Welcome, and thank you for joining the Wells Fargo Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please note that today's call is being recorded. I would now like to turn the call over to your host, John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Good morning. Thank you for joining our call today where our CEO, Charlie Scharf; and our CFO, Mike 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'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 8-K 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 very much, John. Good morning. I'll make some brief comments about our second quarter results, the operating environment, 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. We earned $3.1 billion in the second quarter, our results included a $576 million impairment of equity securities, predominantly in our venture capital business due to market conditions. Revenue declined as growth in net interest income driven by rising interest rates and higher loan balances was more than offset by lower non-interest income as market conditions negatively impacted our venture capital, mortgage banking, investment banking, and wealth management advisory businesses. We continued to execute on our efficiency initiatives and our expenses declined from a year ago even with inflationary pressures and higher operating losses. We had broad-based loan growth with both our consumer and commercial portfolios growing from the first quarter and a year ago. Credit performance remained strong, our allowance reflected an increase due to loan growth. While we're monitoring risks related to continued high inflation, increasing interest rates, and the slowing economy, which will impact our customers, consumers and businesses have been resilient so far. When looking at simple averages across our entire portfolio, consumer deposit balances per account increased from first quarter and a year ago and remained above pre-pandemic levels. Overall, our consumer deposit customers' health indicators, including cash flow, payroll, and overdraft trends are not showing elevated risk concerns. However, we're closely monitoring activity by segment for signs of potential stress and for certain cohorts of customers, we have seen average balances steadily decline to pre-pandemic levels following the final federal stimulus payments early last year and their debit card spend…

Thanks, Charlie, and good morning, everyone. Net income for the quarter was $3.1 billion or $0.74 per common share, which included strong growth in net interest income as we are beginning to see the positive impact of higher interest rates. Our results included a $576 million impairment of equity securities, predominantly in our venture capital business due to the market conditions, which drove a total loss from equity securities of $615 million in the second quarter. Recall that a year ago, when the markets were strong, our results included $2.7 billion of gains on equity securities. While credit quality remains strong, our results included a $235 million increase in the allowance for credit losses due to loan growth, this follows six consecutive quarterly decreases in the allowance, including $1.1 billion in the first quarter and $1.6 billion a year ago. We highlight capital on Slide 3. Our CET1 ratio was 10.3%, down approximately 20 basis points from the first quarter as declines in AOCI and dividend payments were largely offset by our second quarter earnings. Our CET1 ratio also reflected actions we took to proactively manage our level of capital and risk-weighted assets as well as reduce our AOCI sensitivity by moving more securities the held to maturity and hedging securities in our available-for-sale portfolio. Additionally, we did not buy back any shares in the second quarter. But as Charlie highlighted, the recent stress test results confirmed our capacity to return excess capital to shareholders through dividends and common stock repurchases. We will continue to be prudent and consider current market conditions, including interest rate volatility, potential loan and risk-weighted asset growth as well as any potential economic uncertainty with respect to the amount and timing of share repurchases over the coming quarters. Our 10.3% CET1 ratio remained well above…

At this time, we will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Ken Usdin of Jefferies. Your line is open, sir.

Thanks. Good morning guys. I appreciate the continuity of the expense guide and also the potential variability. Mike, I was just wondering if you could expand on that. Obviously, the operating losses are hanging higher this year than they had been. So just wondering how you start to get a sense of what those look like going forward? And then also just the underlying, as you mentioned, coming in better because of revenue, just any sense of all just how your net saves are looking underneath the surface as well. Thank you.

Yes. Hey, thanks, Ken. First, I'd start with the efficiency program that we've been talking about now for the better part of 1.5 years. And all of that's tracking as we thought it would. So the core, driving kind of efficiency through the core business lines and operating groups is sort of working the way we thought. When you look at what's happened this year, as you pointed out, operating losses are higher than what we assumed at the beginning of the year. And those things just can be unpredictable at times just as we work through the backlog of items. You know the accounting standard we work with, right? If we knew about something now, we would accrue for it. If we could estimate it, we would accrue for it. But we're just flagging -- continuing the flag that we still have a pipeline of stuff to work through. And then as you highlighted, as we think about this year, the increases in the operating loss line have been offset by -- largely offset by the lower revenue-related expenses. And so we still feel good about that $51.5 billion number that we set out at the beginning of the year. And we're going to continue to work through the pipeline of items. And if something is significant and pops, we will be sure to highlight it as we go forward.

