Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wells Fargo Second Quarter 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; the operator will provide instructions for the Q&A session. Please note that today’s call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Thank you, Regina. Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf and our CFO, John Shrewsberry 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 release and quarterly supplements are available on our Web site 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 release and quarterly supplement. 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 in the earnings release and in the quarterly supplement available on our Web site. I will now turn the call over to Charlie.

Good morning everyone. Thank you, John. I'm going to open the call by reviewing what is clearly a very poor quarter for us. I'll review the drivers of our results, make some comments about the environment and discuss the rationale for the intended dividend reduction. I'll then turn the call over to John to review second quarter results in more detail. Our view of the length and severity of the downturn deteriorated considerably from our assumptions at the end of the first quarter and this, as well as the knock-on impacts from COVID, substantially impacted our results this quarter. We added $8.4 billion to the allowance for credit losses. Charge-offs increased $204 million from the prior-quarter to $1.1 billion. Net interest income was down 13% from the prior-quarter driven primarily by lower rates. The constraints of operating under the asset cap have limited our ability to offset lower rates with balance sheet growth and we actually took actions during the quarter to limit loan and deposit growth, which John will highlight. Expenses included approximately $400 million related to decisions we made due to COVID, most of which we do not expect to be permanent, but was the right thing to do for employees and to improve the safety of our facilities; about $350 million of deferred compensation with an offset in fee revenue; $1.2 billion of operating losses primarily for customer remediation accruals related to our ongoing work to remediate the historical issues in community banking as we took another look under new leadership at outstanding matters. This accrual will enable us to do the right thing for our customers, while resolving these matters as quickly as possible. Revenues were lower by about $295 million due to COVID-related fee and interest waivers for certain products. In addition, a strong quarter of mortgage production revenue was partially offset by a $531 million write-down of our mortgage servicing rights asset due to higher projected defaults and faster prepayment assumptions. And while it's a smaller part of the company, we did have record revenues this quarter in our Corporate & Investment Bank. Even with the loss this quarter, our CET1 ratio increased to 10.9% from 10.7% last quarter, and it's well above our regulatory minimum of 9%. As a reminder, our regulatory minimum reflects our expected stress capital buffer of 2.5%, the minimum possible. As you know, Wells Fargo is predominantly a U.S. bank that takes deposits and makes loans. Our balance sheet composition is primarily cash, loans and investment securities that support consumers, small businesses, middle market companies and corporate clients; as those customers suffer, we do as well. As the economic environment brought on by COVID negatively impacts our customers and clients, it will filter through to our results primarily in the form of outsized credit losses, and compressed net interest margins. Additionally, given we operate with a balance sheet cap, we must prioritize balance sheet capacity, both assets and deposits, and there is certainly an opportunity cost for us in an environment like this. In addition, given the uncertainty and the recovery, we must manage the balance sheet to a level where we can remain below the asset cap, even if there's another period of material loan drawdowns or upward pressure on our deposit base. Having said that, we’re responsible for the position we're in. The balance sheet cap exists because leadership failed to both oversee and build the appropriate infrastructure of the company and our financial underperformance is because leadership didn't make the difficult decisions necessary. We’re focused on both of these. We still have much to do to build the right risk and control foundation, which is what our regulators expect and nothing can or will stand in the way of those activities. It is our highest priority. But we also recognize that we've been extremely inefficient for too long and will begin to take decisive actions, none of which will impact our risk and regulatory work to increase our margins. To the first point, we continue to make meaningful changes to improve the foundation of the company. In the second quarter, we announced a corporate risk organizational structure to provide greater oversight of all risk-taking activities and a more comprehensive view of risk across the company. Our new risk model will have five line-of-business Chief Risk Officers to complement the teams and leaders by risk type. During the quarter, we hired a new Chief Operational Risk Officer, a new Chief Risk Officer for Consumer Lending and the Chief Control Executive. We continue to add additional talent to the senior leadership team. Since I joined the company nine months ago, I’ve announced six new members to the operating committee, all coming from outside of Wells Fargo with strong and relevant industry experience; over two-thirds of our operating committee have joined Wells Fargo since 2018. All of our business line CEOs are now in place, including Mike Weinbach who joined Wells Fargo in May as CEO of Consumer Lending and Barry Sommers who joined at the end of June as CEO of Wealth and Investment Management. Lester Owens will be joining us next week in a newly created role as Head of Operations. Lester has more than 30 years of experience in the financial services industry and senior operations roles. He will be responsible for building a more integrated approach to Wells Fargo's business operations functions. He has a proven track record in delivering a better customer experience while driving substantial efficiencies at the same time. We also made significant hires and role changes from our operating committee including a new Head of Government Relations, Corporate Communications and Corporate Responsibility as well as Chief Administrative Officer and a new Head of our Home Lending businesses. We continue to have over 200,000 employees working from home and we plan to have employees who are currently working from home continue to do so until at least September. It is too early to determine exactly when we will ultimately return to a more traditional work environment. But we will be cautious about bringing people back into the office. While I do believe there are meaningful benefits of people working physically together, we will move forward when we’re comfortable that the health risks are manageable. Where there is a specific need, we will do so with the appropriate safety precautions in place. And we will make these decisions by geography and by facility. We've done this since the beginning of the crisis, and we’ll continue to do so and serve our customers and communities. We've made significant accommodations for our customers through the end of June; we have helped more than 2.7 million consumer and small business customers by deferring payments and waiving fees. This includes over 2.5 million payment deferrals representing more than $5 billion in principal and interest, including $3.2 billion in mortgage loans serviced for others. We provided approximately $6 million in fee waivers for consumer and small business customers exceeding $200 million. For our commercial clients, we processed approximately 246,000 deferrals representing more than $1.5 billion of principal and interest payments. In addition, for commercial distribution and auto finance customers, we provided maturity date extensions representing approximately $6.6 billion of outstanding principal and interest. Through the end of June, we have funded 179,000 PPP loans totaling $10.1 billion with an average loan size of $6,000; 60% of those were for loan amounts of less than $25,000, 84% of those were for companies that had fewer than 10 employees, 90% have less than $2 million in annual revenues, and 41% were to companies in low- and moderate-income areas or at least 50% minority census tracts. And we announced last week our Open for Business Fund. We have committed to donating approximately $400 million in gross processing fees earned from the Paycheck Protection Program to help support businesses impacted by the COVID-19 pandemic and we will work with nonprofit organizations to provide capital, technical support and long-term resiliency programs to small businesses with an emphasis on serving minority-owned businesses. Customer deposits have continued to increase reflecting unprecedented government stimulus programs, lower spending and customers converting investments into cash, while commercial deposits declined, reflecting actions we took to manage under the asset cap, which John will describe in more detail. In March, our commercial customers utilized over $80 billion of their loan commitments during the market turbulence at the onset of the pandemic and almost all of those loans were paid down in the second quarter. Debit card spend started to increase in April and returned to