Wells Fargo (WFC) Q2 2022 Earnings Call Transcript

Wells Fargo (WFC -1.11%)
Q2 2022 Earnings Call
Jul 15, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome, and thank you for joining the Wells Fargo second quarter 2022 earnings conference call. [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.

John Campbell -- Director of Investor Relations

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.

Charlie Scharf -- Chief Executive Officer

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 noninterest 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 has also been declining. Overall, debit card spending was up 3% compared to a year ago when consumers received stimulus payments. And inflation appears to be impacting certain categories of spending, including a 26% increase in fuel driven by higher prices, while discretionary categories like apparel and home improvement spending were down double digits, driven by fewer transactions. Credit card spend increased 28% from a year ago, above the industry trend driven by the new products we launched last year, with double-digit increases across all spend categories.

However, spending, while still strong, started to slow in May and June. Consumer credit card utilization rates remain below pre-pandemic levels. Payment rates remained strong and delinquency rates remain low. Our small business portfolio continues to perform well in the aggregate in both delinquencies and losses.

Leading indicators such as payment rates, deposit levels, utilization, and revolving debt trends do not yet indicate signs of stress. Loan demand from our commercial customers remain strong with broad-based balance and commitment growth. Our commercial customers' credit performance remained strong with exceptionally low net charge-offs, and nonaccrual loans were at their lowest level in over 10 years. However, we are monitoring early warning indicators across portfolios including cash flow activity, credit line utilization rates and industry fundamentals for inflation impacts.

Now let me update you on progress we've made on our strategic priorities. Our work to build an appropriate risk and control infrastructure is ongoing and remains our top priority, but we also continue to invest in our businesses to better serve our customers and to help drive growth. This week, we launched our fourth new credit card offering in the past year, Wells Fargo Autograph. Our latest card reflects our momentum in growing our consumer credit card business with new accounts up over 60% from a year ago.

We're focused on delivering competitive offerings, and our new reward card provides three times points across top spending categories including restaurants, travel, and gas stations. This is the first of several rewards-based cards we plan to introduce. We continued to improve the digital experience in the second quarter with the relaunch of Intuitive Investor, our automated digital investing platform. We simplified the account opening process and created a faster and better experience for both new and experienced investors.

During the second quarter, we began rolling out Wells Fargo Premier, which provides differentiated products and experiences focused on strengthening and growing our affluent client relationships. We are working toward offering one set of products and services that are tailored to the needs of these customers regardless of where they sit within our individual businesses. We will be rolling out more enhancements in the coming quarters to provide a more compelling offering for premier clients. We started to roll out overdraft policy changes late in the first quarter, which included the elimination of fees for non-sufficient funds and overdraft protection transactions.

Additional changes will be rolled out in the second half of this year, including providing customers who overdraw their account with a 25-hour grace period to cure a negative balance before incurring an overdraft fee, giving early access to eligible direct deposits, and providing a new easy short-term credit product. We expect these changes will help millions of consumer customers avoid overdraft fees and meet short-term cash needs, and we continue to review other ways we can help consumers manage their finances. We also continue to invest to better serve our commercial customers. And early in the second quarter, Tim O'Hara joined the Corporate and Investment Bank from BlackRock as head of banking.

Tim's expertise and insights will help us maximize our potential and achieve even greater partnership and strategic dialogue with our corporate and institutional clients. And he complements the strong leadership team in our markets and commercial real estate businesses, who have helped us navigate recent market volatility. We believe we have a significant opportunity to serve our existing commercial customers with corporate and investment banking products in a way that works within our existing risk tolerance. We also believe that for us to be successful as a company, we must consider a broad set of stakeholders in our decisions and actions.