Yes. And as a follow-up, I know as you guys talked through the recent confer season, it's hard to get a crystal ball with so many moving parts as you think about 2023, but can you just help us try to at least start to think through some of the pushes and takes and can you continue to push us towards getting costs down next year? Thanks guys.

Hey, Ken, this is Charlie. Let me take that. The way we think about it is as we sit and look towards next year, we certainly know we have some increases to contend with, such as the full year impact of inflationary pressures that we see this year. And we know we've got some increases in FDIC insurance premiums. But as we start thinking about next year, and we really just starting the budget process, our mindset going into it is that we have significant opportunities to become more efficient. We've been – and it's just more of the same in terms of what we've been talking about. And this has nothing to do with getting efficiencies out of the risk-related work it assumes that all of that investment continues. But we do go into this process with the expectation that we want to see net expense reductions. Now, just usual caveats that excludes revenue-related expenses, which could go up or some of this – the lumpiness that we've talked about, just as we think – but as we think about that core expense base, we do continue to see opportunities, and we'd like you to see it as well.

Thank you. The next question comes from John McDonald of Autonomous Research. Your line is open.

Hi. Good morning, guys. I wanted to ask about capital. It looks like you're entering next quarter with over 100 basis points buffer to your pro forma reg minimums. How should we think about where you'll manage capital to and your potential buyback capacity going forward? And given that you paused for SCB partly because of SCB uncertainty. Will you get to some level of buybacks likely moving forward here? Thank you.

Yeah. Hey, John, it's Charlie. Why don't I start and then Mike can chime in. Yeah. I mean, I think your – no question, we – clarity of SCB for us at this point does really help. As we sit here today and we look at what's happening in spreads and what's happening with the 10 year that was at 292 right now. But we do want to be a little bit just conservative in terms of how we think about managing the capital base. So just to be – I think to be clear, as we sit here today, we're very happy with the amount of capital that we have, including, as we think about that 10 basis points increase that will impact us. We certainly have capacity to buy shares back at this point. And as I think Mike alluded to, we just probably want to wait a little bit just to see what happens in terms of the volatility in spreads and rates before we start to do that. But we certainly at a point, we'll do it. We'll just see exactly when that is.

Yeah. Maybe I'll just add one or two things, John. I think as Charlie highlighted, we feel good about where we are. I would just point out, we are not – our G-SIB score is going to stay the same as we go into next year as well. So we don't have another uptick as we go into the beginning of next year. So that's good. And at this point, we don't feel like we need to build capital from where we are to build a bigger buffer and then we'll just be prudent on buybacks as we go through, and through the next few quarters.

Okay. And Mike, maybe I can ask a follow-up on the NII revised outlook. What kind of cadence do you see between the next two quarters? It seems like you'd have a big step-up both this coming quarter and the third quarter and then again in the fourth? And then within that NII equation, if you still have this funding gap between loan growth being very strong and deposit growth slowing, is there still plenty of cash to use to fund the loan growth? Thank you.

Yeah. Sure. I think, ultimately, the exact progression over the next couple of quarters will be a function of how the Fed moves on rates. But I would think of it as somewhat of a ratable step up quarter-to-quarter. So not -- you won't see some outsized results in one versus the other as we go. And you'll continue to see a little bit of loan growth come through. We think that probably moderates a little bit from what we saw in the first half of the year, but you'll see some loan growth there as well as it steps up. And as you say, I think the industry has seen deposits come down a little bit. If you look at the latest version of the Fed data, and you can see that in our results as well. Now for us, it's been a little bit of -- you can see the period end balances in each of the segments, and it's been a little bit of reduction in each of them with the lowest percentage reduction being in the consumer space. So that's a good thing. And as you know, we -- over the last couple of years, we've brought down much of our wholesale funding that we've got out there. And so we've got plenty of capacity to provide liquidity or get the liquidity we need to continue to support clients.