pre-COVID levels in May and in the last full week of June were up approximately 10% from the same week a year ago. Consumer credit card spend improved steadily starting in mid-April, but was still down approximately 10% from a year ago as of the end of June. Commercial card spend remained significantly lower throughout the second quarter and was still down over 30% in the last full week of June compared to the same week a year ago with declines across industry segments. We continue to monitor our consumer and commercial customer spending trends as the nation goes through the various stages of reopening. Trends in digital usage are strong: mobile deposit dollar volume was up over 100% in the second quarter compared with a year ago. In the second quarter, digital logins were up 21% from a year ago. Let me turn to the dividend now. Today we announced that our board expects to reduce our dividend for the third quarter to $0.10 per share. The Federal Reserve has authorized banks to pay common stock dividends that do not exceed an amount equal to the average of the bank's net income for the four preceding calendar quarters. Based on these instructions, we previously announced that this limitation would cause us to reduce the dividend from the current level of $0.51 a share. In addition, while this requirement currently applies to the third quarter, the Federal Reserve stated it reserves the right to extend the limitations as it learns more about the evolution of the COVID event. Separately from this, our board has been reviewing the level of the dividend and I discussed the way in which we would approach evaluating the right go-forward level. First we looked at our capital position. As I said, our capital position remains quite strong. So our current capital level is not the driving factor in our decision. Having said that as we look forward, we do not pretend to have a deeper understanding of the path of the recovery than others. Using our economic assumptions, our capital levels remain above the minimum required and our CCAR results confirm the strength of our capital position. But we believe it's prudent to note that our assumptions are just that. So we felt it was appropriate to factor this uncertainty into our thinking around the appropriate dividend level in this environment. After evaluating our capital position, we considered our current and expected earnings level. We expect the impact of COVID to continue to negatively impact our earnings until we see a clear trend of meaningful improvements in unemployment and GDP. This will result in continued lower levels of NII and certain economically sensitive fee revenues as well as potentially unforeseen expenses to operate in this environment. In addition, while our allowance for credit losses is intended to cover expected losses based on our current economic assumptions, we're mindful of the uncertainty and the need to reevaluate these assumptions continually. And I will discuss this more. But while we'd have actively begun to address the fact that our expenses are significantly too high, it will take some time to see the impact of our actions in our results. Putting this all together, it is critical in these uncertain times that our common stock dividend reflects current earnings capacity, assuming a continued difficult operating environment, evolving regulatory guidance and protects our capital position if economic conditions were to further deteriorate. Given this, we believe it's prudent to be extremely cautious until we see a clear path to broad economic improvement. We're confident that this eventual economic improvement combined with our actions to increase our margins will allow our wonderful franchise to support a higher dividend in the future. We're extremely disappointed to take this action and do understand that many rely on this stream of income. However, we must be prudent in this environment. I have acknowledged in the past that our expenses are too high, and that we're building roadmaps to improve our efficiency ratio. To repeat, there's nothing structurally different about Wells Fargo that prevents us from being as efficient as our large peers, but we’re far from it. For us to bring our level of efficiency close to our peers, the math will tell you we need to eliminate over $10 billion of expenses. While our work is not yet complete to commit to specific numbers and timeframes, we expect to take a series of actions beginning in the second half of the year to begin to reduce our expense base and bring our expenses in line with the size and composition of our businesses. This will be a multi-year effort for sure but we'd like to see a reduction in expenses next year and we now have a centralized team driving the effort across the enterprise and our lines of business and functional areas have dedicated resources focused on this. This work did not start in the last few months. But the extremely challenging operating environment and uncertain outlook has accelerated our sense of urgency. It’s important to note that I deeply believe that this exercise is about making us a better and more efficient company, not just about reducing expenses. We have too many management layers, spans of control for managers are too narrow, and we have resources dedicated to activities that are not a priority today. This cannot continue. We also have the opportunity to apply lessons we have learned since the onset of the pandemic to drive efficiency across the company. Over the medium term, we have the opportunity to materially reduce our expense, including increasing digital adoption for retail and commercial clients, reducing third-party spend, consolidating locations including branches, field offices and corporate sites and applying technology differently. In addition, the opportunity to consolidate our operational platforms is still meaningful. As a financial company and specifically a G-SIB, we must be strong financially to serve our customers and support our communities, but also to provide growing opportunities for our employees and while our balance sheet is strong, our margins are too narrow. To ensure we’re that source of strength we need to begin to take action to improve our results. As I've said, and I'll say it again, we will not do anything that will impact the work we have underway to build out our risk and control environment. The opportunity to become more efficient exists elsewhere in the organization and we will protect this work at all costs. I'll continue to share more specifics about our plans as they develop and we will be talking more about this next quarter. While there remains much economic uncertainty, many market liquidity trends are strong as Fed programs continue to effectively support the smooth functioning of the capital markets. While still wide to pre-crisis levels, market spreads have continued to improve since the peak of the dislocation and have retraced 70% to 90% of their mid-March widening. Liquidity in treasury and interest rate swap markets returned to pre-crisis levels and the Fed’s open market purchase program has stabilized mortgage basis valuations and improved liquidity. HQLA bid-ask, a measure of the cost to transfer risk, has retraced to pre-crisis levels while measures of volatility are now below pre-crisis levels. However, the economic recovery will not be smooth. Much of the economy is still essentially closed or just beginning to open and additional restrictions are being implemented as the spread of the virus continues to increase in many areas of the world. While consumer spending has increased from levels at the end of the first quarter, it is still down from a year ago with significant declines in areas like travel, entertainment and restaurants. And while government stimulus programs provided a safety net for many, they’re scheduled to run off raising the possibility of more economic hardship ahead. Having said all of this, cities, communities, people and businesses are all learning what it takes to reopen safely, and there is progress on vaccines and therapeutics. We will do what we can to support the fastest recovery possible, but we will be cautious in our outlook until we see the facts. I want to conclude my comments today by discussing an important topic: racial injustice. In my conversations with different groups over the past months, the pain and frustration with the lack of progress within both our country and Wells Fargo's clear inequality and discrimination has been clearly exposed and must not continue. Wells Fargo has not been effective in creating enough diversity or a consistently inclusive environment. I've outlined a number of actions we’re taking around race to change the outcomes, including creating a new role which will have a broad mandate of driving diversity and inclusion in both the workplace and our business. We'll be evaluating operating committee members based upon their progress in improving diverse representation and inclusion in their area of responsibility and it will have a direct impact on year-end compensation decisions. And we've announced the donation of these gross processing fees for PPP estimated to be approximately $400 million. This is just the beginning of the work needed to address this crisis and to meaningfully contribute to the change that is necessary. But I believe that this is a watershed moment and we will be part of making sure this time is different. Finally, I want to thank all of the employees at Wells Fargo who continue to work tirelessly to serve our customers and successfully execute on our priorities. I will now turn the call over to John.