Last week, we announced that Otis Rolley will be joining Wells Fargo from The Rockefeller Foundation as the head of social impact, leading community engagement, and enterprise philanthropy, including the Wells Fargo Foundation. We continue to move forward in the area of ESG with the announcement of our 2030 reduction targets for greenhouse gas emissions attributable to financing activities in the oil and gas and power sectors. As homeownership remains out of reach for too many families, we announced an effort to support new home construction, renovation, and repair of more than 450 affordable homes across the U.S. in collaboration with Habitat for Humanity and Rebuilding Together.

We also launched our special purpose credit program to help minority homeowners refinance mortgages that Wells Fargo currently services. We continue to support our small business customers through this time of uncertainty, including launching the Small Business Resource Navigator, which connects small business owners to potential financing options and technical assistance through community development financial institutions across the country. We are also helping women entrepreneurs by doubling our support for women-owned businesses through the Connect to More program with complementary mentorship opportunities. We published our inaugural diversity, equity, and inclusion report, which highlights the meaningful positive results we've made on our DE&I initiatives.

For example, in the U.S., our external hiring of individuals from racially or ethnically diverse populations increased by 27% in 2021 compared to 2020, and approximately one-third of all internally promoted executives last year were racially or ethnically diverse. As I've said in the past, advancing DE&I at Wells Fargo is a long-term commitment, not a project, and we continue to pursue many of the initiatives in the report and look for ways to deepen our impact. Let me just make some summary comments before turning it over to Mike. The Federal Reserve's commitment to an aggressive rate hike cycle as a means to tame high persistent inflation continues to fuel market volatility and is expected to slow the economy, which will impact our consumer and commercial customers.

Despite the economic environment, I remain optimistic about our future. Credit quality remains strong, and we expect net interest income growth to continue given rising interest rates, which should more than offset any further near-term pressure on noninterest income. We remain on target to achieve a sustainable 10% ROTCE, subject to the same assumptions we've discussed in the past, on a run rate basis in the second half of this year, and then we will discuss our path to 15%. This year's Federal Reserve stress test confirmed our strong capital position and our ability to support our customers and communities while also continuing to return excess capital to shareholders through dividends and common stock repurchases.

As we previously announced, we expect to increase our third quarter common stock dividend by 20% to $0.30 per share, subject to approval by the company's board of directors at its regularly scheduled meeting later this month. I will now turn the call over to Mike.

Mike Santomassimo -- Chief Financial Officer

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 6 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 to 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 our required regulatory minimum plus buffers. As a reminder, based on the recent Federal stress test, our stress capital buffer for October 1st, 2022 to September 30th, 2023 is expected to be 3.2%, which would increase our regulatory minimum plus buffers by 10 basis points to 9.2%. Turning to credit quality on Slide 5. Our charge-off ratio remained near historical lows and was only 15 basis points in the second quarter.

As we previously discussed, losses are not expected to remain at these low levels. And we are closely monitoring our commercial and consumer customers for signs of stress, and we remain very disciplined in our underwriting. Commercial credit performance remained strong across our commercial businesses with only two basis points of net charge-offs in the second quarter, which included net recoveries in our commercial real estate portfolio. We also had net recoveries in our consumer real estate portfolios, and total consumer net charge-offs declined slightly from the first quarter to 33 basis points of average loans, as lower losses in auto and other consumer loans were partially offset by higher credit card losses.

Nonperforming assets decreased $878 million or 13% from the first quarter. Lower levels of consumer nonaccruals were driven by a decline in residential mortgage nonaccrual loans due to sustained payment performance of borrowers after exiting COVID-related accommodation programs. Commercial nonaccruals continued to decline, and as Charlie highlighted, we are at their lowest levels in over 10 years. Our allowance for credit losses at the end of the second quarter reflect a continued strong credit performance, with an increase that was due to loan growth.

On Slide 6, we highlight loans and deposits. Average loans grew 8% from a year ago and 3% for the first quarter. Period-end loans grew for the fourth consecutive quarter and were up 11% from a year ago, with increases in both our commercial and consumer portfolios. I'll highlight the specific growth drivers when discussing operating segment results.

