Wells Fargo & Company (WFC)

Investor Day 2017

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May 11, 2017

Good morning, everyone. At Wells Fargo, and on behalf of Wells Fargo, I would like to welcome you to our 2017 Investor Day. Thank you for spending the day with us here in San Francisco and via the webcast. As always, thank you very much for your interest in the company and for taking the time to spend with us today. Before we start, I will remind you that some of our presentations contain forward-looking statements. Please refer to the page entitled Forward-Looking Statements and additional information in your materials in the forward-looking statements section of our SEC reports for information and factors that can cause actual results to differ materially from the forward-looking statements. Additionally, some of our presentations contain non-GAAP financial measures. Information about those non-GAAP financial measures, including a reconciliation to GAAP, can be found in your materials and in our SEC reports. Thank you again for joining us. We are looking forward to a great day, so let us get started. I am very optimistic about the future of Wells Fargo. I have had the privilege of being part of this company for almost 30 years. I think the opportunities that we have to grow, to fulfill our vision of satisfying our customers' financial needs, doing that by building a better bank, and then providing world-class returns to our shareholders, is the best that I have seen in my career. We are on a journey. We are on a journey that starts with rebuilding trust, that allows us to build on great experiences in the kind of growth you see with loyal, engaged team members, loyal, engaged customers, that create value for shareholders. For the investors in Wells Fargo, they entrust their capital with us and have expectations for growth and return and consistency of results, and being better every day is all about delivering on what investors expect from us as an investment of theirs. It's an exciting time at Wells Fargo to build better every day because everything's on the table to improve the company. We have a big opportunity to improve how we reach our customers, how we reach our team members, and to improve the company to deliver for shareholders. Every single day, somebody is buying a first home. They're getting the keys to their first home, which is a very exciting time in that person's life. Every day, somebody's getting a car, which helps them get to work, or helping pay for college or other financing needs. So every day, we're helping people achieve their dreams. Building better every day is about making it simple and easy for our customers. More and more customers expect us to be where they are, if they're in their Facebook Messenger, if they are on their watch, if they're in their car, and that's really what we are trying to do, is to bring our services to our customers where they are. When I think about our important stakeholders, I think about our customers, I think about our investors, our analysts, members of our communities, quite frankly, our friends and family. They're all important stakeholders to Wells Fargo. When I think about building better every day and what it means to them, it's making sure that we deliver on the promise of Wells Fargo. I think our team is very much ready to be on our front foot, and building better every day is all about being more competitive and winning in the marketplace for our customers, and I think our team is very ready for that. Ladies and gentlemen, welcome to Wells Fargo Investor Day. Please welcome Wells Fargo CEO, Tim Sloan. Good morning. You heard my colleagues describe how we're building better every day, and we're going to be showing some great ads during the breaks that reflect our new marketing campaign. Building better every day is more than just about some really great ads, which we're very proud of. It's about how Wells Fargo is emerging from the challenges associated with inappropriate retail sales practices in our community bank. We're emerging as a better bank, better for our customers, better for our team members, better for the communities that we do business in, and better for you, our shareholders. Thank you for joining us less than a year than our last Investor Day. As part of our commitment to transparency and to highlight what we're doing across all of our businesses to build a better Wells Fargo, we decided to host an off-cycle Investor Day. Actually, I want to give credit to Mike Loughlin, our Chief Risk Officer. This was Mike's idea last October. Mike thought it was such a good idea that he decided to take the week off, and he's not going to be here today. Our short sentence, one-syllable answers are going to be cut to a minimum today in our Investor Day. We structured this a little bit differently than past Investor Days. We wanted you to hear directly from our senior leaders about some of the changes that we've made in the past year, some of which were done to address the unacceptable sales practices. But others are due to external factors, such as digital trends, changing in demographics, as well as our increased focus on efficiency. On stage today will be our CFO, John Shrewsberry, who you all know, as well as other members of our operating committee. We have fewer presenters than we've had in the past. They'll all be familiar to you, but they've all taken new jobs within Wells Fargo since we got together a year ago, with the exception of David Carroll, who runs our Wealth and Investment Management business, one of the fastest-growing businesses in Wells Fargo. Mary Mack who's presented at our past three Investor Days as part of the Wealth and Investment Management group, now heads Community Banking. Avid Modjtabai, who presented in our last four Investor Days, now runs a new group within Wells Fargo, Payments, Virtual Solutions, and Innovation. PVSI incorporates our consumer and commercial payments businesses across the company. This is checking, it's credit, it's debit card, it's merchant services, it's treasury management. And what we're trying to do is capture, and better capture, the advantages and opportunities we have in meeting all of our customers' payments needs. Franklin Codel, who presented last year as the head of Home Lending, now runs our consumer lending businesses, which includes home, auto, student, and unsecured lending. And Perry Pelos, who presented at our past two Investor Days as the head of Commercial Banking, now runs Wholesale Banking. He's doing such a better job than that prior guy whose name I can't remember. We have over 50 different business leaders in the audience today, including other members of our operating committee. Hope Hardison, our Chief Administrative Officer, David Julian, our Chief Auditor, and the newest member of our operating committee, Allen Parker, who joined us as our new General Counsel in March. We're also fortunate to have Stephen Sanger, the Chairman of our board, and Betsy Duke, our Vice Chair, with us today. You'll have several opportunities to interact with them during breaks and then at lunch. And then finally, we're going to conclude the day with our focus on our commitment to innovation. It's very exciting. I think you'll be impressed with some of the changes that we've made across all of our businesses. There's no question that 2016 was among the toughest in our 165-year history. It's clear from the board's independent investigation that we had an incentive program and a high-pressure sales culture within our community bank that over time drove behavior that in many cases was inappropriate and inconsistent with our values. The report found that because of our decentralized operating model, the issues were not escalated appropriately, and our corporate leadership took too long to understand the seriousness and the scope of the problem. We have an unwavering commitment to fix everything that went wrong, continue to look across the company to fix anything else that's broken, and strengthen how we serve our customers and how we lead our team members. We've taken many actions to rebuild trust and make things right, including refunding more than $3.2 million to customers whose accounts could not be ruled out as being unauthorized. Reaching out to 40 million retail customers and 3 million small business customers in the fourth quarter and asking them to contact if they have any concerns about their accounts. Agreeing in principle to $142 million class action settlement, which is subject to court approval, that will go toward remediating customer harm for unauthorized Wells Fargo accounts going back to 2002. Also offering mediation services at no charge to all of our customers with sales practices claims. We've also made changes to ensure that we always put our customers first. Mary's going to talk about how we eliminated product sales goals in the retail bank and changed how we compensate our retail bankers. We're also investing in our people. This includes increasing the pay for entry-level team members, many of whom are in the retail bank. We've strengthened ethics and risk management. We've centralized key enterprise control functions such as risk management and human resources. We've created a new Office of Ethics, Oversight, and Integrity, and we've invested in additional monitoring and controls, including an enhanced mystery shopping program in our retail bank. We've also demanded greater accountability. We've changed leadership in our community bank and terminated executives linked to inappropriate sales practices. We've instituted compensation actions such as forfeitures and clawbacks for senior executives totaling over $180 million, among the largest in corporate history. We've changed our board structure and separated the roles of chairman and CEO. We've published the findings of the board's independent investigation, which I mentioned. We've also been increasing our transparency to you, and in doing so, we've been releasing updates on customer activity in our retail bank. We've been providing these monthly updates to you since October, and most of the trends now have improved or stabilized. Going forward, we're going to focus more on metrics that are aligned with the goals of ensuring we're building lifelong relationships with customers who actively use products and bring more business to Wells Fargo. We'll be providing those updates to you as part of our normal quarterly earnings process rather than through monthly press releases. I'm very pleased with the hard work and effort of our team and how much we've accomplished in a short period of time. But we still have more work to do, including ongoing work, such as the review of customer accounts for the years 2009 and 2010, which we've previously discussed, as well as our own internal and third-party review of practices. I firmly believe that we're on the right path and will continue to be as transparent with you as we can as we move forward. Because we understand that nothing is more important to Wells Fargo's future than ensuring that we have a culture and an operating model that works for all of our stakeholders, our customers, our team members, the communities that we do business in, and you, our shareholders. We've learned a lot because of what's happened in the last few months. We're putting that information into practice as we implement our go-forward strategy and operating model. The foundation of our past success, satisfying our customers' financial needs, you see our vision up on the screen. Our diversified business model, our conservative risk discipline, and our focus on managing for the long term has not changed. However, our approach and our execution continues to evolve, and that's going to be about what we talk about today. We're making many changes, some driven by what we've been through, but other reflecting changes in the industry and consumer preferences. One of the most significant industry changes has been the impact of technology on our customers and, in particular, our consumer customers. Significant advancements in digital product and service delivery are continuing to impact how our customers behave and what they expect from their bank. The financial services industry and fintech companies are developing innovative solutions at an accelerated rate. Customers can access credit and invest their funds in ways that didn't even exist a few years ago. Shifting consumer preferences are compelling us to rethink how we serve our customers. This is why our focus on improving Wells Fargo's efficiency is so important to us. It requires us to totally and really rethink how we make investments, evaluate our operations, and engage with our customers. We've restructured our business, as I mentioned, the creation of the new PVSI group, as well as our leadership to better navigate through the changing landscape. These forces are a catalyst for how we're transforming Wells Fargo, and the consumer strategy we've developed to connect and harness transformations across all of our retail businesses. Our transformative actions will help customers succeed financially and strengthen Wells Fargo's value to our shareholders. We're pursuing a customer experience that is built on the principles of simplicity, ease of use, and convenience. Digital advances and innovation will improve how we engage with our customers and offer them trusted advice and guidance. Our recently updated consumer strategy harnesses the strength of our consumer businesses to earn and keep customer relationships by doing the following. First, we're accelerating our digital approach and integrating across channels to offer unparalleled convenience, transparency, and simplicity for our customers to access and manage their finances. We're solidifying our status as a premier payments provider by meeting a full spectrum of customers' payments needs. We're enhancing our focus on affluent, emerging affluent, and small business customers, given our under-indexed penetration in these segments and our strong ability to meet their financial needs. We're generating operational efficiencies and rationalizing many of our businesses, including our branch network, to fund growth strategies. The shifts are occurring across all of our consumer businesses, driven by a common objective in terms of the adoption of digital capabilities to transform the way that we acquire and engage customers throughout and across their relationships with us. We'll meet our customers where and how they want to interact with us, not the other way around. We're integrating our channels and enabling our customers to easily perform tasks on their own, get help if it's desired, or work with us in person, face-to-face, or virtually. In community banking, and Mary will talk about this in her presentation, we're pivoting from a sales orientation to a focus on delivering exceptional customer service where customers feel they're understood and that we care about their needs. We will drive innovative strategies and digital enablement to service customers and create a streamlined, efficient, and consistent experience across all of our branches. Avid is going to talk today about the payment virtual solutions and innovation and how we're developing real-time digital experiences and enabling customers to interact with Wells Fargo via the digital platform of their choice. The simplicity, ease, and convenience of these interactions will build lifelong relationships with Wells Fargo. Franklin's going to talk about how we're offering digital applications for our mortgaging offerings, which meaningfully improves the customer experience and streamlines our operations, where we utilize trusted source data to build a more robust pre-approval capability and to reduce risk. David's going to talk about our Intuitive Investor, how we're reaching customers who are younger and new to investing. Further efficiency and improved customer experience will be realized by refocusing our advisors to provide personal support to core high-net-worth customers in wealth and brokerage, while affluent customers will be served by premier bankers in our branches. These shifts will help us acquire new customers, build lifelong relationships, and reduce expenses through operational efficiencies. We've also been making a lot of changes in our wholesale banking business to better meet the needs of our commercial customers. These changes include simplifying our operating model to serve customers through 10 major lines of business. We've selectively divested a number of non-core commercial business, including our crop insurance and health benefit services business, in order to simplify our operations. We've completed the final phase of the GE Capital acquisition in the fourth quarter of last year. We've acquired industry-leading businesses that strengthen our capabilities and customer relationships, and providing us with many opportunities for growth in wholesale banking as we're focused on completing a seamless integration of that acquisition. We've recently established six new goals to better reflect current challenges and opportunities, and you'll hear about the specific strategies that we're taking to become the financial services leaders in these six areas throughout the presentation today. These goals state our aspirations for the future and prioritize our focus. We don't want to be a leader in financial services. We want to be the leader in financial services. We want to be the leader in customer service and advice. We want to know and understand our customers and their financial goals. Today, you'll hear about how we're doing this across our consumer businesses, our wealth businesses, and our commercial businesses. We want to have the highest team member engagement in the industry. Team members are the most valuable resource and our key competitive advantage. We want to be an employer of choice, a company where people matter, where teamwork is rewarded, and where everyone feels respected and has the ability to speak up, and diversity and inclusion are embraced. I'm so proud of the fact that Wells Fargo was recently made it into the top 10 of DiversityInc magazine Top 50 Companies for Diversity for the first time. This reflects the progress that we've made in incorporating diversity and inclusion in everything that we do. We want to be known as the most innovative company in financial services. We formed our PVSI group, which is focused on innovative technologies to create new kinds of lasting value for our customers and our businesses. You'll hear more today about how we're harnessing technology to directly serve our customers' needs throughout the presentations, and we're showcasing much of that technology at the end of the day. We want to continue to be known as the leader in risk management in the industry. We want to set the global standard of managing all forms of risk so that we can help serve our customers better. Everyone at Wells Fargo is a risk manager. You'll hear about risk management initiatives across all the presentations today. We want to be known as the best corporate citizen in financial services. We want to make the communities that we do business in better because we're there, through products, services, culture, operations, and philanthropy. We're proud of the fact that United Way has recognized us as the number one employee giving campaign for eight consecutive years. In 2016, Wells Fargo team members volunteered 1.7 million hours of community service to 50,000 nonprofits in the U.S. and around the world. Additionally, Wells Fargo helps support and revitalize communities by donating over $280 million to 14,900 nonprofits. The eighth consecutive year our company's corporate philanthropy exceeded $200 million. We want to provide you with the best shareholder value. We want to earn your confidence by maximizing our long-term value. Our goal is to generate consistent financial performance over time, through cycles, while maintaining the best-in-class shareholder returns. This is going to be achieved by knowing our customers and what they need, managing risk appropriately, operating efficiently and effectively, and maintaining a strong balance sheet, and having the world-class leadership team. Which is one of the main advantages of days like today, your ability to get to know all of them a little bit better. We've demonstrated the value of our diversified business model and its ability to generate consistent financial performance over the last 18 quarters, when we've earned more than $5 billion. We grew average loans by 4% and deposits by 7% in the first quarter of this year compared with the first quarter of last year. In the first quarter, we also had record client assets in our wealth and investment management. This reflects our commitment to meeting our customers' financial needs. We returned $3.1 billion to you, our shareholders, through common stock dividends and net share repurchases. We generated industry-leading returns with an ROA of 1.15% and an ROE of 11.54%. However, in the first quarter, our efficiency ratio was 62.7%. Operating at this level is completely unacceptable. We are committed to improving our efficiency while we continue to invest in our businesses for the long term, and John is going to be discussing these details in his presentation. Here are the four things I'd like you to take away from the presentation today. The first, I want you to have a better understanding of the impact of retail sales