Prepared remarks
Welcome. Thank you for joining the Wells Fargo Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session. If you would like to ask a question during this time, simply press *1. If you would like to withdraw your question, please press *2. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.
Good morning, everyone. Thank you for joining our call today where our CEO, Charles W. Scharf, and our CFO, Michael Santomassimo, 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 supplement, and presentation deck, are available on our website at wellsfargo.com. I would 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 8-Ks 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 Charles.
Thanks, John. I am going to provide some comments about our results and the momentum we are seeing across our business. I will then turn the call over to Mike to review second quarter results in more detail before we take questions. Let me start with Slide 2 of the presentation deck. I will walk you through the broad-based strength we see in our business. We grew diluted earnings per share to $2.00 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 noninterest income. We are clearly benefiting from the economic strength we see in the U.S., 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 noninterest income grew 13% as we are 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. In the second quarter, our headcount was 197,000, down 79,000 from six 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 advisers, 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 remains 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 could not 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 $0.50 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 ROTCE 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. 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 ROTCE 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 3, our strategy is driving growth across all of our businesses. Let me start with consumer banking and 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. We have grown consumer primary checking 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 and mortgages, should drive low-cost deposits higher over time. Over the past five 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 pressures profitability in the initial years, with new products having significant upfront costs related to marketing, promotional rates, onboarding, and allowance. It takes approximately two to three years for vintages to season and earn through these upfront costs. Our 2022 through 2024 vintages are now adding to profitability. Our 2025 and 2026 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 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, which is 1.6 million more than a year ago. Investments we have been making to improve the customer experience were reflected in the 2026 J.D. 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 have 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 U.S. 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 $1 billion over the past several years to modernize the technology platform, and in the second quarter we launched Advisor Gateway, a new desktop technology with GenAI 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 adviser hiring and retention. We are also working to be our clients' 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 and Investment Bank: revenue grew 16% from a year ago. In our markets business, revenue grew 24% from a year ago. We have 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 are seeing higher trading revenue and wallet share gains from customers we are providing financing to. 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 and 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 teams 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 is 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 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 leveraged finance, our year-to-date market share is 7.2% and we ranked number three. In equity capital markets, our share increased 74 basis points from a year ago to 3.8%. In M&A, we have climbed from number nine to number four among U.S. advisers by announced deal volume, reflecting our active role in advising our clients on franchise-defining transactions. We also have strong share in CRE capital markets, including being the number one non-agency CMBS bookrunner, number one in real estate loan syndications, and number one in CRE CLOs. This was a strong quarter across Corporate and 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 have 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 have also focused on delivering investment banking and markets products for commercial banking clients. We have 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 and Investment Bank results. Across both segments, revenue was up 5% from a year ago. We have been investing in coverage teams and payment platforms that 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 will extend operating hours to 24 hours, seven 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 U.S. economy have absorbed macroeconomic and geopolitical uncertainty well. Strong environments like this do not last forever, and we see large amounts of capital being deployed by both banks and nonbanks 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 have made and remain excited about our competitive position and ability to execute and drive towards our goal of industry leadership in the U.S. 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 inevitable market shocks and economic cycles. In closing, we and most financial institutions are benefiting from today's environment. However, we are also seeing the benefits in our results from the actions we have taken which should endure through cycles. 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.
