Wells Fargo & Company Q2 FY2025 earnings call

• Second quarter results showed progress with net income, EPS, and return on tangible common equity up. - Continued investment in businesses drove fee-based income, with all segments growing in the first half. - Disciplined expense management with 20 consecutive quarters of headcount reduction. - Strong credit discipline with lower net loan charge-offs. - Asset cap removed, marking a pivotal milestone, with thirteen orders terminated since 2019. - Changed business mix, transformed management, and invested in future while improving financials. - Recognized employee contributions with compensation increases, benefits, and learning programs. - Lifting of asset cap allows more focus on growth, including proactively growing deposits and allocating capital to loans and corporate investment bank. - Expect to be more aggressive in pursuing deposits and loans, with opportunities in markets business. - Regulatory changes expected to allow more effective competition, with stress capital buffer decreasing. - Increased third quarter common stock dividend by 12.5% to $0.45 per share, and authorized up to $40 billion in common stock repurchase. - Investments in credit card business, auto business, consumer small and business banking, and wealth management, with improvements in satisfaction and net asset flows.

In the second quarter, net income was $5.5 billion or $1.60 per diluted common share. Net interest income increased $213 million or 2% from the first quarter due to lower deposit costs, one additional day in the quarter, higher securities yield, and higher loan balances. Period-end loans were up $10.6 billion from a year ago, with commercial and industrial loans growing, while residential mortgage and commercial real estate loans declined. Average deposits increased 4% from a year ago but total average deposits declined 1% from the first quarter. Non-interest income increased $348 million or 4% from a year ago, with growth in investment banking fees and card fees. Non-interest expense increased $86 million or 1% from a year ago, driven by revenue-related compensation. Credit performance improved with net loan charge-off ratio declining. Consumer banking and lending revenue grew 3% from a year ago, commercial banking revenue was down 6%, corporate investment banking banking revenue was down 7%, wealth and investment management revenue increased 1%, and corporate revenue was up due to the merchant services joint venture gain.

• Expect net interest income for 2025 to be roughly in line with 2024's $47.7 billion, with sequential growth in third and fourth quarters. - Third quarter common stock dividend increased to $0.45 per share subject to board approval. - Board authorized up to $40 billion in common stock repurchase. - Expect to be more aggressive in pursuing consumer and corporate deposits and selectively grow loans, while being cautious during economic uncertainty. - Opportunity to allocate more balance sheet to markets business to drive profitability.

• Economic uncertainty affecting consumer and business spending. - Regulatory changes and capital requirement fluctuations impacting capital allocation. - Intense competition in the banking sector affecting market share and profitability. - Uncertainty in trade negotiations impacting commercial clients' confidence and spending.

Q: John Pancari asked about NII outlook and loan growth assumptions.

A: Mike Santomassimo discussed modest loan growth in consumer and commercial segments, with deposit costs expected to continue coming down.

Q: Scott Siefers asked about factors allowing NII growth with modest loan growth.

A: Mike Santomassimo mentioned deposit costs, loan growth, and securities repricing.

Q: Scott Siefers asked about medium-term return targets with asset cap lifted.

A: Charlie Scharf talked about capital levels, SCB decrease, and waiting for Fed clarity on CCAR.

Q: Ken Usdin asked about buybacks and capital deployment.

A: Charlie Scharf said they have more capacity but will be thoughtful about timing.

Q: Ken Usdin asked about retail deposits growth.

A: Charlie Scharf discussed increased marketing and branch expansion.

Q: Ebrahim Poonawala asked about growth impact on profitability.

A: Charlie Scharf said growth will focus on increasing returns, with continued expense efficiency.

Q: Ebrahim Poonawala asked about NII and rate cuts.

A: Mike Santomassimo said rate cuts are embedded in NII outlook.

Q: Matt O'Connor asked about net interest income ex markets and tax impacts.

A: Mike Santomassimo said ex markets trends are stable, and tax rate has short-term fluctuations.

Q: Erika Najarian asked about capital regulatory reform.

A: Charlie Scharf said they are waiting for Fed information on capital requirements.

Q: Betsy Graseck asked about expenses and AI.

A: Charlie Scharf discussed expense discipline and AI's early impact.

Q: John Pancari asked about loan yields and competition.

A: Mike Santomassimo said competition is intense, especially in middle market commercial banking.

Q: Gerard Cassidy asked about divesting non-profitable businesses.

A: Mike Santomassimo said rail equipment leasing was the last major divestiture.

Q: Chris McGratty asked about operating leverage.

A: Mike Santomassimo said there's more opportunity for operating leverage through continued efficiency and revenue growth.