practices and the fundamental changes that we've made to build a better bank. Second, I want you to see how our consumer strategy is integrated across all of our consumer businesses and how we're innovating across the entire company such that we'll continue to accelerate growth. The third, I want you to see how our six aspirational goals will transform our company as we strive to be the best in the industry, and you'll see many examples throughout all the presentations today. Fourth, our commitment to improve our efficiency such that we make the right long-term decisions to invest in our businesses but deliver better returns to you. I want to thank the analysts and investors in the audience and those who are taking the time online to listen to us today. We value your commitment to Wells Fargo, and we appreciate the dedication you're demonstrating by spending the day with us. I'm so proud of our 273,000 team members, including those who are here today. We're committed to continuing to do the hard work necessary to build a better Wells Fargo. We're on the right path, and I'm confident and know that we'll be successful. With that, I'd like to introduce our CFO, John Shrewsberry. Good morning. Thanks for coming. I'm going to start by highlighting financial performance, and I'll be providing more detailed commentary on expenses and conclude with a discussion of our targets. Our diversified business model, as Tim mentioned, has produced strong and steady results during a challenging period that included an economic recovery that was slow and uneven, interest rates that remained lower for longer than expected, and as Tim highlighted, the more recent challenges related to sales practices in our community bank. We've not generated earnings growth during the past two years, but we're committed to returning to delivering growth. We'll be highlighting opportunities for growth throughout the presentations today from all of our colleagues. Our ability to generate industry-leading returns during this past period is a testament to our durable long-term advantages, including diversified and balanced revenue sources, industry-leading distribution, both physical and virtual, our leading market share in key financial products reflecting the relationship focus of our team members, our large and low-cost deposit base, our credit risk discipline, and our capital strength. As we show on this slide, our competitive advantages have generated more consistent results than our peers and among the highest ROEs in the industry with less volatility. Higher mean, lower volatility. As Tim said, we're the only bank and one of only two U.S. companies in any industry to earn over $5 billion in the most recent 18 consecutive quarters, demonstrating the benefit of our model. We've shared a similar slide in the past, and I believe it says a lot about the investment thesis for Wells Fargo and how we expect our model to perform for shareholders over time. Our strong financial results have generated a 27% increase in book value since 2012, a 6% compounded annual growth rate. As we show on the right of this slide, if you include declared dividends, we grew at a 7% compounded annual growth rate, among the highest of our peer group. Slide 4 shows more evidence of performance in 2016 versus our peers. Our ROE was 11.5% in 2016, and our ROTCE was 13.9%, among the highest of the peer group. Our ROA was also among the best in 2016 at 1.16%. Our efficiency ratio was 59.3% in 2016. While it was better than many of our peers, we're very focused on improving our efficiency, and I'll highlight some specific steps we're taking later in the presentation. We returned $12.5 billion to shareholders through common stock dividends and net share repurchases in 2016 for a net payout ratio of 61%. The evolution of our balance sheet is an important consideration, so let me spend a few slides reviewing the trends. We had strong asset growth, up 46%, an 8% compounded annual growth rate since the first quarter of 2012. The composition of our assets has changed significantly during this period due to the regulatory, economic, and interest rate environments that we've been in. At the end of the first quarter of 2017, cash and short-term investment balances reached an all-time high of $328 billion, or 17% of total assets, up from 7% in the first quarter of 2012. This increase was the result of a strong deposit growth and increased regulatory liquidity requirements. During the same period, we increased investment securities to 21% of total assets, with growth driven by Treasuries and agency MBS. Starting in the fourth quarter of 2013, we designated certain investment securities as held to maturity, and we've continued to grow this portfolio. At the end of the first quarter of this year, we had $108 billion of held to maturity securities, 27% of our investment securities portfolio. We've chosen this designation for certain securities that we expect to hold until they mature, and this designation helps to insulate a portion of our portfolio from OCI risk when rates rise. Our loan portfolio grew $192 billion or 25% since the first quarter of 2012, and we're the largest lender in the U.S. Even with the strong growth, our loans have declined to 48% of total assets, compared with 56% in the first quarter of 2012. The shift in asset mix was a key driver in the decline in our ROA over the period, so let's take a look at that in a little more detail. This slide provides a more comprehensive look at our growth in liquid assets, which was driven by our liquidity build to comply with LCR requirements. We expect to continue to hold high-quality liquid assets at a similar proportion of the balance sheet, and we expect to have opportunities to redeploy our cash into higher yielding HQLA than we have had to date. We balance a number of factors when determining our investment activity, and during this potentially transitional period for interest rates, our decisions are driven primarily by interest rate risk and OCI risk management. We will continue to analyze the outlook for rates as well as our liquidity and LCR needs, and we look forward to prudently reinvesting more into loans and investment securities over time, as we still have tens of billions of dollars of available liquidity. When you look at our loan portfolio today versus our portfolio right after the merger with Wachovia in 2008, you can see that our mix has changed meaningfully. We now have more commercial loans which have lower loss content, but which are also lower yielding than consumer loans. The risk profile of our loan portfolio has also improved with the significant runoff of our non-strategic and liquidating portfolios. However, loans in those portfolios were also higher yielding. Our credit quality has improved, driven by residential real estate. In the first quarter of 2017, our first mortgage loan portfolio had only one basis point of loss, and our junior lien mortgage portfolio had 21 basis points of loss. Our credit performance in more recent periods also reflected the higher losses in our oil and gas portfolio, which we believe peaked a year ago in the second quarter of 2016. Total charge-offs were only 34 basis points of average loans in the first quarter of 2017, near historic lows, and provision expense was $605 million, down 70% from the first quarter of 2012. You will hear more about the credit performance across our commercial and consumer portfolios throughout today's presentations. Turning to the liability side of the balance sheet. While deposits have grown 42% since 2012 to a record $1.3 trillion in the first quarter of 2017, as a percentage of our total liabilities and equity deposits are down from 70% five years ago to 68% today. Of our total deposits, 59% were consumer and small business deposits at the end of the first quarter, and we have not made any material changes in rates paid on these deposits in response to the recent interest rate increases. While deposits have grown, our long-term debt has almost doubled since 2012, up $127 billion, largely reflecting issuance of TLAC eligible debt. This next slide is an update of a slide that Neal Blinde, our Treasurer, shared with you at Investor Day a year ago. As of the end of the first quarter, we estimate that our TLAC shortfall now is approximately $700 million, and we expect to be compliant with an internal buffer by January 2019 through measured issuance. Future TLAC issuance will support refinancing of debt that falls within one year of maturity, RWA growth, and migration of the CET1 component of TLAC toward our internal target levels over time. So far this year, we have issued $12.5 billion of qualifying TLAC, and we currently expect our total TLAC issuance in 2017 to be similar to the $32 billion we issued in 2016. Turning to revenue trends. Growth in net interest income drove the increase in revenue since 2014, and therefore, the percentage of our revenue from net interest income has increased to 54% in 2016. In the first quarter of 2017, 56% of our revenue was from net interest income. Since 2014, our NIM has declined 25 basis points, reflecting our strong deposit growth, higher liquidity levels, TLAC eligible debt issuance, changes in the loan portfolio mix, and the continued low rate environment. However, we've grown net interest income by 10% over the same period, reflecting strong earning asset growth. This is consistent with our goal of generating net interest income growth, not managing to a particular NIM calculation. We grew net interest income by 5% in the first quarter of 2017 compared with a year ago, and we expect to grow net interest income for the full year by low to mid single digit percentage points, even without additional rate increases. Our growth rate will be impacted by a number of factors, including the absolute level of rates, steepness of the yield curve, earning asset growth and mix, and the competitive environment for loan and deposit pricing. This next slide is an update to the slide we've used at past Investor Days to illustrate our sensitivity over the next 12 months to an instantaneous 100 basis point parallel shift in interest rates. To help walk through the table, if you look at our $935 billion of interest bearing deposits, which currently yield 23 basis points, we currently expect that 100 basis point shock in rates would increase this yield by 45 to 55 basis points over the next 12 months. This is the same impact we showed last year, even though actual deposit betas to date have been much lower. We currently expect deposit rates to become more responsive later in a rising rate cycle, which is why we didn't change the deposit beta in this illustration. While our balance sheet remains positioned to benefit from rising rates, our asset sensitivity has declined modestly from last year to the lower end of our five to 15 basis points range, primarily driven by growth in fixed rate investments. As a reminder, this slide is a static scenario, so it assumes that we do not take any actions relating to a changing rate environment. In reality, there are many such actions that we could take regarding our business mix and balance sheet composition in response to a changing environment, such as redeploying cash into HQLA. In our first quarter 10-Q that we filed last week, we expanded our net interest income sensitivity disclosures to show our impact to net interest income to three different rate scenarios, including 100 basis point instantaneous parallel increase, which would increase net interest income by $1.1 billion to $1.6 billion in year one and $1.3 billion to $1.8 billion in year two. Over time, the drivers of non-interest income have varied based on market conditions, including capital markets and the housing market, and have also been impacted by product changes and the regulatory environment. Our non-interest income has been stable over the past couple of years. 2016 non-interest income was slightly lower than two years ago, driven by a $1.5 billion or 36% reduction in market sensitive revenue from lower equity gains. This decline was partially offset by growth in many of our customer-driven businesses, including deposit service charges, brokerage, card, mortgage originations, and increases in fees from operating leases from the GE Capital business acquisitions that closed last year. I know you're also interested in how sales practices are impacting our revenue. It's a reasonable question, but it's challenging to be as precise as we are on expenses, since we don't have a level of certainty on why loan or deposit balances, for example, did or didn't occur in a given period. There are a number of variables that may impact volume, such as negative publicity or team members working without a new compensation system in the fourth quarter of 2016, for example. But volumes are also sensitive to other factors such as the competitive environment, economic conditions, and they're not related to sales practices. As a result, estimating exactly what drives behavior in discrete periods doesn't lend itself to the precision we need to answer the revenue question directly. Over the course of today, however, you'll get insight from our business leaders into how their businesses may have been affected by sales practices, and we think this will be useful color for you in helping to frame the impact. You'll hear throughout the presentations today about the opportunities we have to generate customer growth and increase usage among our existing customers to drive future income growth. Next, I thought we'd take some time to review our expenses. I know it's a big area of focus. Please raise your hand if you're interested in hearing about expenses at Wells Fargo. There's one person here in the front row. Jimmy. Okay. I thought it'd be helpful to start by looking at the drivers of the increase in our expenses over the last couple of years. We spent over $52 billion in 2016, and there are a variety of reasons we operated at this level. To help analyze these expenses, we've divided our non-interest expense line items into six main expense categories. The first, our largest expense category, is compensation and benefits. This includes salaries and benefits. It also includes incentive compensation, which we've broken into two components, directly and not directly tied to revenue. We've included incentive comp not directly tied to revenue in this first category. The next category of expense is directly related to revenue generation. This category includes incentive comp expense from businesses like mortgage and WIM, which is directly tied to revenue, as well as operating leases and insurance expense, which are tied directly to revenue in those businesses. The third category of expense is third-party services. These are expenses related to the use of outside parties such as legal and consultants costs. This is the category where we had $80 million of expense related to sales practice matters in the first quarter of this year. These are costs that we track directly due to the nature of the work, and we can also easily measure and report on future trends. We also have expenses that are part of running the business. Some are non-discretionary, like foreclosed asset expense and FDIC assessments, and others are discretionary, such as travel, advertising, and postage. Finally, we have infrastructure costs primarily related to equipment and occupancy. We will look at each of these categories in more detail. This accounts for all of our non-interest expense. Total expenses have increased $3.4 billion or 7% since 2014. The main drivers of this increase were higher comp and benefits, higher revenue-related expense, and increased third-party spend, partially offset by lower discretionary spend. Compensation and benefits expense is our largest category of expense, and it has increased $1.7 billion, or 7%, since 2014. $1 billion, or 61% of this increase, was from annual salary increases and a shift toward higher cost FTE. Approximately 24% of this increase was from higher employee benefits expense, and the remainder of the increase reflected a 2% increase in FTE since 2014. The growth in FTE was primarily in risk, technology, and wholesale banking, the last partially due to the GE Capital business acquisitions. We have grown corporate risk FTE by over 50% since 2014 and technology FTE by 13%. These are non-revenue generating areas and are higher than average salaried team members. These increases were partially offset by declines in other areas such as mortgage servicing, where credit has improved. Our annual spend on technology is significant. Approximately 50% of the spend is personnel related, and the remainder is primarily infrastructure. In 2016, we spent $7.1 billion in technology-related expenses, a 5% year-over-year increase. The second largest increase in expenses was revenue-related expenses, which is a good thing. These expenses were up $1.1 billion from 2014, with operating lease expense as the largest driver. This increase was due to the GE Capital business acquisitions in 2016. Insurance expense declined in 2016 due to the sale of crop insurance, the crop insurance business in the first quarter. Higher revenue-related incentive comp expense was driven by our home lending business, reflecting a 42% increase in mortgage originations from 2014 to 2016, as well as increases in WIM and Wells Fargo Securities on stronger fee income. Third-party expenses have increased $531 million, or 11%, since 2014, driven by higher regulatory and compliance-related project spending and increased legal expense. We expect the level of total project-related spend in 2017 to be similar to 2016. We define project spend as one-time initiatives, not ongoing business operational activities. The majority of project spending is in third-party services, compensation and benefits, and infrastructure expense. Regulatory, compliance, and risk-related project spend has increased and is expected to account for over half of our project expense this year, which reflects our priorities in the current environment. This includes spending related to BSA and AML projects, resolution planning, cybersecurity, and enhanced data. The mix of offensive type spend in areas like generating revenue versus defensive spend in areas like compliance is episodic. While we currently have more defensive spend, we would anticipate more balance over time in the future. While we are currently spending a lot on regulatory and risk efforts, we continue to invest in innovation. As Tim mentioned, we will be showcasing technology and innovation at the end of the day, which will include examples of how we are spending money to enhance the customer experience and increase efficiency. We also have expenses that are a result of running the business. These non-discretionary expenses are up $320 million from 2014. There are a number of offsetting expenses in this category, but the largest increase since 2014 was $359 million in higher operating losses, reflecting higher litigation accruals. We also had higher expenses related to the FDIC special assessment, which is expected to continue through mid-2018, and other increases, including insurance premiums. These increases were partially offset by a $381 million reduction in foreclosed asset expense due to improving home prices and lower deposit intangible amortization, which will continue to decrease this year. Starting in 2019, we expect to no longer have amortization of deposit intangibles. Our focus on reducing expenses is not new, and you can see that in our reduced discretionary spending, which has declined 16% since 2014. This includes reductions in travel, postage, and advertising expense. We have been able to reduce occupancy expenses by 2% since 2014, despite the increase in FTE as part of our ongoing efforts in facilities optimization and efficiency initiatives. We have reduced our total square footage by 22 million square feet since 2009 and have invested in transforming the workplace for many of our team members, which provides more flexibility and choice while enhancing collaboration and innovation. Equipment expense increased 9% since 2014, driven by higher software license and maintenance fees, while we have reduced telecom expense, reflecting telephone and data rates. We have highlighted on our earnings calls our efficiency initiatives that we expect will reduce expenses by approximately $2 billion annually by year-end 2018, with the full-year benefit starting in 2019. These savings will be reinvested in the business. As I indicated on our earnings call last month, today I am going to provide some more detail on the source of these savings. The largest opportunity relates to centralization and optimization in marketing, finance, human resources, operations, technology, data, and contact centers. Last year, approximately 75,000 team members in these functions were realigned as part of the first phase of the centralization initiative. This was a significant step in implementing new target operating models to increase effectiveness and drive ongoing efficiency, and we expect to save approximately $1.3 billion as a result of this effort. We have increased third-party spend by 11% over the past two years, but through aggregating demand and staffing to create certain capabilities in-house, we expect to save approximately $200 million related to third-party services expense by the end of next year. Mary Mack is going to provide you with insights into the branches we are closing