Thanks, Charlie. Good morning, everyone. Charlie's comments covered most of the information on Page 2 of the supplement including the largest driver of our reported loss, which was the $8.4 billion increase in the allowance for credit losses in the second quarter. So let me highlight just a couple things here. First, our income taxes in the second quarter reflected the impact of annual income tax benefits primarily tax credits driven by our reported pretax loss. As a result, we currently expect our effective income tax rate for the remainder of the year to be approximately 26%, excluding the impact of any discrete items. Also, deferred compensation plan investment results increased net gains from equity securities by $346 million and increased personnel expense by $349 million. As we've highlighted many times, while these hedges are largely P&L neutral, that can result in large swings in our reported revenue and expense trends. In late May, we entered into arrangements to transition these economic hedges from equity securities to derivatives in the form of total return swaps. As a result of this change, starting in the third quarter, our reporting for this item will be less volatile since most of the accounting impact from deferred comp hedges will be reported in personnel expense. Turning to Page 3, Charlie covered the support we’re providing to our customers and communities during the pandemic. But let me just highlight that approximately $400 million donation for small business recovery efforts we announced last week through the new Open For Business Fund will be donated when the gross fees are recognized in revenue. Turning to Page 4, while our earnings in the second quarter were significantly impacted by the economic environment, our capital and liquidity continued to be strong with both our CET1 ratio and LCR increasing from the first quarter. Our CET1 ratio increased to 10.9%, 190 basis points above our current regulatory minimum of 9%. We expect our stress capital buffer to be 2.5% which is the lowest possible under the new framework and would result in the regulatory minimum for our CET1 ratio remaining at 9%. Even with the large increases in our allowance over the past two quarters, our CET1 level was $23.7 billion above the regulatory minimum. Our LCR increased to 129%, 29 percentage points above our regulatory minimum and our primary unencumbered sources of liquidity are approximately $511 billion. Turning to loans on Page 5, similar to industry trends, period-end consumer and commercial loans outstanding declined in the second quarter, but average balances grew reflecting increases in outstanding balances late in the first quarter. I'll explain the drivers of consumer and commercial period-end loan balances in more detail starting with consumer on Page 6. Consumer loans were down $20.1 billion or 5% from the first quarter. This decline includes the reclassification of $10.4 billion of conforming first mortgage loans to held-for-sale status to provide flexibility to manage our balance sheet under the asset cap. The economic slowdown from COVID-19 reduced consumer spending and was reflected in lower credit card balances, lower auto originations and other revolving and installment loan balances. In addition, we took actions during the second quarter to tighten credit standards given the current economic environment and to manage to the constraints of the asset cap. These actions included no longer purchasing jumbo mortgage loans through our correspondent mortgage business and not accepting home equity and personal line of credit applications. In the auto business, we've taken actions to mitigate future loss exposure and our spreads on new originations improved to their highest levels since 2016. That said, as states began to reopen later in the quarter, we saw increased loan demand including higher credit card spending and higher auto loan originations. Turning to commercial loans on Page 7, C&I loans declined $54.9 billion or 14% from the first quarter driven by paydowns of revolving loans following increased loan draws in the first quarter during the market turbulence at the onset of the pandemic. As Charlie highlighted, almost all of the $80 billion of loan draws in March were paid down during the second quarter. These paydowns were partially driven by strengthened capital markets and helped drive record revenues in the second quarter in our corporate and investment bank. Commercial real estate loans increased $2.1 billion from the first quarter with growth in both commercial real estate mortgage and in construction loans. Turning to deposits on Page 8, the industry has experienced very strong growth but due to our asset cap constraint, we've worked to manage growth of certain lower liquidity value deposit categories. However even after these actions, average deposits grew 9% from a year ago and 4% from the first quarter. The linked quarter growth was driven by non-interest bearing deposits which were up 18% while interest bearing deposits declined 1%. Period-end consumer and small business banking deposits grew $78.6 billion from the first quarter. This strong growth reflected COVID-19 related impacts including customers' preference for liquidity, loan and tax payment deferrals which otherwise would have reduced deposits, stimulus checks and lower consumer spending. Wholesale banking deposits declined $32.1 billion reflecting actions we took to manage under the asset cap including an emphasis on reducing certain non-operational deposits. Average deposit costs declined to 17 basis points, down 35 basis points from the first quarter with declines across all of our lines of business. While wholesale banking deposit costs declined the most reflecting higher deposit betas, both WIM and retail banking deposit costs also declined. We currently have no active retail banking promotions and we expect deposit costs will continue to decline in the second half of this year and reach the single-digit lows realized in 2015 and 2016. Net interest income declined $1.4 billion or 13% from the first quarter due to balance sheet repricing driven by the impact of the lower interest rate environment, $275 million of less favorable hedge ineffectiveness accounting results driven by large interest rate changes, $187 million of higher MBS premium amortization due to higher prepayment rates. And these declines were partially offset by a shift to a lower cost mix of funding. Net interest income was down 13% for the first half of the year and as I discussed in June, we currently expect net interest income to be in the $41 billion to $42 billion range for the full-year 2020 which would be down 11% to 13% from the full-year of 2019. This decline reflects the lower interest rate environment and the constraints the asset cap places on our ability to grow the size of our balance sheet as well as higher MBS premium amortization, which we expect to persist for the remainder of the year. Turning to Page 10, non-interest income increased $1.6 billion or 24% from the first quarter, driven by a $1.9 billion increase in net gains from equity securities reflecting lower securities impairment and higher deferred compensation plan investment results. We will explain some of these drivers in more detail. Deposit service charges were down $279 million from the first quarter driven by COVID-19 related impacts including lower overdrafts as customers have reduced debit card transactions and increased deposit balances as well as higher fee waivers. Trusted investment fees declined $223 million from the first quarter. Investment banking had a strong quarter with revenue increasing $156 million or 40% driven by strength in debt and equity capital markets. This growth was more than offset by both lower retail brokerage advisory fees which were priced at the beginning of the second quarter when market levels for advisory assets were lower and a decline in brokerage transactional revenue. Mortgage banking revenue was relatively stable linked quarter with strong growth in mortgage loan originations more than offset by declines in servicing income. Total residential held-for-sale originations increased 30% from the first quarter to $43 billion primarily driven by lower mortgage interest rates. Lower interest rates drove strong industry volume; the second quarter is estimated to be the largest origination market since the third quarter of 2003. As we managed our application pipeline to handle the strong demand, our margins increased. In the second quarter, our production margin on residential held-for-sale mortgage loans was 204 basis points up from 108 basis points in the first quarter. We've continued to add capacity and expect originations to increase in the third quarter if rates remain low, and we would expect margins to be relatively stable with second quarter levels. Servicing revenue declined $960 million from the first quarter, but the decline was driven by a lower valuation of our MSR asset as a result of updated assumptions including higher prepayment assumptions, and higher expected servicing costs due to an increase in projected defaults. Servicing fees were also lower due to payment deferrals and fee waivers provided to our customers in response to the pandemic. Finally, net gains from trading activities increased $743 million from higher trading volumes across many products, increased volatility leading to a wider bid-offer spreads and substantial spread and price improvement in certain capital markets. Turning to expenses on Page 11, as Charlie highlighted, our expenses are too high. And we're beginning to take further action to improve our efficiency. The $1.5 billion increase in our expenses from the first quarter was driven by higher operating losses as well as higher personnel expense reflecting a $947 million increase in deferred comp expense. Charlie described the $1.2 billion of operating losses which included $765 million of customer remediation accruals for a variety of matters as well as higher litigation accruals. The $597 million increase in personnel expense included the increase in deferred compensation which is P&L neutral, and $231 million of COVID-19 related employee expenses including premium pay for those who had to come into the office and payments for backup childcare. Most of the COVID-19 related employee expenses have now expired. We also had $133 million of higher COVID-19 related occupancy expense to make our property safer for our employees and customers, including enhanced cleaning, additional supplies and workstation modifications. These costs will likely remain elevated until the pandemic ends. The impact of