$WFC Wells Fargo Q2 2026 Earnings Conference Call

Thanks, John. I'm going to provide some comments about our results and the momentum we are seeing across our businesses. 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 slide two of the presentation deck where I will walk you through the broad-based strength we see in our business. We grew diluted earnings per share to $2 in the second quarter, up 25% from a year ago. Revenue grew 9% from a year ago. Growth was broad-based with every one of our operating segments generating higher net interest income and non-interest income. We are clearly benefiting from the economic strength we see in the US, but the investments we are making and our improved operating discipline drove strong momentum and continued to result in improved performance. Net interest income grew 5% from a year ago and non-interest income grew 13% as we're making good progress against our goal to create a more balanced revenue mix by growing fee based revenues. Expenses increased 2% from a year ago reflecting investments we are making offset by continued expense discipline. Expenses excluding revenue related compensation declined. One of the ways you can clearly see the results of our efficiency initiatives is through headcount, which has declined for 24 consecutive quarters. And in the second quarter, our headcount was 197,000, down 79,000 from 6 years ago, 15,000 from last year, and 3,500 from last quarter. We are using these efficiencies to offset broad-based investments across the company to drive growth, including adding branch bankers, investment advisors, commercial banking relationship managers, investment bankers, and traders. We are also increasing our marketing investments, accelerating product development, investing in AI, and increasing our cyber defenses. Consumer and commercial credit quality remained strong across all portfolios and net loan charge offs declined 10 basis points from a year ago. After years of not being on a level playing field with our competitors because we couldn't grow our balance sheet, we had strong growth during the first half of this year, including in the second quarter with average loans up 12% and average deposits up 10% from a year ago. Just a reminder, growth can be risky and we are carefully deploying capital to grow and support our clients by taking risks that we think are prudent through economic cycles, not just the strong environment we see today. We returned over $9.8 billion of capital to shareholders in the first half of this year, including repurchasing $7 billion of common stock while continuing to maintain a significant amount of excess capital. As we previously announced, we expect to increase our third quarter common stock dividend by 11% to 50 cents per share, subject to approval by our board of directors at its meeting later this month. Our continued focus on improving returns was evident with ROCE increasing from 15.2% a year ago to 17.7% in the second quarter and 16.1% in the first half of 2026. While outsized venture capital equity gains favorably affected our returns this quarter, we have said that they can be lumpy, but that we do expect strong returns from these investments over time. But more importantly, the growth and efficiency improvements that we have seen over the past several years are now broader based. And it is these trends that give us confidence in reaching our goal of a sustainable ROCE of 17 to 18%. We are often asked about the timing of achieving this goal and I know you all understand that interest rates, markets, and credit impact us and are hard to predict, making it difficult to give a definitive answer. But assuming favorable conditions continue to exist, we remain confident that our favorable trends will allow us to achieve this goal in a reasonable time frame and then reset the bar higher for the future.

As we show on slide three, our strategy is driving growth across all of our businesses. Let me start with consumer banking lending with 6% revenue growth from a year ago. After years of little to no growth in checking accounts, our investments in marketing and digital account openings are paying off and we have grown consumer primary check accounts year-over-year for 13 consecutive quarters. We have significant opportunity to increase the pace of growth and this along with offering our broad set of products including credit cards, investments and mortgages should drive low-cost deposits higher over time. Over the past 5 years, we have enhanced our credit card products and improved the customer experience, which has driven new account and balance growth, including new accounts increasing 46% in the second quarter from a year ago. Building a larger credit card business is an investment that puts pressure on profitability in the initial years with new products having significant upfront costs related to marketing, promotional rates, onboarding, and allowance. It takes approximately 2 to three years for vintages to season and burn through these upfront costs. Our 2022 through 2024 vintages are now adding to profitability. Our 2025 and 26 vintages are bigger as account openings have accelerated. So they offset some of the positive contribution from the earlier vintages. Importantly, we have seen strong performance versus our original assumptions regarding new account acquisition and credit performance, which gives us confidence that we should see profitability and returns increase. I do want to note that the rate of growth is a decision point for us. We could have higher profitability in the shorter term by reducing our growth, but we are prioritizing longer-term results given the quality of the accounts we are generating. We evaluate this each quarter and will continue to do so. The momentum in our digital offerings continued with mobile active users increasing to 33.7 million in the second quarter. That's 1.6 million more than a year ago. The investments we've been making to improve the customer experience were reflected in the 2026 JD Power mobile app study where we moved up to number two in mobile app satisfaction. We are also doing more for our affluent clients. We've been hiring licensed bankers and branch-based financial advisers and that investment is helping to drive better results with premier client assets up 13% from a year ago. Our auto business returned to growth last year after intentionally scaling back to improve our capabilities and the momentum has continued. Originations increased 41% from a year ago and average balances were up 31%. In part due to becoming the preferred financing provider for Volkswagen and Audi vehicles in the US. Importantly, credit performance has remained strong and in line with our expectations.