over the next two years in her presentation. We expect these closures will reduce expenses by approximately $170 million starting in 2019. One thing I don't think is well understood is that there is minimal immediate savings recognized from branch closure due to the initial closing costs. While we are on track to close 200 branches this year, the expense benefit won't be realized until next year. We expect to save approximately $150 million in infrastructure expense through continued site consolidation outside of our branch network, including an estimated reduction of an additional 2 million square feet this year, bringing our total square footage reduction to 24 million at the end of 2017. We have reduced travel expense by approximately $200 million over the past two years, and we expect to be able to save another $100 million over the next two years. Finally, as we have been highlighting, we have been significantly investing in risk, and this is an area we will continue to have high cost in. As the corporate risk structure matures, we expect to save approximately $100 million by capturing efficiency, which would reduce personnel and third-party service expense. As we've previously stated, we expect these savings to support investments. However, there are timing differences. We've significantly increased our business investments in the last few years, and as we show on this slide, most of the expense savings are in the early stage and not expected to be fully realized until the end of 2018. This will put pressure on the efficiency ratio until the savings run rate has aligned with the increased investment period. As we've indicated, our elevated efficiency ratio is unacceptable. Tim Sloan's made that abundantly clear, and we've undertaken a rigorous review across the company and identified additional opportunity to reduce expenses, which are expected to total approximately $2 billion in additional annual expense saves by the end of 2019. These savings are projected to go right to the bottom line. We've identified these additional savings through a deeper focus and continued improvement on effectiveness and productivity to drive efficiency. We've made strong progress on centralization efforts of staff functions where similar work is being consolidated and prioritized with an enterprise view. We believe we have similar opportunities in our lines of business. Let me highlight a few examples. Consolidating similar operational activities to provide economies of scale. Improving process, such as digital technology to automate manual processes, which reduces cost and improves the customer and team member experiences. Evaluating the number of managers to staff and looking for opportunities to expand the span of control for some managers. Rationalizing product sets in our businesses. Streamlining key customer activities, such as account openings, to provide the customer with a better experience and lowering our costs. Applying industry best practices to our call centers via technology and smarter call routing. The combination of these efforts, along with an ongoing reduction in facilities and the continued move from physical to digital, will drive these additional savings. We intend to aggressively target these areas and are confident in our ability to achieve this goal. Turning to capital. Our common equity Tier 1 ratio, fully phased in, increased to 11.2% in the first quarter. We've generated strong capital growth while continuing to return capital to shareholders through common stock dividends and net share repurchases. We returned $3.1 billion to shareholders in the first quarter of 2017, and our common shares outstanding fell below 5 billion shares for the first time since 2009. Our CET1 internal target of 10%, which includes the regulatory minimum and buffers at our 100 basis point internal buffer, has not changed. The primary driver of our CET1 ratio remaining above our targeted level was from lower RWA than forecast in our 2016 capital plan, resulting from loan growth trends, continued credit discipline, and improved RWA efficiency. Deployment of our excess capital above our 10% internal target will occur over time while we consider the environment, our risk profile, and opportunity, and a number of other factors, including pending feedback on our 2017 CCAR submission, wider variability of our internal forecasting due to sales practices settlements, OCI risk in a rising rate environment, the likelihood of change to minimum regulatory capital requirements, including the stressed capital buffer, and finally, the current expected credit loss accounting standard becoming effective in 2020. Turning to our target ranges. Since our Investor Day in 2012, we've been providing updates on four ranges: ROA, ROE, efficiency ratio, and net payout ratio. These ranges are meant to be guideposts for our annual results over the next two years. The ranges we provided at our Investor Day last year covered our targets for 2016 and 2017. Therefore, we are not updating the ranges today, but we will provide you with more clarity on where we expect our 2017 results to be in light of recent factors, including higher near-term expenses and the impact from sales practices settlements. We will update our two-year annual target ranges at our Investor Day next year. Our two-year annual ROE target that we established last year was 11%-14%, and our ROA target range was 1.1%-1.4%. We are operating at the lower end of these ranges today, reflecting the structural shift in the balance sheet that I highlighted earlier at a higher efficiency ratio. ROE is also impacted by higher capital levels. We expect our results for the full year of 2017 to be at the low end of the target range for both ROE and ROA for these same reasons. As we have been highlighting in recent quarters, our efficiency ratio has been elevated, and in the first quarter was outside the range at 62.7%. We currently expect our efficiency ratio to be in the 60%-61% range for the full year of 2017. The expected increase in our efficiency ratio for this year is driven by slower net interest income growth from lower loan growth and higher funding costs, the impact from the sales practices settlements on expenses and revenue, and elevated project-related expense focused on non-revenue generating activity. Operating at this level is not acceptable, and we continue to believe that based on our business model, our efficiency ratio should be in the 55%-59% range. We have initiatives in place to get us back into that range, including the $2 billion of expected expense saves by the end of 2019 that are projected to benefit the bottom line, but we do not think we will get there in 2017. This slide shows that our capital growth has supported strong payout ratios, including a dividend payout ratio above 30% since 2014 and a net payout ratio above 60% in 2016, in the first quarter of 2017. We currently expect that our net payout ratio for 2017 will be in our 55%-75% target range, demonstrating our focus on returning capital to shareholders and the benefit of our strong capital generation. Our current capital position, including our excess capital buffer and our expectation that regulators will be more focused on capital levels rather than payout ratios prospectively, could enable higher payouts, payout ratios over time. This next slide shows our target ranges remain at industry-leading levels, and our performance in 2016 was still among the best in the industry, although our net payout ratio in 2016 was lower than most of our peers. As I just highlighted, we currently expect our ROE and ROA in 2017 to be at the low end of our ranges, and we expect our efficiency ratio to remain elevated. However, results in 2018 could improve with changes in just a few key assumptions, changes which we believe are very reasonable based on past performance. These 2018 assumptions would include revenue up by approximately 1% from 2017 on net interest income growth, reflecting a steady and consistent rise in interest rates and a modestly steeper yield curve. A modest improvement in expenses of less than 1% from 2017. A credit environment that is consistent with our recent performance, with 35 basis points of net charge-offs. These are all very hypothetical assumptions, nothing terribly heroic, but if achieved, would result in 12.3% ROE and 1.17% ROA, an efficiency ratio of 57.4% for 2018. That assumes no outsized operating losses, but just running our business and enacting our plans for expenses. I want to be clear that we're not providing guidance on where these ratios will be in 2018, but it's an illustrative example of where we could operate given these hypothetical assumptions and how impactful these levers can be to our performance. I've covered a lot of topics today with a particular focus on expenses, including the expected additional $2 billion in annual expense reductions by the end of 2019. You'll be hearing a lot more from our business leaders about specific initiatives that will help drive revenue growth, make their businesses more efficient, and align with the six goals that Tim highlighted. The benefit of our diversified business model is that we have opportunities in each of our businesses to acquire new customers and build deeper, lifelong relationships with our existing customers. These are the key drivers of our financial performance in both the near and the long term. Now I'd like to welcome to the stage Mary Mack, the Head of Community Banking. Thank you. Thank you, John, and thank you to all of you all who are here with us today or online to spend time hearing more about our story. I'm going to build on the comments that John and Tim have made around our journey to rebuild trust, how we're responding to it, and how it's informed our strategy going forward. I will tell you now and I will tell you again, that as difficult as the last eight months have been, we are better now and we will be better for it as we move forward. Let me start with in a really good place for us, which is to remind you what a great franchise we have with amazing market position. I've had a chance to spend the last number of months across the country in our branches with our teams. We have terrific teams with a breadth of network, innovation, and delivery that is meaningful to our customers. We serve more communities than any other bank. One in three consumer households banks with Wells Fargo. One in ten small businesses banks with us. Our consumers use our physical distribution. 1.6 billion branch and ATM transactions last year. Our retail branch network, which I'm going to talk more about as both John and Tim have promised, it continues to be number one with the most retail deposits in the most states across the country. We were the first among large banks in the U.S. to introduce 100% card-free ATMs, and we continue to evaluate and evolve our distribution as our customers' behaviors and preferences tell us that they want us to. We can't deliver exceptional experiences without an outstanding team. As I said, I've spent a lot of time in our markets getting to know our team. We're serving customers and making things right and delivering exceptional experiences. In addition to the strengths in market share, distribution, efficiency, and people, another one I would comment on is we have outstanding partnerships. I say that actually from my prior role in brokerage. We hired financial advisors from every firm on the street that you would want to hire financial advisors from. The first thing they said when they came to our company is, "This is different and it's powerful in the way that I can leverage partners across the enterprise to serve clients in a differentiated way." So with that kind of commitment grounded in the six goals that Tim talked about, we've learned from our mistakes, we focused on our priorities, and we're delivering better results. Our recent challenges in the community bank and the sales practices, we had to get that right. We were focused on doing enough to get it fixed, but that wasn't enough. It wasn't enough for our team members, it wasn't enough for our customers, it wasn't enough for our communities, and it's not enough for you. So we're taking this opportunity to really think about everything in our community bank. All of our strengths, how we leverage those, and how we become different and better as we move on from here. We need to show we're more capable than ever, more motivated than ever, and we're transforming the way we do business from the inside out. So let me build a little on some of Tim's comments. He talked about some of our efforts to rebuild trust. You have seen those, we've published them, they're on our website, and they're really important. If you think about our stakeholders, external parties, we've increased transparency. We'll continue to evolve that approach if it's meaningful to our partners. We're spending time with the team, listening more, asking for more feedback, getting great ideas, encouraging team members to raise their hand, and I'm really pleased that they're embracing the new model in a terrific way. We're listening to our customers more than ever. We increased the number of customer surveys that we collect from our branches by 50% in the fourth quarter and have maintained that level going forward. We collect approximately 1.6 million surveys from customers who visit our branches almost immediately after their visit, and I'll talk about those trends. We're updating those surveys to learn more. So tell me why. Tell me why it was a great experience, tell me how it can be better. So with all of that work, what you're interested in is, so how's it working? I get asked a lot, what are the success metrics? What are the numbers showing? How are we doing? When will we see more growth? To me, we're at a very predictable point in the cycle. You can see that week over week, month over month, quarter over quarter, the metrics that you want to look at are trending in the right direction. We're growing customers, primary checking customers, point-of-sale active cards. We're growing deposits at a solid rate, and we're investing in specialty bankers. Specialty bankers are those bankers who have the skills and credentials to serve our more complex clients, customers in the affluent and small business space. Also, our customer experience and household retention have been terrific. Now, you might look at those numbers and say, "Why do you think flat numbers are great?" Well, we'll look at this more in a minute, we took an understandable dip after the sales practices announcement. Thanks to terrific work by our teams, who gave our customers a reason to stay and grow when they came into our branches, we've seen those trends stabilize, and I fully expect we'll see those continue to improve. We're reducing the things you'd want to reduce. Team member turnover has improved significantly. Teller FTE is down, reflective of our customer behavior patterns, and our occupancy expense is down. Now, I promised we'd look at customer experience trends. If you look at this, we've been providing our monthly numbers. I thought it might be helpful to see those on a continuum. You can see on that top line, customer experience, that's your experience in your last interaction in a Wells Fargo branch, took an understandable dip after the announcement, and our team refocused on reminding our customers exactly what they love about their experience at Wells Fargo. You can see that line has recovered nicely to pre-settlement levels. The line below that is loyalty. Loyalty trends with the prior experience in a branch, but it tends to lag a little bit. The big difference there are a couple of different questions that we use to gauge that, but the real big difference there is willingness to recommend. We've seen that, too, take a dip, but also a little bit more sensitive to the news cycles, but respond really nicely and continues to grow. Now let's look at branch customer interaction trends. Teller transactions has been very consistent, and consistent with what we've seen over time, and consistent with customer behavior shifts as we introduce more technology, more digital opportunities. Avid is going to talk a lot more about that after the break, but more digital opportunities for our customers to interact. As I mentioned before, we've been adjusting staffing accordingly. We've got a very flexible staffing model that allows us to do that. If you look on the right-hand side at branch banker interactions, they did decline post-settlement, but the volume there has stabilized, and I'm very optimistic about the things we're introducing now. Tim talked about the Building Better Every Day campaign, which has not only got great messages out there in the public arena, it's given our team members something to be really proud of. They're responding incredibly well to that and talking to customers over the teller line about how to use cardless ATMs, which is a real terrific engagement strategy. We're introducing more offers, more training for customers, and our tellers and bankers admittedly are getting more comfortable with the new performance management and rewards, or as you ask, compensation program. We're making big shifts in the business, leveraging the strengths and headed in the right direction. Let me talk a little bit about the numbers. On the left side, you've got account opens, new account opens, deposit opens. New account activity, as you all well know, declined post-settlement, about 40% early in Q4, but we've seen that continue to grow off of that period during which we apparently bottomed out in the fourth quarter. The good news is, too, these customers are active and engaged. They have an 8% higher combined checking and savings balance than accounts opened a year ago. They are using their accounts more frequently, and there is a 15% higher conversion to primary customers. As a reminder, the way we define primary customers are those customers who demonstrate through their behavior with us, through the way they use their accounts, number of debit transactions, do you have your direct deposit here? Those things we know are behavioral to are we your primary institution. So 15% higher conversion of new accounts to primary. On the right side gives you the portfolio, the overall portfolio of those primary customers. That continued to grow 1.6% year-over-year in March. The growth rate has certainly slowed, which is an impact of the slower opens. But the really important thing I think here is that over 80% of our checking customers are primary based on their actual activity with us and their usage of Wells Fargo as their primary institution. Let's look at credit card. Similar patterns in credit card. On the left, you've got the lower account applications post-settlement, which you all are all aware of, and the increase that we are seeing now month-over-month up 60% from post-settlement lows. These are particularly sensitive to proactive discussions in our branches. Again, Avid will talk more about what's happening in the overall credit card business. But if you think about the sensitivity there, also the value, though, of those accounts. New credit card balances, new credit card customers that we are opening today have 14% higher balances than those accounts opened a year ago, and they are more active. Right side gives you the active credit card portfolio. So active consumer credit cards overall are up 3.9% year-over-year. Continued growth in active accounts, although at a slower rate. Active credit card accounts have 6% higher purchase volume than they did a year ago. Again, Avid is going to share a lot more about these two product categories, but we've been talking about them so much on a monthly basis, I thought you might like to see what's happening there over time. This next chart is about our partnership with Wealth and Investment Management, David Carroll's business, and it's one that I've actually, as Tim said, been up here talking about before from the other side of the partnership. We track the closed referred investment assets. Those are the clients, customers, that our team members in the branch, licensed team members, referred to a financial advisor, and we actually closed new investment business as a result of those referrals. That averaged about $1 billion a month pre-settlement. Like our other metrics, we saw that number drop post-settlement. It varies. You can see on this chart there is actually some seasonality in it even throughout a quarter pre-settlement as well. But we are delighted that it too has trended back up and actually hit $1 billion in the month of March. This to me is evidence that our bankers and our financial advisors are really effectively partnering with some of our most complex customers in the branches and gaining that share as well. You can't do any of this without really engaged team members. Team members need more tools and clarity. We need to listen and incorporate feedback, clear direction and better coaching, development, career opportunities, appropriate rewards for their accomplishments. I've been spending a ton of time, as I mentioned, in our branches and our markets. I figured the most important thing for me to do was to listen. Listen to our team, try out our ideas, get their ideas, and figure out what's really happening and what do they need. I've been to more than a couple of dozen cities over the last several months, held 49 or 50 listening sessions with 4,000 team members, and