So that loan growth funding is coming from your cash balances and other sources of liquidity that you have?

Yes. Exactly.

Okay. Thanks.

Thank you. The next question comes from Steven Chubak of Wolfe Research. Your line is open, sir.

Hey, good morning. So I wanted to start off with a question just clarifying some of the NII guidance. Mike, because you noted that it's a ratable step up and it imply – the guidance implies about a $12 billion run rate, at least in the back half for NII on an FTE basis. Is it reasonable for us to assume or expect that the exit rate for the year is going to be north of $50 billion? I just want to make sure I clarify that.

Well, Steve, I know you're really good at modeling this stuff. So I'll let you do the modeling. But I think as you pointed out, we're going to see step ups, right, as we go through the next -- as we did this quarter from last quarter. And that will continue into the third and fourth quarter. And now exactly what -- it's hard to use one quarter, as you know, it's just run rate for the rest of the -- for the following year. But certainly, the exit rate is going to be a lot higher than even where we are today. And then we'll have to just see what the environment is like at that point how to think about whether that's a clean run rate to build off of, or are there other things they're getting away. And as you can see, over the last -- even over the last three, four, five, six weeks, whatever it's been, the amount of volatility that's out there on the long end and what happens with loan growth, does it keep at the same pace. And so there's a lot of factors, I think, that go into what 2023 would look. But as you pointed out, our exit rate will be pretty healthy.

Thanks. Mike, and just for one follow-up also on the NII guide. Just wanted to get a better sense as to what's being contemplated in terms of deposit paydown, the deposit paydown and repricing just came in much better than beers this quarter. You've cited the benefits of the deposit and funding optimization you've executed these past few years. Just wanted to get a sense of how you're thinking about that deposit trajectory that's underpinning some of the NII guidance.

Yes. I mean I think that's -- we're not expecting balances to grow much from where they are. And I think we'll see what happens as -- if we see continued outflows of deposits, but as you put it out, like our mix of deposits as we came in this environment sets us up pretty well, and you can see that in the results so far where the consumer deposits are a much bigger percentage of the overall pod than they were just a couple of years ago. As you think about beta, so far, they've basically progressed as we thought in each of the segments. And so we really haven't seen much variation to what we thought at this point in the rate cycle. Now if the Fed does raise rates 75 basis points at the next meeting, now you're starting to get into territory that we didn't see in the last rate cycle -- rate rising cycle. And so we're going to start to see betas increase from there. And I think that's exactly at what pace and where you need to be defensive or not on the wholesale side of the -- on the commercial side, we'll see, and we're pretty nimble and are able to react to it. But so far, everything has progressed as we thought it would. And so we're going to keep a pretty close eye on it as we go over the next few months. And I think that will -- this quarter and into the fourth quarter, I think, will give us a lot of interesting data points to know how to think about it over a longer period of time.

Great color. Thanks for taking my questions.

Thank you. Our next question comes from Scott Siefers of Piper Sandler. Your line is open.

Good morning guys. Thank you for taking the question. Just as it relates to revenues overall, the NII trajectory, obviously, quite strong and in a sense seems mostly self-evident for now. But I was hoping, Mike, you could discuss, please, fee trajectory in a bit more detail. I guess, we’re hovering in a $7 billion or $7.5 billion a quarter range if we exclude some of that noise from the equity marks, the securities gains, et cetera. In your mind, are we at a low and can we grow from that base? I know you touched on mortgage, maybe coming down and then we got wealth, but just sort of puts and takes as you see that, if you could, please?