Turning to wealth and investment management, revenue grew 13% from a year ago. Wealth and investment management client assets grew 15% from a year ago to over $2.4 trillion driven by increased market valuations and also benefiting from four consecutive quarters of positive net flows. We have invested over a billion dollars over the past several years to modernize the technology platform. And in the second quarter, we launched Advisor Gateway, a new desktop technology with Gen AI capabilities that gives advisers better tools to serve clients and grow their practices. Investments like this are improving productivity, strengthening the client experience, and driving improved advisor hiring and retention. We are also working to be our client's primary bank by expanding our deposit and lending capabilities and are seeing strong results with average deposits up 10% and average loans up 12% from a year ago. Securities-based lending has been a key driver of loan growth with average balances up 31% from a year ago reflecting our success in increasing the number of financial advisers offering this product to their clients. Importantly, the opportunity in this business to grow investments and banking remains significant. We estimate that our existing customers hold trillions in assets at other financial institutions and their lending, deposit, and payment needs are large and growing.

Turning to our commercial businesses, starting with the corporate investment bank, revenue grew 16% from a year ago. In our markets business, revenue grew 24% from a year ago. We've been growing our balance sheet to support our clients with average trading related assets increasing 41% from a year ago driven primarily by financing related activity. While this financing activity impacts our net interest margin because it is lower spread, it has good returns and profitability and positions us to attract more flow business. We track this by client and we're seeing higher trading revenue and wallet share gains from customers where we are providing financing. While the most immediate revenue benefits are expected within markets, including trading, hedging, and risk management products, these deeper client relationships also enhance opportunities across the broader corporate investment banking platform. Over time, in our banking business, revenue grew 20% as our focus on providing a broader set of capital and advisory solutions is working. This was a record quarter for investment banking fees across the firm. Our willingness to invest more in senior talent and in technology and dedicate more balance sheet to these activities is paying off. What's important here is having a growth plan that is properly paced and leverages the broader strengths of Wells Fargo. The team has executed with discipline, has hired and promoted the right people, and is taking risks that are in line with our risk tolerance. The favorable environment for M&A and financing is helping drive higher revenues across the industry. But our investments are also delivering strong results and we are increasing market share in key areas. In leverage finance, our year-to-date market share is 7.2% and we ranked number three. In equity capital markets, our share has increased 74 basis points from a year ago to 3.8%. In M&A, we have climbed from number nine to number four among US advisers by announced deal volume, reflecting our active role in advising our clients on franchise-defining transactions. We also have strong share in CRA capital markets, including being the number one non-agency CMBS bookrunner, number one in real estate loan syndications, and number one in CRA CLOs. This was a strong quarter across corporate investment banking and we still have significant opportunity to grow each of the businesses.