it's really interesting because I can see our team members moving along with us as we introduce the PMNR plan, which I'll talk about in a minute, and the changes. It's been gratifying and encouraging to see our team members responding positively to those changes and moving along with us. On the right side, it gives you a graphical depiction of the value of the improved team member retention that we have seen. Our team member retention has improved by about 9 percentage points over where it was this time a year ago, and that has tangible value. We estimate that every percentage point improvement in team member retention is worth about $5 million in training and recruiting and opportunity costs. But it also has other benefits. Our customers like to see the same people when they come into our branches. You like to see the same people when you interact with a financial institution like Wells Fargo. It's a relationship business. It allows us to build on those relationships, to understand our customers better, and help them solve for the things that are important to them. It also makes us better risk managers. More time in job, better skills, creates better knowledge of policies and procedures, and helps us manage risk better at the branch level. Now we've made a lot of progress from where we were in September, but what I'm really excited about is where we're headed and how we use all of this to move forward. I've talked about the shifts in the model to create differentiated outcomes, but what makes me believe we can be successful with this is because we have a catalyst for change like no other. We've got an entire team that is ready to adopt and adapt and move forward and create these kind of experiences for customers. Our team members want to know that they come into work every day and can go home and know that we as a company have made it easy for them to understand and solve problems for customers that ultimately creates value for shareholders. We'll do that through alignment of our customer and team goals, through segmentation, making sure that we have differentiated and appropriate experiences for customers as they need it, and then leveraging the branch network in combination with digital in a way that's meaningful to our customers. This is the slide as to why you as investors should care that we're focused on experiences and loyalty. A lot of industries, as a matter of fact, and ours included, but a lot of industries talk about the value of loyalty, and you read a lot about what the economic value of that could be. This is data from our own customers. On the left-hand side, you see that if you have a fantastic experience in one of our branches, you are much more likely to be highly loyal. The right side tells you that when you are loyal, what kind of results do we see? Better household retention, better household relationship balance growth, which drives 8.7 percentage points improvement in revenue growth. These are the kind of outcomes that we focus on through our loyalty and experience. We do that by aligning our customer and team member goals. We need to empower the team to solve problems, big and small, when somebody comes in to interact with us in one of our branches, give them better tools to have financial conversations with customers, and then really embrace digital in a way that is meaningful for customers today and our customers of the future. I am delighted that we are announcing that we are rolling out a pilot, introducing a pilot for digital advocates in our branches in the third quarter. That is in partnership with Avid's team, which is to make sure everybody in our branch knows what we have got in our digital offering, but there is one person whose responsibility it is to make sure that we are leveraging the latest in technology, thinking about the onboarding of our customers into digital immediately. We know that is good for customers and creates greater primary or faster primary relationships. We will be piloting that in the third quarter to give the team members the tools and knowledge they need to be successful. The right-hand side of this is all about alignment through our compensation plan. It is more than compensation plan. It is actually performance management and rewards. We use compensation sometimes shorthand for it, but it is the way we recruit, train, promote, and what success means in the community bank. It has, to me, four. There are really two parts of it. It is pretty simple. There is team-based. Everybody in a branch has a team-based component. It is really important to create the team environment so that the customer coming in experiences the environment that we create together. Everybody has a team component. Team component has four parts. One is, what do our customers say about us? Those are the surveys that I told you about a minute ago that we have increased by 50%, 1.6 million. What is their experience with us in their most recent interaction? The second one is, are we growing primary customers? Are we growing those customers who use our products in a way that tells us that we are their primary institution? Are we growing relationship balances? Ultimately, do customers, and we can measure those at the branch level so that the whole team comes together around the growth of those balances for their customers. Are customers ultimately expressing their confidence through the consolidation of assets and growth in relationship balances? All wrapped up in a branch risk score. Are we doing the right things the right way? Also, our bankers have a qualitative assessment that further reinforces doing the right thing the right way. And we'll have for our specialty bankers, those that I mentioned a few minutes ago are the skilled bankers that serve our affluent small business. They also have the opportunity to earn individual incentives based on their ability to gather assets with customers. That's really important, and one thing you all have asked about is how do you make sure your top performers are appropriately motivated and rewarded through this plan. So we rolled it out originally saying we would watch it. We do watch it. We'll continue to evolve as we learn more going forward. I'm pleased with where we have been for the first quarter, and we'll continue to evolve the plan as we go. So I mentioned a minute ago about segments. One thing that team-based incentive that I described a minute ago gets everybody in the branch motivated around is if we want to grow together, if we want to grow the household balances, the best thing we can do is get the customer who comes into our branch in front of the banker who is best skilled to serve them. So it helps us in the segmentation sense. Tim talked about the overall consumer strategy. We're aligned with that consumer strategy is our part in branch delivery. Think about mass. I talked about started with our position, as a franchise, which is outstanding. A lot of that largely is serving our mass customers, 13 million opportunities to help customers in mass. We start with financial health. We help customers rebuild their credit. Secured card is a very valuable introduction as we help customers rebuild and move forward. It's been the source of a lot of growth for us over time, and that experience is foundational to all of our experiences across our segments. Then we have a big opportunity in affluent and affluent away, which I'll talk about in a minute, which are our customers who are either affluent with us, or we know they're affluent and they don't yet have their assets with Wells Fargo. And then finally, in small business, we remain a leader. We're number one small business lender for 14 consecutive years, and we can use that market position to grow as we move forward. So David Carroll is going to talk a little bit more about affluent as well, but let me start there and give you a sense of this affluent market. So we've got about 8 million affluent customers at Wells Fargo in the community bank. That's not inclusive of affluent customers in other parts of the organization. But 8 million of community bank customers who are affluent, either 1.5 million, as I said, affluent with us or 6.8 million that are affluent away. We know that they have the assets, but they're not here yet at Wells Fargo. If we just got the same percentage, not their whole wallet, but the same percentage of their wallet that we have with our customers who are already affluent with us, that's $2.2 trillion. And so what makes me so confident in this, I've talked about this one before, I know these partnerships from both sides. It is a planning-based, relationship-based approach that is very disciplined across our network. We've got David will talk about our Envision Planning tool. That is our investment planning conversation that allows us to learn more about customers and help them solve needs. We do that with resources deployed in the right branches, in the right places to serve affluent customers across the franchise. The other great thing about this is 85% of our affluent away customers are primary. They are already using us in that way that tells us we are their primary institution, and we have great opportunities to interact with them. Yes, they come into our branches. 70% of affluent away customers come into our branches at least once a quarter, and those who come in, come in a lot more than that. They use digital, they use ATMs, lots of opportunities to interact with those customers and help them think about their financial future. But what is really interesting about that is just to see how it works. It happens like this every day in branches across our franchise. I get stories from bankers who are really happy with interactions. They send me stories, I tell them. I got one the other day from a banker named Sally. You all think since the name is Sally, I must have made that up. It is really a banker named Sally who had a customer, actually a non-customer, a daughter, walk into one of our branches. Her mom had died. Her mom was a Wells Fargo customer. Her mom had died. Daughter walked into our branches. She did not know what to do. I think the estate was kind of a mess. She comes in, asks enough questions that Sally knows that she needs a premier banker. She needs one of those specialty bankers that is skilled in affluent. Banker comes in, brings a financial advisor. They sit down with the daughter and look at everything she has. They help her collect abandoned checks and bonds and all those things that you sometimes find in a drawer when you are cleaning up an estate. The daughter reacted in a way that said, "Wow, this is a different experience than I have had anywhere," and in fact ended up consolidating her relationship with us, as well as referred her friend and her friend's husband. What is important about that is not just the significant assets that we collected as a result of that interaction, it is that it is a disciplined process that happens across our franchise. Our bankers know what to do when they have customers like that who have needs. Small business is very similar. I will start there with a story, too. A couple of weeks ago, we had our shareholder meeting in Florida, and I sat down in the first or second row, next to the CEO of a community partner by the name of Prospera. Prospera helps about 5,000 Hispanic entrepreneurs in Florida and soon expanding into the Charlotte community. I asked him before it started and when we took a break, I was asking him questions. "How are we doing in small business? Do you like our digital tools? Is it helpful? Have you used our credit coaching? How about our marketing coaching? Is that what your clients need?" He told me really good things, but felt so compelled that he actually grabbed the mic in the shareholder meeting to make sure that folks there and listening knew that he and his clients could not have achieved what they've achieved in the small business space without the support of Wells Fargo. We serve about 3 million small business customers. 80% of those have both their consumer relationship and their small business relationship with us. There's tons of opportunity there to deepen with additional products and services that we can bring to those customers. But interestingly, we've got another 3 million where we're their bank personally, but we don't yet bank the small business. That opportunity, we estimate, again, on a relative share basis, is about $50 billion. Even with number one share in small business, we've got real opportunities where we're under-penetrated. The 2 million to 5 million segment is a real opportunity. We're staffing in that. It's a fast growth part of the small business market across the country. We've developed new roles to actually serve that market in particular. We've got a real important partnership with Perry's organization, business banking and small business, the opportunity for us to uncover more complex business clients and opportunities and engage Perry's bankers to serve. We also have a really important partnership with PVSI in our innovation team. In particular, last year, we had a chance to disrupt the disruptors and bring things like FastFlex and One Term Loan to the market, which allows us to underwrite and deliver financing to small businesses in as fast as 24 hours. These small business customers also use our branches, actually a little bit more than our consumer customers because of the value of that kind of access. I keep talking about branches, let me talk about branches. You all have a lot of interest in that. We are proud to be the number one branch network in the country. We serve more communities, which we'll look at in a second, than any other institution, but you also ask a lot, "So what's the right number?" I'll tell you, we'll have as many branches as our customers need and want, no longer than they need and want them. Today, they tell us they need and want them. Over 51 million transactions a month over our teller line. 75 million transactions a month through our ATM network, which is pretty powerful. We also have a pretty flexible real estate portfolio. 80% of our real estate is flexible in that it's either owned or leases with less than 5 years before renewal. We've got ultimate flexibility to be very responsive to what our customers are telling us, and important to me is that we're doing this in a way that's good for team members. The other thing I would mention, despite the conversation about it, the demand for cash is strong. In March, we had the highest cash transaction withdrawals from our ATMs. People are using cash, and so that network is really important. This slide will tell you what's different about our branch network. One key differentiator are the number of markets we serve. Like our competitors, the bulk of our branches are in major metro markets. We serve significantly more communities in smaller metro, micro, and rural markets. We're serving our customers where they need us. Importantly, our return on deposit and efficiency ratio are as good in these branches as they are in our major metro markets. It allows us to be where our customers need us in a really efficient way. We're in the right markets for growth. We have branches in 15 of the 15 fastest-growing markets in the U.S., in 13 of the 15 highest income large markets, with leading deposit share in many of these. Let me give you an example of that. I got asked at an investor conference, I don't know, 3 or 4 months ago, about certain markets, including South Carolina. If you couldn't tell from the way I talk, that's where I live. I looked into that market in particular. Why would you be in South Carolina? Think about a market like South Carolina in 3 parts. One are the markets that are really part of the Charlotte metro, so bedroom communities of Charlotte that you really think about as a large metro market. Then we've got markets like Greenville, South Carolina, Hilton Head, Charleston, fast-growing, affluent markets, small business opportunities, where we've been able to be very successful, complemented by micro and a handful of rural markets throughout the state that lift the overall brand. It allows us, in a market like South Carolina, to be number 1 in deposit share without having the most branches relative to the competitors in that market. That example is repeated in markets across the country in the way we've thought about our distribution. We compare the size of our branch network to our peers. The optimum number is a factor of all of those things, the number and differences in the markets we serve, the performance and the use of our branches, and our relative branch positioning. Think about branch optimization. We look at the things you'd want us to look at, customer behavior, digital trends, geographic differences, competitor positioning, and then the economic and regulatory environment. This slide gets in a little bit to the 450 branches that we have said that we will close this year and next. We constantly evaluate those external factors and our branch performance and have a really disciplined approach to this. You can see here that the branches selected for closure have, on average, less than half the deposits, less than half of the households, less than half of the activity, and much less than half of the profitability of the average branches that remain open. We look at saturated markets, low site quality. Where do we have nearby branches that we can consolidate and retain the customer base? How do we improve our network strength, minimize customer disruption? I would tell you one of the most important points on this slide is the fact that those 450 represents about 7% of our network with less than 1%, 0.6% household impact. As John mentioned, it's about $170 million in expense savings by 2009. Your natural next question will be, "What after 2009?" As I said, we have flexibility in our network. We have the flexibility to respond, and we'll have the branches our customers tell us they need no longer than they need them. It's something we're watching really carefully. How are we investing in our franchise? We look at smaller, lower cost, more efficient branches, whether they be de novos and appropriate in the regulatory environment in key markets like L.A., Manhattan, Texas, or Florida, or consolidations that we might do of branches in our network. For instance, in Manhattan, and hopefully all of you all have seen these, the Manhattan branches, we've done four consolidations in recent periods, and we were able, through those four consolidations, to reduce our lease cost by about 55%. 