Thank you, Charles, and good morning, everyone. Since Charles covered the drivers of our improved financial results and the momentum we are seeing across our businesses that we highlighted in the first two slides, I will start my comments on Slide 4. Our second quarter results were strong with broad-based revenue growth, disciplined expense management, and improved credit performance. Our earnings increased 17% from a year ago to $4.1 billion and our diluted earnings per share grew to $2.00, up 25% from a year ago. Our second quarter results included $132 million, or $0.04 per share, of discrete tax benefits related to the resolution of prior-period matters. Turning to Slide 6: net interest income increased $690 million, or 5% from a year ago, and increased 2% from the first quarter. The growth from the first quarter was driven by higher loan and investment securities balances as well as one additional day in the quarter. As expected, the net interest margin declined 4 basis points from the first quarter, and down from the 13-basis-point decline we had last quarter. The biggest driver of the decline in NIM in the second quarter and over the past year has been growth in interest-bearing deposits as well as continued growth in our markets business. The success we are having growing interest-bearing deposits deepens our relationships with clients in the Commercial Bank and the Corporate and Investment Bank and gives us the opportunity to attract noninterest-bearing deposits in the future. And as Charles mentioned, while financing balances in the markets business are lower spread, they have good returns and profitability and position us to grow other activities with those clients. We see it in our results, including total revenue in the markets business growing 24% from a year ago as well as returns starting to increase along with our market share. I would also note that even with the NIM compression, we grew net interest income versus last year and last quarter. While we will talk more about our expectations for net interest income later on the call, we expect modest net interest margin compression in the third quarter, broadly in line with second quarter's decline from the first quarter, before stabilizing in the fourth quarter. Moving to Slide 7: average loans increased $110 billion, or 12% from a year ago, driven by growth in commercial and industrial loans as well as growth across our consumer portfolios except for residential mortgage loans. Turning to deposits: average deposits increased $134 billion, or 10% from a year ago, with growth across our consumer and commercial businesses as well as higher corporate deposits. Average deposit mix declined in noninterest-bearing deposits year over year and was up modestly from the first quarter driven by growth in interest-bearing deposits. Turning to Slide 8: we had broad-based growth in noninterest income, up $1.2 billion, or 13% from a year ago. We generated over $10 billion in noninterest income in the quarter with growth across most fee categories. We had strong performance from our venture capital investments, with $847 million in both unrealized and realized net equity gains, or $640 million after noncontrolling interest. It is important to look at these results after the impact of noncontrolling interest. We also had double-digit growth in investment advisory fees, brokerage commissions, and investment banking fees from a year ago. We had over $900 million in investment banking fees in the second quarter, a new record. Turning to expenses on Slide 9: noninterest expense increased $282 million, or 2% from a year ago, and our efficiency ratio improved to 60%, down 4 percentage points from a year ago. The increase in expenses from a year ago was driven by higher revenue-related and incentive compensation expense, which I like to remind you is a good thing as these higher expenses are more than offset by higher revenue. We also have higher technology and advertising costs driven by the investments we are making in our businesses to generate growth. These higher expenses were partially offset by the impact of efficiency initiatives including a 7% reduction in headcount from a year ago. We are pleased to see the continued execution of our efficiency initiatives quarter after quarter. This is the 24th consecutive quarter of headcount reductions and, along with other meaningful efficiency initiatives, we have been able to continue to invest in our businesses while managing overall expense levels. In fact, as Charles highlighted, nonrevenue-related expenses were actually down from a year ago. Turning to credit quality on Slide 10: our credit performance in the second quarter remained strong with our net loan charge-off ratio down 10 basis points from a year ago to 34 basis points of average loans. Commercial credit continued to be strong with net loan charge-offs declining to 10 basis points. Consumer performance was also strong with loan charge-offs declining 74 basis points, with improvements across the portfolio from the first quarter and continued net recoveries in the residential mortgage portfolio. Nonperforming assets as a percentage of total loans declined from the first quarter and from a year ago with improvements in both commercial and consumer portfolios. Our allowance coverage ratio for loans was relatively stable from the first quarter. Credit card and auto loan growth drove a modest increase in our allowance which was largely offset by lower allowance for commercial real estate office loans. Turning to capital and liquidity on Slide 11: our capital levels remain strong with our CET1 ratio at 10.3%, within our stated 10% to 10.5% target range and well above our CET1 regulatory minimum plus buffers at 8.5%. While the Federal Reserve stress test results do not impact capital requirements this year, results continue to be below the stress capital buffer floor of 2.5% for those tests. We repurchased $3 billion of common stock in the second quarter and common shares outstanding declined 6% from a year ago. We continue to have capacity to repurchase shares while also supporting our clients. Moving to our operating segments, starting