Wells Fargo (WFC) Q2 2018 earnings summary

Executive summary

• Q2 net income was $5.2B, or $0.98 per diluted share; results included $481M of net discrete income tax expense and $619M of operating losses, primarily customer remediation.

• Strong credit quality, liquidity and capital supported higher shareholder returns; risk remediation, expense control and customer-focused transformation remained priorities.

Financial highlights

• Net interest income rose $303M QoQ to $12.5B; NIM increased 9 bps to 2.93%.

• Non-interest income fell $684M QoQ and $752M YoY; mortgage revenue and businesses sold weighed on YoY results.

• Expenses declined $1.1B QoQ, largely on lower operating losses and seasonally lower personnel costs; expenses increased $441M YoY, including higher remediation losses.

• Credit loss rate was 26 bps of average loans; non-performing assets fell $305M QoQ for a ninth consecutive quarterly decline.

Outlook and guidance

• 2018 expenses expected at $53.5B-$54.5B, including ~$600M of typical operating losses but excluding outsized litigation and remediation accruals and penalties.

• 2019 expenses guided to $52B-$53B; targeted $4B expense reductions remain on track for completion by end-2019.

• Remainder-2018 effective tax rate expected near 19%, excluding future discrete items; Q3 mortgage production margin expected near Q2's 77 bps.

• Asset-cap relief expected in H1 2019; auto loan balances expected to begin growing by mid-2019 as originations recover.

• Management expressed confidence in the Investor Day scenario of 15% ROE and 17% ROTCE, with potential upside depending on revenue.