Average loan yields increased 19 basis points from a year ago and 27 basis points from the first quarter, reflecting the benefit of higher rates. Average deposits increased $10 billion or 1% from a year ago, with growth in consumer banking and lending, offsetting declines across our other operating segments. The decline in average deposits from the first quarter reflected seasonality of tax payments as well as outflows from commercial and wealth clients. Our average deposit cost increased one basis point from the first quarter, driven by corporate and investment banking.

As I previously highlighted, we would expect deposit betas to accelerate as rates continue to rise and customer migration from lower-yielding to higher-yielding deposit products would likely increase as well. Turning to net interest income on Slide 7. Second quarter net interest income increased $1.4 billion or 16% from a year ago and $977 million or 11% from the first quarter. The growth from the first quarter was primarily driven by the impact of higher rates, which increased earning asset yields and reduced premium amortization from mortgage-backed securities.

We also benefit from higher loan balances and one additional day in the quarter. We started the year expecting full year net interest income to grow by approximately 8% compared with 2021. Last quarter, we raised our guidance to an increase in the mid-teens. With the market now expecting not only more rate hikes but also larger ones, we currently expect net interest income in 2022 to increase approximately 20% from 2021.

And as a reminder, net interest income will ultimately be driven by a variety of factors, including the magnitude and timing of Fed rate increases, deposit betas, and loan growth. On Slide 8 in noninterest income. This quarter, noninterest income -- this quarter, we included highlighting noninterest income to show that the decline from both the first quarter and a year ago was primarily driven by two cyclical businesses. Mortgage banking, which has slowed in response to higher interest rates, and our affiliated venture capital and private equity businesses, which a year ago generated elevated gains but recognized impairments in the second quarter of this year due to significantly different market conditions.

While all other noninterest income included both positive and negative impacts, it was actually up slightly from the first quarter. The decline in all other noninterest income from a year ago was primarily driven by the impact of last year's divestitures. Turning to expenses on Slide 9. Noninterest expense declined 3% from a year ago as expenses related to divestitures came out of the run rate, and we continue to make progress on our efficiency initiatives.

Operating losses increased $273 million from a year ago, primarily driven by increased litigation expense, which included a recovery in the second quarter of last year and higher customer remediation expense predominantly from a variety of historical matters. Customer remediation matters are complex and take a significant amount of time to resolve and quantify the full impact. While we've made progress, we have more to do to resolve the remaining items. We're halfway through the year.

And while we've had higher operating losses than we expected, revenue-related expenses are trending lower than expected. Our results in the first half of the year also reflected the progress we're making on our efficiency initiatives with lower headcount and reductions in both professional and outside services expense and occupancy expense. We expect to continue to make progress on our efficiency initiatives. Putting all these factors together, we still expect our full year 2022 expenses to be approximately $51.5 billion as lower revenue-related expense is expected to offset higher operating losses.

But as a reminder, we have outstanding litigation, regulatory matters, and customer remediations, and the related expenses could be significant and hard to predict, which could cause us to exceed our $51.5 billion outlook. Turning to our operating segments, starting with consumer banking and lending on Slide 10. Consumer and small business banking revenue increased 17% from a year ago, driven by the impact of higher interest rates and higher deposit balances. Our deposit pricing has been stable, but we expect deposit betas to increase over time.

As Charlie highlighted, the deposit-related fees were impacted by the overdraft policy changes we started to roll out late in the first quarter, which included the elimination of fees for non-sufficient funds and overdraft protection transactions. Additional changes will be rolled out in the second half of this year, which will further reduce deposit-related fees. On lending revenue declined 53% from a year ago and 35% from the first quarter driven by lower mortgage originations and compressed margins given the higher rate environment and continued competitive pricing in response to excess capacity in the industry. After increasing over 150 basis points in the first quarter, mortgage rates increased over 100 basis points in the second quarter.