with Consumer, Small and Business Banking on Slide 12: consumer revenue increased 8% from a year ago driven by higher deposit and loan balances, wider deposit spreads, and growth in noninterest income. Credit card revenue grew 2% from a year ago due to higher loan balances. Home lending revenue declined 7% from a year ago, reflecting lower home loan balances; however, the rate of reduction has continued to slow with balances relatively stable from the first quarter. Lower revenue also reflected a continued reduction in the size of our servicing business with third-party mortgage loans serviced for others down 21% from a year ago. Auto revenue increased 33% from a year ago due to higher loan balances. Auto originations increased 41% year over year but were stable from the first quarter. Turning to Commercial Banking results on Slide 13: revenue increased 6% from a year ago driven by noninterest income growth from equity investments, revenue from the financing we do for renewable energy projects that come in the form of tax credits, and investment banking as well as growth in net interest income from higher loan and interest-bearing deposit balances. Loan growth was broad-based with increased demand from both new and existing customers. Turning to Corporate & Investment Banking on Slide 14: banking revenue increased 20% from a year ago with growth in investment banking fees and equity and debt capital markets as well as higher loan and interest-bearing deposit balances. Commercial real estate revenue declined 1% from a year ago as higher capital market activity and loan balances were more than offset by the impact of lower interest rates. Markets revenue grew 24% from a year ago driven by stronger performance in equities and higher revenue across most fixed income products, including the impact of balance sheet growth. As you know, we have been growing our balance sheet in the markets business. It has increased $198 billion since the end of 2024 with approximately 60% in financing balances, 20% on the trading side, and 20% for the lending we do in this business. We extend these balances to clients who can also bring us additional business, and our early tracking shows that is occurring. We track this on a granular basis and we will continue to optimize with clients to drive growth and returns. Average loans in Corporate and Investment Banking grew 26% from a year ago with growth across all businesses while utilization rates were relatively stable. On Slide 15, Wealth and Investment Management revenue increased 13% from a year ago driven by growth in investment advisory fees from increased market valuations as well as higher net income due to lower deposit pricing and higher deposit and loan balances. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so third quarter results will reflect market valuations as of July 1, which were up from April 1 and from a year ago. Turning to our 2026 outlook on Slide 17: we are maintaining our guidance of $50 billion plus or minus of net interest income for the full year. Similar to last year, we expect stronger growth in the second half of the year compared to the first half. We still expect net interest income, excluding markets, to be approximately $48 billion for the full year. Looking at the key drivers, starting with loans: as I highlighted, average loans in the second quarter grew 12% from a year ago. So year over year, average loan growth in the fourth quarter will likely be higher than the mid-single-digit increase we assumed in our outlook back in January. This is a positive versus our original expectation. We have also successfully grown interest-bearing deposits, which is a good thing since these higher balances help us deepen relationships with our customers, and as I mentioned earlier, it gives us the opportunity to attract noninterest-bearing deposits in the future. We had originally assumed some growth in noninterest-bearing deposits, but we now expect them to be relatively stable, which is a negative to our original expectation. Interest rates are currently not a significant factor in or out of this year. While interest rates have been higher than we expected in our original outlook, which benefits NII excluding markets, the rate cuts we had originally assumed were expected later in the year, so the change is only a modest impact on this year's net interest income expectations. In terms of markets NII, it is always hard to forecast. Higher short-term rates typically result in lower markets NII, but as of now we still expect markets NII to be approximately $2 billion in 2026. So putting this all together, while the drivers have moved around since our original outlook, which is always the case, our current outlook is still $50 billion plus or minus of NII for 2026. Regarding our expense outlook, we still expect 2026 noninterest expense to be approximately $55.7 billion. Expenses in the first half of the year were in line with our expectations. As we look at the second half of the year, we expect revenue-related expenses to be somewhat higher than we expected at the beginning of the year, but we expect expenses in other areas to be lower through our continued focus on efficiency initiatives. In summary, we had strong second quarter results that clearly demonstrate that the strategy we have been implementing to drive growth is working. Revenue growth was broad-based with every one of our operating segments generating higher net interest income and noninterest income from a year ago. Our continued focus on improving efficiency drove positive operating leverage. The asset cap came off last year, and we had double-digit growth in both average loans and deposits from a year ago. Credit quality was strong with improved performance in both our commercial and consumer portfolios. We continue to return significant capital to shareholders while maintaining our strong capital position. As Charles highlighted, we are seeing strong momentum in key business drivers in every one of our businesses, and the steady improvements in our returns continue to give us confidence in achieving our medium-term 17% to 18% ROTCE target. We will now take your questions.