90% of our branch formats now are less than 3,500 square feet. In new branches that we open, less than 3,500 square feet. We also try to optimize partnerships. Not only do you have better partnerships when you're co-located, there's an expense opportunity there, and then the elevation of our brand through new signage and visibility. Let me talk for a minute about the digital branch. You heard us talk last year, actually, Jonathan Velline, whom you'll hear from later in the day, talk about the paperless branch as we moved on our journey from paper to away from paper and manual. Where we're going now is really digital integration, seamless digital integration with a design that's digital at its core. That integrates nicely with our physical distribution. I mentioned that I'm in a lot of branches. I've been in Miami two or three times in the last couple of months. When I go, I go into branches and talk to team members, see how they're doing, see how this is playing out, and talk to customers. I walked up to the desk of a banker who was opening an account for a new customer. I found out actually he'd brought his friend, who's another new customer at another desk in that branch. I just asked him how he found us. "How did you end up here as you move from another one of our large competitors?" He said, "Well, I went online because I was looking for a bank with national distribution. I went online, and I liked what I saw. Importantly, you made it really easy for me. There was a make an appointment button. It automatically found my branch. It got me right here. Then the banker called me yesterday to confirm the appointment. So I came in feeling even more positive about the professionalism of the experience." That happens, again, every day right now in branches down the street and across the country. But it's the example of seamless integration of mobile experiences for our customers, bring them into our branches in a way that allows us to leverage everything that's happening in PDSI in a real way for team members and customers. This takes out paper on the front end. It takes out paper on the back end. We estimate that the expense savings from this on an annual basis has amounted to about $185 million. Again, I mentioned you'll hear from Jonathan later this afternoon. You'll hear from Steve Ellis and some of the things that Steve is doing that, again, enable and invigorate the experiences of our branches. Avid will come up after the break and talk specifically about some of the enhancements there. We know we still have work to do in the community bank. We still have work to do to rebuild trust, to evolve our model. Without the experience over the last several months, our shift would have been a slow evolution. We have an opportunity now for a revolution of sorts as we rethink how we deliver and how we accelerate. We know we will be better for everything we have learned. We are on the right path. We are moving in the right direction. We are building on our strengths, and we are emerging stronger than before. Your question ought to be, so how will we know? Again, watching trends weekly, monthly, quarterly, to make sure we are making the progress that we need to make. We are watching improved customer experience, loyalty, satisfaction. Are we growing households and customers? Are we deepening relationships by growing deposits, loans, and investments with our customers, delivering positive operating leverage while driving down the things you would want us to drive down? Reduce risk, better customer attrition, better team member attrition, and then reduce expenses. As I think about it, we are doing really meaningful, passionate work. We have team members across the country, and quite honestly, in the audience that you will get to talk to at the break and at lunch, who are really passionate about the journey we are on and the progress that we are delivering. I am optimistic, hopeful, and energized about the work we have done and are doing to transform the community bank for our team members, for our customers, for our shareholders, for our communities, and for all of our constituents. Now I think if I still have time for questions, that is what is next. You do have lots of time for questions, Mary. Thank you. A couple of requests. For those in the room, raise your hand. We will come to you one at a time. We have two runners from your IR team, John Campbell in the back on my left, and Amy Osborne. We will be using the catch boxes that we used last year to ask questions. Please state your name and firm, and ask away. Let us open it up on the floor here for questions. Thank you. John Pancari, Evercore ISI. I know on slide 26, you indicated that on the branches showing that the progress in closing the branches is still in earlier stages. Your number of 450 through 2017 and 2018 still implies about 2% annually or so. Why not accelerate that? Have you looked at possibly accelerating it? Because it seems like you may have the capability to do so. What we are looking at, John, as you know, we started taking a look at this last year. Closed more in the third and fourth quarter than we had closed in prior periods. We have about 200 slated for this year. We are on track to close those 200, 250 identified for next year. As I mentioned, if our customers tell us based on their behavior patterns that we need to go quickly, we have the flexibility to do that. Today, based on the transactions, we do not see that. But again, we can be very responsive based on the way our portfolio is structured. Okay, and then just one follow-up. On the third-party services amount, John, I think you noted that. How much of that is the project spend? Did you quantify project spend? I know you said about half of the project spend is regulatory costs. So I am just trying to identify what is that exact amount. How much is the project spend? Yeah. So we have not drawn a map of the overlap between project spend in total and third-party spend. There is a good portion of third-party spend that is not project spend. It is out there captured in parts of business as usual. We will try and bring some more illumination to that as we roll this forward. But right now, there is not a mapping available from one to one. Other questions? Yes. Looks like Betsy. Hi. Betsy Graseck, Morgan Stanley. A couple of questions. One is on the changes that you made in the goals for the- folks in the branches. I think when you were going through that and identifying the customer segmentation changes that you made and how to align them with those customer segmentation goals, you indicated that it's an evolving process and there might be some tweaks and you're watching it. Could you give us a sense as to where you think there's potential opportunity to take it even further to drive that revenue growth that you're looking for? Sure. Let me hit that point that you're making, Betsy, again, and then come back to where I think that we might have opportunity as well. When I think about segmentation, how the plan itself drives segmentation. The whole team, everybody in the team is motivated and rewarded based on how that branch is growing. Loans and deposit, primary customers, loans and deposits, and investments. If you think about loans and deposits in particular, loans, deposits, and investments in particular, our team is realizing that you get the customer with the banker who has the skills, whether they be a licensed banker, financial advisor. We're going to be better able to uncover needs, fulfill on those, and grow in loans and deposits. So that's the point around driving segmentation, is that everybody in the team now, as opposed to perhaps wanting to open an account because the customer walked in, it's rather let's get the customer to the banker who's most skilled. Our opportunity, I think, is to continue to invest in training and understanding. We're doing a lot of that. It's new for our team. So how do we make sure people understand those connection points? And then skills of our bankers. Develop more skills to better serve those customers. We're looking at the plan. We'll pay our first quarter payout here this week, I think. And so it's done exactly what we wanted it to do, which was refocus the team and manage risk. Now we'll look at are there ways to motivate behavior. Could you also speak to product design? Is there anything in the product set that you think you need to change to better align with the customer segmentation that you've done? And can you also just comment on pricing in that deposit rates? Is there anything there that you think you would need to do to better align with the customer segmentation that you've done? I'll comment briefly on product and then either offer it to Avid or she will talk about it too when she is up here, is that there are a lot of things that are going on, particularly in the loan and deposit side, that are helpful for us. One are things like services for affluent customers, more work on how do we serve the unique needs of affluent customers. So that is work that is helpful to us. Everything that David Carroll's organization is doing is helpful to us in terms of product development. We're looking at financial health tools to better enable our bankers to have those conversations, whether it be a customer, as I said, who is repairing their credit and needs to start with a secured card, but understands financial health to move through to our more sophisticated customers. On the deposit pricing side, we've not seen, we watched that really carefully. We've not seen the competitive pressures that suggest a change in our consumer deposit rates. But again, we're watching that really closely. And Avid, I don't. There she is. What would you add? Betsy, this is Avid, and we are actually doing a lot of work on the product side. On the one hand, we've been continuing to simplify our product line, what we have been doing primarily in the deposit space. But we just launched a portfolio product for our affluent customers. That's a space that I think we need to continue to do more. In the credit card space, we have been refreshing that product line, and just in the last year, we rolled out two new products. One on the Amex, on our American Express partnership, a new Propel card and a Cash Wise product, which is primarily for the mass affluent customer base. Absolutely, we continue to look at where our gaps are and keep improving our product portfolio. We have one more over here. Chris, and then Vivek. I'm curious. One of your other of the big three banks has talked about de novo branching in markets that they're not, and the big three, they all got their footprint by kind of historical patchwork. I'm curious, what is your strategy? Arguably, you're in the best demographics, but what is your strategy for all the places you're not? The Michigan's, Western Pennsylvania, Ohio, Upstate New York, Missouri. I mean, you're everywhere, but you're missing kind of still a big swatch of the country. What we have found in particular our physical location, I think there's a lot we can do in digital to reach customers who may not be down the street from one of our branches. In our physical distribution, what's made sense for us to do is think about the whole network, is to think about how rather than going into a new market, think about those markets, as I mentioned, like Los Angeles, Manhattan, Texas, Florida, where we've got density, but we've got some gaps to fill in. That has proven to be a smarter de novo strategy for us to follow rather than tackling new markets with big branch footprint. So far, that is not appealing to you. Okay. Thank you. Thanks. Just following Mary on the earlier question. You said you're shutting 450 branches in 2017 and 2018. John Shrewsberry announced in 2019 that he's going to cut another $2 billion. What number do you have included in that for branch closures in 2019? There's no specific number in John's $2 billion, although the challenge to all of us will be what makes the most sense for customers. Do we see changes in customer trends, patterns, and behaviors? Do we see the digital innovation that gives us the customer alternatives that allows us to continue to reduce the branch network? We're focused on it. You see that in the slides. We know what our network is, we know what our flexibility is, and we track that on a regular basis to how do we make it more efficient in a branch, and then how does it fit into our overall network? We don't have a number. It's absolutely squarely on our radar screen to say, let's look at what our customers want, what they tell us, and how do we respond. I know you're doing a lot of stuff both on the revenue and the expense side. What numbers can you give us in terms of how you're measuring your own progress and how we should track it in terms of things like, let's say, efficiency ratio or returns or some kind of bottom-line profitability metrics? Because there's a lot going on, and it's hard to pull it all together. When we look at our numbers, for me, what I am looking at is really that last slide that I put up there. How are we growing loans, deposits, and investments, which ultimately we all care about. How are we managing expenses, which then we roll up at the consumer level, and you can see that across the board. Our customers don't think of themselves as branch customers. They are customers. We are thinking about it from a customer lens standpoint that you could roll those numbers into the efficiency ratios. John, would you add anything? Well, I think at the segment level, and we will be transparent, and we will be talking about our progress against these goals every quarter as we connect to give you guys a view into how we are keeping up with our commitments. Before we take the next question, just a reminder to those on the webcast that you have an opportunity to email in a question if you like. Feel free to do that. John Campbell, you have another question? Saul Martinez from UBS. It seems like a lot of what you are saying in the retail strategy is pretty ambitious, and it seems like there is a fundamental tension between a lot of what you are trying to do. You have the branch rationalization strategy on the one hand, even as you are changing the scorecard, trying to engage employees and make sure employee satisfaction, employee engagement, and commercial intensity is there. You are trying to be not just a leader, but the leader in retail banking. It seems like there is a lot going on. How do you manage it? How do you think about managing all those things even as you are trying to rebuild a premium franchise after the sales scandal? Because it seems like there is a lot of tension between some of these things. I actually look at it differently. I think there is actually a lot of alignment with those things. As we think about customer team member engagement, our team members know it. Our team members are reflective of our economy. They are millennials. They get what is happening in a digital transformation. They are excited that we are going to bring that to customers in a way that enables them when they are in front of a customer to help them with the way they want to do business. Our team members also get it from the branch standpoint. I mentioned, when I showed the branch closure page, that what is important to me is that we are doing it in a way that is positive for our team members. We have been able to take advantage of team member attrition in a way that allows us with enough notice to we still have to take care of those customers. It is a very small percentage of our households. We take care of those customers in a way that typically allows us to retain the team members at the new branch that has to accommodate more in terms of volume. I am really big on alignment. Simplicity and alignment reduces our risk and accelerates our ability to get those things going together. For team members and our leaders, I think they actually fit together pretty well. Okay. That is helpful. Just to follow up there, you said 0.6% household impact. What kind of client retention do you see for branches that are closed? What kind of retention do you have? It is not that different from our overall retention rates. Now, we're watching that carefully because we'll be closing more branches than we have in the past. We've got specific retention strategies on helping our customers recognize that the proximity is a big deal, particularly in these first branch closures, so that if you're in Manhattan, you don't want to go any further than across the street. If you're in Charlotte, you might go around the block, and if you're in one of our more rural markets where you're driving a pretty long way to the grocery store, we can accommodate that as well. But really specific. It's not been that different. Very small, what we call shock attrition from the closures historically. Thank you. In the middle here, Gerard. Thank you, Jim. Gerard Cassidy, RBC Capital Markets. Mary, you shared with us in your affluent customer segment, in the small business segment, a number of your customers don't have their full relationship with you. Can you share with us what those numbers looked like five years ago, and what strategies did you use to dislodge those customers' relationships that were at other institutions coming to you? Because we all know it's very difficult to do for consumers and businesses. As I mentioned, David Carroll is going to talk more about this, but if you think about where we were five years ago, we were just really formulating this strategy. We estimate that we're probably four years in to actually, your timing of the question is really interesting. We estimate we're really four years into a full deployment of the strategy, and it was getting the right people in the right places. The first thing we did was identify the fact that there are 8 million affluent customers, but they're not spread out evenly across our network. There are some branches where we need to staff differently because of the opportunity. Do we have licensed bankers? Do we have financial advisors who are there and serving them? Do we know who those customers are so that we can engage with them differently? They might look like another segment when they come in based on what they have with us, but do we know who they are and do we reach out separately? We did something just in the last couple of weeks, what we call Envision Service Code. David's got a program which is Envision, I mentioned it, our investment planning tool. We then put a code so that when a banker interacts with one of those affluent customers and they don't have an Envision plan, do we let the banker know that so then they can immediately have a prompt to introduce the customer to something that our customers find very valuable? We're really pleased with the kind of response to that. It's using that kind of information about our customers, too, that help our bankers with who to engage. That's what we measured in the monthly referred investment assets. As I mentioned, that got to an average of slightly over $1 billion a month. It dipped. It was back to $1 billion for the month of March, and the average is moving up. We measure the progress in that. I would tell you we've got a lot more that we can do and need to do in engaging with those customers in a meaningful way. As a second question, you mentioned that you changed the incentive comp, of course, following the sales practice problem. Can you share with us, and I know this sounds like it's more holistic maybe today than it was before the issue came up, but for people in the branches, whether it's a teller or a loan officer or a branch manager, how much of their compensation today comes from incentives or bonuses versus what it would have been under the old program? Great question. I wouldn't say that it's different in terms of mix, a little bit for some of those team members. As I said, for tellers, we raised the minimum wage across our branches, the level depending on market. Arguably, the math works so they've got a little bit more in their base pay. But for a teller, for instance, the incentive opportunity is about 3% of his or her overall compensation, and that varies to our specialty bankers. That can be as high as 20% or 25%. So it really depends on the role of the banker. The managers are similar to our specialty bankers. But one of the commitments that we made to team members is through this new compensation program, we'll have market competitive pricing. We price our jobs in the market. We've got enough. It makes sense to do that on an annual basis. You'll have the opportunity to earn at similar levels. Now, you might need to change their behaviors, because it's not about just opening accounts, but rather creating value for customers, ultimately expressing loans, deposits, and investments. So opportunities to earn are the same. The behaviors are what we're helping team members shift. Other questions? Marty. Marty Mosby, Vining Sparks. Two critical things that are evolving here, that I think can make a difference for Wells Fargo and banking in general. But when you look at the radius, you talk about 2 miles. And half the U.S. population is within 2 miles. With digital, you don't need a 2-mile coverage anymore. Right. The key component is what factor, you mentioned the three different types of markets, so I was going to say, what the two go to, but is it 2 times? Is it 3 times? 5 times? How much larger of a radius will a branch cover? And then explaining that down the road is, well, how much can you then consolidate branches if you expand that radius? To me, that's the critical change that's happening right now. It is. And convenience has been redefined, kind of to your point. Convenience used to mean a bank on every corner, and convenience now means easy access to what I need, which we can do, really in a more convenient way for a number of our customers through digital. We've been looking at things like, can we take markets where we have smaller distribution and use digital to test exactly what you're talking about, which is how do you expand the radius of physical. Use physical for all that's good about it, visibility and everything else, but use digital to expand the radius. So, we have a pilot that is contemplated, and you may have just given my distribution guy in the back of the room the impetus he needed to try to get that done. I can promise you he wrote that down. The factor, though, how much, just guess. 