Wells Fargo (WFC) Earnings Report: Q1 2015 Conference Call ...

CompanyName:WellsFargo&CoCompanyTicker:WFCSector:FinancialIndustry:Banking

EventDescription:Q12015EarningsCallMarketCapasofEventDate:279.51BPriceasofEventDate:54.08

©2014TheStreet,Inc.Al l R ightsReserved Page1of24

WellsFargo(WFC)EarningsReport:Q12015ConferenceCallTranscriptThefollowingWellsFargoconferencecalltookplaceonApril14,2015,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JimRowe;WellsFargoandCo;Director-IRJohnStumpf;WellsFargoandCo;Chairman,CEOJohnShrewsberry;WellsFargoandCo;CFO

OtherPart icipants

ErikaNajarian;BankofAmerica;AnalystBillCarcache;Nomura;AnalystJohnMcDonald;SanfordBernstein;AnalystKenUsdin;Jefferies;AnalystScottSiefers;SandlerO 'NeillandPartners;AnalystJoeMorford;RBCCapitalMarkets;AnalystMikeMayo;CLSA;AnalystPaulMiller;FBRCapitalMarkets;AnalystNancyBush;NABResearch;AnalystMattO 'Connor;DeutscheBank;AnalystEricWasserstrom;GuggenheimSecurities;AnalystMartyMosby;ViningSparks;AnalystJohnPancari;EvercoreISI;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning.Mynameis[Regina],andIwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetotheWellsFargoFirst-QuarterEarningsconferencecall.

(OperatorInstructions)

IwouldnowliketoturnthecallovertoJimRowe,DirectorofInvestorRelations.Mr.Rowe,youmaybeginyourconference.

JimRowe (Director-IR):

Thankyou,[Regina],andgoodmorning,everyone.Thankyouforjoiningourcalltoday,whereourChairmanandCEO,JohnStumpf,andourCFO,JohnShrewsberrywilldiscussfirst-quarterresultsandansweryourquestions.

Beforewegetstarted,Iwouldliketoremindyouthatourfirst-quarterearningsreleaseandquarterlysupplementareavailableonourWebsiteatwellsfargo.com.I'dalsoliketocautionyouthatwemaymakeforward-lookingstatementsduringtoday'scallthataresubjecttorisksanduncertainties.

FactorsthatmaycauseactualresultstodiffermateriallyfromexpectationsaredetailedinourSECfilings,




includingtheForm8-Kfiledtodaycontainingourearningsreleaseandquarterlysupplement.Informationaboutanynon-GAAPfinancialmeasuresreferenced,includingareconciliationofthosemeasurestoGAAPmeasures,canalsobefoundinourSECfilings,intheearningsreleaseandinthequarterlysupplementavailableonourWebsite.

IwillturnthecallovertoourChairmanandCEO,JohnStumpf.

JohnStumpf (Chairman,CEO):

Thankyou,Jim.Goodmorning,andthankyouforjoiningustoday.

Weearned$5.8billioninthefirstquarter,whichreflectedthebenefitofourdiversifiedbusinessmodelandourcontinuedfocusontherealeconomy.Bybuildingrelationshipswithourexistingcustomersandsuccessfullygeneratingnewrelationships,duringthepastyear,wewereabletogrowloansanddepositsandincreaseourrevenue.Ourcapitallevelsremainedstrong,andwecontinuetofocusonrewardingourshareholdersbyincreasingourdividendandreducingoursharesoutstanding.

Letmehighlightourgrowthduringthequartercomparedwithayearago.Wegenerated$21.3billionofrevenue,up3%fromayearago,withgrowthinbothnetinterestincomeandnon-interestincome.Wehadbroad-basedloangrowth,withourcoreloanportfolioincreasingby$54.2billionor7%.

Ourdepositfranchisecontinuedtogeneratestrongcustomerandbalancedgrowth,withtotaldepositsreachingarecord$1.2trillionup$102.1billionor9%.Andwegrewthenumberofprimaryconsumercheckingcustomersby5.7%.Ourcreditperformancecontinuedtobeverystrong,withnetcharge-offsdown$117millionandournetchargeoffratiodeclinedto33basispoints.

Ourfinancialperformanceresultedinstrongcapitalgeneration,andreturningcapitaltoourshareholdersremainsapriority.Ournetpayoutratiowas61%inthefirstquarter.

We'reextremelypleasedthatour2015capitalplanallowsustoincreaseourquarterlydividendby7%to$0.375percommonshareforthesecondquarterofthisyear,ofcoursesubjecttoBoardapproval.Ourabilitytoincreaseourdividendeveryyearsince2011demonstratesthebenefitsofourdiversifiedbusinessmodelandconservativeriskmanagement,aswellasourdisciplinedcapitalmanagementprocess.

Wehaveover90differentbusinessesthatarebenefitingfromthecontinuedstrengthintheU.S.economy.Whilethefirst-quartereconomicheadlines,again,demonstratedthattheeconomicrecoveryhasbeenuneven,Ibelievetheunderlyingeconomicexpansionthatisapproachingits6thanniversaryremainslargelyontrack.

Interestratesremainlow,homesareaffordable,consumerandsmallbusinessconfidenceremainshigh.Andthelabormarketisapproachingfullemploymentafterarecord54consecutivemonthlypayrollgains.I'moptimisticthattheimprovingU.S.economywillcontinuetoprovideWellsFargowithmanyopportunitiestobetterserveourcustomers,ourcommunities,andrewardourshareholders.

JohnShrewsberry,ourChiefFinancialOfficer,willnowprovidemoredetailsonourfirst-quarterresults.John?

JohnShrewsberry(CFO):

Thanks,John,andgoodmorning,everyone.Mycommentswillfollowthepresentationincludedinthequarterlysupplement,startingonpagetwo.JohnandIwillthenansweryourquestions.

WellFargohadanotherstrongquarter.Earning$5.8billionand$1.04inEPSinthefirstquarter,and




returningnet$3.3billionofcapitaltoshareholders.Ourresultsweredrivenbyaverageloananddepositgrowthandlowerexpenses,whilewemaintainedourstrongcapitalandliquiditypositions.

Ourresultsalsobenefitedfromanet$359milliondiscretetaxbenefitinthefirstquarter.Primarilyfromareductioninthereserveforuncertaintaxpositions,duetotheresolutionofprior-periodmatterswithU.S.federalandstatetaxingauthorities.

Asareminder,wealsohada$423milliondiscretetaxbenefitinthefirstquarteroflastyear.Wetakeaprudentapproachinaccountingforourtaxliability,whichcanresultindiscretetaxbenefitsdependingontheresolutionofprior-periodmatterswithtaxingauthorities.

Pagethreehighlightsourresultscomparedwithayearago.Includingincreasedrevenueandpretaxpre-provisionprofit,strongloananddepositgrowth,andlowersharecount.Reflectingnetsharerepurchases.

Pagefourhighlightsourrevenuediversification,andthebalancebetweenspreadandfeeincomeinthefirstquarter.Thebenefitofthediversityofour90plusbusinesseswasdemonstratedbyourabilitytogrowbothnetinterestincomeandnon-interestincomeinfirstquartercomparedwithayearago,whichwasakeydriverofferourperformance.

AsI'vehighlightedinthepast,thedriversofourfeegenerationvarybasedoninterestratesandeconomicconditions.Forexample,market-sensitiverevenue,whichincludestradingandgainsfromdebtandequityinvestments,declined22%fromayearago,droppingfrom14%offeeincometo11%.

However,otherbusinesseshadstronggrowth,andwegeneratedhighertrustininvestment,cardandmortgagebankingfeeincome.Withthisbroad-based,growthwewereabletogrowfeeincome3%fromayearago.

Soletmehighlightsomekeydriversofourfirst-quarterresultsfromabalancesheetandincomestatementperspective,startingonpagefive.Ibelieveourbalancesheethasneverbeenstronger.Wegeneratedcoreloananddepositgrowth,andhaveincreasedliquidityandcapitaltorecordlevels.

Letmetakeaminutetodescribehowwe'remanaginginthecurrentrateenvironment.We'vebeenabletoperformwellacrossavarietyofratecyclesovertime,becauseofthediversificationofthebusinessmodel.We'reoftenaskedabouthowwemanageourinterestraterisk,inparticular,thetimingofmakinginvestmentsinalowerrateenvironment.

