Wells Fargo & Company earnings

Management highlights

- Overall Financial & Operational Performance * Diluted EPS grew to $2, up 25% YoY; total net income increased 17% YoY to $6.4 billion; ROTCE reached 17.7%, up from 15.2% YoY. * Total revenue grew 9% YoY, with net interest income up 5% YoY and non-interest income up 13% YoY; non-interest expense grew 2% YoY, with non-revenue-related expenses declining YoY, and the efficiency ratio improved to 60%. * Headcount has declined for 24 consecutive quarters, reaching 197,000 in Q2, down 79,000 from six years ago and 3,500 from last quarter. * Average loans grew 12% YoY and average deposits grew 10% YoY after the removal of the asset cap last year; credit quality remains strong, with net loan charge-off ratio down 10 bps YoY to 34 bps. * Returned over $9.8 billion in capital to shareholders in H1 2026, including $7 billion in common stock repurchases; the board is expected to approve an 11% dividend increase to $0.50 per share for Q3. - Core Business Strategic Progress * Consumer Banking: Grew consumer primary checking accounts YoY for 13 consecutive quarters; credit card new accounts grew 46% YoY, with 2022-2024 vintages already contributing to profitability; mobile active users reached 33.7 million (+1.6 million YoY), ranking #2 in J.D. Power mobile app satisfaction; premier client assets grew 13% YoY; auto originations grew 41% YoY with strong credit performance. * Wealth and Investment Management: Securities-based lending average balances grew 31% YoY; the firm estimates existing clients hold trillions in assets at other institutions, creating significant future growth opportunity. * Corporate Investment Banking: Record quarterly investment banking fees; gained market share across key areas: 7.2% YTD leveraged finance market share (ranked #3), 3.8% equity capital markets share (+74 bps YoY), #4 for US M&A announced deal volume (up from #9), and top rankings in multiple CRE capital markets segments. Markets segment average trading-related assets grew 41% YoY, driving higher trading revenue and wallet share gains. * Commercial Banking: Targeted hiring in 20 underpenetrated high-density markets is driving client and balance growth; blockchain-based cross-border payment solutions are in development to improve speed, transparency and operating hours for commercial clients. - Capital & Balance Sheet * CET1 ratio is 10.3%, within the firm's 10-10.5% target range and well above the 8.5% regulatory minimum plus buffer requirement.

Guidance

- Full year 2026 net interest income guidance is maintained at $50 billion plus or minus, unchanged from prior outlook. Net interest income excluding markets is still expected to be approximately $48 billion, and markets net interest income is still expected to be approximately $2 billion. * Full year 2026 non-interest expense guidance is maintained at approximately $55.7 billion. Revenue-related expenses are expected to be slightly higher than original guidance, but this will be offset by lower expenses in other areas from ongoing efficiency initiatives. * Modest net interest margin compression is expected in Q3 2026, broadly in line with Q2's decline from Q1, with NIM expected to stabilize in Q4 2026. * Fourth quarter 2026 year-over-year average loan growth is likely to be higher than the original mid-single-digit assumption from January 2026, an upside surprise to original projections. Non-interest-bearing deposits are now expected to be relatively stable full year, a downside deviation from original growth assumptions. * Management remains confident in achieving the 17-18% medium-term ROTCE target in a reasonable timeframe if favorable market conditions continue, and plans to set a higher target after achieving this goal.