The impact of higher rates also reduced revenue from the resecuritization of loans purchased from securitization pools. The mortgage market is expected to remain challenging in the near term, and it's possible that we have a further decline in mortgage banking revenue in the third quarter. We are making adjustments to reduce expenses in response to lower origination volumes, and we expect these adjustments will continue over the next couple of quarters. Credit card revenue was up 7%, auto revenue increased 5% and personal lending was up 7% from a year ago, primarily due to higher loan balances.

Turning to some key business drivers on Slide 11. Our mortgage originations declined 10% from the first quarter, with growth in correspondent partially offsetting the decline in retail originations. Refinances as a percentage of total originations declined to 28%. Average home lending loan balances grew 2% from the first quarter, driven by the fourth consecutive quarter of growth in our nonconforming portfolio, which more than offset declines in loans purchased from securitization pools or EPBOs.

Turning to auto. Origination volume declined 35% from a year ago and 26% from the first quarter due to increased pricing competition, credit tightening actions, and an ongoing industry supply pressures. Turning to debit card. While debit card spend increased 3%, transactions were relatively flat from a year ago as increases in travel and entertainment were offset by declines in apparel and home improvement.

Credit card point-of-sale purchase volume was up 28% from a year ago with the largest increases in fuel travel and entertainment. The increase in point-of-sale volume and the launch of new products helped drive a 19% in credit card -- 19% increase in credit card balances from a year ago. We remain disciplined in our underwriting and new credit card accounts. Turning to commercial banking results on Slide 12.

Middle market banking revenue increased 27% from a year ago, driven by higher net interest income from the impact of higher rates and loan balances. Asset-based lending and leasing revenue increased 8% from a year ago, driven by higher loan balances. Noninterest expense increased 2% from a year ago, primarily driven by higher operating costs. Efficiency initiatives drove lower personnel expense with headcount down 9% from a year ago.

Average loan balances have grown for four consecutive quarters and were up 13% from a year ago. Utilization rates continue to increase, but they are still not back to historical levels. Clients have increased borrowings to rebuild inventory and to support working capital growth, both of which have been impacted by higher inflation. We also had momentum from adding new clients in middle market banking and similar to prior periods, loan growth was driven by the larger clients.

Average deposits declined 2% from a year ago driven by actions to manage under the asset cap. Deposit pricing has been relatively stable, but we expect deposit betas will continue to increase. Turning to corporate and investment banking on Slide 13. Banking revenue increased 4% from a year ago, primarily driven by stronger treasury management results given the impact of higher interest rates as well as higher loan balances.

Investment banking fees declined, reflecting lower market activity and a $107 million write-down on unfunded leveraged finance commitments due to the market spread widening. Average loan balances were up 20% from a year ago, with broad-based loan demand driven by a modest increase in utilization rates due to increased working capital needs given inflationary pressures. Commercial real estate revenues grew 5% from a year ago, driven by loan growth and higher interest rates. Average loan balances were up 22% from a year ago with the disruption in the capital markets increasing demand for bank financing and line utilization.

Markets revenue increased 11% from a year ago, primarily due to higher foreign exchange and commodities trading revenue as clients position themselves for rising rates, quantitative tightening, and growing recessionary concerns as well as higher equities trading. Average deposits in corporate and investment banking were down 14% from a year ago, driven by continued actions to manage under the asset cap. There's been more deposit pricing pressure in corporate banking than we've seen in commercial banking. On Slide 14, wealth and investment management revenue grew 5% from a year ago as the increase in net interest income due to the impact of higher rates and higher loan balances more than offset the declines in asset-based fees, driven by lower market valuations as well as lower retail brokerage transaction activity.

As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so second quarter results reflected market valuations as of April 1st, and third quarter results will reflect the lower market valuations as of July 1st. The S&P 500 and fixed income indices declined again in the second quarter, and approximately two-thirds of our advisory assets are in equities. So there will be another step-down in our asset-based fees next quarter. Average loans increased 5% from a year ago, driven by continued momentum in securities-based lending.