COVID-19 also reduced some of our expenses including travel and entertainment and advertising and promotion expense. Turning to our business segments, starting on Page 12 as Charlie highlighted, we now have the leadership for our five business segments in place. And we will transition to reporting our segments in accordance with the structure starting in the third quarter. Community banking reported a net loss of $331 million driven by an increase in provision expense. On Page 13, we provide our community banking metrics. We had 31.1 million digital active customers up 4% from a year ago. While the number of digital customers remained stable from the first quarter, these customers are doing more digitally with logins up 10% from the first quarter. And the number of checks deposited using a mobile device reached a record high in the second quarter, up 32% from the first quarter. Approximately 20% of our branches are temporarily closed due to COVID-19 as a result of fewer branch openings and increased digital usage. Teller and ATM transactions were down 19% from the first quarter, and 28% from a year ago; however, we still have approximately 1 million teller transactions occurring at our branches every business day. Our customers' demand for cash has decreased by approximately 20% compared to a year ago. This decrease was reflected in lower demand for cash in our branches. While ATM transaction volume was down, the amount of cash withdrawn at our ATMs has increased reflecting higher levels of cash per withdrawal in part driven by the higher ATM withdrawal limits we implemented in the first quarter. Charlie highlighted the improving trends we experienced during the second quarter for debit and credit card spend; higher debit card spend later in the quarter resulted in total second quarter spend being flat compared with a year ago. However, transaction volume was down 13% from a year ago with customers spending more per transaction. As a reminder, debit card fees are based on transaction volume, not dollar volume. Turning to Page 14, wholesale banking reported a net loss of $2.1 billion as revenue growth was more than offset by an increase in provision for credit losses. I've already discussed the drivers of the loans and deposits, so let me highlight a few other business drivers. Corporate and Investment Banking capital markets had record revenue in the second quarter driven by the trading revenue increases I described earlier and record investment grade debt issuance. Wells Fargo Capital Finance was the number one book runner of asset-based loans with year-to-date market share increasing to 20%. We maintained our leadership position in this market by providing an important source of liquidity to our customers during a very challenging time. Wealth and Investment Management earned $180 million in the second quarter down 61% from the first quarter, primarily driven by an increase in the allowance for credit losses, the lower interest rate environment and lower market valuations at the beginning of the quarter. We continue to experience strong demand from clients for liquidity products with growth in deposits and money market funds in our asset management business. Wells Fargo Asset Management achieved a record high $578 billion in assets under management in the second quarter, up 12% from the first quarter driven by continued momentum in the money market business, higher market valuations and fixed income net inflows. While advisory assets in our brokerage business increased 14% during the quarter, we had lower retail brokerage advisory fees since they're priced at the beginning of the quarter when market valuations were lower. These fees will benefit from the stronger markets at the beginning of the third quarter. Turning to credit results for the company on Page 16. Our net charge-off rate was up eight basis points from the first quarter to 46 basis points which is still at historically low levels, particularly during an extremely challenging economic environment. Keep in mind that a significant amount of customer accommodations we've provided for our consumer and commercial customers since the start of the pandemic will delay the recognition of net charge-offs, delinquencies and non-accrual status for those customers who would have otherwise moved into past due or non-accrual status. However, I will point out that this dynamic was considered in our allowance for credit losses. Commercial criticized assets increased $13.3 billion or 53% from the first quarter with C&I up $7.2 billion and CRE up $6.1 billion. Non-accrual loans increased $1.4 billion from the first quarter driven by growth in commercial non-accruals. I would note that 75% of our commercial non-accrual loans were current on interest and principal as of the end of the second quarter. We provide more detail on C&I non-accrual loans on Page 17. While C&I loans outstanding and total commitments declined from the first quarter, non-accrual loans increased 59% driven by oil and gas and real estate and construction C&I loans, which includes credit facilities to REITs and other non-depository financial institutions. Last quarter, we provided more details on industries with escalated monitoring and those industries largely drove the increase in criticized assets in the second quarter, including retail, entertainment and recreation. Turning to our commercial real estate portfolio in Slide 18, we are the nation's largest commercial real estate lender and our portfolio is well diversified both by property type and geography. Our commercial real estate loans are subjected to rigorous underwriting standards and are well structured. Before COVID-19, this portfolio was performing at historically strong credit levels with a good mix of assets and geography, a well-capitalized customer base and overall low levels of leverage. We had proactively reduced our exposure to retail and have minimal exposure to land or condos where losses were highest in the last cycle. Since the pandemic began, we've worked to assist customers on a case-by-case basis, we've continued our strict routine monitoring process with the goal of identifying problems early. Our CRE team has an experienced bench with workout backgrounds and perspective in times of distress which has enabled us to ramp-up quickly. However, these are unprecedented times and non-accruals were up $286 million or 30% from the first quarter, given what's been going on in the economy it is not surprising the shopping centers, retail and hotels/motels accounted for 59% of non-accrual loans in the second quarter and accounted for 90% of the increase from the first quarter. Criticized assets were up $6.1 billion, or 140% from the first quarter driven by the same sectors that drove the increase in non-accruals with the addition of office buildings. Turning to our oil and gas portfolio on Page 19, oil and gas loans accounted for 1% of our total loans outstanding, with $12.6 billion outstanding at the end of the quarter, down 12% from the first quarter. Total commitments were down $1.7 billion from the first quarter reflecting the impact of spring redetermination changes on borrowing bases, proactive portfolio management, as well as the weaker credit environment. Net charge-offs increased $111 million from the first quarter with 87% of second quarter net charge-offs from the E&P sector. Non-accrual loans increased $865 million from the first quarter with approximately 93% of non-accruals still current on payments. Criticized loans increased 26% from the first quarter, reflecting downward credit migration resulting from commodity price volatility and included numerous credit downgrades of publicly rated companies. On Page 20, we provide detail on our allowance for credit losses. The $8.4 billion increase included $6.4 billion for commercial loans and $2 billion for consumer loans. Our allowance coverage for total loans was 2.19%, up 100 basis points from the end of the first quarter with the largest increases across commercial loans, junior lien mortgage loans and credit card loans. We highlight the key drivers of the increase in our allowance for credit losses on Page 21. We considered current economic conditions which worsened significantly compared to prior expectations as unemployment levels reached 14.7% in the second quarter, in addition over $2.4 trillion in fiscal stimulus programs as well as customer accommodations provided near-term support for borrowers. On this page, we provide details on the economic forecast and our base case scenario for the second quarter allowance, which assumes near-term economic stress, recovering in late 2021 including unemployment levels declining to approximately 6% by the fourth quarter of 2021. Our housing prices are forecasted to remain relatively stable, commercial real estate prices are forecasted to decline by low to mid-teens with hotel, restaurant and retail sectors expected to decline much further. In addition, collateral prices remain highly uncertain given limited property sales. By a large majority of weights placed on the base case scenario, we apply some weighting to a downside scenario to reflect the uncertainty in the economic forecast. And as I previously mentioned, customer forbearance and other deferral activities provided in response to COVID-19 were considered in our loan portfolio performance expectations and loss forecast. However, please keep in mind that our allowance for credit losses is influenced by a variety of factors including changes in loan volumes, portfolio credit quality as well as general economic conditions. While the timing of the end of the pandemic and the eventual path to economic recovery remain unclear, we believe that our allowance captures the expected loss content in our portfolio as of the end of the second quarter. Turning to capital on Page 22. As I highlighted earlier, our CET1 ratio increased to 10.9% in the second quarter, and we elected to apply the modified CECL transition provision to our regulatory capital. The impact of this selection was to increase capital by $1.9 billion and a 14 basis point increase in our CET1 ratio. Additionally, as a result of senior debt issuance during the second quarter and a decline in our RWA, our TLAC ratio increased to 25.3%, which provides a significant buffer to our required minimum of 22%. In summary, our results in the second quarter were disappointing and economic conditions remain uncertain, but we're focused on doing the work necessary to improve the earnings capacity of the company, including reducing our expenses while meeting our regulatory commitments. And Charlie and I will now take your questions.