Yeah, sure. Thanks, Scott. I'll just bring you through some of the key fee lines just to give you a sense of some of the dynamics, right? So on the deposit side, it's been pretty -- we saw a step down in the quarter, largely a result of the changes we made in overdraft fees. We'll see a little bit more step down as we go through the year, probably more a fourth quarter thing than a third quarter thing, as we implement the additional changes there, but there's -- other than that, there's a lot of stability generally to that line based on underlying activity. We'll see what happens in the market and how that drives the investment advisory and asset based fee line. That's -- it's going to be key to see what happens in the equity and the fixed income markets. And as we bring more stability enters into the market that really supports that fee line. And as you know that’s our single biggest line item as you look at that fees. Investment banking. It's really going to be market driven, but we -- our fees were pretty low, including the small mark that we had on -- in leveraged finance. And so it's hard to see that going too much lower, but that's really going to be driven by the activity levels. Card spend, we're seeing still good, although it slowed maybe a little in May and June. We're still seeing really good activity in the card space and people are outspending. So that's helpful. Mortgage banking, as you highlighted, I think, is likely going to come down a little more in the third quarter, but it's off a much smaller base. You can still have pretty big -- you can have decent sized percentage declines there, but it's still -- it's really small dollars at this point. And then we'll see as the market progresses and how that impacts the equity security side. But -- so I think hopefully, we're getting more stability here, but some of it will be dependent upon what we see in the markets.

All right. That's perfect. Thank you very much. And if I could switch gears just a bit back to CCAR and the SCB, I guess, it's possible I had sort of misinterpreted your guys' remarks over the last few quarters. But I sort of felt like you guys were maybe prepping us for possibly somewhat worse outcome in terms of where the SCB would flush out. In your mind, how did that CCAR and the -- that SCB, just because it barely budged, right? So how did that all flush out relative to what you guys have kind of been anticipating?

Yes. What we said a couple of times was that we thought it was possible that it was going to increase, and it did. Now you have to keep in mind, like we only have so much visibility into the underlying drivers of what causes it to go up or down in any given year. Now there's a lot of stuff that's public, but there's also a lot of a lot of the modeling techniques that aren’t quite easy to understand. And so, I would say we were pleased with the result, and we spent -- as many do probably, we spend a lot of time on trying to understand the drivers of the risk of the balance sheet and do our best to have positioned ourselves for good outcomes. And so, we were pleased at where it came out.

Okay. All right. Perfect. Thank you guys very much. I appreciate it.

Thank you. The next question comes from John Pancari of Evercore ISI. Your line is open.

Good morning.

Hey, John. Good morning.

Just on the deposit front, just to go back to that. Just want to confirm. So from here your best estimate now is to overall deposit balances are relatively stable in the back half of the year. Or do you think you could see some incremental declines, just as betas are rising?

I think you can certainly see a little bit more decline from here potentially. I think that’s not an unreasonable expectation. Exactly timing and how that’s going to progress, I think, is hard to predict with any real degree of accuracy, just given the environment we’re in right now. But I think it’s possible, they can be out a little bit more from here.

Okay. All right. Thanks, Mike. And then on the credit front, I wanted to get your thoughts on the likelihood of reserve build. I know you added to the reserve for loan growth this quarter, but -- in terms of an overall build of the reserve as you -- from a CECL perspective, as you look at your economic scenarios, where do you see this quarter with your CECL scenarios that didn't warrant a sizable build? And I guess, longer term, as this plays out and we see the Fed continue with the tightening, what do you view as a potential level that you may have to bring to reserve to, is a pandemic level too high and you can help us with the magnitude there?

Well, as you think about the process we go through, which I think is similar to most in a lot of ways, is you're really looking at a number of scenarios that you need to be thoughtful about and include in your modeling. And we've now, for a number of quarters in a row, have had a significant weighting on the downside scenario already. And some of those scenarios are pretty severe, right? And so you've got waitings on what some might term wild recession, more severe recessions, so you could create a lot of labels for them. But it's a number of scenarios that have different severities of downside. And so, we feel at this point that we've captured what we can look at and see or anticipate at this point based on all the factors that we need to evaluate in our current reserves. And I'll just point out also, as you look at us in the position we're in, yes, we didn't take down all of the reserves that we put up during COVID. And so as you sort of look through each of the underlying asset classes, we feel what we have today is appropriate. It's hard to see in the near term increasing them to the level that we had back in the pandemic. But I think that's a hard thing to see at this point. But I think we'll have to make sure as things evolve throughout the next couple of quarters. we'll have to incorporate that. But again, we already have a pretty significant weighting on those downside scenarios already. And it's a very -- as you would imagine, a very robust conversation that we go through each quarter to evaluate how we feel about it. And at this point, we feel it's appropriate for what we can see over the life of those loans.