Asyoumightimagine,weevaluateourinterestrateriskpositioncontinuously,andfrequentlyweighoptionstoaltertheoverallsensitivityofthebalancesheet.Weconsiderfactorssuchastheexpectedgrowthinloansanddeposits,performanceunderawiderangeofratescenarios,andthetradeoffsbetweentheprotectionfromlowerratesaffordedbyaddingdurationandtheconsequencesofthoseactionsinhigherratescenarios.

Basedupontheseanalyses,wethenmakedecisionsaboutthekindofinstrumentsweuse.Wecanpurchasesecuritiesoutright,orextendthedurationofvariablerateloanswithinterestrateswaps,andthemagnitudeandprofileofthedurationweadd.Allinall,wetrytobalanceanumberofconsiderationsandmaintainflexibilityasconditionsevolve.

Turningtotheincomestatementonpagesix.Revenuedeclinedfromthefourthquarter,asnetinterestincomewaslower.Reflectingtwofewerdaysinthefirstquarter,andlowerincomefromvariablesources.However,non-interestincomegrewfromthefourthquarter,eventhoughthefourthquarterincludedthe$217milliongainonthesaleofgovernmentguaranteedstudentloans.

Thegrowthinfeeincomereflectedmomentumacrossourbusinesses,whichI'llhighlightthroughoutthe




call.

Asshownonpageseven,wecontinuedtohavestrongbroad-basedloangrowthinthefirstquarter.Our15thconsecutivequarterofyear-over-yeargrowth.Ourcoreloanportfoliogrewby$54.2billionor7%fromayearago,andwasup$914millionfromthefourthquarter.

Linkedquartercommercialloangrowthwasdrivenbyrealestateconstructionandleasefinancing.Consumerloansgrewslightlyasgrowthinnon-conformingmortgage,auto,security-basedlending,andstudentloanswaslargelyoffsetbypay-offsinthejuniorlienportfolioandseasonalityincreditcard.

Onpageeightwe,highlightourloanportfoliosthathadstrongyear-over-yeargrowth.C&Iloanswereup$31.9billionor13%fromayearago,withbroad-basedgrowthacrossmostofourwholesalebusinesses.

Coreonetofourfamilyfirstmortgageloansgrew$13billionor7%fromayearago.Reflectingcontinuedgrowthinhighqualitynon-conformingmortgagesprimarilyjumboloans,thecreditqualityofourcoremortgageportfolioremainsstrongwithonly7basispointsofcreditlossesinthefirstquarter.

Creditcardbalanceswereup$4billionor15%fromayearago,benefitingfromstrongnewaccountgrowthandtheDillard'sportfolioacquisitioninthefourthquarter.Autoloanswereup$3.7billionor7%fromlastyear.Whilewecontinuedtobenefitfromthestrongautomarket,neworiginationsweredown10%fromayearago,reflectingourcontinuedriskinpricingdisciplineinacompetitivemarket.

Asyoucanseeonpagenine,wehad$1.2trillionofaveragedepositsinthefirstquarter,up$97.5billionfromayearagoandup$25billionfromfourthquarter.Ouraveragedepositcostwas9basispoints,consistentwiththefourthquarteranddown2basispointsfromayearago.

Wesuccessfullygrewprimaryconsumercheckingcustomersby5.7%fromayearago,andprimarysmallbusinessandbusinessbankingcheckingcustomersincreased5.5%.Ourabilitytoconsistentlygrowprimarycheckingcustomersisimportant.Becausethesecustomershavemoreinteractionswithus,havehighercrosssell,andaremorethantwiceasprofitableasnon-primarycheckingcustomers.

Wegrewnetinterestincomeonataxequivalentbasisby$396millionor4%fromayearago,reflectingstronggrowthinaverageearningassetsup$170billionor12%.Netinterestincomedeclined$190millionfromfourthquarter,duetotwofewerdaysinthefirstquarterandlowervariableincome.

Thenetinterestmargindeclined9basispointsfromthefourthquarter,duetostrongcustomer-drivendepositgrowth.Thisreducedthemarginby5basispoints,buthadminimalimpacttonetinterestincome.

Lowerinterestincomefromvariablesources,duetoreducedloanfeesandPCIloanrecoveriesdecreasedthemarginby3basispoints.Liquidity-relatedactivity,whichwasnotLCR-relatedbuttakentodemonstratemarketaccessandtheliquidityofoursecuritiesportfolio,reducedthemarginby1basispoint.Allotherbalancesheetgrowthandrepricingdidnotimpactthemargininthefirstquarter.

Ourbalancesheetremainedasset-sensitive,andwe'rewell-positionedtobenefitfromhigherrates.Webelievewecangrownetinterestincomein2015comparedwith2014,evenifratesremainlowaswedemonstratedlastyear.

Totalnon-interestincomeincreased$29millionfromfourthquarter,andgrew$282millionfromayearagoup3%.Tradinggainsincreased$229millionfromfourthquarter,primarilyfromhighercustomeraccommodationtradingreflectingbettermarketsinhighgrade,highyieldandRMBS,aswellasseasonality.

Mortgagebankingrevenueincreased$32millionfromthefourthquarteronhigheroriginationvolume,




up$5billionor11%.55%oforiginationswereforrefinancing,upfrom40%inthefourthquarter,asratesdeclined.

Weendedthequarterwitha$44billionapplicationpipeline,thehighestpipelinesincethesecondquarterof2013.Andweexpectfundingvolumestoincreaseinthesecondquarter,giventhesizeofthepipelineandtheseasonalhomebuyingthattypicallyoccursduringthesecond-quarterSpringbuyingseason.

Ourgainonsaleratioincreasedto2.06%infirstquarter,aspricingmarginsexpanded,reflectingstrongrefinancevolumeandlenderspricedtobalancevolumesandcapacity.Wecurrentlyexpectthesecondquartergainonsaleratiotobeatthehigherendoftherangewe'veseenoverthepastfivequarters.140basispointsto206basispoints.

Servicingincomedeclined$162millionfromthefourthquarter,asMSRresultsdeclined$127million.ReflectinghigherprepaymentexpectationsassociatedwithreductionsinFHAmortgageinsurancepremiums.Thisvaluationadjustmentdirectlyreducedourservicingresultsinthequarter.

Asshownonpage12,expensesweredown$140millionfromthefourthquarter.Ourfirst-quarterexpensesincluded$452millionofseasonallyhigheremployeebenefitsexpensesfromhigherpayrolltaxesand401kmatching,aswellas$236millionforannualequityawardstoretirement-eligibleteammembers.

Theseseasonallyhigherexpenseswereoffsetbylowersalaries,reflectingtwofewerdaysinthequarter.Lowerrevenue-basedincentivecompensationandreducedoutsideprofessionalservices,equipment,travelandentertainment,andadvertisingexpenses.

Whilewewillnothavetheseasonallyhigherpersonnelexpensesinthesecondquarter,therearecertainexpensesthatwillincrease.Includingsalaryexpense,reflectinghigherdaycountandannualmeritincreases,andcertainexpensesthataretypicallylowerinthefirstquarter,suchasoutsideprofessionalservicesandadvertisingexpensesarealsoexpectedtoincrease.Ourefficiencyratioimprovedto58.8%inthefirstquarter,andweexpecttheefficiencyratioforthefullyear2015toremainwithinourtargetedrangeof55%to59%.

Turningtoourbusinesssegmentstartingonpage13.CommunityBankingearned$3.7billioninthefirstquarter,down5%fromayearagoandup7%fromthefourthquarter.AsIhighlightedearlier,wehadcontinuedstronggrowthinprimaryconsumercheckingcustomers,up5.7%fromayearago.

Ourbroad-basedandindustry-leadingdistributionchannelsareonereasonforthisgrowth.Whileourcustomersactivelyuseallofourchannels,includingmorethan75%ofourdepositcustomersvisitingabankingstoreatleastoncewithinthelastsixmonths,mobilebankingisgrowingthefastest.Wehad14.9millionactivemobilecustomers,up19%fromayearago.

Ourcustomersareincreasinglyusingthischannel,withmobilebankingsessionsup38%in2014.Whilecustomerusageofourstoreshasremainedstable.

Wealsocontinuedtosuccessfullygrowretailbankhouseholds.Februarywasourhighestmonthlynetgainofretailbankhouseholdsinfouryears.Thesenewhouseholdsprovideuswithgrowthopportunitiesaswefocusonmeetingtheirfinancialneedsthroughourdiversifiedproductline.