Now we will begin the question-and-answer session. Our first question will come from the line of Erika Najarian with Bank of America. Please go ahead.

Yes, good morning. My first question is a clarification question for Charlie. Charlie, during your prepared remarks, you noted that your expenses were about $10 billion greater than your peers or where you need to be to be equivalent to peers on efficiency. Are you saying that lopping off $10 billion in expenses is an eventual long-term goal for this company to be in line with their larger peers?

Well, I mean, what I said was that the math, if you do the math, what it says is that when you look at their efficiency ratios versus ours, our expenses are at least $10 billion higher than they should be. And there's no reason why that should occur. And so we are doing the work to create a roadmap for a company which is significantly more efficient. Exactly what the timeframe is and where we ultimately get to I think, we will provide more information on when the future will play itself out. But we can do the same math that you can do. And there's no reason why as a management team, we don't have the ability to be as efficient as the rest.

Got it. That's clear. And my follow-up question has to do with the potential for the Fed to extend the income test beyond the third quarter dividend. And I'm wondering, so as we think about you mentioned that expenses should start coming down in 2021. As I think about how consensus is formulating future earnings power, I think consensus is expecting that the majority of your reserve build should be behind you. But I don't think that restructuring costs for example that would relate to future efficiency initiatives are in consensus. The question that I'm really asking here is that if the Fed extends the income test beyond the third quarter, do you feel confident that according to how they're looking at dividend capacity, the $0.10 is supportable going forward?

Sure, this is John. We certainly have the ability to extend the current framework. And frankly, it even seems likely just given the way the calendar lines up in the resubmission process that is going to work for the next CCAR. I think Charlie's point is we're going to do what's necessary to get as efficient as we can be. And to the extent that that kicks off one-time charges which you might expect, and if that has an influence on our dividend capacity as a result of the Fed keeping the current regime in place, then they will have to tolerate that. We're not going to avoid doing what's right economically because of accounting consequences; we're going to follow GAAP and get as efficient as we can. The outcome is going to be the outcome. In part, we set the current dividend or propose to set the current dividend where it is so that it would buy us plenty of room to operate while we get through the next few quarters and chart the eventual path to greater profitability. But accounting consequences will be what they are; it wasn't a primary consideration in setting the number where we did.

The only thing I would add is I think that when we think of the work that we did, our board didn't approach this conversation around the dividend with an idea of making quarter-by-quarter determinations. Our hope is that this does become a level which is sustainable as we go through this period of uncertainty and as the Fed decides how they want to treat capital return over the next series of quarters. We do have some items that impact our capital and our ability to return capital with this rule that don't reflect our earnings power going forward. For example, we had a $3 billion settlement with the Department of Justice, which is in our historical numbers; that $3 billion is roughly $0.18 a share of a negative that ultimately will roll out and is already actually in our capital number. So we have these dynamics that the board thought about when we set the dividend level for the quarter that don't relate to the future earnings capacity of the company, even as we look out into 2021.

Got it. Thank you for the clear answers.

Your next question comes from the line of John McDonnell with Autonomous Research. Please go ahead.

Yes, hi. Good morning. John, could you remind us just where you're on the asset cap flexibility, what needs to be done each quarter now with deposits coming in and some loan demand and what kind of flexibility you have to operate under that and where you are today on the way it gets measured? Thanks.

Sure. So we were in compliance with it at the end of the second quarter. The items that we did during the late first and early second quarter to maintain compliance were really focused on our wholesale funding footprint by shrinking the amount of external repo and other financing that we do and taking trading assets down and we had a focus on certain categories of non-operational deposits, the ones that have very low liquidity value. From this point forward, it's more of a liability management exercise to make sure that we don't retain too much in the way of low liquidity value deposits and that we're thoughtful about other liabilities. On the asset side, there's so much cash on the balance sheet right now that it gives plenty of flexibility for what we need to do with loans. You saw that our LCR is 129% for the quarter and deposits have grown nicely. So we're very thoughtful and cautious about how we price deposits; it's about those that have low liquidity value. We're thoughtful about maturities as they come up in non-deposit funding because with the inflow of deposits, we can rely more on that and less on notes and institutional CDs and other things. That's the work that we've been doing and that's the path that we have for the next quarter or two.

Okay, and you reiterated the net interest income outlook for the year, how should we think about kind of jumping half point for the net interest margin and net interest income as we go into next quarter, what are some of the puts and takes that we should factor in the model?

I think it's going to be relatively flat from where it is today. We're sort of in that zone. As I said, $41 billion to $42 billion for the year still feels like the right number. So I think it'll be — we're not really carefully managing the NIM as we're looking for the dollars in net interest income. But it shouldn't deviate too much from where we’re right now.

Okay, got it. And is there anything in terms of asset cap progress, Charlie can comment, I know you can't say too much, but in terms of the work being done and progress and doing what you need to do to satisfy the Fed?

No, John, I appreciate everyone being interested given the limitations of it and asking the question, it's going to be the same response every single quarter, which is we're focused on it. It is along with the other enforcement actions, the biggest priority that we have, we're doing our work. And the Fed will determine when the work is done to their satisfaction.

Understood. Thanks.

Your next question comes from the line of Scott Siefers with Piper Sandler. Please go ahead.

Good morning. Hey, thanks for taking. John, just was hoping you might be able to sort of update or refresh your thoughts on how and sort of when losses might evolve. I guess embedded in that is sort of how are you treating reups, deferral requests and things like that. Additionally, the updated reserve build kind of implies sort of what you think about cumulative losses through the period, but any updated thoughts you can share, please?

