressure to pursue any mergers and acquisitions in any of our businesses because we are very confident about the quality and completeness of our franchise and the opportunities that we have. Not everyone is in that position, and we feel fortunate to be in this situation. It would be inaccurate to say we would never consider something; we would, of course, consider anything that makes sense. The standards would be high for us, both in terms of our financial expectations, and it should significantly enhance our attractiveness to investors. We are not looking to make acquisitions just for the sake of acquiring, in fact, it's quite the opposite. We focus our efforts on driving the organic opportunities that we have.
Operator, Operator
The next question will come from John McDonald of Truist Securities.
John McDonald, Analyst
Mike, one follow-up on the NII. Does the growth in markets NII that you expect in '26 have a trade-off in the trading fees? Or maybe said differently, the base of trading fee revenues in '25 looks like about $5.1 billion? Is that a good starting point that you feel like you can grow off of, or is there any kind of trade-off with markets NII?
Michael Santomassimo, CFO
Yes. No, John, it's a good clarification. And I tried to address that in my remarks, but there is a trade-off. The growth in NII is partially offset by a reduction in the fee line, not entirely, but partially offset by the fee line, given the dynamic we have in terms of overall growth. But overall, revenue in the markets business, we would expect to grow in this year. You should see some normal seasonality in there as well, where you see a low point in the fourth quarter and you see a little bit of a snapback in the first quarter. Overall, revenue in the markets business, we would expect to be higher.
Charles Scharf, CEO
Yes, we are not withholding information. The truth is that many components of our noninterest income are influenced by global market conditions, which can be unpredictable, including trading figures and revenue from our wealth management sector. We have a long-term belief in the growth of our core business and our potential to capture market share, so we anticipate seeing an increase in those figures.
John McDonald, Analyst
Okay. Great. Fair enough. And Mike, one quick follow-up on the commercial nonperformers. It did move up; you mentioned it in the opening comments. Any more color on just what drove that? It's off a low base, but lost content or any thoughts about the drivers there?
Michael Santomassimo, CFO
Yes. A couple of thoughts. I mean, look, I mean, if you look at it over a long time period, the number can be quite volatile like period-to-period, so I wouldn't read too much into that. There's really nothing systemic that we're seeing come through. When you really look back at nonperforming assets, they're actually not a very good predictor of loss. The vast majority of them are performing both on principal and interest. It's some individual names that sort of move around quarter-to-quarter, but nothing systemic as you sort of look at it that we can see.
Operator, Operator
The next question will come from Betsy Graseck of Morgan Stanley.
Betsy Graseck, Analyst
A couple of questions, follow-up here. One is just on the markets commentary that we were discussing earlier around its lower ROA business. Can you talk to us about how you're thinking about the impact on ROTCE? Is there a limit to which you would go because if it's dilutive to ROA, it's dilutive of ROTE? I realize that regulatory capital is low. But help us understand how you're navigating that? How large are you okay with it becoming?
Michael Santomassimo, CFO
Yes. Betsy, I don't anticipate it's going to have any kind of negative impact on where we think returns go. Given the nature of it, the returns are fine, and it's not going to be dilutive relative to the overall returns of either the segment or the overall company. As Charlie mentioned, the financing opportunity that you get through doing this, the additional opportunity you get by providing financing capacity to clients should start to build more meaningfully over time as well, and that builds up the full set of revenues for each of those clients.
Charles Scharf, CEO
And Betsy, if I can just say a couple of things. Just number one, we are not going to grow our trading business in any kind of outsized way that would have a negative impact on our ability to produce the kind of returns that we want and you would expect. We will not do that. We're starting from a low base, so it looks significant, but it shouldn't be significant to the impact to what we can produce as a company. A big part of why we're in the markets business is not just for the sake of making money and trading; these are corporate relationships in which we have a broader set of business activities, and as you grow your secondary business, it helps with your primary business. They are related, and as we think about returns, we are very focused on returns overall and specifically ROTCE.
Betsy Graseck, Analyst
Okay. That's helpful to understand how you think through that. Just separately, when I think about loan growth accelerating this quarter, very nice to see and heard all of the commentary around how you're expecting trajectory from here. Charlie, I had a question just on what kind of loan growth and credit quality should we be anticipating as you build out this loan growth over the medium term. The reason I'm asking is before the asset cap, before GFC Wells was very well known as a full-spectrum lender, both on the consumer side and in the corporate side as well, SMBs, a lot of middle market, etc. Where are you looking to take the organization as you have the opportunities to lean into growth?