Anexampleofhowwe'recapturingthisopportunityisinourdebitandcreditcardbusinesses,withcardfeesup11%fromayearago.Debitcardpurchasevolumewasup8%,andcreditcardpurchasevolumeincreased16%fromayearago.Ourcreditcardbusinesscontinuedtohavestrongnewaccountgrowthandactiveaccountgrowth.




WholesaleBankingearned$1.8billioninthefirstquarter,up3%fromayearagoanddown9%fromfourthquarter.Loangrowthcontinuedtobestrong,withaverageloansup$35.7billionor12%fromayearago,withbroad-basedgrowthacrossmanybusinesses.

We'reexcitedaboutourannouncementlastweekregardingthepurchaseof$9billionofcommercialrealestatemortgageloansfromGECapital.Thisisaportfolioofperformingloans,primarilyintheUS,theUnitedKingdomandCanada,whichareactivelendingmarketsforus.Wealsoagreedtoprovide$4billionoffinancingtoBlackstoneMortgageTrustfortheirpurchaseofacommercialmortgageportfolio.

Weexpectthesetransactionstocloseinthesecondandthirdquartersofthisyear.Thisisanexcellentexampleofhowthecombinationofourbalancesheetstrength,theexpertiseofourteammembersandourrelationshipfocuspositionsustocaptureopportunitiesforgrowth.Bothorganicallyandthroughacquisition.

Whileweremaindisciplinedindepositpricing,wecontinuedtobenefitfromstrongdepositgrowth,withaveragecoredepositsup$44.4billionor17%fromayearago.Wholesalebankingalsohadbroad-basedfeegrowth,up11%fromayearago,withmanyofourdiversifiedbusinessesgrowingatdoubledigits.

Investmentbankingfeesgrew44%fromayearago,andweincreasedourmarketshareto4.9%.Thisgrowthreflectedcontinuedimprovementinourequitycapitalmarketsandinvestment-gradeoriginations.Treasuryandmanagementrevenuegrew11%,reflectingnewproductsalesandrepricing.

Wealth,BrokerageandRetirementearnedarecord$561millioninthefirstquarter,up18%fromayearagoandup9%fromfourthquarter.WBR'spretaxmarginwas24%inthefirstquarter,closetotheirlongtermtargetof25%.Thesestrongresultsreflected8%revenuegrowthfromayearago,drivenby12%growthinnetinterestincomeand8%growthinasset-basedfees.

ThepartnershipbetweenWBRandCommunityBankinghasbeensuccessful,generatingover$1billionamonthinclosedreferredinvestmentassets.Duringthepastyear,58%ofreferredassetswerefromnewinvestmentclientsofWellsFargo.

We'realsobenefitingfromincreasingourlicensetoprivatebankersinourbankingstoresby15%fromayearago.Thispartnershiphasalsocontributedtothegrowthinbrokerageadvisoryassets,whichwere$435billion,up12%fromayearago.

WBR'sstrongloangrowthcontinued,up14%fromayearago.The7thconsecutivequarterofdouble-digityear-over-yeargrowth.Thisgrowthwasdrivenprimarilybyanincreaseinhighqualitynon-conformingmortgageloansandsecurity-basedlending.

Turningtopage16,thecreditqualityinthefirstquarterremainedstrong,withournetcharge-offratiodecliningto33basispointsofaverageloans.Non-performingassetshavedeclinedfor10consecutivequarters,andweredown$618millionfromfourthquarter.

Non-accrualloansdeclined$338million,andforeclosedassetsdeclined$280million.Thereservereleasewas$100millioninthefirstquarter,down$150millionfromthefourthquarter,anddown$400millionfromayearago.

Letmeupdateyouonourenergyportfolio.Wehad$18.5billionofoilandgasloansattheendofthefirstquarteror2%oftotalloansoutstanding.

Thesizeofthisportfoliowasrelativelystablefromfourthquarter,uponly$65million.Approximately55%ofourportfoliowasintheexplorationandproductionorupstreamsector.

We'vebeenanindustryleaderintheenergysectorforover40years,andwetakeadisciplined




approachtonotonlyunderwritingbutalsomanagingtheseloansandrelationships.Ourteamsconstantlymonitorandevaluatethisportfolioonaloanbyloanbasis.

Inthefirstquarter,weperformedanevengreaterreviewofeachloaninthisportfolio.AndinMarch,webegantheSpringredeterminationprocessforourreserve-basedloans.Werealizedminimalcreditlossesrelatedtoenergyloansinthefirstquarter,andourallowanceattheendofthefirstquartercontemplatedtheinherentcreditlossesassociatedwithouroilandgasexposure.

Ourcapitallevelsremainstrong,withourestimatedcommonequitytieroneratiounderBaselIIIusingtheadvancedapproachfullyphasedinat10.53%inthefirstquarter.Lastmonth,theFederalReserveandtheOCCannouncedthatwemaybeginusingtheadvancedapproachescapitalframeworkstartinginthesecondquarter.ThisapprovaldidnotincludestipulationsrequiringustoincreaseourcurrentadvancedapproachRWA.

Wereturned$3.3billiontoshareholdersinthefirstquarterthroughdividendsandnetsharerepurchases.Ourcommonsharesoutstandingdeclinedby7millionsharesinthefirstquarter,reflecting48millionsharespurchasedduringthequarter.Partiallyoffsetby41millionsharesissued,primarilythroughemployeebenefitplanswhichareseasonallyhighinthefirstquarter.

Inaddition,weenteredintoa$750millionforwardrepurchasecontractthatsettledearlierthismonthfor14millionshares.Weexpecttoreduceourcommonsharesoutstandingthroughsharerepurchasesthroughouttheremainderoftheyear.AsJohnnotedearlieronthecall,our2015capitalplanincludedaproposedincreasetooursecond-quarterdividendto$0.375percommonshare,subjecttoBoardapproval.

Insummary,thefirstquarterdemonstratedthebenefitofourdiversifiedbusinessmodelasshownbytheresultswehighlightonslide19.Throughourconsistentfocusonservingourcustomersintherealeconomy,wehaverealizedgrowthacrossmanyofourbusinessesthatwillhelpdrivefuturemomentum.

We'vegrownprimaryconsumercheckinginsmallbusinessandbusinessbankingcheckingcustomers.We'veaddednewcreditcardaccounts,increaseddebitcardpurchasevolume,andachievedstrongretailbankhouseholdgrowth.

Mortgageoriginationshavegrown,commercialcardvolumehasincreased,andwe'vegrowninvestmentbankingmarketshare.Treasurymanagementfeeshavegrownatadouble-digitrate.Andwe'veincreasedAssetsUnderManagement,andwehavehigherretailbrokeragemanagedaccountassets.

I'moptimisticthatourdiversifiedbusinessmodelwillcontinuetogenerateopportunitiesforgrowth,andwillenableustocontinuetoinvestinourbusinesses.Wewillnowbehappytoansweryourquestions.

QUESTIONS&ANSWERS

Operator :


OurfirstquestioncomesfromthelineofErikaNajarianwithBankofAmerica.

ErikaNajarian (Analyst-BankofAmerica):

Yes,goodmorning.

Thankyousomuchforgettingusthedetailedrundowninterpsofhowyou'rethinkingaboutyourliquiditystrategy,andIalsoappreciatethe$28.4billionindepositgrowthcamefromconsumerandescrow.Buttakeastepbackofthe1.2trillionindepositshowmuchwouldyouclassifyasnon-operational




corporateandIguesswe'rejustwonderingandadoptingothernon-operatingdepositswillthatbeabletoalleviateliquiditypressureontheNIMwithoutmuchgiveupontheLCR?


It'sagoodquestion,andI'dsaytheansweriswearen'timpactedinthesamewayassomeoftheotherbankswhohavegonetothemeasuresthatthey'veannouncedtodiscouragethosetypesofdeposits.Wearen'tconstrainedbytheleverageratioatthispoint.Wearen'tmeaningfullyimpactedbyinstitutionalnon-operationaldepositsandourGFIBscoreandsowe'reservinginstitutionalcustomersinsomecasestakingdepositsifitmakessenseinthecontextofthebiggerrelationship.