Average deposits declined 1% from a year ago and were down 7% from the first quarter as clients reallocate cash into higher-yielding alternatives. Deposit pricing increased modestly. Slide 15 highlights our corporate results. Both revenues and expenses declined from a year ago and were impacted by the divestitures of our corporate trust services business and Wells Fargo Asset Management and the sale of our student loan portfolio.

These businesses contributed $580 million of revenue in the second quarter of 2021, including the gain on the sale of our student loan portfolio. And they accounted for approximately $375 million of the decline in expenses in the second quarter compared with a year ago, including the goodwill write-down associated with the sale of our student loan portfolio. The decline in revenue in corporate was also due to lower equity gains in our affiliated venture capital and private equity businesses. In summary, while our net income in the second quarter declined driven by lower venture capital and mortgage banking results, our underlying trends reflected our improving earnings capacity with expenses declining and strong net interest income growth from rising rates and higher loan balances.

As we look ahead to the second half of the year, we expect the growth in net interest income to more than offset any further pressure on noninterest income. While we expect credit losses to increase from historically low levels, our consumer and commercial customers are not showing any meaningful signs of stress. As I highlighted earlier, our expense outlook for the year is unchanged at approximately $51.5 billion subject to the risk to the outlook discussed earlier. Finally, our stress test results demonstrated our capacity to return excess capital to shareholders, including the expected 20% increase in our third quarter common stock dividend subject to board approval.

We will now take your questions.

Questions & Answers:

Operator

[Operator instructions] And our first question today will come from Ken Usdin of Jefferies. Your line is open, sir.

Ken Usdin -- Jefferies -- Analyst

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.

Mike Santomassimo -- Chief Financial Officer

Yeah. Thanks, Ken. First, I'd start with the efficiency program that we've been talking about now for the better part of a year and a half. 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 to 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 in comps, we will be sure to highlight it as we go forward.

Ken Usdin -- Jefferies -- Analyst

Yes. And as a follow-up, I know as you guys talked through the recent conference 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 this toward getting costs down next year? Thanks, guys.

Charlie Scharf -- Chief Executive Officer

Hey, Ken. This is Charlie. Let me take that. The way we think about it is as we sit and look toward 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're 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 of -- 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.

Operator

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

John McDonald -- Autonomous Research -- Analyst

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.

Charlie Scharf -- Chief Executive Officer

Yep. Hey, John. It's Charlie. Why don't I start and then Mike can chime in.

Yes. 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 2.92% 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, will do it.

We'll just see exactly when that is.

Mike Santomassimo -- Chief Financial Officer

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.

John McDonald -- Autonomous Research -- Analyst

OK. 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.

Mike Santomassimo -- Chief Financial Officer

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 there'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.

John McDonald -- Autonomous Research -- Analyst

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

Mike Santomassimo -- Chief Financial Officer

Yep. Exactly.

John McDonald -- Autonomous Research -- Analyst

OK. Thanks.

Operator

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

Steven Chubak -- Wolfe Research -- Analyst

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.

Mike Santomassimo -- Chief Financial Officer

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, to adjust 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 in how to think about whether that's a clean run rate to build off of or are there other things that get in the 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.

Steven Chubak -- Wolfe Research -- Analyst

Thanks for that, 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 beta. The deposit paydown and repricing just came in much better than peers 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.

Mike Santomassimo -- Chief Financial Officer

Yeah. 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 pointed 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 pie than they were just a couple of years ago.

And as you sort of think about betas, 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.

Steven Chubak -- Wolfe Research -- Analyst

Great color. Thanks for taking my questions.

Operator

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

Scott Siefers -- Piper Sandler -- Analyst

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 the sort of the fee trajectory in a bit more detail.

I guess we're kind of 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, etc. In your mind, are we sort of at a low, and can we grow from that base? I know you touched on mortgage maybe coming down then we've got wealth. But just sort of puts and takes as you see that, if you could, please?