Charles Scharf, CEO
So yes, if we separate the business into the wholesale side and the consumer side for a second, where we are going on our wholesale credit business is no different from where we've been, specifically in the commercial bank. The risk appetite that we've had continues to be the same level of risk appetite. What we're focused on is getting stronger in geographies where we have more opportunity, where there are more opportunities to grow and grow with the clients in the rest of our business. In terms of the consumer businesses, I put it like there are different phases. Historically, we were very, very good at credit across different segments, but more focused on the higher FICO customers. As we've gone through the last bunch of years, we focused on different things, and there have been different economic circumstances, so much more focused on the highest credit quality. The opportunity for us, as we referred to this when we talk about our auto business specifically, is to be more full spectrum, but not in a way that materially changes what you've ever thought of us as. We're very focused on returns in places like the auto business in order to get the right returns in being a full spectrum lender, but we're not going to do it in a way that creates a tail of risk in our lending book which is not consistent with how we think about our risk appetite.
Operator, Operator
The next question will come from Erika Najarian of UBS.
Erika Najarian, Analyst
Just one follow-up question. You mentioned $800 million in higher revenue-related expenses for the year and considering the S&P up a little. I'm just wondering in this period of what Charlie mentioned, not putting in a box, is the expense number of $55.7 billion contemplating a pretty robust capital markets environment that the investors are expecting?
Michael Santomassimo, CFO
Erika, this is Mike. The $800 million is exclusively in our Wealth Management business. That is based primarily on where the overall equity market will land. We do expect it to be up modestly from where it is today. We include in that the performance-based compensation included there, reflecting anything we expect for the market, and we expect to have a pretty active market this year.
Operator, Operator
The next question will come from Steven Chubak of Wolfe Research.
Steven Chubak, Analyst
I wanted to ask on the assumptions underpinning like the '26 NII guidance, specifically around loan and deposit growth. You guys saw a really nice acceleration in some of the balance sheet KPIs to close out the year. Lending and deposit growth both grew mid-single digits sequentially. That's essentially the level of growth that you guys are contemplating for the full year for '26, so it does imply a pretty meaningful deceleration. I recognize mid-single-digit growth is nothing to scoff at. What informs the slowdown? Is that a function of conservatism? ADO sources of lending strength in the fourth quarter or something else?
Michael Santomassimo, CFO
Yes. Steve, look, I think you got to be careful to extrapolate from 1 quarter. There can be quite some seasonality that's in there. In our Commercial Bank as an example, there are some trade finance type loans that are seasonally there at year-end. It's a lot of roll down a bit in the first quarter. There are some elements that offset it. It can be volatile quarter-to-quarter in terms of the growth you see. What we're not anticipating is a broad-based increase in utilization across the commercial bank. So while there could be more loan growth if we start to see utilization rates tick up, there are lots of factors that could drive it higher from what we have there. We think this is an appropriate place to be based on all we have been seeing.
Steven Chubak, Analyst
Okay. Great. And then for my follow-up, Charlie, I did want to ask on the 17% to 18% ROTCE target. It's pretty clear based on our investor conversations that no one is really questioning the potential for the franchise to get to the 17% to 18%. You've even noted that's not the extent of your longer-term ambitions, but you've been reluctant to commit to timing. It does appear that's driving a wider range in terms of earnings expectations. I was hoping you could contextualize what are some of the milestones you're looking for or areas where you might need better visibility in order to get sufficient comfort to offer a more explicit timeframe for that 17% to 18%?
Charles Scharf, CEO
Yes. Let's be reasonable here. You're all very intelligent people, and you understand the uncertainties we face. We cannot predict the credit environment for the next several years, nor can we foresee the interest rate trends or market levels. Asking for a specific timeline when so many variables affect the outcome isn't practical for us to estimate. However, we have consistently communicated that these factors can be volatile and will fluctuate. Our focus is on building a business that will foster higher revenue growth with reasonable expenses, ensuring that we can trace the benefits of our investments back to the revenue outcomes and assess the effects of volatility.
Steven Chubak, Analyst
All right. Well, Charlie, your peers do provide a timeline. So I don't think it's an unreasonable expectation for us to ask for that. If I understand your perspective, there is a lot of uncertainty. If I could just squeeze in one more. You listed various sources of efficiency initiatives in the slides, you're making good progress there. You didn't explicitly mention how much of that reduction in the excess regulatory cost of 2% to 2.5% is contributing to some of those efficiency gains. So I wanted to understand how much relief should come from that this year? Should also drive incremental efficiency gains beyond 2026, which informs that improvement in returns you just alluded to?