Butwearen'tinthesamepositionasthecoupleofbankswhohavehadtogooutoftheirwaytodrivedowneitherleverageorchangetheirleverageoutcomeordrivedowntheirGFIBscoresowewill,wearethinkingaboutthoserelationshipsinawaywherewecandothemostgoodforWellsFargoshareholderssoifotherpeoplearechargingmoreorconsolidatingbusinessactivitytobewillingtotakethosedepositsthere'sanopportunityforustoimproveourbusinesswiththosesametypesofcustomers,butit'snotquiteasurgentbecausewedon'thavethoseproblems.


IguessabetterwaytothinkaboutitisalotofthisexcessdepositgrowthisgoingtobepositiveforyourLCRandNSFRgivenitlookslikeit'smostlyretailsolowoutflow,highASFfactortypeofdeposits?


That'scorrect.


AndErikatheotherthingthatIknowyou'reawareof,welovetheentirerelationship,sosurelyontheretailsidebutit'seventrueonthewholesaleside,whenwebecometheprimaryaccountholderoranyofferitasfinancialpartnerwiththecustomerandthedepositsleadwiththat,goodthingshappen,sothat'sallpartofservingcustomersbroadlyanddeeply.


Justasafollow-upandI'llstepback.You'vebeenveryconsistentintermsoffallinginthe55-59%efficiencyrangeandyou'reconsistentintermsofyourforwardguidance.Iguessagaingivensomeoftheotherlargebankguidanceandefficiencyoutthere,willittakeratesforWellsFargotomovefurtherdowntothe55%portionofthatrange?


Wellthatwouldbeonewaytodoit.Anincreaseinrateswhichwouldhaveanincreaseinrevenuewithoutalotofassociatedexpensewoulddothat.Thereareotherwaystomovelowerintherangedependingonthemixofwhererevenuecomesfromandtheinitiativesthatwehavetomanageexpensesbutwe'recomfortableintherange,atthehigherendoftherangetodaywhichisstillanindustryleadinglevelandtheseotherfolkswhoareenactingtheirefficiencyplansarecomingtowardussotowe'llkeepdoingwhatwe'redoing.


Butwearen'tstandingstill.Wewatcheveryexpensearoundhere,aswerepurposedollarswesaveintothingswehavetoinvestin.





Gotit.Thankyoufortakingmyquestions.


Thankyou.

Operator :

YournextquestionwillcomefromthelineofBillCarcachewithNomura.

BillCarcache (Analyst-Nomura):

Thankyou,goodmorning.Canyouputintocontextforuswhethertheinvestmentopportunitiesthatyoudiscussedthatyouseebeforeyouatthemomentare,doyouseethemasgrowingoraretheygettinghardertoidentifyasyoulookaheadatsaythenext12monthsversusthelast12months?

Andthenrelatingtotheseinvestmentopportunitieshowshouldwebethinkingaboutthetrajectoryofyourpayoutratiolongerterm?Asyougeneratemorecapitalgoingforwardisitfairtoviewyourpayoutratioasbeinginverselyrelatedtoyourinvestmentopportunities?

IguessI'maskingfromtheperspectiveofgeneraloverallviewthathigherpayoutratiosarebetterbutI'mwonderingifthat'showweshouldthinkaboutitforWellsFargogivenyourcapitalpositionislargelyoptimizedandyouaren'tsittingonalotofexcesscapitalsowhenandhowweshouldbethinkingaboutthat?


Sobyinvestmentopportunitiesyou'rereferringtoourdeploymentofliquidityorreferringtoliketheGECapitalcasewherewe'rebuyingaportfolioofloanswithcustomers?


IthinktheGECapitalcaseandanyotherRWAgrowthforattractivereturngeneration


SoservingourcustomersanddeployingourcapitalinthatwayistheFirstCallonourcapital.We'retryingtogrowearningassetswithcustomerswithcrosssellbenefitandcreatenewandbiggerrelationshipswithcustomersthatwehavesoitwascertainlyacertainamountofthatfactoredintoourCapitalPlans.

Soweareimaginingdoingthatwhilereturningcapitaltoshareholdersatahighlevelbutifthelandscapeweretoshiftsothattheopportunitybecamemoremeaningfulforustooriginatemoreassetsandinsomecasesacquiremoreassetsthataregoodforusthenwewouldbelookinglongandhardatthat.


AsfarasreturnoncapitaltoshareholdersIthinkourrecordspeaksforitselfandIknowJohnmentioneditinhiscommentsthatweverymuchappreciateinvestmentourshareholdershavemadeinusandthatwe'reStewardsoftheircapitalandreturningasmuchofthatasprudentisiswhatweplanondoingandwanttodo.

There'snoreasonforusjusttokeepaddingcapital.Ontheotherhand,FirstCallistogrowthebusiness,




asJohnmentioned.AndwewillreturnasmuchasImentionedasweprudentlycanasyoujustsawrecentlywithourincreaseinourdividendoratleasttheabilitytoincreasethedividend.


Andthecheckofcourseistoonlytakeadvantageofinvestmentopportunitiesthatarecapableofgeneratingthekindofreturnonequitythatwe'vebeengeneratingandtokeepdistributionsuptokeepourcapitallevelatthepointandusedthetermoptimizesothatwe'renotcarryingexcesscapitalthat'shardertoproducethatreturnon.That'sthebalance.


That'sveryhelpful.Mylastquestionisonadynamicthatwe'reseeingwithloangrowthoutpacingdepositgrowthacrossthebankingsystemasawholebutforthelargerbanksincludingWellsFargo,Iguesswe'restillseeingdepositgrowthoutpacingloangrowth.Iwashopingyoucouldjusttalkaboutwhatyouthinkmaybedrivingthatanddoyouseeanythingonthehorizonthatyouthinkcouldchangethat,inotherwordsjustleadtoloangrowthoutpacingdepositgrowthatthelargebanksaswell?


WellIthinkeverylargebankhasaslightlydifferentbusinessmixsowhateveraccountsfortheirloangrowthwillbeuniquetothem.Inourcasebecausewe'vedonesuchagoodjobatattractingretailhouseholdsandattractingwholesalerelationshipsthatarebringingmeaningfulliquidityin,depositshavebeen,depositgrowthhasbeenoutpacingloangrowthforsometime.

AndthenwetakeabigmoveinloangrowthwhichcouldincludeutilizationofexistingCreditFacilitiesorincrementalfundedloansinordertocatchupwiththatwewouldhavetobeinahighereconomicgrowthenvironmentIthinkforloangrowthtogetintothe9%rangewhichiswheredepositshavebeen.

Ifwe'rebuyingportfoliosofloanslikeweareinthenextcoupleofquartersthatwillcertainlyhaveanimpactonthatbutthat'snotprobablysomethingyouwouldprojectintothefutureatthatsamepace,soIdon'tseethatturningaroundinthenearterm.


InfactthisisthestrongestdepositgrowthyearI'veseeninmy30someyearswiththeCompanyandit'spartlybecauseofthewayweworktogetherasaCompany,ourdistribution,theconvenienceweprovideforcustomers,ourfocusonthis,soitsbeenverystrongandallsignsarethatwewillcontinuetohaveaverystrongdepositgrowthprofile.


Atninebasispointsit'snotasthoughwe'reoverpaying.


Noexactly.


That'sveryhelpful.Thankyoufortakingmyquestions.


You'rewelcome.




Operator :

YournextquestioncomesfromthelineofJohnMcDonaldwithSanfordBernstein.

JohnMcDonald (Analyst-SanfordBernstein):

Higoodmorning.John,wewantedtoaskjustgobacktotheefficiencyratio.Isitreasonabletoexpectkindofaslongasratesstaylowandcreditisasgoodasitisrightnowyou'relikelytostayattheupperendofyourtargetedrange?

Ithink,JohnShrewsberry,yousaidlastcallyou'dbeokaykindofstayingatthehigherendofthethiskindofenvironmentandisthereanyexpensesthatarekindofstillcyclicallyelevated?Maybejustgivealittlemorecolorthere.


Yes,we'realwayslookingforwaystobeasJohnsaidasefficientaswecanandtomakethemostofeverydollarwespend.AtthesametimenowisthetimewhentherearebigdemandsininformationsecurityandcomplianceandriskManagement.