Questions and answers
If you would like to ask a question, please first unmute your phone and then press *1. Please record your name at the prompt. If you would like to withdraw your question, you may press *2 to remove yourself from the question queue. Once again, please press *1 and record your name. The first question comes from Ken Usdin of Autonomous Research. Your line is open.
Hey, thanks. Good morning. Mike, thanks for the color on the second half expected NIM trends. Two questions I have. One is, to get to $50 billion, I think we need to assume that average earning assets continue to grow at around this 3% pace. Given your comments about loan growth and deposit growth, is that kind of what we need to assume to get there? Any other things we need to think about within that? Thanks.
Yeah. Sure. If you look at what is going to progress for the second half of the year, it is very similar to what we saw last year in terms of the step-up as we went through each of the quarters. You do benefit from an extra day as you go into the third quarter, so you should account for that. But we expect to see some growth in loans and securities. You get the benefit of the fixed asset turnover given where rates are. So I think it is all progressing and it is not a bad assumption relative to what to expect. We still feel very good about getting to that $50 billion in total.
Got it. And then the second question is on that NIM stabilizing in the fourth quarter: what are the pieces that get us there? Is it that one piece slows relative to the growth rate? Is it that you lap some comps? What are the helpful things underneath that can give us confidence that stabilization happens?
We have talked about this a bit over the quarter. We do not expect the markets balance sheet to grow at the same pace, and so the impact that we have seen over the last few quarters moderates. That is part of the story as you get into the latter part of the year. Then you continue to get the benefit of growth in earning assets and repricing across the book, and you see the rest of the growth across the balance sheet. At this point, we expect just a small decline potentially in the third quarter; hopefully it could be better than that, and then we stabilize from there.
Okay. Got it. Thanks, Mike.
The next question will come from John McDonald of Truist Securities. Your line is open.
Hi, thanks. I was wondering, Mike, on expenses and efficiency, what is the outlook? You have done a great job with headcount. From here, are you still looking to keep that flat to down? And just the broader commentary about the opportunity for efficiency improvement from here—can it keep going? Thanks.
I'll take a shot and start; Charles can add if he wants. On headcount or more broadly, we still come into the environment thinking the same thing we have for a number of years, which is we have a lot of room to continue to make the place more efficient. In part, that drives headcount down. Given the size of our business and the activity levels we have, we expect that we should be able to run this company with less headcount than we have today. Technology and AI help us address aspects of that faster than in the past, but we expect that we will continue to see more efficiency from here. Broadly, it applies to almost everything we do. As you peel back the onion, there is more opportunity to automate, improve the client experience, and be more efficient in how we serve clients every day. There is a lot still to go, and we come in every day and every week to continue to execute as we have over the last few years.
Okay, thanks. And maybe a follow-up on Ken's line of questioning around net interest income drivers: the change in noninterest-bearing deposits from what you saw earlier in the year—Mike, is that related to any developments in your checking account growth, or is it more attributable to rate-seeking behavior from customers and the rate environment? What do you attribute the change in your NII outlook to?
It is actually not related to checking account growth—that is progressing well and, as Charles mentioned, we are up in checking account growth for a number of quarters. The broader backdrop in terms of the rate environment is such that we expected a little more growth than we are seeing in noninterest-bearing deposits. We did see a bit of growth from the first to the second quarter, which is good, but we expect it to be pretty stable from here. We are seeing good success in growing interest-bearing deposits and other business with clients in payments and treasury management, and those things will bring noninterest-bearing deposits with them over time. It just takes a little longer to onboard and see results. We are not seeing pricing pressure or client behavior driving adverse results.
The next question will come from Erika Najarian of UBS. Your line is open.
Hi, good morning. As we think about the trajectory of net interest income and net interest margin, could you separate structural factors versus cyclical factors? First, what are you expecting for deposit costs in the second half of the year—is there a rate hike priced in? I think you removed cuts but I want to make sure what you are assuming for the short end. What should we expect from deposit costs? Additionally, you have two strategies that are competing factors on NIM: growth in markets, which is NIM-dilutive, and strong momentum in card, which could be NIM-accretive once accounts mature. How should we think about secular pressure on NIM beyond macro factors with rates and deposit costs in the second half of the year?