Michael Santomassimo, CFO
Steve, it's Mike. Yes, we continue to work to streamline and bring better technology to some of what we've implemented over the last number of years. I'd say there's a little bit of impact from that in the efficiency work this year, but that will likely continue to come over a slightly longer period of time. There’s no new silver bullet here. It's continuing to peel back the onion in each of the areas, driving better automation, reducing real estate costs, reducing third-party spend. We expect to be able to continue to optimize some of that over a slightly longer time period, but there is a little bit of impact this year.
Operator, Operator
The next question will come from John Pancari of Evercore ISI.
John Pancari, Analyst
Mike, regarding the margin dynamics for the fourth quarter, I noticed your loan yields decreased by about 19 basis points from the previous quarter. Could you provide more insight into what drove that change? You mentioned the trade finance dynamic, as well as securities lending and the markets business. What were the main factors contributing to this decline? Additionally, how do you foresee the underlying margin trajectory as you look towards 2026, considering these factors?
Michael Santomassimo, CFO
Yes. No. On the loan side, the biggest driver is rates coming down, right? You've got a big variable rate portfolio there on the commercial side. That's going to be the biggest driver. In some areas, it's very competitive. You see a little bit of spread compression across some of the commercial book as well, but the biggest driver in the sequential quarter is going to be rate. When you look as we come into next year, you'll see a little bit of some of the lower ROA exposures, which will have an impact on overall margin. You'll also have rates coming down again this year if the forward rates materialize. Again, that will be offset by new activity that we put onto the books and some of the fixed asset repricing, particularly in the securities portfolio.
John Pancari, Analyst
Got it. Okay. And then one follow-up, just related to that on the deposit side. Maybe if you could help us update us on your deposit gathering strategy overall. I know you cited the mid-single-digit deposit growth for '26. Maybe can you talk about the mix shift that you would expect between interest-bearing and noninterest-bearing, and what businesses do you see driving the bulk of growth? It looks like you saw a pretty good leg up in your deposit volume through the wealth management business, for example, this quarter. So I just want to see if we can get some color there in terms of the businesses that are driving the growth.
Michael Santomassimo, CFO
Yes. It's going to involve a bit of each aspect, and I will outline them. On the Wealth Management side, we are continuing to concentrate on lending and banking products, increasing our focus across our adviser base. We are seeing good uptake there, which will contribute to growth, but it won't be a straight path. We expect to see some expansion in the wealth business now that we can compete more effectively with the asset cap; this is reflected in strong loan growth on the commercial side. Most of that will be interest-bearing, though some will still be noninterest-bearing. That's why I mentioned that you'll notice a bit more interest-bearing growth compared to noninterest-bearing due to the commercial side's performance. On the consumer side, we are experiencing improved execution through both our digital marketing and branch channels, which is helping to drive growth in checking accounts and deposits. Overall, success will depend on how well we execute in each of the businesses.
Operator, Operator
The next question will come from Matt O'Connor of Deutsche Bank.
Matt O'Connor, Analyst
I was wondering if you could just talk about the environment for commercial real estate, broadly speaking. You mentioned on credit that you have a lot of reserves. You could have some lumpy losses. The industry and you grew loans for the first time in a really long time this quarter. There's just been a lot of anecdotal kind of articles out there in the media talking about parts of CRE kind of coming back. Just wondering how meaningful recovery you guys think this could be and how well-levered you are to that.
Michael Santomassimo, CFO
Sure. I'll take a shot. If you look at the commercial real estate book, excluding office for a second, just put that to a side and I'll come back to it. There's good demand across many sectors, whether it's multifamily, industrial, data centers, on and on. The fundamentals there haven't shifted that much as we go into this year, so we do expect to see some continued demand come through in some of those subsectors. When you look at office, there's a bifurcation there between really good office space, kind of newer Class A or better space in vibrant cities that are doing really well. You can see that just through some of the CMBS market executions that have happened over the last months. In older inventory, things have stabilized, and we continue to work through that portfolio. Overall, if you look at everything other than the older office stock, there's good demand and activity levels.
Operator, Operator
The next question will come from Saul Martinez of HSBC.
