Michael Santomassimo
Senior Executive Vice President, Chief Financial Officer at Wells Fargo & Company
Thank you, Charlie, and good morning, everyone. Net income for the second quarter was $4.9 billion, or $1.25 per diluted common share, both up from a year ago reflecting the progress we are making on improving our performance which I'll highlight throughout the call.
Starting with capital and liquidity on Slide 3. Our CET1 ratio was 10.7%, down approximately 10 basis points from the first quarter. During the second quarter, we repurchased $4 billion in common stock, and as Charlie highlighted, subject to Board approval, we expect to increase our common stock dividend in the third quarter.
Our CET1 ratio was 1.5 percentage points above our current regulatory minimum plus buffers and was 1.8 percentage points above our expected new regulatory minimum plus buffers starting in the fourth quarter of this year. While we expect to repurchase more common stock this year, we believe continuing to maintain significant excess capital is appropriate until there is more clarity on the new capital requirements as Charlie highlighted. Our liquidity position remains strong in the second quarter with our liquidity coverage ratio approximately 23 percentage points above the regulatory minimum.
Turning to credit quality on Slide 5. Overall credit quality remains strong, but as expected, net loan charge-offs continued to increase from historically low levels and were 32 basis points of average loans in the second quarter. Commercial net loan charge-offs increased $137 million from the first quarter to 15 basis points of average loans. Approximately half of the increase was in commercial banking, were the losses were borrower specific with little signs of systematic weakness across the portfolio. The rest of the increase was driven by higher losses in commercial real estate, primarily in the office portfolio. I'll share some more details on the CRE office exposure on the next slide.
Consumer net loan charge-offs increased modestly, up $23 million from the first quarter to 58 basis points of average loans. The increase primarily came from the credit card portfolio, as residential mortgage loans continue to have net recoveries and auto losses declined. While consumer credit performance remains solid overall and we've continued to take incremental credit tightening actions across the portfolios, we expect consumer net loan charge-offs will continue to gradually increase. Non-performing assets increased 14% from the first quarter, as lower non-accrual loans across the consumer portfolios were more than offset by higher commercial non-accrual loans primarily in the commercial real estate portfolio. Our allowance for credit losses increased $949 million in the second quarter, primarily from -- for commercial real estate office loans, as well as for higher credit card balances.
We've updated Slide 6, which highlights our commercial real estate portfolio. We have $154.3 billion of commercial real estate loans outstanding at the end of the second quarter with $33.1 billion of office loans, which were down modestly from the first quarter and represented 3% of our total loans outstanding.
The office market continues to be weak and the composition of our office portfolio is relatively consistent with what we shared with you in the first quarter. As Charlie mentioned, our CRE teams are focused on surveillance and de-risking, which includes reducing exposures and closely monitoring at-risk loans. This quarter, we added a table to this slide that breaks down our CRE office exposure in the context of our broader CRE portfolio. As the slide shows, our office loans at the end of the second quarter were primarily in corporate investment banking, and then it -- that is also where we had the most non-accrual loans in the highest level of allowance for credit losses.
Last quarter, we disclosed for the first time the allowance for credit losses coverage ratio for the office portfolio in the corporate investment bank, which increased from 5.7% at the end of the first quarter to 8.8% at the end of the second quarter. This quarter, we are also providing our allowance for credit losses for our total CRE office portfolio, which was 6.6% at the end of the second quarter, up from 4.4% at the end of the first quarter. As we've highlighted last quarter, we're providing this data to give you more insight into the portfolio, but each property situation is different and there are many variables that can determine performance, which is why we regularly review this portfolio on a loan-by-loan basis.
For example, we have property that are experiencing increased vacancies where borrowers have decided to inject equity and make investments to improve the property even in cities with more difficult fundamentals. We also have properties that are well-leased and performing, but borrowers need help refinancing. In those situations, we are working with borrowers to restructure, which in many cases includes some pay down the balance. There are also situations that results in a sale or workout of the asset. We will continue to closely monitor this portfolio, but as has been the case in prior cycles, this will likely play out over an extended period of time as we actively work with borrowers to help resolve issues that they may be facing.
On Slide 7, we highlight loans and deposits. Average loans were relatively stable from the first quarter and were up 2% from a year ago, driven by higher commercial and industrial loans in commercial banking and credit card loans. I'll highlight specific drivers when discussing our operating segment results. Average loan yields increased 247 basis points from a year ago and 30 basis points from the first quarter due to the higher interest rate environment. Average deposits declined 7% from a year ago, predominantly driven by deposit outflows in our consumer and wealth businesses, reflecting continued consumer spending and customers reallocating cash into higher yielding alternatives.
While down from a year ago, average commercial deposits were relatively stable from the first quarter and average deposits grew in corporate and investment banking. As expected, our average deposit costs continued to increase up 30 basis points from the first quarter to 113 basis points with a higher deposit cost across all operating segments in response to rising interest rates. Our mix of non-interest-bearing deposits declined from 32% in the first quarter to 30% in the second quarter, but remained above pre-pandemic levels.
Turning to net interest income on Slide 8. Second quarter net interest income was $13.2 billion, up 29% from a year ago as we continue to benefit from the impact of higher rates. The $173 million decline from the first quarter was primarily due to lower deposit balances, partially offset by one additional day in the quarter. At the beginning of the year, we expected full year net interest income to grow by approximately 10% compared with 2022. We currently expect full year 2023 net interest income to increase approximately 14% compared with 2022.