Mike Santomassimo -- Chief Financial Officer

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 -- as 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 out spending. 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, and 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.

Scott Siefers -- Piper Sandler -- Analyst

All right. That's perfect. Thank you very much. And if I could switch gears just a bit back to sort of 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's barely budged, right? So how did that all flush out relative to what you guys have kind of been anticipating?

Charlie Scharf -- Chief Executive Officer

Yeah. 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 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 to the balance sheet and do our best to have positioned ourselves for good outcomes. And so we were pleased that -- where it came out.

Scott Siefers -- Piper Sandler -- Analyst

OK. All right. Perfect. Thank you guys very much.

I appreciate it.

Operator

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

John Pancari -- Evercore ISI -- Analyst

Good morning.

Charlie Scharf -- Chief Executive Officer

Good morning, John.

John Pancari -- Evercore ISI -- Analyst

Just on the -- just on the deposit front, just to go back to that. I just want to confirm. So from here, your best estimate now is that 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 were rising?

Mike Santomassimo -- Chief Financial Officer

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 it's 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 come down a little bit more from here.

John Pancari -- Evercore ISI -- Analyst

OK. All right. Thanks, Mike. And then on the credit front, I want to get your thoughts on the likelihood of reserve bill.

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 to tightening, what do you view as a potential level that you may have to bring the reserve to? Is a pandemic level too high? And maybe you can help us with the magnitude there?

Charlie Scharf -- Chief Executive Officer

Well, as you think about the process we go through, which I think is similar to most in a lot of ways, 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 weightings 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.

John Pancari -- Evercore ISI -- Analyst

Got it. All right. One more related to on credit quickly. The $107 million write-down in unfunded leveraged 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's your total leveraged loan exposure both in terms of commitments and outright outstandings? Thanks.

Charlie Scharf -- Chief Executive Officer

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 outstandings. Think 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 in 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 goes over the coming months.

John Pancari -- Evercore ISI -- Analyst

OK. Great. Thanks, Mike.

Operator

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

Erika Najarian -- UBS -- Analyst

Hey. Good morning. I just had one 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?

Charlie Scharf -- Chief Executive Officer

Yeah. 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 -- and 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 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 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.

Erika Najarian -- UBS -- Analyst

Got it. I understand. Thanks so much.

Operator

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

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning.

Operator

From Bank of America.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

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 the mix shift in deposits, given how you managed 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?

Mike Santomassimo -- Chief Financial Officer

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 betas stayed the same as last cycle by product, 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.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

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.

Mike Santomassimo -- Chief Financial Officer

Yes. Sure. And again, it really all depends on what happens in the public equity markets, which is in part driving those declines. If we see some stabilization, that's constructive.

If we see much deeper declines, that -- 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.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

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 don't expect you to respond.

Charlie Scharf -- Chief Executive Officer

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

Operator

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

Gerard Cassidy -- RBC Capital Markets -- Analyst

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?

Charlie Scharf -- Chief Executive Officer

Yeah. I mean on the trading 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.

It's subject to what we see happening in the markets. It's not -- we're not out there taking any kind of incremental risk than 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 remixing of our securities portfolio. Some of it was RWA. Some of it was RWA optimization.

I think selling some UMBSs, buying Ginnies that -- where spreads were pretty tight at the time we did it, you save on RWA. You don't give up much yield. And there are a few other minor optimizations we did there.

Gerard Cassidy -- RBC Capital Markets -- Analyst

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 tied 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?

Charlie Scharf -- Chief Executive Officer

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 our 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.

Gerard Cassidy -- RBC Capital Markets -- Analyst

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 will make guys like you guys stand out maybe over some of your peers.

So good luck with that. Thank you.

Charlie Scharf -- Chief Executive Officer

Thanks, Gerard.

Operator

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

Betsy Graseck -- Morgan Stanley -- Analyst

Hey, good morning.

Charlie Scharf -- Chief Executive Officer

Hey, Betsy.