There is a lot in your question. On what is baked into the back half: the market is pricing in a little over a one-percent increase at this point, and we'll see how that plays out, but it will have very little impact on the full year results given timing. The deposit book is seeing a strong pace of interest-bearing deposit growth, particularly in the CIB and Commercial Bank, where most of those deposits are interest-bearing. Because interest-bearing deposits are growing faster while noninterest-bearing deposits are relatively stable, deposit costs will inch up a bit in the second half. That is expected and not a bad thing because these are profitable balances that deepen client relationships. I would expect deposit cost to move up slightly in the second half, but that supports broader business with those customers. We expect a bit more NIM compression in the third quarter and then stabilization, and you get benefit from earning asset growth, repricing, and the securities book. Keep in mind our focus is on growing NII over a long period of time to generate profitable business and relationships, so you may see some volatility in NIM quarter to quarter given where we came from last year with the asset cap coming off and the pace of growth since then.
Let me add a couple points. First, separate the balance sheet into components: our core business that generates the majority of NII is very stable, and then we have businesses we are growing, such as markets and treasury management. In those businesses you are seeing growth in interest-bearing liabilities and therefore narrower NIM, which brings down overall NIM. We evaluate these moves based on shorter-term profit growth and returns and believe they will help grow NIM over time as we attract more noninterest-bearing deposits and stronger trading revenues. That is the flywheel effect: providing financing that attracts flow and expands relationships. If we do not see the payoff, we can pull back and improve NIM. Right now we are seeing early payoffs on the markets side, but it remains a decision point that we will manage consciously between NIM, profit growth, and returns.
Understood. Second, can you talk about the investment banking pipeline and the equities opportunity? We hear some peers have limited prime equity financing capacity. You mentioned financing-related activity. Describe the prime financing opportunity that lies ahead, especially if traditional counterparties have limited capacity due to activity outside the U.S.
On investment banking, the pipeline is strong and the environment is supportive of deals both on equity and debt. The art of the possible in M&A is active and our investments over the last three to four years have positioned us to take more advantage of the environment than we could previously. We continue to make targeted investments across coverage sectors and product areas. Regarding the broader question on prime and financing, competition is strong—some firms are very large in these businesses—but clients want options and counterparties. We have relationships with a broad set of customers who generally like doing business with us and want to do more. For us, it is about pacing expansion of our prime business. We are still very early in growing prime, so there is nothing material in this quarter relative to prime, but it is an opportunity we will approach carefully alongside other trading flow and investment banking opportunities.
The next question will come from Ebrahim Poonawala of Bank of America. Your line is open.
Hey, good morning. Not to beat a dead horse on margin: I appreciate Mike's comments around the trajectory of NII. As we look forward beyond this year, do you think net interest margin, given your balance sheet and business strategy going forward, is at a point where it should begin to stabilize post the third-quarter compression? One pushback has been that ex-markets revenue growth is predominantly NII-driven, so the street struggles to see the cross-sell of deploying markets balance sheet into lower NIM translating into better fee growth. Help us understand that from a markets standpoint and how to think about normalized NIM for your balance sheet and strategy.
On NIM, we do expect it to stabilize after the third quarter. Over a slightly longer period there is opportunity to expand NIM, not just stabilize. When you look at the overall trading business, some of the growth in NII comes from financing and trading activities like mortgage trading and other areas. Financing in the markets business is up significantly year over year, and trading-related revenue increased roughly in the 20% range year over year. Importantly, looking at individual clients to whom we are deploying incremental financing balances, most have done significantly more business with us than a year ago. That is just getting started in ramping up volumes, and we expect to continue to see that trend in coming quarters. We feel good about what we are seeing.
One more point: what we are seeing in NIM is not something happening to us; it is a result of actions we are taking. Those are actions we can dial up or down. We are doing them because we believe they will lead to stronger returns and NIM over time by attracting more noninterest-bearing deposits or additional trading flows. If we do not see the payoff, we will adjust. It is in our control, and we will show how that plays out. We look client by client in financing and are seeing share gains and higher trading revenues, so this is a lever we can use to grow profits and returns or slow if necessary.
That is helpful, Charles. One question many investors have is timing for achieving the 17% to 18% ROTCE. We appreciate the uncertainty, but any color around timing would be helpful.
