Wells Fargo & Company

Welcome and thank you for joining the Wells Fargo second quarter 2023 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 1. If you would like to withdraw your question, press star 2. 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.

Good morning. Thank you, everyone, for joining our call today where our CEO, Charlie Sharp, and our CFO, Mike Santosimo, 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 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.

Thank you, John. Good morning, everyone. As usual, I'll make some brief comments about our second quarter results and then update you on our priorities. I'll then turn the call over to Mike to review second quarter results in more detail before we take your questions. Let me start with some second quarter highlights. We had solid results in the quarter with revenue, pre-tax, pre-provision profit, diluted earnings per share, and ROTCE all higher than a year ago. The revenue growth reflected strong net interest income growth as well as higher non-interest income. While our efficiency ratio improved and we continued to make progress on our efficiency initiatives, we had modest expense growth from a year ago. Net charge-offs have continued to increase from historical low levels, but overall credit quality was strong, and consumer and business balance sheets remained healthy. We increased our allowance for credit losses by $949 million, primarily driven by our office portfolio, as well as growth in our credit card portfolio. While we haven't seen significant losses in our office portfolio to date, Our detailed loan-by-loan review of the portfolio has given us a sense how the next several quarters could play out. We also considered a number of stress scenarios, all of which informed our actions this quarter. Mike will discuss this in more detail, but I want to make the point that it is very hard to look at any one statistic and determine the risk in the portfolio. Lost content will be driven by a combination of factors. including but not limited to property type, location, lease rates, lease renewal notice dates, loan structure, and borrower behavior. Most importantly, our CRE teams remain focused on working with our clients for portfolio surveillance and de-risking to minimize lost content. Both commercial and consumer average loans were up from a year ago, but were down from the first quarter as the economy has slowed actions. Credit card spending remains strong, but the rate of growth has slowed from the outsized growth rates we saw throughout 2022. Debit card spending was flat from a year ago, with growth in discretionary spend offset by declines in non-discretionary spend. Average deposits were down from the first quarter, driven by lower consumer deposits, while the decline in commercial deposits slowed. Now let me update you on progress we've made on our of our risk and control work. Regulatory pressure on banks with longstanding issues such as ours continues to grow, and as such, our continued intensive effort to complete the build out of an appropriate risk and control framework for a company of our size and complexity is critical. I continue to emphasize that this is our top priority and will remain so, and that while we have implemented substantial portions of the work required, we have more implementation to do as well as work to make sure the changes operate effectively over time. As I said before, we remain at risk of further regulatory actions until the work is complete. While we're devoting all necessary resources to our risk and control work, we're also continuing to invest in our business to better serve our customers and help drive growth. Our consumer customers have continued to increase their use of our mobile app, We added over 1 million mobile active customers over the past year, and mobile logins increased 9% from a year ago. Fargo, our new AI-powered virtual assistant, is now live on our mobile app for all consumer customers. Since launching at the end of April, our customers have interacted with Fargo over 4 million times. We continue to make important hires, bringing new expertise. We named Barry Simmons as the new head of national sales in wealth and investment management. He would be critical in our efforts to better serve clients and help advisors grow their business. We also continued to attract veteran bankers in corporate and investment banking, hiring new managing directors in our banking division in priority growth areas, including a co-head of global mergers and acquisitions, co-head of financial institutions, and new heads of financial sponsors, equity capital markets, healthcare, and technology, media, and telecom. We also continue to focus on better serving our communities. We announced a 10-year strategic partnership with TD Jakes Group that could result in up to $1 billion in capital and financing from Wells Fargo to drive economic vitality and inclusivity in communities across America. The Wells Fargo Foundation awarded $7.5 million to Habitat for Humanity to build and repair more than 360 homes nationwide. We've worked with Habitat for Humanity for nearly three decades and donated more than $129 million since 2010. Wells Fargo signed on as the first anchor funder of Unidos U.S. Home Initiative to create 4 million new Latino homeowners by 2030. We provided the initial grant to start a fund launched by FinTech Below Alice to improve access to credit and capital for small business owners who are members of underserved groups, including women. We continue to open Hope Inside centers in Wells Fargo branches, including six during the first half of 2023, with plans to reach 20 markets by the end of this year. The centers help empower community members to achieve their financial goals through financial education workshops and free one-on-one coaching. We published our 2023 diversity, equity, and inclusion report, which highlights the progress we've made in our DE&I strategy and initiatives, both inside our company and the communities where we live and work. However, we have more work to do to achieve enduring results that will require a long-term commitment. Looking ahead, the U.S. economy continues to perform better than many expected, And although there will likely be continued economic slowing and uncertainty remains, it is quite possible the range of scenarios will narrow over the next few quarters. This year's Federal Reserve stress test affirmed that we remain in a strong capital position, reflecting the value of our franchise and benefits of our operating model. This capital strength allows us to serve our customers' financial needs while continuing to prudently return excess capital to our shareholders. As we previously announced, we expect to increase our third quarter common stock dividend by 17% to $0.35 per share, subject to approval by the company's board of directors at its regularly scheduled meeting later this month. We repurchased $8 billion of common stock during the first half of this year, and the stress test results demonstrated that we have the capacity to continue to repurchase common stock. Regulators have signaled that the Basel III endgame proposal which could be out as soon as this summer, will include higher capital requirements that would be skewed to the country's largest banks. While there's some speculation that capital requirements could increase by 20%, we don't know what the impact will be to Wells Fargo. However, we do expect our capital requirements will increase. While any changes to regulatory capital requirements are expected to be phased in gradually over several years, We are considering the potential impact and contemplating the amount of our future purchases. Our balance sheet is strong. We have increased and remain focused on increasing our earnings capacity and continue to like our competitive position. We remain prepared for a variety of scenarios and our steadfast commitment to our risk and control build-out, coupled with our continued focus on financial and credit personality. We'll now turn the call over to Mike.