Segment performance

1. Consumer Banking and Lending: Revenue grew 6% year-over-year. Within the segment, Consumer Small and Business Banking revenue increased 8% YoY; Credit Card revenue grew 2% YoY on higher loan balances; Home Lending revenue declined 7% YoY due to lower loan balances and a shrinking servicing portfolio; Auto revenue increased 33% YoY on higher loan balances, with originations up 41% YoY. 2. Commercial Banking: Revenue grew 6% year-over-year, driven by non-interest income growth from equity investments, renewable energy tax credit financing, and investment banking, plus net interest income growth from higher loan and interest-bearing deposit balances. Adjusting for prior year transfers to consumer banking, average loans grew 9% YoY and average deposits grew 10% YoY. 3. Corporate Investment Banking: Total segment revenue grew 16% year-over-year. Banking revenue grew 20% YoY on higher investment banking fees (equity/debt capital markets) and higher loan/deposit balances; Commercial Real Estate revenue declined 1% YoY; Markets revenue grew 24% YoY, driven by stronger equities performance and broad fixed income growth. Average total segment loans grew 26% YoY across all sub-businesses. 4. Wealth and Investment Management: Revenue grew 13% year-over-year, driven by higher investment advisory fees from increased market valuations, plus higher net interest income from lower deposit pricing and higher deposit/loan balances. Total client assets grew 15% YoY to over $2.4 trillion, with average deposits up 10% and average loans up 12% YoY.

Risks & headwinds

- Current strong economic and market conditions will not last indefinitely. Large amounts of capital from banks and non-banks are being deployed across a broad range of risk assets, creating hidden leverage and risks that are hard to see today. * In wholesale lending, particularly around AI-related data center build-out, many non-bank lenders and some competitors are taking on higher levels of risk than Wells Fargo's risk tolerance, particularly for longer-term, lower credit support projects. * While growth is a strategic priority, unpriced or imprudent growth could create credit and profitability risks; management emphasized it will adjust growth pacing if expected returns do not materialize. * Finalization of new US bank capital rules is still pending, which may impact capital calculations and future share repurchase capacity.

Analyst Q&A

• Q: What mix of growth and assumptions underpin the maintained $50 billion full year NII target, and what drives NIM stabilization in Q4? /

  A: Management confirmed that the 3% sequential pace of earning asset growth is a reasonable assumption to hit the full year target. NIM stabilization is driven by slowing growth in the lower-margin markets segment balance sheet, which moderates the drag from market financing activity, offset by continued growth in higher-yield earning assets and ongoing repricing of the securities book. Only a small NIM decline is expected in Q3 before stabilization. The outcome may even be better than currently projected.

• Q: What is the outlook for future efficiency and headcount trends, and what is driving the downward revision to non-interest-bearing deposit growth expectations? /

  A: Management noted there is still significant room to improve efficiency across the firm, and technology and AI are enabling faster headcount reductions than in prior years. The firm expects to continue operating with lower headcount over time, with opportunities for automation across nearly all business processes. The slower-than-expected non-interest-bearing deposit growth is not driven by customer rate-seeking behavior or pricing pressure; it is just a timing delay, as new interest-bearing deposit relationships in commercial and corporate banking take time to convert to non-interest-bearing deposits over the long term.

• Q: How should investors think about structural vs cyclical NIM pressure, and what is the prime financing growth opportunity amid competitor capacity constraints? /

  A: The majority of the firm's core NII-generating business has very stable NIM. The current NIM compression is a deliberate result of growing lower-margin markets financing activity to attract new client relationships and build market share. Management expects this strategy will drive higher non-interest income (trading and investment banking fees) and eventually attract more non-interest-bearing deposits, lifting NIM longer term. The prime financing opportunity is significant as clients want additional counterparty options, but Wells Fargo is pacing growth carefully to stay within risk tolerance, and the business is still in early stages of growth. The investment banking deal pipeline remains strong, with healthy activity across both equity and debt markets and M&A.

• Q: What is the timing for hitting the 17-18% ROTCE target, and can NIM stabilize after Q3? /

  A: Management confirmed NIM will stabilize after Q3 compression, and there is even opportunity for NIM expansion over the medium term. The firm is already seeing that incremental markets financing balance sheet is driving higher trading revenue per client, with almost all clients growing their business with Wells Fargo after receiving financing. Management did not provide a definitive date for hitting the ROTCE target due to exposure to unpredictable market, rate and credit conditions, but confidence in achieving the target in a reasonable timeframe has increased quarter over quarter, and the target will be raised after it is achieved. All growth strategy adjustments (including slowing lower-margin activity) remain in management's control if returns do not meet expectations.