Yes, well as it relates to deferrals which generally speaking is the consumer side of the house, the fact that we are deferring definitely pushes out, rolls through delinquency buckets into charge-offs and so the actual charge-offs themselves will probably come later than they otherwise would. We believe that we've fully provided or captured that in the allowance. So we've taken the credit charge today that we think is the right one at the end of the quarter even if the charge-offs come somewhat later. We're also seeing a pickup in charge-offs in commercial but things do take a little bit before they roll. I would expect charge-off rates — and they'll be different by asset category — to sort of move up slowly through the end of the year, even into the first couple of quarters next year, and then start to flatten out after that just based on the way things progress through loss recognition.

Okay, perfect. And then maybe just to switch gears a little, the additional customer remediation accrual. Charlie or John, could you go through sort of the — I know you alluded to sort of taking a fresh look at things under new management. But I was curious given the charges we've already seen over the past couple of years sort of what drove those additional accruals and the new thinking?

As Charlie said, it was his new leadership at the top of the organization in consumer lending and in the central capability that we have running customer remediation. I think they've gone item by item and thought about how to be a little bit more expansive, a little bit more consumer friendly. Many of these things aren't crystal clear and you're always making a judgment as to who it applies to, how much should apply, and over what timeframe, and really in an effort, as Charlie said, to speed it up and move it through. They were a little bit more expansive in order to accomplish that. But it's by and large, it's the same items that we've been talking about for the last couple of years. There are always new things that come in out of that bucket. But the bigger dollars relate to the same topics that we've been covering for a while.

The only thing I would emphasize as John said is most of the dollars do relate to those items. And there's value in getting these things behind us. It's the work—it's the overhang. It's what our customers are going to do to think about us. And so we're obviously going to do what's right for the financial position of the company. But we want to treat people properly and we want to move on and move to the future. And so we made decisions around what we were willing to do with that balanced lens.

Okay, perfect. Thank you very much.

Your next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi, good morning. A couple of questions. First off, Charlie just want to get a sense as to where we should be thinking about where the expense improvements come from. And the reason I'm asking is, I know you're in the middle of business unit reviews, you've got new business unit heads in several places. Typically folks like that are going to want to make investments; you're not going to touch the regulatory side. So where should we anticipate you have room to start bringing down expenses ahead of regulatory framework changes?

Yes, and I think your point is actually a very important one, which is part of the reason why we've been careful about making clear that we are going forward and actively going to start to take actions to reduce expenses but we don't want to back ourselves into a corner until all of our work is done because of those two things that you mentioned, which are very important. Having said that, the foundational work to build the risk and control infrastructure and ultimately satisfy what the regulators would like us to satisfy is clear, distinct and we know exactly what it is and what resources are dedicated to that. When we look elsewhere in the company — and I used the words in the prepared remarks — we have spans and layers at the company which are well beyond what I've seen at other places and make us a very inefficient company. When we look at the work that's being generated, the things that are being done, we as a management team believe that we can change the priorities so that we're really clear on what has to get done and stop a bunch of work that is not a priority. We have duplicative platforms, duplicative processes across the company. As we think about a series of these things, they are extremely significant because these things exist in almost every part of the company. In addition, we have stopped any reductions that were going to take place just given the environment. So there is a series of actions that we’re ready to take. In fact, we have a series of employees who've been told that their jobs will ultimately go away, but we were going to let some time pass to get through the initial stages of the COVID crisis. So we do see a clear path to start making an impact on the expense base. And it's like an onion—the more we do, the more clear the next round will become.

The thing that you could start in second half, I know you mentioned that you'd like to see benefits; I know you mentioned that we would see benefits in 2021 with expenses below 20. But should we anticipate that some of this will start in second half 2020?

We are clearly going to take actions in the second half of this year, and depending on the economics and accounting of it, I'm not quite sure whether you'll see the full benefit next year, but the actions will begin in the second half.

Got it. Okay, that's understandable. And then could I just switch gears to a question on mortgage? The question here: refi speeds have been incredibly high through the second quarter. John, I just wanted to get your sense as to what's in your base case assumptions for 3Q and 4Q. Part of the reason for asking is it impacts the servicing prepayment speeds, it impacts your NII outlook with the refinancing on the agency. And then also I just wanted to have a quick follow-up question on Ginnie buyouts that you did — the American Banker highlighted this morning — just understand is that the first of many or not? Thanks.

Good question. On mortgage speeds, it shows up in the MSR, in our investment portfolio, and in the runoff of book loans that are in our held-for-investment portfolio. The speed assumptions vary depending on the vintage, the coupon, the DTI, the LTV and the refinance ability of each borrower. But we're as aware as anyone of how fast things have gotten. We're seeing 30-handle CPR on various pools of loans. We think we've captured that in our updated estimates on the MSR in particular, but it does feed into this level of roughly $500 million to $700 million per quarter of premium amortization for mortgage securities, which I said is likely to remain for the rest of the year. On Ginnie buyouts, what's happening is there are loans which have gone delinquent in part because of COVID. As the servicer, we essentially have the accounting consequence of owning them whether we buy them out or not; they're deemed to have been purchased because the option to purchase them is so deeply in the money. So our calculus was either to have a giant pile of cash and that consolidated asset, or to go ahead and buy them out and not have that asset twice on our balance sheet, but use the cash to buy the asset. These are guaranteed loans from our perspective, not a huge credit consequence, just carrying the asset for a period of time before it either gets redelivered or sold or worked out in some way. That's why we were a big buyer extra after the end of the quarter. And whether it continues will depend on facts and circumstances; the same tension will apply. If we're deemed to have them on our books because we have the option to buy them, then we may, and if cash levels remain where they are, then we may go ahead and do it so that we don't double up the asset; that is an asset cap consideration.

That makes a ton of sense. So it's a function of more forbearance from here; is that the driver?

Yes, more ongoing forbearance and whether we're the servicer or not.

Okay, thanks John.

Your next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

Good morning. Just a follow-up question on the NII outlook. It seems like in the second half, there are some pluses and minuses to get to the mid-zone of your $41–$42 billion. Can you help us understand how much more roll-through there needs to be from here on both asset yields and securities yields to your earlier points on reinvesting and then what from here can also happen on the deposit cost side as a partial offset?

I think on the deposit cost side, our anticipation is that between the reduction in pricing for interest-bearing deposits and the growth or continuity of non-interest-bearing deposits that our average deposit cost will return to single-digit basis points by the third or fourth quarter; that's the trajectory we're on. On the asset side, depending on what happens to forward rates and LIBOR, spreads are holding firm where we're lending; there could be some lower spread loan product that is replaced with higher spread product — you've heard about that in autos, it's true in some categories of C&I — but that's a piece of it. On the security front, we've been trying to stay invested but the level of prepayments has been high; our securities portfolio was down by almost $30 billion in the quarter and so how much more duration we want to add at these low yields is a separate issue. We haven't been adding much in credit-related securities. But the outlook for NIM is relatively range-bound through the rest of the year; we're sort of bumping along what we think the bottom could be. Obviously things could change.