Finally, let me highlight commercial banking which generated 6% revenue growth from a year ago. The investments we've been making in the business over the past couple of years are driving strong results. Absent the transfers of loans and deposits to consumer banking and lending last year, average loans grew 9% and average deposits grew 10% from a year ago. Our investments include targeted hiring in 20 high-density markets where we are underpenetrated relative to the rest of the country. The plan is working as we are seeing incremental client growth and higher loan and deposit balances and we expect this momentum to continue as we execute on our plan. We've also focused on delivering investment banking and market products to our commercial banking clients. We've had success which has helped drive revenue growth, but we still see significant opportunities to grow revenue here. While commercial banking is one of our more mature businesses, we still have significant opportunities to grow. Our treasury management and payments revenues are embedded in our commercial bank and corporate investment bank results across both segments. Revenue was up 5% from a year ago. We've been investing in coverage teams and payment platforms and are beginning to innovate using blockchain technology to create better payment solutions for our commercial customers. These solutions will use blockchain-based payment rails to make cross-border payments faster, more transparent, and more predictable. And over time, they will extend operating hours to 24 hours, 7 days a week. As we look ahead, consumers and businesses remain strong. Consumer spending is higher, charge offs are lower, and savings and investments are growing across customer segments. Businesses are cautious, but balance sheets and cash flows remain strong, resulting in strong credit performance. Equity indices are at or near all-time highs, and credit spreads are narrow. Concerns around affordability and inflation exist, but the labor market and wage growth remain strong. The markets and US economy have absorbed macroeconomic and geopolitical uncertainty. While strong environments like this don't last forever, and we see large amounts of capital being deployed by both banks and non-banks across a broad range of risk assets. Often when times like this continue, leverage and risks develop that are sometimes hard to see. We are proud of the progress we've made and remain excited about our competitive position and ability to execute and drive towards our goal of industry leadership in the US. We will watch carefully for signs of outsized risks and stress and continue to deploy our resources carefully and deliberately to serve our clients and build sustainable high returns and higher growth that can endure the inevitable market shocks and economic cycles. In closing, we and most financial institutions are benefiting from today's environment. However, we're also seeing the benefits in our results from the actions we have taken which should endure through cycles. As I said, our metrics clearly show our momentum across all business segments and we will continue to remain focused on driving towards higher sustainable returns. I will now turn the call over to Mike.

Let me just add, Eric, this is Charlie, if I can, a couple of things. Number one is, I think the way we think about this is kind of separate out our balance sheet and what you're seeing into a couple of different components. One is just kind of the business that we have which generates the majority of NI, that is very stable. And then we have these businesses that we're looking to grow both in the markets business but also ultimately expanding relationships and treasury management on the consumer side. And there, as we talked about, you're seeing growth in interest-bearing liabilities, and so it's those additional businesses that have narrower margin NIM that is bringing down the NIM, but we're looking at it in terms of what it means in the shorter term for profit growth and for returns and we feel good about that at this point. But more importantly over time, that should also help us grow NIM as we attract more non-interest bearing over a period of time, and away from NIM we generate stronger trading revenues, and so that is the flywheel effect of that financing that we're providing. And as I've said, if we don't see that then we can certainly pull back on some of that activity and improve the NIM. But as I said in our prepared remarks, we are seeing the payoff certainly on the market side at this point even though it's early, and that's a decision point that we have to make and we'll be very conscious of what the impact is both on NIM but also on this balance between what you see in terms of NIM, profit growth but returns.

Let me just add one thing slightly different words but kind of reinforcing a point that I made earlier, which is what we're seeing in NIM is not happening to us. What we're seeing in NIM is because of things that we're doing, and those are things that we don't have to continue to do or we can unwind at some point as well. And again, the reason why we're doing it is because we believe that it'll lead to stronger NIM in some of these businesses in the future by attracting more non-interest bearing deposits or by attracting additional trading. And that's either going to drive the kind of profit growth and higher returns that we believe we can deliver, or that's a decision point that we can make. And so we understand that it's hard to see that as clearly from the outside. So we've got to do a good job of doing our best to show you how that's actually playing itself out. But as Mike said, when it comes to the financing, as an example, we look client by client and we're providing more financing, we're getting more share, higher trading revenues. And so that's when I said on the last call, we're either going to get paid for it or we're not going to do it. And that very much holds true. And so, the fact that that is in our control is something I think that's critically important and is a tool for us to help grow the returns and the profit of the company. Or we can either slow things down or reverse course if we had to, but nothing suggests that we should do that because we believe that we're getting the payoff for it. And we'll have to show that to you.