Saul Martinez, Analyst
I just have one as well. Totally get the reluctance to give specific revenue guidance. A number of the fee line items are tied to market conditions and can vary. I'm curious if you can just give us some color on what your expectations directionally are for some of the major fee lines, deposit fees, investment advisory, card fees, trading IP. A part of the reason I ask is that if you do look at some of these lines deposits, advisory cards, they're tracking at mid- to high single-digit growth. You mentioned trading, and you expect to grow even with some of the headwinds from the offset to trading-related NII. So it does feel like there is reason to be optimistic here. Just curious if you can maybe give us some color on how to think about these line items and what some of the major drivers are that could move them one way or another.
Michael Santomassimo, CFO
Yes, sure. If you start with the biggest one, which is investment advisory and other asset-based fees, that's really going to be driven by how the markets hold up. In the short term, as long as the equity markets hold, which is the bigger driver, you also have some impact on fixed income markets as well. If rates come down, you benefit as asset prices go up. As long as we have a pretty stable growing market there, I think you should be able to model that relatively easily in the jumping-off point this year is much better than where we entered last year. When you look at deposit-related fees and card fees, it's a function of the overall macro picture in the economy. As long as that continues, that should support those fee lines. Between the 3 of those, that's over half of the fee line just right there alone. For Investment Banking fees, it appears like there’s a belief that we're going to have a pretty active deal making both on the M&A side and a more active equity capital markets outlook. The debt market has been holding up well over the last couple of years.
Operator, Operator
The next question will come from Christopher McGratty of KBW.
Christopher McGratty, Analyst
Mike, on the consumer deposit growth, just to follow back on the prior question. It was about 1% year-on-year. I'm interested now that rates have come down and excess liquidity has kind of been pulled. Is this a GDP or GDP plus opportunity for deposit growth over the medium term?
Michael Santomassimo, CFO
Yes. I mean, look, I think for us, it's now that we're able to more aggressively in a much more front-footed way, deploy marketing and get our branch system to be more productive. Hopefully, we can see outsized growth there over time. But I do expect that will not be a linear path up. I expect to see some growth in the consumer deposit base. Start to see that relationship between deposits and GDP start to move in sync again hopefully over time.
Christopher McGratty, Analyst
Great. And then just revisiting the coverage bankers you mentioned, 185 over the past two years. Is the pace of hiring for 2026 greater or less? Is it slowing? Any questions regarding the coverage companies?
Michael Santomassimo, CFO
It's about the same per year.
Charles Scharf, CEO
These efforts that we have underway are multiyear plans where we've looked at whether it's geographies or industry coverage within our CIB is what you want to accomplish in a year. You want to see the payoff, and then we'll keep going. We see materially more opportunities to grow in both the commercial bank and the corporate investment bank, as well as in our consumer banking system for a whole bunch of different reasons.
Operator, Operator
And the final question for today will come from Gerard Cassidy of RBC Capital Markets.
Gerard Cassidy, Analyst
Guys, when we take a look at your average balance sheet on Slide 7 in the supplement, you show that you've had some nice growth, obviously year-over-year in the balance sheet. The funding of that, you've had real good strong growth in Fed funds purchases and short-term borrowings on a year-over-year basis. Can you share with us your thinking and the strategy of using that source of funding to grow the balance sheet as we go forward and what the outlook could be for this going into 2026?
Michael Santomassimo, CFO
Yes, Gerard, that's simply funding the growth in the markets business, much like other investment banks do. There's nothing particularly exciting about it. As we mentioned after the second quarter, we moved some funding to the repo line that we had internalized while the asset cap was in place. This is just standard funding for the markets business.
Gerard Cassidy, Analyst
Very good. And then just a quick follow-up. You talked a lot about the success you're having in investing in Investment Banking and markets, and you commented about the hiring if it's about the same or more challenging. When you look at the team on the field, I think there was a Financial Times article, Charlie, talking about some areas that you may want to add to. When you look at this team, are you 75% there in terms of you got all the people you need? Where do you stand on both markets and then Investment Banking?
Charles Scharf, CEO
I would say, well, first of all, I think what's really important is the quality of the people that we've hired, not just the numbers. Our team has done a great job of attracting some of the most talented people from great institutions that have just done a great job of building talent. We're not just focused on growing the numbers, it's about the quality and ensuring that we're seeing the payoff. I don't want to put a percent number on it because it's a journey. As we've added resources this year, it's a moving target because other companies aren't standing still either. But I'll leave it at that; we think the opportunity to continue to add resources to see the continued growth is as strong as it's ever been.
Michael Santomassimo, CFO
All right. Thanks, everyone. We appreciate the questions. We'll talk to you next time. Bye.
Operator, Operator
Thank you all for your participation in today's conference call. At this time, all parties may disconnect.