Wells Fargo & Company

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 first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. 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, starting as they begin the conference.

Thank you, Regina. Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf, and our CFO, Mike Santamassimo, will discuss first quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our first quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie. Thanks, John, and good morning, everyone.

I'll make some brief comments about our first quarter results, the operating environment, and update you on a few important topics. I'll then turn the call over to Mike to review the first quarter results in more detail. We are in $4.7 billion, or $1.5 per common share in the first quarter. As you can see, these results included a $1.6 billion decrease in the allowance for credit losses. Higher net interest income more than offset a decline in net interest income. And expenses are just beginning to reflect progress on our efficiency work. The impact of this work should increase in the latter half of the year. Credit quality continued to outperform our expectations with charge-offs at historical lows. But low interest rates and tepid loan demand remained headwinds for us during the quarter. And we continue to manage within the constraints of our asset cap, which require us to anticipate the inflows from government stimulus, effects of QE, and additional fiscal actions which could impact our balance sheet. Overall economic trends improved during the quarter. And while there are risks, the likelihood of improvement continues to increase. And you certainly see this in the markets. Equity markets are rising, spreads have tightened, and liquidity is strong. Additional fiscal stimulus, continued monetary support, and the acceleration of vaccine availability provide a path to a more complete reopening and further economic expansion. U.S. GDP growth is on track to surpass its pre-pandemic peak by the end of the summer and is expected to increase in 2021 by more than any year since 1984. Overall, the consumer is strong, though there are inconsistencies, which I will address later. Consumer net worth was up 10% in 2020, hitting a new all-time high of $130 trillion. Personal savings is approximately $1.3 trillion greater today than it was a year ago. It's expected that more than $1 trillion will be spent over the next five months. And this does not include the impact of President Biden's proposed initiatives. Wells Fargo customers, excuse me, specifically, as of last week, over $46 billion has flowed into our customers' deposit accounts related to round two and round three of federal stimulus payments, and we estimate that half has been spent and half remains in their accounts. For our customers who received federal stimulus payments, their median deposit balance was up 80% from a year ago, and for all of our customers, including customers who did not receive stimulus payments, Median balances were up 62% from a year ago. Weekly debit card spend was up every week compared to a year ago during the first quarter. The year-over-year increase accelerated in March, in mid-March, due to the impact of last year's COVID-related restrictions and the impact of stimulus payments and was up approximately 70% during this week last year of the quarter compared to a year ago, but was up 35% compared to the same week in 2019. We are seeing increased consumer spending activity in both travel and restaurants, two categories that have been particularly suppressed since the onset of COVID-19. Specifically for travel, for the week ended April 2nd, debit card spend was up 422% compared to 2020, but was still down 4% compared to 2019. Consumer credit card weekly spend continues to strengthen over the course of the first quarter as well, and ended up and ended the quarter up approximately 70% during the last week of the quarter compared to a year ago, but importantly, up 8% compared to the same week in 2019. Businesses remain strong as well. Most clients still have strong cash positions, and line utilization remain low. Demand for consumer products is high, and dealer inventory levels are meaningfully lower versus historical levels. After declining during the second half of the year, commercial loan balances seem to have stabilized, and if the economy continues to pick up, we would expect to see increased loan demand from our commercial customers in the second half of the year. With vaccine distribution accelerating, I'm hopeful that we will be shifting to a more normal way of life soon, but there's still many that will continue to need help, as not all have benefited equally during the recovery. Throughout the pandemic, our focus has been providing support for our customers and the communities we serve, and we continued those efforts during the first quarter. Since the pandemic began, we've helped 3.7 million consumer and small business customers by deferring payments and waiving fees. In addition to our $10.5 billion of PPP funding in 2020, In the first quarter, we funded approximately 70,000 loans, totaling $2.8 billion under the latest round of the Paycheck Protection Program. This year, we focused even more on small and diverse businesses, and our average loan size was $40,000, down from $54,000 last year. We had the lowest average loan size amongst our large bank peers. 96% have been for businesses with fewer than 20 employees. 