Betsy Graseck -- Morgan Stanley -- Analyst

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?

Charlie Scharf -- Chief Executive Officer

Sure. Yeah. 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, 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.

Betsy Graseck -- Morgan Stanley -- Analyst

Yes. So is this a migration toward originate and retain and the mortgage servicing line goes away as an income statement item because it becomes nonmaterial? Or is there some middle ground that you're looking to?

Charlie Scharf -- Chief Executive Officer

No, yeah. 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, we'll 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.

Betsy Graseck -- Morgan Stanley -- Analyst

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

Charlie Scharf -- Chief Executive Officer

Yeah. 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, and 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, Kleber Santos, who joined us a year and a half to two years ago. Background was he was at Capital One prior to that and McKinsey prior to that, and Kleber and I have worked extremely closely together. I'm 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 the continued trends and the things that we've been talking about.

Betsy Graseck -- Morgan Stanley -- Analyst

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?

Charlie Scharf -- Chief Executive Officer

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 advisors that wanted to go independent.

The digital platforms and the platform for independent advisors 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 toward 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 advisors, to be an 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.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. And that change to moving to common platforms, what's the timing of that?

Mike Santomassimo -- Chief Financial Officer

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 a more differentiated and holistic service offering to our affluent clients in the consumer business. And the wealth piece is going to be a big part of that.

And we already have 1,500-plus advisors in the branch system to do it. We already have a great investments 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.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. And that's in conjunction with consumer business?

Mike Santomassimo -- Chief Financial Officer

Correct.

Charlie Scharf -- Chief Executive Officer

Yeah. I would say -- yes, just to expand even further, Betsy. It's really a combination of the advisors and the products that Barry has to offer in our wealth management business. It is also leveraging the lending products that Kleber is now responsible for, including credit card and including mortgage and potentially, auto and some other things there, and an 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 we're going to be rolling out throughout the year.

Betsy Graseck -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. The next question comes from Vivek Juneja of J.P. Morgan. Your line is open.

Vivek Juneja -- J.P. Morgan -- Analyst

Thanks for taking my questions. Charlie, I just wanted to follow up on your question or 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?

Mike Santomassimo -- Chief Financial Officer

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 to 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 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 there right now.

Vivek Juneja -- J.P. Morgan -- Analyst

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 --

Mike Santomassimo -- Chief Financial Officer

Not that I would say are super significant at this point. But when you go category by category and say, OK, will 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 just is 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.

Vivek Juneja -- J.P. Morgan -- Analyst

OK. 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?

Mike Santomassimo -- Chief Financial Officer

The loan -- the leveraged finance one, Vivek?

Vivek Juneja -- J.P. Morgan -- Analyst

Yes. Yes.

Mike Santomassimo -- Chief Financial Officer

That's after fees.

Vivek Juneja -- J.P. Morgan -- Analyst

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

Mike Santomassimo -- Chief Financial Officer

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

Vivek Juneja -- J.P. Morgan -- Analyst

OK. All right. Thank you.

Operator

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.

Matt O'Connor -- Deutsche Bank -- Analyst

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 talk and fears?

Charlie Scharf -- Chief Executive Officer

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 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, and we would expect it to be a high-quality card customer that we can do other things with across our franchise.

Matt O'Connor -- Deutsche Bank -- Analyst

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

Charlie Scharf -- Chief Executive Officer

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

Matt O'Connor -- Deutsche Bank -- Analyst

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

Charlie Scharf -- Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

John Campbell -- Director of Investor Relations

Charlie Scharf -- Chief Executive Officer

Mike Santomassimo -- Chief Financial Officer

Ken Usdin -- Jefferies -- Analyst

John McDonald -- Autonomous Research -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Scott Siefers -- Piper Sandler -- Analyst

John Pancari -- Evercore ISI -- Analyst

Erika Najarian -- UBS -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Vivek Juneja -- J.P. Morgan -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

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