Andsoifwe'refindingdollarsontheefficiencysideoftheledger,we'rereinvestingthemeitherinproductsandservicesforourcustomersorinbecomingabest-in-classacrossallriskManagementaspectsandsothat'sprobablygoingtokeepushereatthehigherendoftherangeunlesswehaveabreakoutinsomerevenuecategoryorwehaveanincreaseinrates,whichisfine.At58-59%it'sstillanattractiveleveltobeperformingatandwe'reimprovingourCompanyeveryday.


Okay,andon[TLEC]JohnShrewsberrytheresomethoughtsthatyoucouldshareintermsofpreparingfor[TLEC]?Therulesobviouslyaren'tfinishedyet,butareyoutakingstepstokindofprepareforyourassessmentofthemostlikelyproposalthatyou'dseeonthatfront?


Sure.Sowe'vegotavarietyofanalysisofmostlikelyorbestcaseworstcaseandtheylookalotlikewhat'soutthereinthepublicdomain.We'regoingtoendupissuingmoretermdebtduringthephasedinperiodandwe'llprobablystartintherelativelyneartermtolegintoitsothatwedon'tendupwithanenormousoverhangthathastobeissuedinashortamountoftime.


There'sstillalottoknow.


Goahead.


Iwasjustgoingtosayispreferredaswellifyoucouldjustgoonpreferredrelativetowhereyouthinkyoumightneedtobe.


Wellthere'salittlebitofpreferredlefttolegintoourCapitalPlanbutnotmuchandofcoursetheremightbemoreifthere'sRWAgrowthinthewholecapitalstackexpandsprorata.Ithinkwe'reat149basis




pointsofpreferredtodayandourtargetis150,sowe'reprettyclosethere.

ButifwegrowRWA,thenthere'sanopportunityformoreofthat.thebigjobtodoisgoingtobeontheseniorunsecuredsideandsoweneedtoknowwhatthetotalQuantumisasaresultofwhereweendupinthe16-20rangeasabaseweneedtoknowwhat'sincludedandexcludedandthere'sstillthingsonthatlistthatarebeingresolvedbothintheinternationalanddomesticstandardandthenweneedtoknowtheexactphaseinperiod,whichwethinkweknow.

SowhenyoulookatthosecalculationswithwhatwehavematuringorotherwiserunningoffandthenasImentionedgrowthinRWA,thatwillleadustowhatourannualissuancehastobetogetthereontimewhentheruleisfinal.


Okay,thankyou.

Operator :

YournextquestioncomesfromthelineofKenUsdinwithJefferies.

KenUsdin (Analyst-Jefferies):

Higoodmorning.JohnIwaswonderingifyoucouldprovideanycolortohelpusunderstand.Onthenewloanpurchases,isthereanywaytoputincontexteithertheyieldoftheportfoliorelativetotheexistingyieldoftheWellsFargobookanddoyoubringoverexpenseswithitorisitlargelyjustinterestincomecomingoverashashappenedinyourprioracquisitionsofloanbooks?


SotheyieldontheportfoliolooksalotlikeourcommercialRealEstateportfoliotodaybecausetheloanslookalotlikeourcommercialRealEstateloanportfoliotodayandit'snotcomingoverwithmaterialexpense.

SoIthinkweprobablywillhavetoaddsomesmallnumberofincrementalpeople.Butwehave,asyouknow,we'rethelargestcommercialRealEstatelenderintheU.S.todaywithabigseasonedteamalloverthecountryclosetoborrowersandclosetopropertiesandthat'sthecoreteamwe'remanagingtheportfolio.Ifwe'readdingpeopleit'sinthetensormaybedozensofincrementalprofessionalsinordertohelpwithAssetManagementbutnotabignumberinthecontextofthesizeoftheportfolio.


Okay,andthenasafollow-up,withregardstopotentialotherportfoliosthatGEtalkedabout,givenyourpositioningintermsofhelpingthemthroughthestructureasyoumentioned,doyouguysgetadifferentlookorhaveyoualreadytakenalookatotherpartsofthebookandthisisjustthefirsttrancheofwhatcouldbemoreorwhat'syourgeneralperceptionoftheopportunitysetthatcouldcomefourthforWellsFargo?


They'reagreatcustomerandwe'recontinuingtohelpthemandworktogetherlikewedidhere.Theymentionedintheirannouncementthereismoretodoandwe'llgothroughinanywaytobehelpfulinwaysthataregoodforourshareholdersaswellsothereisopportunitythere.Can'treallybespecificaboutitbecausetherearecompetitiveprocessesatworkandthisistheirBalanceSheetafterallbutwewilldefinitelybeworkingcloselytogethertoseeifthereareotherwayswecanhelpthem.





Onelittlefollow-uponyourcreditcomments.Understandingenergyisbakedintothisquarter,canyougiveusthepushesandpullswithinthecreditbucketsintermsofhowmuchmoreimprovementdoyoucontinuetoseeontherestofthebooksextheenergysideorhavewereallygottentotheendofthenaturalimprovement?


Wellthereisisstillmeaningfulimprovementinfirstmortgageinparticular.You'veseencharge-offsandtheycontinuetocomedownandNPLsaredown,theportfolioisperformingvery,verywell.Soasaresulttherewasroomtotakestockofwhatwethinktheissuesarewiththeenergyportfolioandendupwithanetreserverelease,soquarterbyquarterwe'lllookatitbytheendoftheSecondQuarterandseewhatthenumberstellusbutthingsdidcontinuetoimprove.


ButKen,Ithinkyoushouldalsoaddthatwhilethere'sstillmoreimprovementtobehadonresidential,ontheotherhandourcommercialsidehasbeenclosetooreveninarecoveryposition,thatwon'tlastforever.Sothere'salwayspushesandpullshere,butoverallcreditisreallydoingwellhereandthat'sanindustryphenomenon,butespeciallyatWells.


Understood.Thankyouguys.

Operator :

ThenextquestioncomesfromthelineofScottSieferswithSandlerO 'Neill&Partners.

Scott Siefers (Analyst-SandlerO 'NeillandPartners):

Goodmorningguys.Justacouplequickquestions.SoJohn,onthetaxratehaskindofbumpedaroundandthisquarterobviouslyhadthediscreteissuethatyoucalledout.Butwhat'stheappropriateFTEtaxratetousegoingforward?


Thebestwaytothinkabouttheremainderoftheyeartaxrateistotakethe$359milliondiscretetaxbenefitoutoftheFirstQuarterandthenrecalculatethetaxrate.Whichwouldgetyoutothemid32s.


Exactly,okaythankyouandthentheotheronewhenyoutalkedaboutthemobilegrowthyou'dnotedalsothatbranchusehasnotbeendeclining.Justfromyourperspective,whosecominginandwhatkindofstuffaretheydoingandasyoulookatoverallbranchtrafficandtheneedforbranchesisitagoodthingpeoplearestillcominginanditmakesforaneasiermoredirectcrosssellandit'smoreofanegativeandyouhavetomakemobileinvestmentsbutyoucan'tleveragethefewerbranchesnecessarilyorasmuchbranchreductionasyoumighthave,howdoyouthinkaboutthatdynamic?


Hereishowwethinkaboutthat.Westartoutwithcustomerandcustomerstellusbranchesareimportant.Wehearthateverydayandwhileourotherchannelsaregrowing,infactifyouthinkaboutthe12,000consumerinteractionswehaveaminuteinthisCompany,80%orsoarewhatIwouldcall




supportedeitheratonlineoramobileandmobilebeingourfastestgrowing.

Butourstores,our6200storesarestillbusy.75%ofourcustomerscomeintoastoreonceeverysixmonths.EvenMillenialsorourmostadvancedonthedigitalsidevisitourstores,visitATM'sandabout85%ofourgrowthsaleshappenthere.Soitdoesn'tmeanwehavetobuildfiveor6,000squarefootstores.

Asyoualreadyknowandwe'vetalkedinthepastwe'vetriedsomedifferentconceptswherewehave1000squarefootstoresthatatnightofcourseanATMandinthedaytimethewallsfoldinandbecomeafullfunctioningdigitallyenabledstoresowe'redoingthatkindofthingbutourmostloyalcustomertodayisnotnecessarilytheonewhohasthemostproducts.

It'sthecustomerwhodoesthemostthingswithus.Usesthemostchannelsmostoften,sowe'reincreasinglybecominganinformationprovider.We'reintheinformationbusinessasmuchaswe'reontheretailsideintheFinancialServicesbusiness,sothisisreallyconnectingallofthechannels.Notabouttryingtodrivecustomersintowhat'scheaperforus.That'snothowwethinkaboutthat.Wethinkaboutwhat'sbestforthemandbranchesstillremainanenormouslyimportantpartinthat.