Sure. Sure. And listen, I know it's a very busy day and you guys are trying to juggle lots of different companies. I did talk a little bit about this in my prepared remarks where I talked about the fact that I know that people ask about timing. It's difficult to answer because what I don't want to do, what we don't want to do as a company, is give you a definitive date and then have the interest rate environment change, the markets environment change, credit change and then you believe that we haven't actually delivered on something. Because the fact is we are subject to those things. But assuming that the markets continue to behave and that conditions continue to be favorable. What I said is that we would expect to achieve it in a reasonable time frame. And the one thing I would say which is as time goes on, from last quarter's underlying performance and our business trends this quarter, we feel even more confident about being able to deliver it. And what I said in my prepared remarks is that our intention is to get there and then raise the bar higher for the future. So if we didn't have the kind of confidence that we can get there in a reasonable period of time, we wouldn't be saying that. And again, what gives us that confidence is looking at the underlying business drivers that we tried to lay out in the first two pages of the presentation because it's those things which are going to drive the continued growth of the franchise regardless to some extent of outsized performance in the markets. So, I know it's not giving you a definitive time frame, but what I want you to read is our confidence is higher, not lower as each quarter goes by.

And also keep in mind, Mike's talking about this absent the finalization of the capital rules. And as we've said in the past, the capital rules might not necessarily change that CET1 minimum plus buffers, but it could certainly change what goes into the calculation relative to freeing up capital through the RWA calculation for us.

Yeah. And as I mentioned in my commentary, we're up about 200 billion dollars since the end of 2024. So that's a good clip over the last 18 months.

Yes, we can. Yep.

Hey, no shift at all. The 50 billion plus or minus is exactly what we said in January and exactly what we said in the first quarter, and what I said at Morgan Stanley conference and others. And so, no shift at all and we're very confident.

Yeah, let me take a stab at it. And Mike you can either agree, correct me or not. I think on the consumer side we would say not really. What we see is consistent underwriting versus the people that we compete with. Everyone kind of comes and goes sometimes and times are good, but not a lot on the consumer side. I think on the wholesale side it is a very different story. And that's where you see the deployment of significant amounts of capital not just from banks from non-banks. And there is a wide range of risk that people are taking in the lending activities. I kind of tried to allude to this in my remarks. We are staying true to who we are in terms of what our risk tolerances are in the context of a growing franchise. But when you look at whether it's things in data centers, some of the strategic transactions that are done out there, there are more risk assets being created on the wholesale side. And there's a lot of capital out there that's there to support that. And we're doing the pieces of the transactions that we're comfortable with, that have the credit profile that we're used to underwriting, and there are others that are willing to take more risk than we are.

Well, I mean, I'm not sure I'm following this. I think when it comes to the consumer credit that we're extending, we're making our own credit decision with every single loan based upon everything that we know, including looking at bureau information and things that they might have away from us to the extent we can see it. And so that is totally within our control. And we understand that. We do see some of the activities in the non-bank universe through what we do on the wholesale side in terms of who we finance. And we've talked about this last quarter. It's good information to have but we're also selective about who we're lending to, because not everyone in that space has the same risk tolerances.

Yeah, I mean listen, I think when you look at the exposures that are being created to help finance the buildout, you're absolutely right. There are different types of things that are being financed: there's core and shell, there's power, there's chips, and a whole series of things that go into the data center. And we underwrite those different pieces of those financings very differently because we rely on different types of credit support for those to be paid off. And it's very different lending to a chip maker that has 80% margins where we get paid back in a year and a half versus lending to someone else in the supply chain who it's going to take 10 or 15 years to get paid back and hope that the LLM provider who's renting that space is going to be there. And so that is the complication that everyone is working through in terms of who we lend to. And that's when I say that there are different kinds of risk that are being created here, and we're working to stay within the lane of the risks that we understand and we're confident not just that we understand it'll obviously get paid back. And different people have different risk tolerances and that's always been the case.

All righty. Thanks everyone. We appreciate the time.