2 times? What do you think? I mean, just your intuition tells you what? Maybe it is 2 or 3 times. Avid, I do not know if you have looked at that as to how do you think about how much further you could go. We really have thought about it type of market. Right. I mentioned Manhattan versus South Dakota, for instance. Our customers think very differently. I do think we can look at expansion of, make physical go farther, is what you are saying- Right by complementing it with digital. I think there are a couple of factors here. Clearly, there is a network effect in terms of the points of distribution, but I think the more important factor is not necessarily the radius, but it is the format. You may want to have as many points of distribution or have a 1.5 or 2 times, but the format within that network would clearly be very different with the advent of digital. Maybe you may have points of distribution that are just teller-assisted ATMs and other points of distribution, fewer points of distribution that tend to be more full service. There is a number of different components that Mary and her team, with my team working together, we are trying to optimize. Thanks. Then Mary, I've asked this on the call several times, but you're the best person to ask this question because what you said in here was revolution. When you had the opportunity to meet with these employees at a time when they were open to share with you things that probably a year before, they would have raised their hand and said, "Wells Fargo is the greatest company I ever worked for," in the midst of everything that was happening, they wouldn't have felt comfortable being able to share those things. So when you say that it can be a revolution, you've had to take away key things that you were surprised about. Is there a couple of those things that you could share that really just when you heard it was like, "That is something I really needed to hear, and this will help us revolutionize this bank going forward"? As I said, I've gotten feedback from all over the footprint, and one of the things I hear, for instance, and Avid and I are working very closely to solve for, are if our customer calls into our contact center or goes into our branches, we need to know them through the whole cycle. It needs to be a very consistent experience. Those are things that we are working actively on fixing. I'm not sure that I was surprised, but the urgency of getting those things right at a time that's critical for customer experiences has allowed us to accelerate, for instance, some of that work. The leadership engagement, we've been spending a lot of time with leaders, for instance, who are leading in a new environment. I personally believe the best way to learn new skills and get good at them is to have a great coach. We're really focused on our leaders or our leaders coaching to the kind of skills. Our customers want to see the same banker with better skills on a regular basis. So how do we invest in that? I wouldn't say that some of the ideas sound to you like, "Wow, that's something different than I've thought about before," but the pace of change, which we have the opportunity to really do that. I'm bringing everybody through district managers, district managers manage branches for us, together, the end of July, 1st of August, to talk about exactly that. How do we think about this differently, and how do we ensure that our culture is aligned with our values and what we're doing for customers? We have time for one more question. Is there one more? Thanks. This is a question more for John. On the hypothetical 2018 scenario you have here, for you guys, is the fee assumption embedded in this just kind of flat fees, such that there could be upside if you are able to grow fees in 2018? It is a hypothetical revenue assumption with 1% overall. We have interest rate income assumptions built into that, or a range of assumptions that it will play out the way that it does, and we have talked about earning asset growth, the yield curve, et cetera. On the fee side, you can think of that as the complement of whatever you think is going to happen in rates versus the 1% overall. It looks frankly very reasonable or not very heroic in light of where we are already today. I would not describe it as guidance or an expectation, just an easy number to look at, to do some math, to demonstrate how we end up back in the middle of our ranges without really having to be heroic in any one particular line item. Just one reminder for, I should have mentioned this earlier. For the Q&A, remember we have a panel at the end of the day that will include all of the presenters, including Tim and John. That is another opportunity and the right opportunity to have the broader dialogue for Don and John and Tim. I should have mentioned that upfront. Thank you, Mary. Before we head into break, just two reminders. We are taking a 30-minute break. We will return. If you can come back a few minutes before 10:00, we will start 10:00 sharp. That would be helpful. Restrooms are out looping around to the left. Also, use the time please to engage with us, mingle with us. We have our tags on. You can tell who we are. Also on the Wells Fargo Investor Day app, you can see we have the photos and names and businesses with everyone with whom you will be mingling in addition to the presenters. So enjoy yourselves. We will see you back in a half an hour. Down, down, down, down. Down, down, down, down. Down, down, down. Let it out. Let it out. Let it out. We feel like dancing. We feel like letting go. We feel like dancing. We feel like letting go. We feel like dancing. We feel like letting go. Go with the flow. We feel like dancing. We feel like letting go. We feel like dancing. We feel like letting go. We feel like dancing. We feel like letting go. Go with the flow. Ladies and gentlemen, your event is Ladies and gentlemen, your event is about to resume. Please take your seats. Yeah, hi. I do not have my debit card, and these kids are having a bake sale for their soccer team, so I need some cash. Can I give you my mother's maiden name or my first concert or- Oh, well, now you can just use your phone. My phone? Yeah. Just open the Wells Fargo mobile app and request a one-time access code. That's way better. All set. Thanks. They have snickerdoodles. I love snickerdoodles. Thanks. We're proactively advancing our security to find better ways to help keep your finances safe. Over here, we're working on voice recognition. Oh, question. Yes. A lot of people say that I sound like my brother. He wouldn't be able to sign into my account, would he? No, he wouldn't. Your voice is as unique as your fingerprint. Cool, because that guy is just- Over here, we're exploring eye print technology. If people say you have your brother's eyes, he wouldn't be able to sign on this way. Great. That is good to know. That is good for all of us to know. Over here, we are working on mobile payments. I can access the ATM with just my phone. Yep. Now in the Wells Fargo mobile app, you can request a one-time access code to use the ATM. That's much better. You know, that would come in handy when I'm out for a run. Or a bike ride. Or when you left your card in your yesterday pants. Or walking the dog. Or walking your dog. I have a dog. That is exactly the situation this was invented for. I love walking my dog. We're dog people. Everyone loves dogs. It's genius. Have you ever just sat down and talked to a dog? Please welcome the Head of Payments, Virtual Solutions, and Innovation, Avid Modjtabai. Good morning and welcome back. I'm really, really excited to be with all of you today, and I'm super excited to be leading the Payments, Virtual Solutions, and the Innovation team. I think you all know because you know many of the companies that are our peer groups, and this is a very unique and powerful structure within Wells Fargo. We have the mandate to transform the way we serve our customers and also enable our team members and build a better bank. I'm first going to start by introducing the PVSI organization to all of you. We have brought many of the assets and capabilities of Wells Fargo within this group across consumer, small business, and wholesale. We brought together our payments businesses, deposits, credit card, treasury management, merchant services, our virtual channels team, which is digital, phone, email, chat, our enterprise operations group, and our innovation team, which has been the Catalyst of change and champion of bringing emerging technologies into the company. Together within our team, we touch every single customer of Wells Fargo. These customers are deeply engaged with our company. Just in the last couple of weeks, we were named by Nielsen as the number 1 in debit card, both in terms of point of sale transaction as well as purchase volume. What that means is Wells Fargo customers use their Wells Fargo debit card more than any other issuer. Nacha named us as the number 1 ACH originator with 4.9 billion network transactions. That's $1 billion more than the number 2 originator. Recently, Keynote named us as the number 1 in consumer mobile services, as well as digital small business services. Our Commercial Electronic Office, the CEO, has consistently been named as number 1 in corporate financial services and corporate digital financial services across many dimensions. As you look at our customers, our digital presence continues to grow. We now have 28 million customers using our online and mobile channels. We have continued to broaden our capabilities online. Customers can do more. We've made it easier for them. Last year, our number of digital sessions increased to 5.6 billion in 2016. When you look at what that means in terms of customers' engagement, it's 17 times on average for each one of our active digital customers in a given month. When you look at industry benchmark, that's highest than any of our peer groups. What customers are doing online is not just looking at account balances. They are making deposits. They're sending money. They use our P2P services. They manage their entire relationships across Wells Fargo. We're seeing the same on the wholesale side as well. When you look at our sessions on CEO digital offering, it tripled over the last 2 years. The scale and depth of our digital presence, our leadership in the payments business, are some of the core competencies that we are going to be using as we develop and execute on our strategies for the future. Before I talk about those strategies, which is going to be the primary focus of the next 45 minutes, I also wanted to just spend a few minutes and give you an update on where we are on the credit card business, as that's part of the PDSI group. As you all know, credit card has been a substantial opportunity for us at Wells Fargo, and we've been sharing with you our strategies and our progress. We've made significant progress in the last few years. In each of the last 5 years, our growth in the card business actually outpaced the growth in the industry. Over the last 5 years, we added 70 basis points of market share within the credit card business. As Mary mentioned, and you know from our monthly disclosures, over the last couple of months, we have seen a slowdown in new account opens through the branches. As a result, our rate of growth has also slowed down. We do expect that slowdown in our rate of growth to continue into the next few quarters as we move forward. Despite these challenges, we have seen very strong engagement from our existing card customers. In the first quarter, we grew active cards up by 4%, and Mary talked about some of these numbers. Transactions were up 6% and outstandings were up 7%. We also made very significant progress across many of our strategies. I did mention to Betsy's question earlier this morning that we've launched and rolled out 2 new products in the card portfolio. Our Visa Cash Wise product has been extremely popular. We launched our third product on the American Express Propel network, our third Propel card. We talked to you last year about our multi-card offering, and we're really excited that it's now rolled out and launched. This is a very unique capabilities. Our customers can have multiple cards with us, so they could have their Wells Fargo Visa and Wells Fargo American Express. What's very unique is that it's one credit line that dynamically in real time they could move between those cards, is one rewards account that they could earn and use those points in just one account. They get a combined year-end statement. It's been one of the big drivers of our growth and engagement from our customers. In the affluent segment, which was another area of focus for us, we grew balances by 10%, and we continue to make our rewards offering even more compelling to our customers. Redeemers were up 8 percentage points from a year ago. Actually, when you look at the spend of redeemers on our cards, it's four times that of non-redeemers. Again, these are many of the strategies that help us increase our engagement with our customers. We've also continued to make investments in digital for credit card. Because of these investments, we've seen offset to some of the impact that we have seen through sales through our branches. In the first quarter, 30% of our credit card account opens came through the digital channel. As you know, that's on a smaller base than previously. There's much more coming in digital as we use that channel as a way to reach new customers. We're expanding our ability to underwrite prospects. We are leveraging third-party and affiliate sites like creditcards.com, to extend our reach and get to new customers and prospects. We are also accelerating our investments in data, in analytics, and in digital marketing. Because of these investments, even as the branch trends start to normalize, we still expect digital to play a much bigger role in the card business as we move forward. Digital is not just important for credit cards. It's going to be transformational for all of Wells Fargo. We have been partnering across the company with all of our business partners to build and execute on strategies where we could better serve our customers where and how they want to be served, and also very importantly, to better enable our team members. At PDSI, we have the mandate, we have the resources, and we do have the expertise to change the way that we deliver for our customers, and also change the way that our team members deliver for our customers. Within our group, we have brought together many of Wells Fargo's strengths. We have a very large consumer base that we serve out of PDSI, deep business relationships, leading positions in payments, and a very engaged digital customer base. As I mentioned earlier, this is a very unique organization structure. We are bringing the power of all these capabilities together within one team that would enable us to move significantly faster and make more transformational change as we think about our strategies for the future and build our growth strategies. When we think about our growth strategies, they all start with what our customers need and expect. What our customers want from Wells Fargo is that we make things easy and simple for them. We give them transparency and control. We help them move money and make payments, not in hours or in minutes, but instantaneously. They want us to help them make the right financial decisions in the moment, but also over time. They clearly want us to give them convenience. They want to be able to access their services wherever they are. More and more customers want to work with companies that are keeping up with the pace of innovation that they see in their daily lives. So what our customers want is really what has helped us build and develop our innovation and transformational roadmap and strategies. That's also very integral to the consumer strategy that Tim talked about. What I would like to do in the next 15 or 20 minutes or so is to share some very specific examples with you. These examples are capabilities that we either have in production, they are in pilot, or they're going to be launched in the next couple of months, in the second half of this year. We have a session at the end of the day, our innovation panel, where we are going to go into a lot more detail on these examples, as well as other examples that Franklin and David Carroll are going to be talking about. Accelerating our digital account acquisition. This is a substantial opportunity for nearly every business at Wells Fargo. In the past several years, we have seen our digital sales continue to grow. In some of our businesses, like student lending, we have pursued a digital-first strategy where the end-to-end account open is available to our customers online. We've been very successful at this strategy. In the first quarter of this year, 75% of student loan account opens were done end to end through our digital channels. When you look at the aggregate of account opens across Wells Fargo, it's still less than 10% of all the account opens that we have within the company. For our customers and non-customers, they can apply for most of our products online, but they want more than just an online account application. They want it to be fast, simple, end to end. They want to get an instant decision, instant fulfillment, and instantaneously be able to use that account. That's exactly what we are building. This is a fundamental change in terms of how we are approaching digital sales. As you could see, it's going to be across all of Wells Fargo and across all of our products. So here's one example around our deposit accounts. Very soon, frankly, in the next couple of weeks, customers and non-customers can apply for a checking account and use it within 5 minutes. Internally, we actually call this the snappy app because it's really fast, it's easy, it's very simple. Let's say you're not a customer of Wells Fargo. Before you would get on our site, and you have to fill in a very long form. Today, that applicant can take a picture of their driver's license. We pre-fill the application for them with that picture. We would allow them to real-time fund that account if they have it through the debit card rail, so from another account that they may have at another bank. Soon after, we're going to instantaneously issue a debit card for them that they could use to make a purchase. By the way, we are going to be fast-following this with credit card. Oh, and then one other feature and functionality that we are providing with this experience is, for non-customers to Wells Fargo, they could take a picture of their selfie and we could match that picture to the picture of their ID and also cross-reference other data points that we have about the customer to have a CIP-compliant authentication for the customer. All digital, all end to end, all within 5 minutes. In the credit space, we are shifting the paradigm of how customers apply from credit, from being product-centric to customer-centric. Today, customers apply for a specific product, and if they want multiple products, they have to send us multiple applications. Later this year, we are going to be underwriting the customer for their entire credit limit unsecured line with Wells Fargo, and then they can choose how they want to use that credit line. Let's say they are planning a house renovation. They could choose to use 50% of that credit limit on a credit card, which they could use to go to a hardware store for purchases, and the other 50% in a loan that they could use to write a check or make payments to their contractor. So it's the customer's choice. They know their entire unsecured credit limit with Wells Fargo. They apply only once, one application, and all of this is done 100% digitally end to end. We have moved from product-centric to customer-centric when you think about our credit experience for our customers. These are just two examples of a very broad range of things that we are doing within Wells Fargo to make it simple, easy, fast for our customers to open new accounts with Wells Fargo. This is, again, across all of our businesses. What you see is we are using emerging technologies that could be leveraged across the company to create these transformational experiences. These are, by the way, also available for our team members to use with our customers in our branches or in our contact centers. Digital and fast payments. There is no doubt that the payments growth of the future will be coming from digital. Our goal and our priority is to build on our current payments leadership so that we will be the best-in-class digital payments provider as well. As I mentioned earlier, today, we are having a very strong leadership position across the vast majority of payments, now whether it's in the consumer space, in the small business space, in the corporate space. When you look at the scope and scale of what we do in payments, just one number to share with you. Last year, we moved nearly eight times the U.S. GDP for our customers. If you are counting, that is $145 trillion that we moved last year for our customers. As we look into the future, there are three specific opportunities that we are very focused on. First, we want to be the best choice of money movement for consumers. We want to be in the palm of our consumers and customers. Second, we want to remove friction in business payments. Third, we want to be the leader in the digital economies of the future. Let me talk about all these three things. From a consumer's perspective, within financial services, within Wells Fargo, we talk about payments. What customers think, what consumers think, is that they want to get quickly through a checkout line. When they are at dinner, they want to split the bill with their friends. When they are paying their babysitter, they do not want to write a check. Our goal is that for every customer, when they are thinking about making a payment, they choose to pay with Wells Fargo. Today, the vast majority of consumers still have not adopted mobile payments. When you talk to them, the vast majority say that they would prefer to have that service from their bank, especially for larger payments. We are only at the beginning of the adoption curve for mobile payments for consumers. We think the opportunity is enormous, and we are very well-positioned. Two of our big strategies here, one is our wallet strategy. We want to be the top choice in any wallet that our consumers and our customers want to choose, whether it is the proprietary solution within our Wells Fargo application, which we launched a year ago, and we talked to you about that at our last Investor Day, or whether it is any other wallet, Apple Pay, Samsung, Google. We recently announced PayPal, a new wallet that we are partnering with. For our P2P solution, I am super excited about the experience that we have already delivered for our customers and our partnership with Early Warning and with Zelle. We were the first bank in December that launched the Zelle experience within our Wells Fargo app. We are bringing out more features, including request money, in the next couple of weeks, and we are going to be rebranding as Zelle this summer. This is a super simple, easy, elegant, will-be-ubiquitous solution that already customers love. Before the launch of Zelle, when you look at 2016, when most banks had not yet delivered on the experience, even before then, the payments through this