Okay,that'sgoodcolorIappreciateit.Thanksalotguys.

Operator :

YournextquestioncomesfromthelineofJoeMorfordwithRBCCapitalMarkets.

JoeMorford (Analyst-RBCCapitalMarkets):

Goodmorningguys.

FirstcomparedtothefourthquarterthecommercialloangrowthwasalittlesloweroutsideofRealEstateconstruction.Wassomeofthatseasonalorwerethereotherfactorsinplaythereandjustingeneralhowdoyoufeelaboutthecurrentlevelsofdemandonthecommercialside?


SoitbigQ4toQ1changesthatweclosedatthesaleofthestudentloanportfolioinQ4whichcreatedabigC&Iloanthathappenedtowardtheendofthequartersothestepoffwasfromaprettyelevatedplace.Thathasanimpactinthecalculation.

IthinkintheFirstQuarterwefeelgood.Pipelineslookprettygood.Wetalkedtotheleadershipofthebusinessandpeopleareactive,sofromonequartertothenext,toughtotell.Theyear-over-yeartrendinC&Iloansisreally,reallyhealthy.Andthenthatstep-offcalculationisalittledisadvantageousjusttothemath,butbusinessisgood.


Iguesstheotherquestionwascuriouswhatyourearlyreadisonthespringsellingseasonthisyearandyoustartingtoseeanysignsofreturnofthefirsttimehomebuyer?


Well,Joe,sincewe'reabigretailoriginator,that'sobviouslyabigopportunityforus.Asyouyourquestionwouldsuggestthatthefirsttimehomebuyerhadbeenabitabsentinthisrecoverycomparedtowhatitsbeeninpreviousrecoveries.




ButIthinksomeoftheworkthattheindustrydidalongwiththeGSEsandunderstandingputbackriskandtransferofriskmakescreditalittlebitmoreavailable.There'salittlebitmoreactivitygoingon,wageincreasesandincreasesinemploymentthathavebeenhelpful,affordabilityisreallyagoodtimetobuyahomesoyouneverknow.

We'rehopefulwe'regoingintothequarterwiththehighestofpipeline,44billionthanwe'vehadinacoupleofyearssowe'rewellpositionedandwe'llhavetoseewhatthenumbersshowbutwe'reonourfrontfeethere.


Soundsgood.Thanksverymuch.


Thankyou.

Operator :

YournextquestioncomesfromthelineofMikeMayowithCLSA.

MikeMayo (Analyst-CLSA):

Hicanyouhearme?


Yes,hiMikegoodmorning.


Hi.Canyoutalkalittlebitmoreonthehousingbacklog,whatdoesitlookbyregionandwhataretheareasstrength?


It'shardtosay.Themortgagebusinessthatwe'relookingatrightnowwe'retalkingaboutnationalstatistics.Iguessobviouslywhenwe'retalkingaboutaffordabilityandparticularlyforfirsttimehomebuyersorpeoplewhoaremostlikelytobenefitfromtheeasingofthecreditboxthatJohnjustreferredto,theyareprobably--wouldhavethehardesttimeinthehottestMarkets,whichnosurprise,arecoastalmarketsinbigcitiessittinghereinSanFranciscoandmanyofyouinNewYork.

Sothingsaremoreaffordableinthemiddleofthecountry.Thatcouldn'tcomeasanysurprise.Mostofwhatwe'rereferringtoarejustthenationalpipelineandstatisticsandasfarasIcantelltheproductionisprettybalancedfromourvariousmortgageoffices.


Mike,justacouplethingsyouprobablyalreadyknow.AsJohnmentioned,therearecertainMarketswherethebiggestchallengeforhousingislackofinventory.It'sstilltheentireBayAreaisbidmarketwhereyoubidforhouses.Mydaughterandson-in-lawrecentlyboughtahouse.Youhavetowritealetterandtellthemhowniceyouareandhowmanychildrenandaniceletterplusalotofmoneywillgetyouinthebiddingprocess.

That'snottrueofcourseeverywherebutIwasinMiamirecentlyandthatMarketsstunninghowthatmarketisreallydoingsowellandyouwouldhavelookedbacksixyearsagoandyoucouldn'timagine




what'sgoingontodaysoitjustdepends.Andit'sabitaboutwhat'shappeninginthoselocaleconomiesintheBayAreaofcoursewithwhat'shappeningwithinmigrationtechnologyhasreallycreatedalotofactivityheresoit'sabitofamixedbagbutall-inall,we'reoptimisticabouttheSecondQuarterhere.


Thankyou.

Operator :

YournextquestioncomesfromthelineofPaulMillerwithFBRCapitalMarkets.

PaulMiller (Analyst-FBRCapitalMarkets):

Yes,thankyouverymuch.Youtalkverypositiveaboutyourmobilebanking,onlinebankingwhichIthinkeverybodyishavingthatsametrendbutIknowyouopenacouplelikeexpressbranchesorwaveyouwanttocallthemintheWashingtonD.C.area.Howaretheyworkingoutareyouplanningtoexpandthosetypeofbranches?


Yes,thefirstonetherewasNorthMassachusettsandsecondwehadnowwe'redoingacoupleothersinotherMarketsbutIdon'twanttosuggestforaminutethatthatyou'llsee[6200Nomas]with1000squarefeetacrossthefranchise.

Ithinkit'sabitofeverythingmeaningthatthereissomehub-and-spokewhereyouhavealargerestablishedbranchorastorethat'sbeenthereformanyyearsandthenyouhaveothersaroundthatmaybearen'taslargeandyouhavesomelikethecaseinnorthernMassachusettswhereyoucouldn'tget5,000andathousandsquarefeetisisoptimalforthatmarketsothisisreallyaboutlookingatourdistributionandwecallactuallyhealthofyourdistribution.

Areyouintherightlocationwiththerighthours,therightpeople,therightfootprintanddoesthestoreorthebranchworkinconcertwithalltheotherchainsofdistributionsocustomerscanstarttransactionsoneplacefinishanotherplace,isthereoneversionofthetruthandaroundinformationsohowcustomersservethemselvesorwantservicefromus.

Soit'sawholebunchofthingsthatreallymatterinthis.AndIthinktheproofinthepuddingisourabilitytogrowprimarycheckingaccounts.I'veneverseengrowthat5.7%andlikeJohnmentioned,it'snotthatweoverpayindepositsninebasispoints.Thisisthemagicofhowthisworkstogether.

PaulMiller (Analyst-FBRCapitalMarkets):

Andalsooverby[NOMA],youalsoopeneduponeintheSafeway.IthinkitwasaSafewayoutthere.Iknowalotofpeoplemovingawayfromsupermarketbanking.Idon'tthinkyouareabigplayerinthatarea,butisthatworkingoutalso?


Atone-time,thisgoesbackanumberofyearsandin1998whentheformernorWestdecidedthefamilyIcamefromandWellsmerged,Wellswashugelyindexed,overindexedtogrocerystoresandthenwehadbeenadjustingthatsincethattimebutagainwethinkofitasdensitywithinamarketandissometypestofilloutthatdensity,afreestandingATMmachine,sometimesit'sinstore.Sometimesit'saNOMA1000squarefootsoitallfitsintowhatwecalltheScurveandmaybeI'lljustdigressforasecond.

Ifacommunityhaslet'ssay500bankinglocationsthat'soptimalforacommunityandyouhave20%of




those,100,andthat'stheoptimalamountyou'llactuallygetmorethan20%ofthebusiness,you'llget25%ofthebusinessbecausecertaincompareswillhave10%ofthestoresandtheywillget8%ofthebusinesssothere'samagictothedensityandwherethedensityisandhowitworkstogetherandthat'sjustpartofourlearningaftermanymanyyearssosometimesgrocerystoresfitintothat.Sometimestheydon't.Itsurelywouldnotbealeadonlystrategybutasanaugmentit'sverypowerful.

Operator :

YournextquestioncomesfromthelineofNancyBushwithNABResearchLLC.

NancyBush (Analyst-NABResearch):

Goodmorningguyshowareyou?

IhaveaquestionforyouJohnStumpf.


Oh,yes,you'vegotto,there'stwoJohnS'aroundhere.