I addressed this a bit in my prepared remarks. We avoid giving a definitive date because interest rates, markets, and credit can change. Assuming the markets remain favorable, we expect to achieve the target in a reasonable time frame. As quarters go by, our confidence has increased, not decreased, because underlying business drivers look stronger. Our intention is to get there and then raise the bar higher for the future. We would not say that if we did not have confidence we could reach it in a reasonable period.
The next question will come from Manav Gosalia of Morgan Stanley. Your line is open.
Hi, good morning. I wanted to dig in on loan growth—clearly very strong this quarter. You noted upside to the original loan growth guide for the full year. Can you walk through the drivers? How much of the commercial loan growth reflects higher utilization versus new customer activity? Also, your willingness and ability to lead more on the auto side going forward?
On the consumer side, we continue to see strong growth in auto, steady growth in card, and home lending is relatively stable. On the commercial loan side, it is not primarily utilization—there is a little in pockets, but most of the growth is new business we have been bringing on in the C&I space. We have seen higher loan growth than assumed at the beginning of the year, which is positive. We'll see how the rest of the year progresses. Tariff refund-related paydowns have affected some commercial clients, but overall demand is solid. Importantly, credit performance remains strong across portfolios, supporting continued growth.
On capital, you repurchased $3 billion this quarter, a bit below recent pace. How should we think about where you want to manage CET1 within your target range and repurchases going forward?
We are comfortable anywhere in our stated CET1 range of 10% to 10.5%. We approach buybacks the same way each quarter: we consider client growth expectations, portfolio growth, risks including rate and volatility, and then decide how much to buy back. We repurchased $7 billion in the first half of the year and still have capacity to buy back more as we go. We'll make decisions quarter by quarter.
Also keep in mind we are talking about this absent finalization of the capital rules. The rules might not change the CET1 minimum plus buffers, but they could change what goes into the calculation relative to freeing up capital through RWA calculation for us.
As a reminder, we still expect our RWA to go down as a result of the proposal by about 7%. We will see how it gets finalized.
Would you need to see the rules finalized before acting on the additional CET1 capacity in terms of buybacks or capital deployment?
Yes, we would need to see the rule finalized. Hopefully that will happen relatively quickly.
The next question will come from Matthew O'Connor of Deutsche Bank. Your line is open.
Quick comment: as your markets business has gotten bigger, showing NIM excluding markets might be helpful. My question: new credit card accounts are up sharply post asset cap removal—up 50% to 60% over four quarters. Any way to estimate how much of a drag there is from those new cards and related promotions on credit card yield? When does that inflect as vintages mature?
As Charles mentioned, we intentionally decided to grow accounts. What we have observed since the third quarter of last year is many new accounts are coming through our branch network or direct-to-consumer, so acquisition costs are lower than if sourced through third parties, which is good and results in high-quality accounts. The majority are existing customers coming to us for cards. Vintages are bigger than earlier ones, but over the next couple of years you will see profitability increase and returns rise as vintages mature and introductory APRs transition into revolving balances. Quarter-to-quarter yields will move a bit depending on new acquisition volumes, but over the longer period profitability will continue to increase.
The next question will come from John Pancari of Evercore ISI. Your line is open.
Morning. Can you comment on deposit price competition—how is it trending versus your expectations? Also, you commented on loan growth guidance; do you remain confident around mid-single-digit loan growth as you look at deposit strategy?
Short answer: yes on the mid-single-digit loan growth expectation. On deposits, a little more weighted to interest-bearing than noninterest-bearing, but month to month the growth we expect is occurring. On pricing competition, it has not changed over the last few quarters. On the consumer side, our standard rates have not moved and we are not seeing shifts in behavior. On the commercial side, rates are always competitive but not more competitive than expected. We are careful not to overpay to attract deposits; the vast majority of activity is within expectations.
Separately on expenses: any update around risk and regulatory-related costs? That area had been elevated historically—has it become a continuing expense lever now that many regulatory issues have been addressed?
As we completed work and moved past consent orders, we will continue to make those processes more efficient. Starting where we began five to seven years ago, technology has improved and there are better ways to do things. The normal streamlining is happening methodically and you will see it over time. It is part of the efficiency improvements we've shown in recent quarters.