Got it. All right. One more related to on credit quickly. The $170 million write-down in unfunded leverage finance commitments, that you took. Is there a risk of future marks there? Is that primarily just predicated on market spreads? And then separately, what is your -- can you remind us what your total leveraged loan exposure both in terms of commitments and outright outstandings?

Yes, we don't -- you got to think of these as unfunded commitments, not funded, right? So, as you sort of think about them, don't think about them outstanding, thinking about them as unfunded commitments, number one. And you really have to, over time, think about term loans versus high yield a little bit differently. And on the high-yield side, we don't disclose this, but we haven't disclosed the actual number, but it's really small in the scheme of the balance sheet and the term loan side, which generally has a little bit more stability to it and less volatility to it is the bigger part. All these deals are subject to further spread widening, given the environment we're in, for sure. We -- at the end of the quarter, took our best -- used our best judgment to market where we thought the deals would clear. And we'll see how that over the coming months.

Okay, great. Thanks Mike.

Thank you. The next question comes from Erika Najarian of UBS. Your line is open.

Hi, good morning. I just had 1 more follow-up question. And Mike, I apologize if this is the umpteenth question on NII. I appreciate all your color in terms of what's driving the NII guide of 20%. I was wondering if you could better quantify the deposit beta that you would expect by year-end on a cumulative basis. Appreciate that you said it would accelerate. But given that some of your peers have given specific guides and given how much the quality of your deposit base has changed for the better over the past several years, I'm wondering if you could give us a sense of what that beta range that you're assuming by year-end on a cumulative basis that underpins that guide?

Yes. Yes, Erika, I think that's a really hard thing to give a pinpoint number on at this point in the cycle, to be honest with you. And if you think about -- and it's -- there's so many moving pieces right now, I think, between -- particularly as you sort of get to year-end and the pace of rates? And what exactly is the Fed going to do and when are they going to do it? And so I think there's a lot that goes into that, that trying to get a -- one number is a hard thing to say with a lot of confidence in my view. I think what we can say though is as you look at the next couple of rate rises, I think you're going to start to see more acceleration. On the retail and the consumer side, the core -- deposit core rates haven't changed much for the big banks at this point yet. So you'll start to see that happen over the next couple of rate rises, the betas will still be pretty small. However, that will start to pick up just depending on how fast the Fed goes by year-end. And then I think on the other side of the spectrum on the corporate investment bank and those deposits, whether it's in the FI space or the large corporate space, you're seeing those betas pick up a lot already. So those will continue to accelerate. And so when you look at cumulative betas, you really have to look at and you start to compare different banks, you're really going to have to look at the mix of the deposits. And the CIB deposits are just a much smaller piece of the pie for us right now. And those are going to -- those will probably move faster than even we've modeled, but it's a small piece of it. So I think we'll see how it goes, and we'll give you as much insight as we can. But I think trying to predict cumulative betas by year-end is hard.

Got it. I understand. Thanks so much.

Thank you. The next question comes from Ebrahim Poonawala. Your line is open.

Hey, good morning.

Band of America.

Good morning. Just following up on that, Mike. So I appreciate you don't want to get pinned down on deposit beta, but is it fair for us to assume just given mix shift in deposits given how you manage the balance sheet during the pandemic, we should see your deposit beta at least track in line or maybe even lower relative to the last rate cycle?

Well, I think we've -- as you think about each asset, each type of deposit, to-date, they're tracking pretty close to what we saw last cycle. But you then look at the mix of our deposit base, and that's what's changed pretty substantially since the last go around. And so if beta stayed the same as last cycle byproduct, given our mix has changed, you would see a lower average deposit beta. But there's a lot to play out as we go through the rest of the year, but in each of the underlying products.