43% have gone to businesses in either low to moderate income areas or majority minority census tracts totaling more than $6 billion between this year and last year. We committed last year to donate approximately 420 million of our fees from the PPP program and established our open for business fund. We're in the process of distributing these funds to a combination of CDFIs and not-for-profits that serve diverse small businesses. To date, we have distributed over $125 million and are working to accelerate distribution of the remaining funds. We estimate that these actions have protected more than 66,000 jobs and hope to make an even more substantial impact with the funds remaining. As we announced yesterday, we have invested in 11 black minority-owned deposit institutions as part of our $50 million commitment to support MDIs. We expect to compete We expect to complete our investments in another two by the end of the second quarter. And as I mentioned before, we processed over $46 billion of customer deposits related to the federal stimulus payments through last week and have cashed stimulus payments for non-customers without charging fees. While we're proud of these actions, we know there is still more to do. Lower-income families and individuals, as well as minority-owned small businesses, will continue to need support, and we will continue to look for ways to help. Climate change is one of the most urgent environmental and social issues of our time, and last month, Wells Fargo announced a major step in our efforts to support the transition to a low-carbon economy by setting a goal of net zero greenhouse gas emissions, including financed emissions, by 2050. We committed to publish data on our financed emissions and set interim goals as we work closely with our clients in this transition. We also released our first Task Force for Climate-Related Disclosure, I'm sorry, Task Force on Climate-Related Financial Disclosures report in the first quarter, which provides an update on our progress managing climate-related risks and opportunities. Let me turn and make some comments about our strategic priorities. Last quarter in my shareholder letter, I discussed the, and in the shareholder letter, I discussed the actions we're taking to improve our performance and we're making good progress. We continue to prioritize the work necessary to build the appropriate risk and control infrastructure, and it remains our top priority. As a reminder, this is a multi-year journey. Progress may not be a straight line, and while we still have significant work to do, we are diligently doing what's necessary, issue by issue. It's hard to share specifics given the nature of the work, but I believe we're making progress and we're confident in our ability to complete the work. In terms of business exits, I highlighted on the call last quarter that we were focusing our efforts on our core scaled businesses, and after rigorous reviews, we were in the process of exploring options for businesses that were not consistent with our strategic priorities. Mike will cover the financial details, but in the first quarter, we announced agreements to sell Wells Fargo Asset Management and the Corporate Trust Services businesses, and both are expected to close in the second half of this year. In addition, we completed a portion of the sale of the student loan portfolio and we completed the sale of the majority of the remaining portfolio recently. We are pleased that we have found buyers who we believe have a similar approach to service and are focused on providing clients with innovative products and solutions. These announcements are an important step to simplifying our business and allowing us to focus on our core strategic priorities. Our work to simplify how we operate and create a more efficient organization continues. We've made progress on our brand staffing and network optimization plans as we calibrate for changing customer behaviors and more traffic migrates to digital channels. We continue to execute on our commercial banking transformation as we optimize our coverage and operations model, consolidate lending platforms, and automate and standardize many manual processes such as onboarding a customer pain point, which has been key for us. And across the entire enterprise, we continue our ongoing efforts to reduce management layers, to speed decision-making, and reduce unnecessary bureaucracy. We are also focused on moving our businesses forward. A few examples. On the consumer banking side, we're accelerating our investments in digital with a particular focus on delivering a simple, easy-to-use, best-in-class customer experience for the most used mobile app features. We're also simplifying enhancing our product line, including launching clear access banking, our low cost, no overdraft product, and we've opened over 500,000 new accounts since the launch last fall. And this summer, we will be improving the benefits of our portfolio by Wells Fargo checking customers. As I've spoken about before, we're under-penetrated in credit card given our customer footprint, and we're working on developing a significantly improved value proposition that we can introduce to the market. And on the commercial side, we're going after the middle market investment banking opportunity in a different way than we have previously. This includes joint accountability, investments in talent, name-by-name client prioritization, and joint account planning. Mike will discuss capital more in his remarks, but our position remains extremely strong. We repurchased almost $600 million of common stock in a quarter and And based on the restrictions still in place for the second quarter, we have the capacity to return approximately $1.8 billion to shareholders. As a reminder, our asset cap limits our ability to deploy excess capital to our customers. Returning capital to shareholders remains a priority, and we look forward to resuming capital returns under the stress capital buffer methodology starting in the third quarter. Last quarter, I discussed constraints to achieving return on tangible common equity greater than 10% and then around 15%. I should note that those returns did not include credit loss reserve releases. The asset cap and capital return restrictions continue, but the progress on vaccination distribution, ongoing monetary policy, additional fiscal stimulus, and higher interest rates are helpful. We're in the midst of a multi-year transformation, and I'm confident that our operational and financial performance will continue to benefit from the progress we're making. I'd like to end by acknowledging that we've asked so much of our entire Wells Fargo team, and I'm proud of all the work they've done to support our customers and the communities we serve. We will continue to do all we can to support an equitable recovery and help those most in need of our support. I will now turn the call over to Mike.