Right, and then it really depends on NII growth next year or starting from a high point this year. But does it depend on the asset cap end or does it depend on the mix of earning assets in order to get that kind of lift?

Good question. It's both. It's what choices we make on the asset side and what the market is offering, where loan demand comes from will matter a lot. If the curve steepens a little, that could be helpful because we're exposed to the long end. And then if there's an opportunity to have a bigger balance sheet, we're certainly not budgeting that, but that would be a difference maker.

Okay, got it. Thanks John.

Your next question comes from the line of Saul Martinez with UBS. Please go ahead.

Hi guys. Hello, thanks for taking my questions. First of all, kudos on the donation to the CDFIs; I think a lot of them do a lot of very good work. On that point though, I do think it's clear that Wells does have to, maybe more than others, really focus on multiple stakeholders and different goals. The idea of strictly shareholder-driven capital is obviously constrained. You have to meet regulators' demands, employees are concerned about community well-being, and then analysts talk about ROTCEs and efficiency ratios. How do you think about that balancing act and those competing demands? How do you think about shareholder value in that total pool of goals?

I don't think about it as a trade-off. Our ability to be successful as a company for our shareholders includes the fact that we are broadly considering a much broader set of stakeholders. If we don't do that, customers — whether consumers or companies — ultimately won't want to be with us, we will have issues in our local communities, and it will filter through to legislators and the regulatory agenda. So I think these are very much related and there's no reason why the things we should be doing to be thoughtful of a broader set of stakeholders aren't also financially sensible. The PPP fees were certainly unique. We were in the middle of a horrific time for small businesses and especially minority-owned small businesses. The right thing for us as a significant company in this country is to be as helpful as we can with that community. It's also ultimately helpful for us if we can make a difference in the communities that we operate in. We put all those things together and there is alignment — those that don't think about it that way will likely suffer over the long term.

Thanks for the thoughtful answer. Appreciate it.

Your next question comes from the line of Steven Chubak with Wolfe Research. Please go ahead.

Hi, good afternoon. I wanted to start with a theoretical question on the asset cap. You talked about the proactive steps that you were taking to manage the balance sheet to stay below, and how that's negatively impacted NII. If the Fed were to lift the asset cap tomorrow, can you give some idea or context around the amount of pent-up growth potential in the balance sheet today? It would be helpful if you could frame the impact of the asset cap on NII or at least volume growth based on where things stand today.

If you use rough math, if our balance sheet was expanded by about $200 billion, or about 10% during this COVID timeframe — and there is a question about whether there was ample opportunity to do that around several asset classes — the impact that would have had on us would have been to reduce the drawdown on NII by roughly 50%. So half of how things have worsened would have been covered by that expansion of the balance sheet. If there were more immediate opportunities to put loans on in particular I would say in March, as capital markets were closed, we saw customers drawing on available facilities in requests for new facilities. The bigger piece of an increased balance sheet, at least in the businesses that we serve today, would probably be a bigger securities and securities financing portfolio in support of our Corporate and Investment Bank where we have drawn down as part of managing under the asset cap. There are benefits to that, including being able to do more business with companies and institutions financing in that realm. But you also end up with a bigger LIBOR-funded book that is a little less asymmetrical in a down-rate scenario and we certainly suffered from that. There's a real benefit to being substantially deposit funded; it's very low cost to begin with. But in a down-rate environment, it's a little more violent in terms of the outcome it generates. To have a bigger component piece of LIBOR-funded assets with LIBOR-funded liabilities is a little less high producing in the best of times, but it maintains its margin in a down-rate environment. That would have been a benefit also.

Okay, that is helpful color John. One more question: core fee income. You said some tailwinds for mortgage production, trust fees should benefit from higher markets, but you also have normalization of trading activity. Given the different moving pieces, what is the right jumping-off point for 3Q?

We don't put a single number on core but rather talk about the component pieces. Deposit service charges are a big one for us and my assumption is that it will feel at least for a while like it does today: people are spending differently and maintaining cash balances at a higher level, which puts pressure on that line. Brokerage advisory fees should be stronger going into the second half. Investment banking had a record investment grade market in the first quarter so while other activity may pick up a little bit, that probably normalizes somewhat. Card fees: in debit card space we have dollar flows about equal to last year but fewer transactions, which negatively impacts card fees. Credit card fees have been improving but haven't caught up. Mortgage production should be strong and hopefully we've accounted for faster speeds and higher servicing costs in the model. Trading should get a little softer. Those are the main categories and how I would think about them.

Thanks so much for that, John.

Your next question comes from the line of Matt O'Connor with Deutsche Bank. Please go ahead.

Hi, I want to circle back on the longer-term view of getting your efficiency closer to peers. The first question is: why do you think it's an expense issue versus a revenue issue? Or is it a combination of both?

It's definitely a combination of both, revenue — particularly interest income which doesn't carry much expense load — would be very helpful. I think what we're trying to do is assess where the company is today and what we can do about it. We can do more about expense than we can about revenue in a balance-sheet constrained environment in a recession and a low-rate environment. So it's actionable by the management team. But without a doubt, some amount of normalization of certain categories of revenue would contribute to it. We think that $10 billion is a reasonable amount to go after to put Wells Fargo on a level playing field with the large cap peers.

When the operating committee gets in a room, there is absolutely no disagreement about the inefficiencies that exist away from all of the risk-related activities. The work we've been doing is to build plans from the bottom up to identify where that is, and so whether that's the full $10 billion or not, we’ll see what we get to. But there is a clear belief that we can make a significant dent based on what we know.

And just to be clear what you think the longer-term cost base can be: when you use $10 billion as a reference point, should we annualize this quarter's costs that gets you about $58 billion, take out $10 billion and get around $48 billion? Is that the thought process?

I think of $54-ish as more of the normalized starting point without the excess expenses that are loaded into this quarter for the items that we mentioned.

So take $10 billion off the $54 billion?

Yes.

Okay. Sounds like we'll get more details in the third quarter. Thanks.

Thanks Matt.

Your next question comes from the line of John Pancari with Evercore ISI. Please go ahead.

Hi, good morning. On the credit side, I wanted to see your updated thoughts around your through-cycle loss estimates. I know your 2020 company-run DFAST is about $27.7 billion. Is that a fair way to think about it? Also, your reserve is about 74% of that 2020 DFAST. Do you think there's a likelihood for additional substantial reserve additions from here? Thanks.

We compare our own estimations to the DFAST outcomes, but we don't think of them as necessarily better informed about our loans, portfolio and risk profile. It's a useful external data point. We think more about our own experience and the scenarios we believe are likely. With the build we made in the allowance, we're at almost 2.2% coverage of the outstanding loan portfolio and it's very different by loan category. We believe that if the world unfolds as we've modeled and assumed in our bottoms-up portfolio work, we have captured the loss content in the portfolio as of the end of the quarter and therefore further large additions would depend on deterioration beyond our modeled scenarios.