network was already three times more than the payments that was delivered through the Venmo. The platform has not yet been launched. Super exciting about this P2P solution. In the business space, we are reimagining business payments to be both easier for payees and for payers. I wanted to share one example with you that we actually launched a couple of months ago. Our treasury management team worked with Allstate and with Mastercard to reinvent how consumer claims were done by Allstate. Their previous solution was primarily ACH-based, lots of paper, lots of forms, paper checks that were sent to customers. We worked with Allstate and Mastercard to deliver the push-to-card solution and leverage the debit card network and rails. Now, Allstate claim adjusters could be in the field. They could be talking to a customer who has been going through a catastrophe, and right there on the spot, they could swipe that customer's debit card, and within 30 minutes, the money is in the customer's account. No more routing papers, no more delays in making payments, no more forms, no more need for bank account numbers and other things. This is just one example of new payment experiences that we would be delivering for our customers and is enabled by APIs, which we would be delivering through our developer gateway. Later this afternoon at our innovation summit, Danny Peltz is going to talk a lot about how APIs work. What I would like to emphasize is what APIs do, is that they would enable us to embed our financial services in the environments of our customers, in their tools, in their applications, to make it really simple and easy for them to make payments. The third area that we are very focused is to make sure that we are the premier financial services provider in digital ecosystems of the future. Let me give you examples of platforms such as Airbnb, Uber, Etsy. When you look at the platforms themselves, the companies, we are going to be leveraging APIs, and what we could do is to integrate our financial services, our traditional wholesale banking products and services that Carrie is going to be talking about very seamlessly in those platforms' environments. For the hosted businesses on those platforms, the car drivers, the merchants, we have some very unique products and services across Wells Fargo, our small business products, our car loans, our home loans, that we could, again, integrate very seamlessly for those hosted businesses. Then, of course, for the digital consumers, the users of those platforms, we could connect them using APIs very seamlessly to their Wells Fargo relationships and then deliver differentiated value. They could pay with their points in one of those platforms, with their Wells Fargo points in those platforms for the services that they are getting from those platforms. We are really excited. We think we have all components to be able to execute on this strategy extremely well. Personalized advice at scale. This is one of our priorities that Tim talked about, where we want to be the financial services leader in customer service and advice. Traditionally, when you look at our business model, we have been delivering advice and guidance primarily through people, our relationship managers, but more and more customers are building relationships through their digital interactions. Think about Amazon. That is a prime example of what is happening here. What we are doing is we are building digital solutions where we could provide personalized advice for every customer of Wells Fargo at scale, and we could do that also by enabling our team members. A lot of these tools that we are building would also be used by our team members, and we are going to enable our team members to use these tools to deliver the service and advice to our customers. When you think about the tens of millions of consumers and households that we touch and we serve, each one of them is in a unique place in their life and in their financial journey, and they each have their unique goals. They have top-of-mind questions that are specific to them around a broad variety of topics, how they want to manage their spend, how they want to save, how they can invest, how they can borrow. We have a lot of data, we have insights, and we have a lot of expertise across all of our businesses where we could help them uniquely to meet their specific situations. I wanted to share with you a couple of examples of some of the recent things that we have brought to market. About a year ago, we brought to market the free FICO score and credit insights for digital customers of Wells Fargo who have a credit product with us. This has been extremely popular. As of last week, I look at that data weekly, and as of last week, we had over 5.5 million of our customers who had viewed their credit scores. The vast majority of them have come back multiple times to look at how their scores have been changing and looking at some of those insights. When you look at the scale of the adoption of this within just a year, 38% of the eligible base has been using this service. Recently, we launched another application called the Daily Change app, and we're going to be talking about this later today in more detail as well. It provides fun, interactive challenges for our customers to help them develop saving habits and also see the impact of small actions that they can take every day to reach their specific goals. Then again, 2 weeks ago, we launched, we are in pilot now with what we call predictive banking. What we do in predictive banking is we leverage AI and machine learning to look at the cash flow patterns in our customer's accounts and then give them pointers and insights. Like we could go to them and say, "Last week you spent a lot more on Starbucks than you usually do. You may want to pay attention to that." Again, we are going to go into more detail. Steve Ellis is going to be talking about these examples later today. Not just what they are, but how these kinds of tools can impact our customers' lives and change how they think about their financial behaviors as they move forward. Expanding and integrating our distribution. As you all very well know, we already have an extremely strong distribution network. Mary talked about it. Our customers use all points of contact with us. But we know that customers have been shifting the way they think about where, when, and how. We work very closely with Mary and her team to be proactive in our strategy, in our execution, and in our delivery to change with our customers. Many of the questions that you posed to Mary really speaks to that as well. As Mary said, it used to be that the only way to be convenient as a bank was to have a branch in a neighborhood. Now, whether that was just across the street or within a couple of miles. Then it was having an ATM on the corner. Then it was having 24/7 access through the phones, online, and now with mobile banking. But now, convenience means all of those things, and it is also about us going to our customers where they are, whether it is in their car, on their watch, in social media. We know that one place that our customers are is Facebook Messenger. It is already a platform for businesses. Each month, there are 2 billion messages that go between businesses and consumers in that platform. It is still the very early phases of adoption of messaging for financial services, but we are leading the industry with the launch of our AI-driven chatbot pilot, which we just announced within the last couple of weeks. This is a lot more than a generic chatbot where we could answer customers' overall questions, things like, "Where is the closest ATM?" or, "Where is the closest branch to where I am?" But it also, in addition to all of those generic answers to generic questions, we create a secure connection with a customer where we could provide them with very specific information about their account. They could ask us questions like, "What is my balance? When is my next credit card payment due? How much did I spend on groceries last month? How about 3 months ago? How about in December?" You are going to see a demo of this and a pilot of this later this afternoon as well. It is very powerful. When you look at the digital experiences that we are building, the ones that I mentioned as examples, the ones that you are going to be hearing more later today, these are clearly designed for customers to use directly, but they are also designed for our team members to use for customers. That is the partnership that we are working very closely with Mary and her team. A couple of examples, again, I could give you. Customers can start a financial health savings consultation on the phone, and then they can make and track their progress at home using the Daily Change app that I just talked about. The digital advocate pilot that Mary talked about, that is being rolled out within the branches. With that pilot now, our customers, when they walk into a branch, our team members can sit down with them. They could help them demo some of our tools, set them up, and help them get comfortable with using these digital tools as they go to other places. We truly believe that it is this seamless channel experiences that we are delivering that is going to be unique, and that is what would deepen engagement. It would grow relationships. It would help us also lower our servicing costs. Building a platform for innovation. We all know that each and every one of these experiences that we deliver for our customers involve technology. As one PVSI team, we have an opportunity where we could invest in these technologies and emerging tools as an enterprise with all of our businesses in mind. Now, I would like to actually highlight a few of the technologies that we are building at enterprise scale, because we believe that these create game-changing experiences for our customers across every business at Wells Fargo. Advanced authentication, it makes security simpler and stronger. It is the engine that powered our cardless ATMs across our entire network. We believe also that we are a leader in biometrics. A year ago, at our last Investor Day, we talked to you about eye vein authentication that we were doing as a pilot. It is now rolled out within our Commercial Electronic Office. Voice print and voice authentication is being rolled out within our contact centers. Thumbprint, fingerprint, you use that all over Wells Fargo right now. So lots happening in biometrics and advanced authentication. I did mention APIs, and again, Danny Peltz is going to go in a lot more detail at our panel later today. We think that is one of the most powerful and game-changing technologies available. It would help us to seamlessly integrate our services in our customers' environments and in third-party environments. As importantly, it would allow us to bring third-party services into the Wells Fargo ecosystem. One that I am really, really excited about, artificial intelligence, is becoming more and more the brain of personalized experiences, underwriting, fraud management, creating experiences that would help us automate what we do within our operations groups and back shops. We are building within my team, within PDSI team, we are building a core AI platform that we could use across the company. This would help us accelerate our journey here and our efforts, integrate it in a very additive way, and also help shape our data and our services and our experiences around the customer. We are collaborating more and more with other companies, and one of the recent ways that we are doing this is through the relationships that we are building through our Wells Fargo Startup Accelerator. Through this program, we take an equity position of up to $500,000 in emerging technologies, and what it has already done is spur innovation as we connect these companies with all of our business leaders across the company. As importantly, it helps us accelerate the speed with which we bring emerging technologies into the Wells Fargo ecosystem. We also help the startups. By working with a company like Wells Fargo, they learn how to quickly commercialize and make their offerings ready for the enterprise market. Some of the experiences that I touched, and you are going to be seeing more later today, are powered by some of our Startup Accelerator alumni. In the next couple of weeks, we are going to be ready to announce our newer participants. As I close, again, I want to emphasize that these experiences are more than just images and screenshots and visions of the future. They are all real. They are either in production now, they are in pilot, or they are coming in the next couple of months. You are going to see more of that in the last segment of today. Again, I am super excited about our group, about our company, and with the work that I just gave you some introduction to, I am really confident that we are going to be the ones that sets the bar for the future of financial services. With that, let me pause and- Great I think we have Q&A time now. Thanks, Avid. We have about 10 minutes Q&A. So same drill. We have Tanya and Amy. So questions for Avid. Tanya up front, I see. Thank you. Hey, Scott Siefers with Sandler O'Neill. Can you talk specifically on the credit card product? Mostly because it has been the most visible fallout from the sales scandal in that a couple of years ago it was the easy market. Not easy, but it was the clear market share grab where you were very under-penetrated. You had a few years of excellent growth. However, with cross-sell having taken a step back, it is the area where we are able to see a more visible slowdown than in other products. So maybe as you kind of incent your employees to sell, what is sort of the how and why, and then what is the appropriate growth rate of that business for Wells as we look out kind of once the dust settles? Sure. Thank you, Scott. Great question. I would say, and Mary talked a lot about this, I think there is a couple of things going on, and clearly, the model within the branches has changed. So our biggest distribution of credit card was the branches, our legacy model that we have been changing over the last couple of years. But 5 years ago, 4 years ago, is primarily to offer our credit cards to the deposit customer base, and our scorecards were primarily based on flows in the debit card, which really created an extremely profitable, high margin, high ROA portfolio. Last couple of months, last 6 months, with all the changes happening in the branches, one, in terms of their compensation, in terms of training to really change the conversation and dialogue with the customers. Now, a lot of that is coming back on track, and we're working very closely with Mary and her team in terms of training and being available to our branch team members around offers and all of that. The second piece is that we actually did stop marketing for card for a couple of months, and we're just picking that up. We are seeing stronger account opens in March and April. I think that has been clearly a factor. In the digital space and extending beyond the deposit base, we are continuing to make the investments, but we are being very methodical. We're being very disciplined. We're not rushing ourselves to do things faster than what we would have done otherwise. As we move forward, we expect that a lot of the experiences that I talked about here, we are going to deploy those for our card customers, using APIs to be in third-party sites. Having the ability to issue a credit card in the digital space in a customer's wallet instantaneously, so they could start using that card instantaneously. We have been doing a lot more around our activation programs, which is why you see, despite the fact that new account opens have been significantly lower, but the portfolio has been growing at a 7% increase in outstandings. It's not that 10% we had two years ago, but it's still a very strong growth rate. We expect that as the branches get more comfortable with the new comp system and the more consultative sales approach, as we increase our marketing, as we bring more digital capabilities to the market, that will accelerate our rate of growth. Okay. In the middle here, Avid. Thanks. Hi, Ken Usdin from Jefferies. Avid, can I ask you a little bit about the merchant business? You mentioned on one of your slides you are number 2 for e-commerce, but there is a lot of changes happening on the traditional side. The first part of the question is just, can you talk to us about how you see the evolution of the merchant business from a growth potential perspective? The second part of it is, some of your peers have tried to connect the end-to-end chain in terms of consumer, merchant, and then also the network side. Right. Can you talk to us about how you are addressing that solution, and would you want to be bigger in the network side of the business? Sure. Great question, Ken. We have been implementing a lot of change in the merchant business. Used to be part of community banking. It is now with Danny Peltz, part of my team. What we have done is clearly a lot of the changes that Mary has implemented in the branches we have implemented with the merchant business in terms of comp plans, incentives, performance management. A lot of that kind of change we have applied to the merchant business. But we brought focus to merchant by actually organizing our sales team across three segments. We now have a sales team that is specifically focused around wholesale customers. We have a team that is specifically focused around business banking and works very closely with those teams, and a team that works very closely with branches for the very small merchants, the sole proprietors, the customers who tend to approach more their business as a consumer than a larger business. We are starting to see some great results. We are also bringing a lot of. We do our merchant business through a partnership with First Data. What we have been working with First Data in the last six months or so is to very proactively integrate our banking services into the First Data platforms like Clover. Clover becomes the place where the customers go not just for merchant processing, but to also do their banking with Wells Fargo. Our approach has been a lot of integration with our banking products and services in the merchant space, more so than it was a year or 2 years ago. In terms of the closed loop question, our view is that we are not going to be the proprietary. We are not going to create a proprietary closed loop. As I mentioned, we want to be in any wallet. We want to be in any ecosystem. Wherever our customers want. We do not want to be the player only when we have the card side and the merchant side of that payment. Our strategy is to be everywhere, ubiquitous, and leverage APIs and some of the technologies that I talked about to be in others' wallets, in our own wallet, in other digital ecosystems. We think that is basically where consumers are going, and we want to go with the consumers. Up front with Betsy. Hey, Avid. Quick question on predictive analytics and how you are finding bank customers enjoy that experience coming from a bank. I realize that there is a lot obviously going on with their consumer lives with predictive analytics suggesting songs to buy or shoes to buy or whatever, but how do you find consumers like or do not like predictive analytics coming from their bank? No, it is a great question. We are in pilot, the predictive banking, and again, Steve Ellis's panel this afternoon that we are going to go to actually show you the experience because once you see the experience, you could see the power of how we make that information available to customers. But in our pilot so far, it has been solving very positive feedback. We think that it is going to be well received, and actually, frankly, better received by a bank because customers expect that we know what is happening in their checking account, what is happening with their debit cards, with their credit cards. Our view is that it is going to be better received, and we are in pilot, and we will keep you posted as we learn more. Looks like we have time for one more with Jimmy Hanna. Hi, Avid. How are you? It's Jimmy Hanna. Very impressive presentation. All the different investments you guys are making, all the capabilities you've created. I guess from my perspective, and I love that you guys are doing all this, but what are some of the deliverables that you're going to hold yourself accountable to the group in terms of is it revenue growth? Is it getting things more efficient? Are there financial targets that you can point to, or how are you going to judge yourselves 2 years out? No, Jimmy, it's a great question. I said several times that our structure is very unique in that our team is not just the innovation team. I have the P&L for deposits. I have the P&L for credit card. I have the P&L for treasury management. I have the P&L for merchants. The outcome, we're not just doing things to be fun and innovative and have great things that we could talk about. We are doing these things to drive real business results, and we think that the way to drive real business results is to have customers who we understand their needs, we're right there for them, we're offering them exactly what is it that they want in the moment. We're really starting with a customer and say by understanding what their needs are, and then using technology and digital to deliver on those needs, we need to see real