Wells Fargo & Company

Welcome, and thank you for joining the Wells Fargo second quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, press star 2. Please note that today's call is being recorded. I would now like to turn the call over to your host, Mr. John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Thank you, Brad. Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf, and our CFO, Mike Santamassimo, will discuss second quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our second quarter earnings materials including the release, financial supplements, 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 8K 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 Charlie.

Thanks, John. Good morning, everyone. I'll make some brief comments about our results and update you on our priorities. I'll then turn the call over to Mike to review second quarter results in more detail before we take your questions. Let me start with some second quarter highlights. Our second quarter results reflect the progress we're making to consistently produce stronger financial results with net income, diluted earnings per share, and our return on tangible common equity all up from both the first quarter and a year ago. We continue to invest in our businesses, which has driven higher fee-based income. This growth was diversified with each of our business segments increasing during the first half of the year. While we've been investing, we've also continued to take a disciplined approach to expenses and we have now reduced headcount for 20 consecutive quarters, resulting in a 23% decline from five years ago. We maintained our strong credit discipline and credit performance continued to improve in the second quarter. with lower net loan charge-offs from both the year ago and the first quarter. Losses in both our consumer and commercial portfolios improved from a year ago. The big news during the quarter was having the asset cap removed. The lifting of the asset cap marks a pivotal milestone in our transformation, along with the termination of 13 orders since 2019, including seven this year alone. We are a far stronger company today because of the work we've done. In addition, we've also changed and simplified our business mix, transformed the management team and how we run the company, and have been methodically investing in the company's future while improving our financial results and profile. I know this calls for investors, but I want to once again thank the over 212,000 employees at Wells Fargo who all contributed in one way or another to this milestone. Brett KenCairn, Though we have tremendous opportunities, this has been a demanding place to work, we have recognized the contributions of many here by increasing compensation, improving benefits. Brett KenCairn, Investing more investing in more employee learning and development programs and by giving those employees making below $85,000 in total compensation special year end cash awards for the past two years. With the lifting of the asset cap, we wanted to do something special for everyone who invested so much of themselves into the company in recent years. As a demonstration of our appreciation for what we've accomplished, we gave a special award to all employees so they could own part of Wells Fargo and hopefully benefit from our future success. So everyone has been asking, what does the lifting of the asset cap mean? First, we will continue to move forward with our risk and control agenda and embed the disciplines we have built deep into the culture of the company. But we are certainly in a different position with the asset cap and the many orders lifted. It is hard to convey the amount of time and effort the senior team has devoted to this work. With so much of this work completed, we can allocate our time differently and spend more time focusing on growth and the future. While we have not ignored this, the additional time we now have should prove meaningful. As you know, though we have generated substantial amounts of capital in the years since the asset cap was imposed, we've been limited in how much we've been able to deploy to support our customers and communities. While shareholders benefited from increased stock buybacks, we would have preferred to allocate more capital to grow our businesses and the overall balance sheet. We now have the flexibility to proactively grow deposits and to allocate capital to grow loans and our corporate investment bank. Since I arrived, we've had to make difficult choices where to allocate our balance sheet given our inability to increase total assets. As we pointed out, we have turned away deposits from corporate clients. And while we have not turned away consumer deposits, we've been careful not to aggressively grow consumer deposits given the limitations we were subject to. We've also had to be cautious about loan commitments, especially given the potential for significant drawdowns of committed facilities as we saw during the early days of COVID. We have also pointed out that we have constrained our markets-related balance sheet to allow for activity elsewhere in the company. As we look forward, we are now able to move forward more aggressively to serve consumers, businesses, and communities to support U.S. economic growth. We expect to be more aggressive in our pursuit of consumer and corporate deposits, and we will selectively look to grow loans, though we will be cautious during periods of economic uncertainty. We also see opportunities to allocate more balance sheet to our markets business to drive increased profitability. Our goal is to increase customer trading flow and financing activity without significantly increasing our risk profile. We also have the opportunity to think more broadly about using our balance sheet as we evaluate additional opportunities. In addition to the lifting of the asset cap, we expect that changes in both the regulatory and supervisory environment will allow us to compete more effectively. We announced earlier this month that our expected stress capital buffer will decrease by 120 basis points starting in the fourth quarter. which would reduce our required CET1 regulatory minimum plus buffers back to 8.5%. We are also encouraged by the Federal Reserve's intention to provide more detail supporting the CCAR process. And that detail, along with the finalization of the broader set of capital rules, will help us determine the appropriate level of capital we should hold going forward. We are also