Yes,JohnSdoesn'tgoanymore.They'reinseveralarticlesrecentlyoneacoupledaysagointheWallStreetJournalaboutthechangingriskprofileatWellsFargoandtheylookatincreasedpercentageofrevenuescomingfromInvestmentBankingandasignofriskpremiumtothat.CouldyoujustaddressthewholeissueandjustframeoutforushowbigyouwantInvestmentBankingand/orCapitalMarketsactivitiestobethere?


It'sagoodquestion.Wethinkofcustomer,NancyandI'llgettothespecificquestionbutthewaywethinkaboutbusinesshereisaroundrelationships.Relationshipswithteammembers,wehave28yearswiththeCompany.

Wethinkofrelationshipswithourcustomers,ourcommunities,ourshareholders,Buffethasbeenanownerofoursfor25yearsorwelovelongtermthings,soasitgetstoInvestmentBankingactivities,wethinkofthatasanothersolution,anotherproduct,anotherserviceandmostoftherevenuethatcomesfromthatbusinessisfromexistingcustomerswhohavebeendoingbusinessforalong,longtime.

Whenyouarethenumberonemiddlemarketbank,whenyouhaveleadershippositionsinenergyandagandcommercialRealEstateandyoudobusinesswith80plusor90%oftheFortune500you'regoingtogetopportunitiestoservecustomersdeeplyandbroadlyandifthatmeansthatthroughourskillsandourpeopleandourvaluepropositionthatcustomers,corporatecustomerswantustohelpwithvaluation,issuingdebt,issuingequity,wonderful.

Ifwe'renotgoodenoughtogetthatanditgoessomeplaceelsewejusthavetoworkhardersoIdon'treallylookatleaguetables.IguessIreadwhereinfactIreadforthefirsttimewhenIreadthejournalthatwewerenumbersevenoreightornineIcan'trememberthenumberIcouldhavecaredless,absolutelycaredless.

Ionlycarewedotherightthingforcustomersandifthatmeanswe'removingupterrific.Ifthatmeansthatothersaregrowingfasterbecausethey'retakingrisksordoingthingsthatdon'tmakesensetousGodblessthemsothat'showwethinkaboutit.Notasastandalonebusinessasonemorewaytohelpcustomerssucceed.





SoIguessitmayormaynotgrow?


Exactly.Justbasedonourskillsandthemarketavailability.


ActuallyacoupleofdatapointstogiveyouNancytohelpyoudimensionit.ButifyoulookatWellsFargocomparedtothepeergroupontherisksthatwerunthatwereportinour10-Qand10K,we'vegotamoremodestsetoftradingbusinesseswithaverylowriskprofileatleastasmeasuredbyVAR,whichisthepopularpublicversionofthat.

Ourinvestmentbankingfeeswhilewe'rethrilledandhappytohavethemamounttoacouplebilliondollarsayearorsomethinglikethat.Ona$90billionrevenuebasethisquarterwewereinthe$420to$430millionrangefortradingrevenue,whichisappropriatefortheneedsthatwehaveforcustomeraccommodationandformanagingourownrisks,butstillintheschemeof$1.7trillionBalanceSheettheequitythatwecarryand$90billionworthofrevenue,it'sjustacoupleofthe90plusbusinesseswereferredtoandit'snotimaginedtogrowinanoutsizedwayfromwhereitistoday.

We'realwaystryingtodomore,servecustomersbetterwithgreatpeoplebutifwedoubledthesizeofthebusiness,oversomeperiodoftimewhilethefirmgrewatasteadyorganicratewewouldstillbeinarelativelymodestpercentageoftheoverallfirm.


AndNancytheriskreallywouldbeifyoueversawwherethemarketisshrinking,let'ssayinInvestmentBankingorCapitalMarkets,andwe'reoutsizedgrowingbecausewe'retakingonriskswithcustomersthatwehavenotknown,that'swhereyouseetheimbalanceandthat'sagainjustnotwhoweare.


SecondquestionforJohnnumbertwo.Inmortgagebanking,ifyoucouldjustrepeataboutwhatyousaidaboutgainonsale.IwaswritingasfastasIcouldbutImissedthenumberandwhereyouexpectittobeintheSecondQuarter?


SotheFirstQuarterwasatabout2%,alittlemore2.06%whichisthehighendofthefivequarterrangeandtheSecondQuarterisoperatinginthatneighborhoodsowe'regoingtobewefeellikewe'reatthehighendoftherangeinthesecondquarteraswell.


There'salotmoredifferenceNancywithgainonsalemarginsasyouwellknowbecauseyou'vebeenaroundandseenthisindustryoveralongtimesothat'sahealthything.


Okay,allrightthankyouverymuch.

Operator :

YournextquestioncomesfromthelineofMattO 'ConnorwithDeutscheBank.




MattO'Connor (Analyst-DeutscheBank):

Goodmorning.

Justtofollow-uponthemortgagecompetitivelandscapehere.It'sinterestingwesawJPMorganoutearliertodaywithabecomeincreaseincorrespondentoriginationsversusayearagoandIthinkmaybeyou'vebeenmoreconsistentinthatbusinessbutmaybeitjustEbbsandflowsbutifyoucouldjustremindusonthecorrespondentandtalkaboutthemixyou'regoingafterrightnow?


Idon'tknowifit'sahimofgoingafterasmuchasamixofwhat'scomingin.We'vebeenveryconsistentasyousaid.WhathappenswhenratespopdownandrefinancesspikeupisthatourownservicingportfolioresultsinalotmoreapplicationsbecausetheeasiestthingforsomebodytodowhentheywanttotakeadvantageofaraterallyiscallWellsFargobecauseweprobablyalreadyhavetheirmortgage.

Andsothat'sgoingtohaveabiggerinfluenceonastrategythatwemighthavearoundcorrespondentandIthinkyoucanseeinthesupplementthatretailwas28billionandcorrespondent20billionofthisquarter'sactivity,andthat'snotaninconsistentblendversusthelastseveralquarters.

Therearemorecorrespondentsthesedaysasyouknowthatgodirecttotheagenciesbecausetheagencieshaveopenedthewindowtothemandthat'salsoalowermarginbusinessforus,soallthingsbeingequalwe'rehappytobearetaillenderbutwedoserveabigcorrespondentconstituency.


AndMattifyougobackintimeweactuallyhadalargershareofthecorrespondentbecausetherewasanumberwhobackedawayandwalkedawayfromthemarketwhocomeandgofromtimetotimesothatwillEbbandflowasparticipantseitherrstayinorgetoutorwhatever.


Andthenjustcirclingbackonexpenses.AndIguessI'mfocusedoncallitthepeoplecosts,thesalaries,Commissions,incentivecomp,employeebenefit.Ifyousumthosethreelines,it'supIthink6-7%versusayearago.

AndIknowthere'sthetradingnuanceweneedtoadjustforbutisthereimpactofthemortgagepipelineimpactonthosenumbers,ifyoukindofstaffupinanticipationofthehighervolumeorI'mtryingtoreconcilewhythatgrowthmaybesomuchversusrevenueandsomeofthecategoriesandfees.


Yes,Iwouldn'tlooktowardmortgage.IwouldlooktowardriskManagementandinvestmentsthatwe'remakingalongthoselines.ThebeautyaboutmortgageintheFirstQuarterwasthatthisrefinancepipelinehelpsusethecapacitythatwewouldhaveneededinthefourthquarterandweanticipateneedingintheSecondQuarter.

Soitwasagreaterlevelofutilization.Forbetterorworsethechangesinyear-over-yearareavarietyofotherthingsincludingbusinessmixbythewayintermsofhowCommissionsgetpaidandotherrevenuerelatedincentivesbutitwouldbethatplusinvestmentsmadeincomplianceandriskManagement,cyberandinformationsecuritythingslikethat.Thosearewehavethebestpeopleandthosearenotinexpensive.





Anywaythatonanabsolutebasisorversussayayearagothatoverallbucketofcallitnon-revenuerelatedcosts?


Idon'thaveanaccuratenumber.Ithinkwe'vetalkedabout$100millionaquarter.Acouplequartersagoashavingbeenanobservabilityincreaseinthatcategoryandit'snotanylowerthanthattoday.Maybewe'llseeifnexttimearoundwecanputafinerpointonthat.


Okay,thankyouverymuch.