The next question will come from Chris McGratty of Keefe, Bruyette & Woods. Your line is open.
Just one on credit: consumer credit trends have been strong this quarter. Any incremental signs within consumer health? Conversely, within the commercial book any signs of weakening or normalization given the demand for credit we've discussed?
On the consumer side, performance is very good. Delinquency trends are better than we modeled most months and have improved across portfolios this year. We are not seeing cohort deterioration across FICO scores or income levels. That supports a good second half in delinquencies and charge-offs, buoyed by employment and wage growth. On the commercial side, likewise overall performance is strong with no systemic issues. Businesses remain cautious, and many have higher liquidity than pre-COVID. We are not seeing broad signs of deterioration in our commercial portfolio.
The next question will come from David Chiaverini with Jefferies. Your line is open.
You mentioned markets asset growth should slow in the second half. Is that because the business reached a comfort level, and from there should markets asset growth be in line with overall balance sheet growth?
It is not about comfort. Pre-asset cap we constrained the business significantly. The financing balances we added starting in the second half of June last year were at a pace that is not sustainable forever. What you saw was reemergence of financing activity we had constrained before; you will see it move toward a more natural growth rate over the next couple quarters and then we'll decide pacing based on opportunity.
To remind you: during the asset cap we reduced the markets balance sheet more significantly than other parts of the company, because we did not want to limit consumer loans. Much of what you are seeing now is a return of balance sheet that the markets business had originally, and we will have a more normal pace of growth going forward.
Got it. On adviser hiring: how competitive is the market and what does your pipeline look like?
Attracting high-quality advisers and teams is always competitive. We are disciplined and do not overpay. Our platform capabilities have resonated: the last three quarters have had close to record recruiting in terms of the revenue advisers bring, and attrition is at record lows. The advisers we attract bring strong investment business and deposit and lending needs, rounding out profitability. The pipeline for the rest of the year is quite good.
The next question will come from Vivek Janaeja of JPMorgan. Your line is open.
Thanks. Charles, Mike: at conferences in the second quarter you were confident about the $50 billion NII. Today you said $50 billion plus or minus—any color on what is driving that phrasing change?
That is not a shift. The guidance of $50 billion plus or minus is the same as stated in January and earlier in the year. No change in guidance and we remain confident.
Commercial loans: period-end growth slowed a bit—any color on drivers and whether you expect pickup again?
Period-end numbers reflect many factors including seasonality and tariff-related paydowns. There is nothing indicating a change in customer sentiment. On the consumer side we expect more growth in auto and card, home lending stable, and commercial portfolios to grow in the second half.
And the last question for today will come from Gerard Cassidy with RBC Capital Markets. Your line is open.
Thank you. On credit: your credit quality is very strong. Are you seeing signs of risk taking by competitors in underwriting in commercial or consumer lending? If not, what would you look for as signs of aggressive underwriting that could lead to issues in the next credit cycle?
On the consumer side, not really. Underwriting appears consistent among competitors. On the wholesale side there is more variation: a lot of capital is being deployed by banks and nonbanks across a range of risk assets, and some are taking more risk. We remain true to our risk tolerances while growing the franchise. In areas such as data centers and strategic transactions, there is a spectrum of risk being underwritten by different participants; we take the deals that fit our credit profile and risk appetite.
As a follow-up: is there a way to measure exposure to nonbank consumer lenders? Could that lead to a second-order effect on your better-quality consumer customers?
When we extend consumer credit, we make our own decisions based on bureau data and what we can observe. We see some activity in the nonbank universe through our wholesale financing, and that information is useful, but we are selective about who we lend to. Different participants have different risk tolerances and we underwrite to our standards.
Final question on AI-related exposure: as AI drives capital expenditures, are there second-order exposures through suppliers or others that could create risk if the boom slows?
There are many components in the data center ecosystem—core and shell, power, chips, and the supply chain. We underwrite those different financings differently and rely on different credit support. Lending to a chipmaker with high margins and short payback is different than lending to a supply chain participant with long payback. Those are distinct risks and we are working to stay within lanes we understand and where we are confident in repayment. Different lenders will take different tolerances, and that differentiation is key.
All righty. Thanks, everyone. We appreciate the time.