very supportive of the review the different regulatory agencies are conducting regarding rules and supervisory constraints that go beyond safety and soundness and do not allow us to effectively serve our customers and communities. We are committed to continuing to maintain a strong capital position and are excited about using our excess capital and additional capital generation to reinvest in our franchise, as well as continuing to return excess capital to shareholders. As a reminder, we have returned a significant amount of capital to shareholders over the past five years, including reducing our average common shares outstanding by 23% since 2019. As we previously announced, we expect to increase our third quarter common stock dividend by 12.5% to 45 cents per share, subject to approval by the company's board of directors at its regularly scheduled meeting later this month. We've repurchased over $6 billion of common stock during the first half of this year. And during the second quarter, our board of directors authorized an additional common stock repurchase program of up to $40 billion. We continue to make significant investments in our core business, which are helping to improve our returns. We continue to invest in our credit card business, not only by launching new products, but also enhancing the overall customer experience. Our commitment to delivering a seamless, secure, and user-friendly digital experience to our card members was recently recognized by J.D. Power, which ranked Wells Fargo number two in both mobile app and online credit card satisfaction. Enhancements like these have spurred new account growth and higher balances in spending from a year ago. In our auto business, we completed the launch of our multi-year co-branded agreement as a preferred purchase financing provider for Volkswagen and Audi vehicles in the U.S. We had strong auto originations in the second quarter, and ending balances in our auto portfolio grew for the first time in over three years. In consumer small and business banking, we have continued to see momentum in the growth of primary checking accounts, benefiting from our investments in marketing, offers, and enhancements to both the digital and branch experience. We are on track to have over half of our branch network refurbished by the end of this year and to complete a refresh of the entire network by the end of 2028. We continue to optimize and better position our network, including expanding in certain locations, including Chicago, New York City, and Nashville. We continue to enhance our digital experience, and consumer checking accounts open digitally continue to increase, and active mobile users now exceed 32 million, up 4% from a year ago. We also continue to see good momentum from Wells Fargo Premier, our offering for Affluent clients. Let me highlight a few areas that demonstrate our growth. We are investing in more bankers to serve these clients and have increased branch-based financial advisors by over 10% from a year ago. The improved collaboration between our bankers and advisors has helped to drive over $16 billion of net asset flows into the wealth and investment management premier channel during the first half of the year, up over 60% from a year ago. Deposit and investment balances from premier clients have also been steadily increasing and were up approximately 10% from a year ago. Turning to our commercial businesses, the investments we have been making in corporate and investment banking have continued to help drive growth, with investment banking fees up 16% during the first half of the year. We've also made steady progress increasing our U.S. investment banking market share with our share up each of the last two years and again in the first half of 2025, driven by gains in leveraged finance and M&A. We're continuing to invest in top talent and strengthen and expand our commercial banking business. For example, in our technology banking group, we have grown our team of bankers by over 25% over the past year. We expect to continue to add bankers to this priority sector and in a number of additional markets and sectors where we have room to grow. In addition to driving growth in our core business, our strategy also includes simplifying our businesses and focusing on the products and services that matter most to our clients. As part of the strategic focus in the second quarter, we entered into agreement to sell the assets of our rail equipment leasing business. This transaction is expected to close in the first quarter of next year. As we look ahead, What we see regarding the health of our clients and customers has not changed. Consumers and businesses remain strong as unemployment remains low and inflation remains in check. Credit card spending growth softened very slightly in the second quarter, but is still up year over year and remains strong overall. And debit card spending growth has remained strong and consistent with what we saw in prior quarters. Consumer delinquencies continue to improve from a year ago. and commercial credit performance continued to be relatively strong. Deposit flows for both our consumer and commercial clients were in line with seasonal trends. I've had the opportunity to meet with many of our commercial banking clients this past quarter, and many have conveyed optimism that the administration is working to level the trade playing field. They would like certainty, but prioritize a good outcome for U.S. trade above short-term certainty. Many have found ways to avoid passing the 10% tariffs on to their customers. At the same time, they are preparing for the downside and are not growing inventories or hiring aggressively and developing contingency plan if the downside scenario occurs. As I've said before, we are hopeful that the results of the current negotiations will make our clients more competitive and help drive stronger economic growth in the U.S., But there is uncertainty, and we should recognize there is risk to the downside, as the markets seem to have priced in successful outcomes. As I highlighted, now that the asset cap has been lifted, we are more committed than ever to serving our customers, supporting businesses and communities, and contributing to economic growth in the U.S. I continue to believe we have one of the most enviable financial services franchises in the world. I'm excited to continue to move forward with plans to produce industry-leading sustainable growth and returns. I'll now turn the call over to Mike.