Operator :


YournextquestioncomesfromthelineofEricWasserstromwithGuggenheimSecurities.

EricWasserstrom(Analyst-GuggenheimSecurities):

Thanksverymuch.Johnjusttofollow-uponyourenergyrelatedcommentsandIappreciatethedetailyouprovidedbutcanyoujustclarifywasthereinfactanyincreaseingeneralorspecificreservesforthatportfoliooranydownwardmigrationinternalriskratingsoranythingofthatnature?


Youknow,therewasalittlebitofdownwardmigration.Notenoughtomeaningfullydrivethereserve.There'salittlebitofanincreaseinNPAsbutnegligibleandwerealizedminimallossesinthequarterintheenergyportfolio.


Okay.


Butthechangeinreservereflectsallofwhattheactualmigrationandtheactualobservationofperformanceintheenergyportfolio.


Understoodandoneoftheotherinstitutionsindicatedthatbasedontheforwardpricecurve,theywouldexpectsomeofthepressureontheE&Psectortosubside.Isthataviewthatyoushare?


I'dhavetosayyes.We'reinthemiddleofourspringredeterminationprocessfortheborrowingbaseloanssowe'llhaveabetterfeelingafterwards.Wehavenoticedalotofcapitalraisinggoingoninthisspace.WetalkedlastquarterabouttherisktoourInvestmentBankingincomearoundenergyrelatedfirmsbecausewe'relargeinthatspaceandwehadagreatFirstQuarterinenergyandInvestmentBankingbecauselotsofequitywasraised,lotsoffirmswenttothedebtmarkettoturnthemselvesout.

Sothataverypositivesignthere'speopletakingstepsandchangingtheirBalanceSheetsandimprovingtheirriskprofiles,sothatandthecombinationofwheretheforwardcurvedemonstratestheenergypricesmightbegoingishelpfulbutthat'sagainreflectiveinourearlyviewofourallowanceand




itwillbebetterinformedoncewefinishourborrowingbaseredeterminations.


Andtypicallywhenisthat?


Duringthisquarter.


Greatthanksverymuch.

Operator :

YournextquestioncomesfromthelineofMartyMosbywithViningSparks.

MartyMosby(Analyst-ViningSparks):

Thankyou.Iwantedtodrillintothemortgagebankingalittlebitmoreinthatwhenwemanagedours,andwehadthisrecognitionoriginationatcloseandnotinterestratelock,wheneverprepayamskickedinservicingincomekindofwascompressedasyouhadtowrite-downtheservicingfortheexpectedprepaymentbutoriginationincomewasn'tatitsfullrunsoinmymindIwasjusttryingtolookatthisFirstQuarterasthelaunchingpadgoingintoamuchstrongerandnottoquantifythatbutastrongerreturninrevenuesandmortgagefromthattimingeffect.


ActuallyIthinkthat'saprettyastuteobservationbecausewewouldbevaluingtheMSRonprepaymentexpectationswhichreflectthatlowerinterestrateandwehavebeentakingthegainonthepipelineandwhat'slockedandinsulatedthecloseintheSecondQuarter.


Twofollow-upstothatthoughtprocess.71basispointsontheserviceportfoliohastobeclosetoall-timelow.Arewegettingtothepointthatevenwithprepayamwewouldn'tneedmuchmorerevaluationgivenyou'vealreadyincorporatedalotoftheexpected(inaudible)intothecurrentevaluation?


It'sagoodobservationbutit'stoughtosay.Welookatthatcalculationregularlybutinconnectionwithourpreparationofourfinancialstatementsonaquarterlybasisandtakeeverythingintoaccountthat'savailablethenandthat'swhenwestrikethevalue.


Andthenlastly,whenyouconvertyourunclosedpipelineof$44billionmoowhatwouldbeanormalpullthroughintooriginationsinthenextquarter,Iguessit'ssomethinglike75to$80billion.Doesthatseemaboutrightinasensethatthat'sthekindofrunrateyou'regettingintoatthispoint?


Toughtoknow.Wedon'tknowwhathasn'thappenedyetandthat'swhat'sgoingtotheapplicationswillbereceivedandpulledthroughinthequarter,sotooearlytospeculate.





Goodthingisthathalfofit'salreadydoneandunclosedpipelinesoyouatleastknowthatpart.


That'sright.


Thankyou.

Operator :

OurfinalquestionwillcomefromthelineofJohnPancariwithEvercoreISI.

JohnPancari(Analyst-EvercoreISI):

Thanksfortakingmyquestions.Quickquestiononthemargin.Wantedtogetsomecoloronthe13basispointdeclineincommercialloanyieldsandIknowyouindicatedthatwaspartlyimpactedbyfees.Didthelowerloanfeesaccountforallofthatorhowmuchofitwasdownwardpressureonyieldsfrompricingpressure?


It'smorePCIloanrecoveriesandlowerloanfeesthancompetitivepricingpressuresothevariablecomponentsofinterestincomearehardertopredictandwhenaloangetsresolvedthat'sbeensittinginworkoutsometimesitcomesthroughthemarginlineandthenifaloanprepaysorthere'sloanfeehungupinitscarryingvaluethenthatsometimescomesthroughinterestincomeaswell.It'sthosetypesofitemsthataretoughtoplanfor,toughtobudgetandinthisparticularquarterwe'relowerthanthepriorquarters.


Okayandthenhowdoesthatplayintoyourmarginoutlook?Isitfairtoassumestillmidsingledigitbasispointscompressionperquarteraswemovethrough15?


It'stootoughtocallbecauseitdependsonwhathappenswithdepositgrowthanddependsonwhathappenswithloangrowthandotherinvestmentswemakeinthesecuritiesportfolio.That'sWhat'sgoingtodriveit.It'sleadbywhathappenstodepositgrowthandofcourseiftherewereamoveininterestratesthatwouldhaveanimpactaswell.Wearen'ttryingtoforecastitinthisinstance.


Okay,allright.


Ourrealfocusisongeneratinggrowthinnetinterestincomeandthemarginsmoretheresult,notthereason.


Right.Okayandthenonthatfrontthen,John,Iguessifyoucouldjusttalkalittlebitaboutloangrowthexpectations.




Iknowyougavegoodcoloronwhatyou'reseeingonC&IbutCRE,yousawstilldeclinesinyourtotalCREbook.Wantedtogetthoughtsaroundasustainedinflectioninthatportfolioorganicallyandthenisitalsofairtoassumethattheloangrowthoverallshouldremaininthemidsingledigitrangeatthispoint?


Toughtocallbecauseitdependsonthemix.We'vegotavarietyofcommercialandconsumerassettypesherethateachhavetheirownmarketandcyclicaldynamics.IthinkweexpectcardswereataseasonallowintheFirstQuartersobetweenseasonalityandissuingnewcards,thatbusinessprobablygrows.

Autowe'vekeptitsgrownbutkeptrelativelystableandgottentobeamorecompetitivemarketandwe'vepickedourspotsalittlebitmoredelicatelyandcommercialRealEstateit'sgoingtobetoughtospottheorganiccomponentofitbecausethepurchaseoftheGEportfolioandthisincrementalloantoblackstonemortgagetrustisgoingtohaveabigimpactinthesecondandThirdQuartersbutifI'daddanythingtothatit'sthatnowthecompetitivedynamicincommercialRealEstatelendingsalittlebitdifferentbecauseabigcompetitorisexitingthebusiness.Thatprobablymeanssomethingforusorganically.Ifthat'shelpful.


Okay,thankyouandmylastquestionisjustonthecreditside.Theoilandgasreservepostwhatyoudidthisquarter,canyouquantifywherethatreservestandsrightnow?


Youknow,wedon'tcallitoutspecifically.Wecapturethewholeportfolioinouroverallallowanceforloanlosses,andfeelthatthatisabsolutelyadequatefortheloanbookthatwehavewhichincidentallyhasneverbeenbetteroverall.O ilandgasloansareapproximately2%tothetotalportfolio.


Right.Okaythanksagainfortakingmyquestions.


Okaythisisgoingtoconcludeourcall,sothanks.Firstofallthankyouto[265,000]teammembersforavery,verygoodFirstQuarterandthanksforallofyouontheline.Wewillseeyounextquarter.Bye-bye.

Operator :

LadiesandGentlementhisdoesconcludetoday'sconference.

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Wells Fargo (WFC) Earnings Report: Q1 2015 Conference Call ...

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