That's fair. I just wanted to make sure we weren't missing something because there are peers who probably are expecting a higher beta than last cycle. So I just wanted to hear you talk through that. And as a follow-up, and I know these are extremely tough in terms of when you think about the market, private market valuations on your equity investments. But give us a sense of just where the markets are in terms of taking these markdowns, should we anticipate some more negative marks in a world where there's no big turnaround in equity markets over the next few quarters. I just want to make sure like expectations are level set for that line and how that impacts fees and PPNR?

Yes. Sure. Look, and again, it really all depends on what happens in the public equity markets, which is in part driving those declines. So if we see some stabilization, that's constructive. If we see much deeper declines, that's we'll have to evaluate how that impacts these portfolio investments. And obviously, if the market starts to rally, that's even more constructive. So I think the public equity markets and will be a good guide to how to think about whether or not we have to evaluate whether there's more reductions here or not.

Got it. And it looks like we're tracking to a 15% drop, say, maybe by the end of the year? That was a statement. I didn't expect you to respond. Thanks for taking my questions.

No problem. I'm glad you made it rhetorical.

Thank you. The next question comes from Gerard Cassidy of RBC Capital Markets. Your line is open.

Thank you. Good morning, Charlie. Good morning, Mike. Mike, can you give us some color on you guys had some good success in the quarter in generating gains from your trading activities and your debt securities. Can you just share with us what drove that and what your expectations might be in the next quarter or two?

Yeah. I mean, on the training side, it was really good performance in our macro fixed income businesses, commodities, FX, a little bit of rates. And so I think that's all what contributed to it. And we'll see, obviously, the continued performance, there is subject to what we see happening in the markets. It's not – we're not out there taking any kind of incremental risk that we normally take. It's really helping clients facilitate the flow that they've got there, and so we'll see how that goes. And as you can see, it's a relatively smaller number for us versus maybe some others. As you think about the securities portfolio, I wouldn't assume, there'll be continued gains there. I think we did do a small, small remixing of our securities portfolio. Some of it was RWA. Some of it was RWA optimization I think selling some UMBS is buying Ginnies that where spreads were pretty tight at the time we did it. You save an RWA you don't give up much yield. And there are a few other minor optimizations we did there.

Very good. And then as a follow-up question, when it comes to your professional and outside services expenses, can you frame out for us how much of that is tie to – your current working with the regulators to lift the asset cap in the cease and desist order. When that day eventually arrives? Will the professional and outside services numbers really have a kind of meaningful downward move, because you've resolved that issue?

This is Charlie. Let me take a shot at this first. Listen, I think we have the work we're doing on all of the risk and infrastructure work, which supports the regulatory matters. It's our own headcount. It's professional. It's a bunch of technology work. It really cuts across a whole series of lines. And I just don't really think it's the right time for us to start even talking about where those saves could come from. And it's just genuinely not on a radar screen in terms of what we're thinking about where it's going to go or anything like that. So I'd rather just defer the question at this point.

No problem. Understood. And then, Mike, just coming back to your comment about the mix of deposits, and this is a rhetorical question as well. As we see for the first time in 15 years, consumer deposits in a higher rate environment, we'll make guys like you guys stand out maybe over some of your peers. So, good luck with that.

Thanks, Gerard.

Thank you. The next question will come from Betsy Graseck of Morgan Stanley. Your line is open.

Hey, good morning.

Hey, Betsy.

Hi, Betsy.

Charlie, I think you recently mentioned that you're in the process of strategically thinking about where mortgage fits in. And I guess I wanted to understand, what kind of framework you're assessing mortgage under. What you're thinking about that?