There are a variety of factors that we've considered in our expectation for the rest of the year. We are assuming modest growth in loans, some additional deposit outflows and migration from non-interest bearing to interest-bearing deposits, as well as continued deposit repricing, including competitive pricing on commercial deposits. Additionally, we are using recent rate -- the recent rate curve, which is shown on the slide. As a result -- as a reminder, many of the factors driving net interest income are uncertain and we will need to see how each of these assumptions plays out during the remainder of the year.
Turning to expenses on Slide 9. Non-interest expense grew $125 million, or 1% from a year ago. At the beginning of the year, we expect that our full year 2023 non-interest expense, excluding operating losses to be approximately $50.2 billion. We currently expect our full year 2023 non-interest expense, excluding operating losses to be approximately $51 billion. The increase includes higher severance expense due to actions we have taken in the plan, and planned to take in 2023 as attrition has been slower than expected. Of note, we've reduced headcount each quarter since the third quarter of 2020 and headcount declined 1% from the first quarter and 4% from a year ago. As a reminder, we have outstanding litigation, regulatory and customer remediation matters that could impact operating losses.
Turning to our operating segments, starting with Consumer Banking and Lending on Slide 10. Consumer and small business banking revenue increased 19% from a year ago as higher net interest income driven by the impact of higher interest rates was partially offset by lower deposit-related fees driven by the overdraft policy changes we rolled out last year. We continue to reduce the underlying cost to run the business as customers migrate to digital, including mobile. We've reduced our number of branches by 4% and branch staffing by 10% from a year ago. Our lending revenue declined 13% from a year ago, driven by lower net interest income due to loan spread compression and lower mortgage originations. We continue to reduce headcount in the second quarter, down 37% from a year ago, and we expect staffing levels will further decline during the second half of the year.
Credit card revenue increased 1% from a year ago due to the higher loan balances. Payment rates were down from a year ago, but have been stable over the last three quarters remained above pre-pandemic levels. New account growth remains strong, up 17% from a year ago, and importantly, the quality of the new accounts continue to be better than what we were booking historically. Auto revenue declined 13% from a year ago, driven by continued loan spread compression and lower loan balances. Personal lending revenue was up 17% from a year ago due to higher loan balances.
Turning to some key business drivers on Slide 11. Mortgage originations declined 77% from a year ago and increased 18% from the first quarter, reflecting seasonality. We funded our last correspondent loan in the second quarter with our current focus being serving our bank customers as well as borrowers in minority communities. The size of our auto portfolio has declined for five consecutive quarters and balances were down 7% at the end of the second quarter compared to a year ago.
Origination volume declined 11% from a year ago, reflecting credit tightening actions as well as continued price competition. As Charlie highlighted, debit card spend was flat in the second quarter compared to a year ago, spending on fuel to the lower gas prices, home improvement and travel are the largest declines compared to last year. Credit card spending continues to be strong and was up 13% from a year ago. Growth rates were stable throughout the second quarter, with fuel the only category down year-over-year.
Turning to commercial banking results on Slide 12. Middle Market banking revenue increased 51% from a year ago due to the impact of higher interest rates and higher loan balances. Asset-based lending and leasing revenue increased 13% year-over-year, primarily due to higher loan balances. Average loan balances were up 12% in the second quarter compared to a year ago, driven by new customer growth and higher line utilization. Average loan balances have grown for eight consecutive quarters, so the pace of growth has slowed. Average loans were up 1% from the first quarter with loan growth in asset-based lending and leasing driven by seasonally higher inventory levels, while middle market banking loans were flat.
Turning to corporate investment banking on Slide 13. Banking revenue increased 37% from a year ago, driven by stronger treasury management results, reflecting the impact of higher interest rates and higher lending revenue. The growth in investment banking fees from a year ago reflected write-downs taken in the second quarter of 2022 on unfunded leveraged finance commitments. Commercial real estate revenue grew 26% from a year ago, driven by the impact of higher interest rates and higher loan balances. Markets revenue increased 29% from a year ago, driven by the higher trading results across most asset classes.
Our strong trading results during the first half of the year were driven by underlying market conditions and also reflected the benefit of our investments in technology and talent, which had allowed us to broaden our client franchise and generate more trading flows. Average loans were down 2% from a year ago and 1% from the first quarter. The decline from the first quarter was driven by banking, reflecting a combination of slow demand in modestly lower volume utilization.
On Slide 14, wealth and investment management revenue was down 2% compared to a year ago, driven by a decline in asset-based fees due to lower market valuations. Growth in net interest income from a year ago was driven by the impact of higher rates, partially offset by lower deposit balances as customers continue to reallocate cash into higher yielding alternatives, however, outflows into cash alternatives slowed in the second quarter.
As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so second quarter results reflected the market valuations as of April 1, which were down from a year ago. Asset-based fees in the third quarter will reflect higher market valuations as of July 1. Average loans were down 3% from a year ago, primarily due to declines in securities-based lending.
Slide 15 highlights our corporate results. Revenue increased $751 million from a year ago, driven by the impact of higher interest rates and lower impairments of equity securities in our affiliated venture capital and private equity businesses. In summary, our results in the second quarter reflect a continued improvement in our earnings capacity. We grew revenue and have strong growth in pre-tax provision profit, as expected, our net charge-offs continue to slowly increase from historical lows and our allowance for credit losses increased. We are slowly -- we are closely monitoring our portfolios and taking credit tightening actions where we believe appropriate. Our capital levels remain strong. We continue to repurchase common stock.
We will now take your questions.
