By Arasu Kannagi Basil, Saeed Azhar and Pritam Biswas

(Reuters) -Wells Fargo beat second-quarter profit estimates on Tuesday but cut its 2025 guidance for net interest income, sending the shares of the lender down 1.2% in trading before the bell.

The bank expects its interest income to be roughly in line with the 2024 level of $47.7 billion. In April, it had said NII growth would be at the low end of the 1% to 3% range.

Analysts and investors were skeptical about Wells Fargo's ability to meet its targets for interest income after a slow start to 2025.

The bank had expected its NII, or the difference between what it earns on loans and pays out on deposits, to be relatively stable in the first half of 2025, with more growth in the second half.

Heading into the results, some analysts had expected the bank to cut its NII forecast as elevated interest rates weighed on demand from borrowers.

Consumers and businesses have continued to repay loans, allaying concern that shifting U.S. trade policies would trigger a recession. Still, uncertainty around the economic outlook persists.

Wells Fargo executives have said their efforts to tighten credit over the past couple of years should help the bank to weather a potential economic downturn.

Meanwhile, provision for credit losses fell to $1.01 billion in the quarter from $1.24 billion a year ago, helping profit to grow in the second quarter.

The fourth-largest U.S. lender's net income was $5.49 billion, or $1.60 a share, in the three months ended June 30, it said on Tuesday. That compares with $4.91 billion, or $1.33 a share, a year earlier.

Excluding one-time costs the lender reported EPS of $1.54. Analysts were expecting a per-share profit of $1.41, according to estimates compiled by LSEG.

DEFENSE TO OFFENSE

Last month, the U.S. Federal Reserve lifted Wells Fargo's seven-year-long $1.95 trillion asset cap, allowing the bank to pursue unimpeded growth.

Wells Fargo has been focused on fixing its regulatory problems in recent years. While it labored under a $1.95 trillion cap asset cap, rivals expanded.

With the asset cap lifted and regulatory issues largely in the rearview mirror, Wall Street analysts expect Wells Fargo to attract more investor interest as its profits grow.

"We now have the opportunity to grow in ways we could not while the asset cap was in place and are able to move forward more aggressively to serve consumers, businesses, and communities to support U.S. economic growth," CEO Scharf said in a statement.

Wells Fargo is likely to beef up its wholesale businesses by adding market share in commercial banking, corporate and investment banking and trading.

Scharf has said the bank will expand carefully. It has closed seven regulatory punishments, known as consent orders, this year and 13 since 2019. It still has one remaining consent order from 2018.

(Reporting by Arasu Kannagi Basil and Pritam Biswas in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen and Arun Koyyur)