Wells Fargo (WFC)

Financial services giant Wells Fargo (NYSE:WFC) announced better-than-expected revenue in Q3 CY2025, with sales up 5.3% year on year to $21.44 billion. Its GAAP profit of $1.66 per share was 7.4% above analysts’ consensus estimates.

Company Overview

Founded during the California Gold Rush in 1852 to provide banking and express delivery services to miners and merchants, Wells Fargo (NYSE:WFC) is a diversified financial services company that provides banking, lending, investment, and wealth management services to individuals and businesses.

At their core, diversified banks take in deposits and engage in various forms of lending, which means revenue is generated through interest rate spreads (difference between loan and deposit rates) and fees. Other revenue comes from adjacent services such as wealth management, card and account fees, and products such as annuities. These institutions benefit from rising interest rates that improve NIMs (net interest margins), digital transformation reducing operational costs, and expanding wealth management services as populations age. However, they face headwinds including fintech competition disrupting traditional models (how disruptive is crypto?), stringent regulatory requirements increasing compliance costs, and cybersecurity threats requiring substantial technology investments. Economic downturns also pose risks through potential loan defaults and compressed margins during accommodative monetary policy periods.

Wells Fargo competes with other major U.S. financial institutions including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C), as well as regional banks like PNC Financial Services (NYSE:PNC) and U.S. Bancorp (NYSE:USB).

Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities. Over the last five years, Wells Fargo grew its revenue at a tepid 1.8% compounded annual growth rate. This fell short of our benchmarks and is a tough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Wells Fargo’s recent performance shows its demand has slowed as its revenue was flat over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Wells Fargo reported year-on-year revenue growth of 5.3%, and its $21.44 billion of revenue exceeded Wall Street’s estimates by 1.5%.

Net interest income made up 56.4% of the company’s total revenue during the last five years, meaning Wells Fargo’s growth drivers strike a balance between lending and non-lending activities.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Wells Fargo’s EPS grew at an astounding 75.8% compounded annual growth rate over the last five years, higher than its 1.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Wells Fargo, its two-year annual EPS growth of 13.6% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Wells Fargo reported EPS of $1.66, up from $1.42 in the same quarter last year. This print beat analysts’ estimates by 7.4%. Over the next 12 months, Wall Street expects Wells Fargo’s full-year EPS of $6.08 to grow 6.7%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

Wells Fargo’s TBVPS grew at a solid 6.3% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 8.6% annually over the last two years from $37.49 to $44.18 per share.

Over the next 12 months, Consensus estimates call for Wells Fargo’s TBVPS to grow by 4% to $45.94, paltry growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Wells Fargo has averaged a Tier 1 capital ratio of 12.4%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Wells Fargo has averaged an ROE of 10.3%, healthy for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Wells Fargo.

It was good to see Wells Fargo narrowly top analysts’ revenue expectations this quarter, leading to an EPS beat. We were also happy its tangible book value per share narrowly outperformed Wall Street’s estimates. On the other hand, its net interest income slightly missed. Zooming out, we think this was a decent quarter. The stock traded up 2.9% to $81.17 immediately after reporting.

Updated: December 4, 2025 at 11:28 PM EST

Before making an investment decision, investors should account for Wells Fargo’s business fundamentals and valuation in addition to what happened in the latest quarter.

Wells Fargo falls short of our quality standards. First off, its revenue growth was weak over the last five years. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its declining net interest margin shows its loan book is becoming less profitable. On top of that, its net interest income growth was weak over the last five years.

Wells Fargo’s P/B ratio based on the next 12 months is 1.7x. This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $93.71 on the company (compared to the current share price of $90.21).