Sure. Yes. And that was, by the way, not meant to be a new comment. That's something that we've been doing ever since I got here, and we brought a new management, including Kristy Fercho, who runs the business. And I mean, if you just go back and look at how big we were in the mortgage business, we were a hell of a lot bigger than we are today. And so we have been all along just reassessing what makes sense for us to do, how big we want to be both in the context of what our focus should be in terms of our primary focus should be on service -- serving our own customer base -- and then to the extent that we have efficiencies, would it makes sense for us to do other business. But I guess my point was we're not interested in being extraordinarily large in the mortgage business just for the sake of being in the mortgage business. We're in the home lending business because we think home lending is an important product for us to talk to our customers about. And that will ultimately dictate the appropriate size of it. And so I would just -- when you look at how much we're originating versus the size of our servicing business. The servicing business over time will become smaller. And I think that's a smart and good thing for us for many reasons. And as I said, we're just going to -- we're going to focus on products that make sense for us in the context of where we can make money over the cycles, given all of the complexities and all the requirements that banks have that not necessarily everyone else have and make sure we're getting the right returns for it.

Yes. So is this a migration towards originate and retain and the mortgage servicing line goes away as an income statement item because it becomes non-material, or is there some middle ground that you're looking to?

No, yes. No, I would -- I mean, listen, we're still -- I would still assume that a substantial amount of our mortgage production would be eligible for sale. And whether it's through the agencies or through public market, that's all options that we want to continue. And so we'll still be originating mortgages across the spectrum, some of which will keep on balance sheet when it makes sense and others of which we'll sell, and we will have an MSR. Again, if you just look at how much we originated historically versus what we're originating today, it will naturally just come down over time.

Then two other questions. One, I think you recently announced a change in your consumer head. Could you speak through rationale for that? And what the wish list is for your new head of consumer?

Yes. So Mike Weinbach, who had come in to run our home lending businesses. Put a whole series of things in place, including if you look at the leadership across all of our card business, our home lending business, our personal lending business in our auto business, all those -- that's an entirely new management team, plus new heads of -- I can go through all the other functions as well. And Mike put that in place, and we talked about it and he wanted to do something different. And so we're lucky enough to have a gentleman named Kleber Santos, who joined us 1.5 years to two years ago. Background he was a Capital One prior to that and McKinsey prior to that, and Kelber and I have worked extremely closely together and just thrilled to have him in that role. And so I think I wouldn't expect to see significant changes in the things that we've spoken about. We're focused on continuing the product build-out on the credit card side, again, focusing on customers that are broader customers in the franchise. Building our customer service around that and building out our digital capabilities and all the other parts of the business, which is work that we have underway. So I don't anticipate any material changes from where we are just with continued trends and the things that we've been talking about.

Great. And then just lastly on wealth. It's an important part of your offering. I'm wondering what you're doing to strategically enhance that offering to your clients, be it either through product or how you're structured integration with consumer, your IT platform and solutions. Could you just give us a couple of bullet points on what's going on there?

Sure. Let me start, Mike. And Mike and I are both very involved in these conversations with Barry and his team I think if you look at our wealth business, it's run entirely different today than it was several years ago. We had separate platforms historically here between our brokerage business. We had two different private banks that operated under two different brands. We had our bank channel. And then completely separately, we had a digital platform, and we had a platform or advisers that wanted to go independent. The digital platforms and the platform for independent advisers had very little investment in it. And those would run -- but all of those businesses, they were run as separate businesses with separate product platforms and separate technology. And so what we've done is we now have one set of products and service capabilities that all of those product lines have access to. And we've combined the entire field under one leader. And we're investing in our digital capabilities, and we're investing in the capabilities of those that want to go independent. So if they want to do that, they can stay here as opposed to elsewhere. We are building out capabilities across all the dimensions from the investment capabilities to the banking capabilities, our lending capabilities, offering trust in the other areas of distribution that didn't have access to those in the past. And so it's a huge set of changes, which also bring with it a set of changes in the back end, which we're going to move -- we're moving towards common platforms. And it's something we're really excited about, and we're just at the beginning of seeing the benefits of it. And I think it's one of the things that will make us appear to -- for our financial advisers, it’s been extremely attractive place to be, whether they want to be an employee and work for Wells Fargo or they want to be independent and access our capabilities.

And that changed to moving to common platforms. What's the timing of that?