Got it, thanks John. And on the commercial real estate side, can you discuss credit trends you're seeing in CRE? CMBS delinquencies have spiked industry-wide; banks have forbearance that may stave off some. Can you give granularity around what you're seeing, the level of forbearance and whether you're seeing greater pressure to forbear?

First, CMBS structures are non-recourse loans and there's no mechanism for extra cash flow to enter into a structure unless someone does something they're not contractually obligated to do. In June CMBS non-current loans were about 13%. Conversely, on banks' balance sheets most loans are recourse, and generally have lower LTVs than CMBS to begin with, so our performance is quite different. We have about $150 billion of CRE loans outstanding at quarter-end: roughly a quarter is office, 20% apartments, 12% industrial, 10% retail excluding shopping centers, 9% shopping centers and hotels about 8%. Among non-accruals, shopping centers are 32%, hotels 14% and retail excluding shopping centers another 14%; overall there's about $1.3 billion of non-accruals. We're working borrower by borrower; sometimes concessions are covenant related, sometimes real forbearance. Borrowers have been generally calm and constructive. Problem loans skew toward retail projects and hotels, many of which were already stressed.

Got it. So you're reserving within CRE and you think you're largely finished building reserves there as of quarter end?

For how we understood the world at the end of the second quarter, yes. We believe that's relatively realistic. Our teams have gone loan by loan, borrower by borrower and made assessments of where we think we are and where things are going.

Got it, thanks John.

Your next question comes from the line of Brian Kleinhanzl with KBW. Please go ahead.

Hi, one quick clarification. You mentioned that a separate set of non-accruals were current on interest and principal. Was that referring to the $1.4 billion increase or the total? And I guess why non-accrual if they're current on interest and principal?

That referred to the total amount. Non-accrual status can reflect other factors beyond current interest payments, such as the borrower's overall credit condition and the classification criteria; in many cases borrowers remained current on interest and principal even as classification moved to non-accrual.

Okay. Separately when you think about DFAST results, you may perform better than those results. Where do you take exception with how the Fed is modeling your stress losses versus how you see them coming through this cycle?

The Fed uses different models and approaches. We draw from our own bottoms-up models and historical and portfolio-specific information. The Fed's model is more statistically driven and we don't have access to it. In general the Fed applies a lower loss rate for some categories to Wells Fargo than it has for some other lenders, but it's not universally true. We focus on our own detailed knowledge of borrowers and portfolios.

Your next question comes from the line of Chris Kotowski with Oppenheimer & Company. Please go ahead.

Good morning. Two things. First, from 2017 to today, your revenue went from about $88 billion to roughly $70 billion and core operating expenses have stayed around $54 billion. Sitting on the outside, it looks like primarily a revenue problem, not an expense problem. When you put out a number like $10 billion, are you worried that foregoes optionality on capturing back that $18 billion in lost revenues? Or should we assume that revenue is gone?

Listen, there's no question we should have the ability to generate higher revenues in the future; that will help efficiency. What we're talking about is that if you go back and look at where we were versus the peers, they've worked on efficiency for five to ten years and there's a meaningful difference between our expense base and theirs. We're being factual: there's a meaningful gap. We're proactively working to get to a place that makes sense both from an efficiency standpoint and knowing that we should be investing in the business. Whether that gets to $10 billion or more or less, we'll see and we'll share more as we develop the plans.

Okay. Second, you said you're no longer accepting home equity and personal line of credit applications. Those are key products for consumer banks. Doesn't not taking applications send the wrong message?

We do offer personal lines and we have a credit card business. For us, it's a question of making sure we have the right product in front of the customer. The home equity product has declined in production industry-wide. We must make determinations in an uncertain environment as to what is smart for us to participate in, especially as consumers add risk to their balance sheets. These decisions could change as time goes on if we feel differently about the environment and real estate values.

Okay, fair enough. Thank you.

Your next question comes from the line of Vivek Juneja with JPMorgan. Please go ahead.

Charlie, are you still on track to give some kind of strategic review or strategic plan towards the end of the year or should we expect that with the cost details in the third quarter you'll give us the timing?

We are targeting to get both the strategic review and the cost details done between the third and fourth quarter so we can show how the two fit together, but we'll see how the work progresses.

In that same vein, when you think about the businesses where you don't have scale, are you thinking about exiting some businesses? Will you give a sense of that when you present the combined reviews?

There are some activities we do which may not be big enough to have an impact on the company going forward and may not be integral to the primary banking relationships. We are looking at those and would expect we will continue to prune some activities. The five lines of business we've determined are key to the future of the company, but below that there are activities that might not meet our criteria for continuing to be here.

When you give us these combined reviews, will you give some sense of where you need to invest in technology and how that dovetails with the numbers?

We'll see when we get closer, but the work contemplates the fact we don't want to stand still in our businesses; we'll address technology needs in the plans.

Your next question comes from the line of Charles Peabody with Portales. Please go ahead.

Good afternoon. Two questions. First, what were the variables that went into your thinking on the level of the dividend? Was it based on capital, earnings power, a desire to build capital more quickly, or something else?

A handful of things. We found a level that we believe gives us room to operate while we get through the next few quarters and chart a path to greater profitability, given the likelihood the Fed's constraints on the dividend may persist. Our capital position is strong — we have about $23 billion of excess capital above regulatory minimums even after building a large allowance — so it was less about current capital and more about being prudent around earnings capacity and the uncertain trajectory of the economy.

Thanks. Second, there's a June 22 letter from members of Congress warning of the looming CRE and CMBS crisis and asking for help from Treasury. What actions might they be thinking about taking to support the CMBS market, or what actions would you like them to take?

I don't have a specific recommendation for policy actions. I do think stakeholders should be looking to maximize recovery value. The contracts in CMBS are thoughtful and the decision-making power will end up with special servicers; it's not clear imposing a different regime would be helpful.

Our final question comes from the line of Gerard Cassidy with RBC. Please go ahead.

Hi John. On the number of customers you've helped with deferrals and waiving fees, can you give color on the trend in applications? I assume they were heavy early and then faded. And second, how many customers that came up for renewal asked for a second extension?

It's different by loan category. We peaked in requests around the second week in April with on average about 60,000 to 70,000 accounts per day asking; we've dropped almost entirely and were at about 4,000 a day in late June. Regarding extensions, it depends on the initial deferral length; more people are getting comfortable coming out the other side, but we still have a base of folks in deferral.

And have you gotten color from the Fed on how long they'll be supportive of industry-wide deferrals without reclassifying loans and requiring more capital against them?

I don't think we've got a specific conclusion on that. We do assume there's going to be some point after which regulators and/or accounting conventions cause us to consider some loans as something other than performing; that timing could vary by category and by regulator, but the longer the forbearance continues the higher the risk of that outcome.

Lastly, can you give color on the increase in C&I non-accruals and the real estate and construction components? How much was construction versus loans to non-depository financials?

I don't have that breakout in front of me but I can have the IR team follow up with you.

All right, thank you very much for the time. We appreciate it and we will talk to you soon. Take care.

Ladies and gentlemen, this does conclude today’s call. Thank you all for joining and you may now disconnect.