Yeah. It's not a technology move. I think he's talking about platforms in terms of the overall sort of the way we operate business. So there isn't -- it isn't dependent upon a big technology conversion, Betsy. So -- and then I would just highlight one last thing. Charlie in his prepared remarks, talked about Wells Fargo Premier. That's step one in really helping provide more differentiated and holistic service offering to our affluent clients in the consumer business and the Wealth piece is going to be big part of that. And we already have 1,500 plus advisers in the branch system to do. We already have a great investment platform. And so we're in the early days, but building out a differentiated service offering there as well, which will be a big part of the wealth businesses going forward.

Okay. And that's in conjunction with consumer business.

Correct.

Yes. I would say -- yes, just not expand even further, Betsy. It's really a combination of the advisers and the products that Berry has to offer in our wealth management business. It is also leveraging the lending products that Clover is now responsible for, including credit card and including mortgage and potentially, auto and some other things there. In integrated offering with Mary's bank customers who are affluent. So it's an offering across all of our product sets directed in a much more segmented way than we've ever done in the past. And so we're extremely excited about it, and we'll be talking more about things that were capabilities that were going to be rolling out throughout the year.

Great. Thank you.

Thanks.

Thank you. The next question comes from Vivek Juneja of JPMorgan. Your line is open.

Thanks for taking my questions. Charlie, I just wanted to follow-up on your question -- your comment about loan growth likely to moderate from the first half? Any color on that? What do you think drives that moderation? Which categories?

Hey, Vivek, it's Mike. I'll -- maybe I'll take a shot at that. Look, we've just seen -- I just don't think what we've seen in the second quarter will continue to happen at the same pace. We may get surprised and it will be a little better than we think. But I think at some point, we just feel, as you look at any of the uncertainty that might be there or other factors that are causing clients that use their lines today that just may moderate as we go through it. I wouldn't look at it as some big warning of anything to come. It's just we're being a little -- we're being a little prudent in terms of the way we think about that growth rate and maybe we'll be surprised on the upside a little, but it's just what we're seeing right now.

So you're not seeing any signs like sort of late in the quarter, I think, already starting to show some slowdown or some conversations with clients that are indicating that? Is that…

Not that I would say are super significant at this point. But when you go category-by-category and say, okay, well, spending in the card space continue to increase at the same pace given some of the uncertainty in the economic environment, we'll see maybe commercial real estate, certainly, given what we're seeing in the real estate market there, that appears like it will slow down a little bit again in the second half of the year. Somewhat driven by what we're seeing in the capital markets side of that business as well. And so with the slowdown in deals happening and rates rising, that's just as a natural slowdown there. And so I just think you go asset class by asset class, it just feels as though we'll see a little bit of moderation as we go through the rest of the year.

Okay. And one minor one, Mike, for you, the hung loan loss number that you gave us, was it a gross mark or is it net of fees?

The loan -- the leveraged finance one, Vivek?

Yes. Yes.

That's after fees.

That's after fees. Okay. So then what's the gross mark on that?

I don't have the exact number in front of me. It's not materially different.

Okay. All right. Thank you.

Thank you. We have time for one more question today, and that will come from Matt O'Connor of Deutsche Bank. Your line is open sir.

Hi, I was wondering if you could remind us the targeted customer within credit card as you lean into that business? And do you think about maybe slowing from the expansion plans there, just given all the recession talking?

Yes. This is Charlie, Matt. First of all, our targeted customer, those that we want to have a broader relationship with. What we have said is that as we've rolled out this new product set, when you look at the credit quality of the borrowers and the spenders that we have been giving our new cards due to the credit quality is actually stronger than it had been historically. And it still is either on target or stronger than we would have modeled for when we rolled the products out. It's just we're not competing on credit terms. We're not competing in any way, shape or form in terms of that. We just want to have a quality offering, we would expect it to be a high-quality card customer that we can do other things with across our franchise.

And just any disclosure on FICO scores in terms of either the overall portfolio or the customer that you're growing are leading into?

Yes, I think you can get some of that in the Q, Matt, you got to go a little deep into the queue, but you can get some of that in the distribution table in the Q.

Okay. I'll look for it there. Thanks.

All right, everyone. Thank you very much. We appreciate everything and we look forward to talking to you all. Take care.

Thank you all for your participation on today's conference call. At this time, all parties may disconnect.