business results. We need to see that we have more balances, all the metrics that Mary's using at Catalyst, who runs our deposit business, is part of my team. We have to see Jim and John keeps us accountable for driving growth in our deposit base, driving growth in our cards outstanding, driving growth in the payments that we process for our merchants. We're not just doing this to be cool, even though it's really fun and cool. Thank you. Thank you. Oh, let me introduce Franklin Codel, our next speaker. Thanks, Avid. All right. Well, good morning. Great to see all of you here in the room, and thank you for those that are joining on the webcast. I am honored to share my perspectives on behalf of over 40,000 consumer lending team members that work every day to help over 14 million of our customers achieve their financial goals. As Tim mentioned earlier, we have a number of businesses in consumer lending, obviously the mortgage and home equity businesses, student lending, unsecured credit, and the auto business. This is a very exciting time to be in the consumer lending business, and there is a lot of innovation going on, and I want to share some of that with you today, and a lot of opportunities to build on the successes that we have had in these businesses through the years. Today, there are four primary areas that I want to make sure that I share my perspective on and cover in some depth for you. Number one, I will touch on the impact of the sales product issues on referral flows into the consumer lending businesses and portfolios. You can see that information here shortly. Number two, I want to do a little bit of a deep dive into the auto business, so you understand our strategies there, as well as recent trends in the business that we are seeing, especially related to changes in our credit policies. Number three, I want to talk about how Wells Fargo home lending is positioned in the purchase market that we are heading into here and how we see sources of growth in the home lending business. And number 4, I want to talk about some of the innovation Avid touched on and how that's going to be coming forward in the consumer businesses, specifically in the mortgage business here this year and into the future. So with that, we'll go ahead and jump in. The consumer lending business, as I mentioned, is comprised of 3 main areas, the home lending business, the auto business, and unsecured lending businesses. In each of these segments, we have market-leading positions. Clearly, we're the number 1 mortgage lender and servicer, and we have very strong market positions in the auto business, student lending business, and other businesses here as well. Additionally, we have substantial balance sheet investments associated with each of these businesses where we add loans to the balance sheet, and I want to talk about those trends as well. Looking at our volume and originations, moving from left to right across the page here, the first segment is mortgages that we originate and sell into the secondary market. These are originated for sale, primarily through Fannie Mae, Freddie Mac, FHA, and come through gain on sale, which many of you monitor trends on. We also originate home mortgage and home equity for portfolio for our balance sheet. These are jumbo originations, so loans above the conforming loan limits, high balance and high jumbo loans, as well as home equity go on the balance sheet. The auto portfolio we originate for investment are auto loans through our dealers as well as through our direct originations. You can see the split there. And of course, the unsecured lending also goes on the balance sheet, split between student lending and personal lines and loans. So again, you can see the difference between what we hold and what we sell. Also, I want to remind you that the first 3 columns there from left to right, mortgage, home equity, and auto, are all secured lending. So the only unsecured lending is in the very far right. And that's very important when it comes to looking at our credit profile. Additionally, we have stable balance sheet balances associated with these portfolios. We have a good mix between residential real estate and non-residential real estate. And the mix has shifted over the years as the higher risk, higher yielding legacy portfolios have run off. John touched on that a little earlier in his remarks. We'll continue to see that trend play out as the portfolio mix shifts a little bit with the legacy portfolios running down. One of my favorite slides, this takes a look at our residential real estate portfolio. The gray section of the bar chart is the pre-January 2009 book, which includes junior lien portfolio, Pick-a-Pay portfolio, and other legacy portfolios. You can see that's been running down at a steady rate and replaced with the red bar, the higher quality new originations post January 2009. The new book has high FICOs, average almost 790 FICO, average of 60% loan-to-value, and has full documentation. And if you look at the little box, in the last few Investor Days we've shown you, the amount of loans that have gone delinquent is literally only just over 500 loans. Over 330-plus thousand that we've originated in the last few years are ever 60 days past due. The old book includes loans that, again, are pre-2009, so they have different credit characteristics associated with them. You will notice that the level of residential real estate has been relatively flat over the years as we have moved, again, as the old portfolios liquidate off and the new portfolios come on. The result of that has been the mix of concentration of residential real estate has steadily dropped over the years as a portion of Wells Fargo's total balance sheet from roughly 25% to now around 16%. Sales practice impact. If there is one thing I want you to take away from this slide, it is that the overall impact through the first quarter was about 3% on our volume. So of the volume originated in consumer lending, we estimate around 3% reduction due to reduced referral flow from the community bank or other impacts associated with sales practice. However, it is not uniform across all the products. We see essentially no impact in the indirect auto business or the mortgage correspondent business on one hand. On the other end of the spectrum, the businesses that relied on the community bank as more of a primary distribution channel, that would be the personal lending and home equity, see bigger impacts. So 3% is the impact so far. It appears to be stabilizing. We will continue to monitor closely, and of course, we work very closely with Mary Mack and her team as she continues to evolve the bank selling model and make sure that we are properly positioned with her team, often co-locating in the branches and helping them with their customers and clients. When I look at our consumer lending strategy going forward, I just want to raise a couple things that I will be highlighting here later in my remarks. One is the power of Wells Fargo data combined with the digital interface, especially digital application, can and will create a know me customer experience. It is very important to highlight that it is the mixture of the two together that can truly create a differentiated Wells Fargo experience for our customers. Our teams work very closely with David and her organization to bring this to life, and we look forward to sharing more information about that with you later today. Deepening relationships is very important. I talked a little bit about the community bank and the importance of that relationship. I also want to flag that we work very closely with David Carroll and his team in the Wealth and Investment Management group to make sure that we are working with the wealth partners, the Wells Fargo Advisors, to partner to not only deliver customers that have financial advice needs in the affluent space to the WIM group, but also to be there to serve them, especially around their home financing needs. There is a tremendous track record of business relationship there, and that is a combination of being able to meet those customers where they want to be met, as well as having a local market presence. In the manage risk and drive efficiencies, there are efficiency opportunities, especially related to how we use data through our process that I want to flag, and how we are working to bring data in to replace documents that we get from customers. There's a tremendous amount of inefficiency when we get documents from customers and have to input the data, translate the data, et cetera, versus getting the data directly from the source. That will be a driver of efficiency improvement, and customer experience for our business. I also want to highlight across all the consumer lending businesses, prudent credit risk as part of our risk management discipline, and especially proud of our credit results right now in this part of the cycle. Shift gears and talk about the auto business. Pardon the pun. If there's one thing that I want you to take away from my remarks around the auto business, it's that we are very committed to the auto lending business. It's a very important business for our customers and for Wells Fargo, and it's a business that we're making a lot of investments in to strengthen and invest in the business for the future. As a reminder, our auto business, we get the majority of our production through working with 14,000 dealers, to buy closed loans or work with the dealers as they source the paper. About 70% of our loans are made to consumers who are buying used vehicles and about 30% new vehicles. We have a small direct auto business for our Wells Fargo customers who work with us in that way. We also provide for the dealers commercial services. By that I mean financing options for floor plan inventory. We also work closely with Perry Pelos' team and other parts of Wells Fargo to bring other services to the dealers, such as treasury management, investment banking, and even for the dealer owners, wealth management services. So it's a terrific way to not only help the dealers sell cars to consumers, but also to help the dealerships themselves be successful businesses in their own right. Looking at the auto business from a credit angle, we've been observing industry trends, recently, around declining used car vehicle prices. We've observed extension in industry repayment terms. Some lenders have gone to 84 months. We've observed lenders going deeper down the credit spectrum. The industry stresses were beginning to become evident to us. We wanted to take very clear action to stay ahead of the curve when it comes to prudent credit risk management in this business. You can see from the left-hand chart that our delinquencies tend to be typically lower than industry average for 60-plus days past due. Looking at the right-hand chart, our charge-off rate has been steadily increasing. While it remains at relatively low levels, it has been starting to climb, and it was very important to us to continue to be very prudent when it comes to credit risk because we see trends in the industry and the cycle that we wanted to stay ahead of. The result of the actions that we've taken, dating back several months into the third quarter of last year, has been a series of steps to fine-tune our credit policy to make sure that we're comfortable with the risks that we're taking and putting on our balance sheet from an investment point of view. You can see from the left-hand side that it has impacted our volume and our market share. I want to be clear, we always take the long view here when it comes to originations, especially on our own balance sheet. This is another example of where Wells Fargo was willing to give up volume and share in order to protect its balance sheet from credit risk. Our volume is down about 30% in the first quarter of 2017 from the peak, which was in the second quarter of last year. One of the outcomes has been, the percentage of business we are doing that is non-prime has steadily dropped through the last few quarters, and is likely to drop again in Q2. On the right-hand side, you are seeing the results of that has been our portfolio has started to shrink. The auto portfolio tends to have a pretty short life to it, typically in the 2, 3-year type window. We saw the portfolio decline in Q1 as John noted on the earnings call, and we expect to see the size of our portfolio decline in 2017. Credit is not the only area that we are looking at strengthening the business. There is a number of opportunities to adjust and strengthen the operations in the business through standardization, driving a more consistent customer experience, and centralization. Some examples, we are expanding and will continue to expand the usage of automation in our pricing, in our credit decisioning, and there are some operations that have been decentralized that we intend and we will bring together into more regional hubs. Not only to allow us to get efficiency, but more importantly, to provide a more consistent consumer experience, especially during the servicing lifecycle of the auto business. It is our aspiration to deliver best-in-class customer service for our 4 million customers who have auto loans with Wells Fargo. I was also really pleased that just a few weeks ago, I announced Laura Schupbach, who is a 22-plus-year Wells Fargo veteran and is sitting in the back of the room, as the new head of the dealer services business. Hopefully you guys will get a chance to meet Laura here during the course of the day here today. The auto business, just to wrap it up, is a very important business for Wells Fargo. It is a vital business to meet a key customer need about financing auto transportation, and it is a business that we are making a lot of investment in for strengthening the business for the future. Onto the home lending business. I have had the opportunity to be associated with the mortgage business for over 25 years, and no, I did not start when I was 12. Honestly, I have never been more excited about the auto business, or excuse me, the mortgage business. Now is a very interesting time in the history of the mortgage business, with the level and pace of innovation that is coming forward. It is changing the customer experience, and it is changing the way the business can be designed. As a reminder, our mortgage business, we have a very large mortgage distribution network I consider to be one of our competitive advantages. We have about 8,000 home mortgage consultants in markets all around the country and in centralized sites that work with customers over the phone and internet. Real estate is local, especially when it comes to the purchase market, to be present in the local communities. For Wells Fargo, it's also very important that we take advantage of opportunities to co-locate our team members with other Wells Fargo businesses. As I mentioned, the community bank, for example, where we co-locate frequently with the community bank. We also have a correspondent business, and there we work with about 900 clients, and it's just about half of our business comes through this correspondent network. We have the portfolio, which I mentioned earlier, and we also have a servicing portfolio of about $1.5 trillion, of which about $1.2 trillion is serviced for others. A quick peek at the credits. John mentioned our loss trends earlier. You can see on the upper left-hand chart on our jumbo real estate one to four portfolio. First mortgages there, our loss rates are effectively zero and have trended down nicely. On our junior lien portfolio on the right also continued strong trends. Clearly, the housing market is very strong, but also underwriting is very strong right now and has been for many years. We're seeing both of those converge here to deliver very strong credit performance. When you look at our servicing book overall on the lower part, we see a continued trend down in overall delinquency and foreclosure rates over our entire servicing book. We're at levels now, delinquency and foreclosure rates that are lower than they've been in over 10 years and are below historical averages. This is very important, and it provides us opportunities to streamline our operations as we have just less units of loans in the default queues and less loans that are in the foreclosure process. This will be one of our efficiency opportunities moving forward. Let me talk about the mortgage market overall. The total market in 2017 on the origination side, we're expecting to be down by about 20%. If you look at the bar chart there, you'll see that the refinance market is expected to fall as rates have risen in recent months, and obviously that number will move around depending on the rate environment, but we're expecting the refinance market to be down sharply from 2016 levels. The red part of the bars point to the purchase market. The purchase market has been steadily improving for the last few years, and we expect it to be strong in 2017 as well and show growth. There's a lot of evidence that the housing market will be strong this year, so it's very important that we be able to be effective in both markets. Let's take a look at our overall market share. When we look at the mortgage business, we are very well positioned to be successful in the refinance market as well as the purchase market. It's maybe a little hard to see on the screen. If you look at your hard copies, you'll notice that our purchase business, which is on the lower part of the stacked bar, which is about 55% of our business last year. Our purchase business alone is bigger than any of our competitors. As the market shifts from refinance to purchase, we feel like we are very well positioned. When we put that together with our strong distribution model, real estate is local. Being present in those communities is important to being successful in a purchase market. There is a lot to feel good about as we head into a very strong purchase environment this year. When I think about the mortgage business and our path to future growth, there is going to be two main ways that we are going to grow the mortgage business. One is earning more of our existing customers' business. That is our existing mortgage customers, our existing Wells Fargo customers who are in the market buying a home or wanting to refinance who do not have a mortgage with Wells Fargo. That is where the partnerships with the community bank, with David Carroll and the WIM team are so important to earn our future customers' business. I will talk a little bit more about how we are going to affect that with the digital application as well. The purchase market is going to be a huge source of growth, especially with the first-time home buyers. If you look at the charts on this page, on the right-hand side, this is the number of people in each age cohort in the U.S. And the group that is shaded in red is the population of citizens of our country who are entering peak home buying years, between the ages of 25 and 34 years old. This cohort, which I will call millennials, is actually larger in number than any other cohort in the history of our country, bigger than the baby boomers were in the 1970s. This is going to be a population of people who are entering the years where they form households and where they want to enter home ownership. What is interesting about this group compared to other groups is the segments of the groups that are the largest are diverse. You can see on the pie chart on the left there that about 60% of this group is either Hispanic or African American. To truly be successful with this young, fast-growing demographics, not only do we have to be very relevant when it comes to how these customers like to interact with lenders using mobile and digital technology, but we need to be relevant in the communities where the growth is occurring at the fastest rate. It is about having the right combination of outreach, advice, and digital technology. What have we done about it? We are the only lender that has made strong commitments to be very visible in these communities. We have forged partnerships with organizations like NAACP, NAHREP, the National Association of Hispanic Real Estate Professionals, the National Urban League, and made multi-year lending commitments for these communities. In the case of African Americans, $60 billion, Latino community, $125 billion over 10 years. We've also partnered with these groups to fund outreach and education efforts to try to help those almost ready-to-buy homeowners become confident homeowners in the future and meet them in the markets where they are. We also made commitments to expand the diversity of our team, because to be successful in these communities, you have to be in the community and of the community. These are ingredients for growth in the first-time homebuyer space, especially. But partnerships alone aren't enough. It also takes outreach, and it takes having the right products and programs. I'm really proud to say that almost exactly a year ago, we rolled out a program called yourFirst Mortgage, which is a low down payment program in partnership with Fannie Mae that provides financing for as little as 3% down, coupled with financial education and home ownership counseling. We're hitting the one-year anniversary. We funded over $5 billion to date in this program and helped over 25,000 people become first-time homeowners with this industry-leading program. We've also continued to run our NeighborhoodLIFT events, where we go into the local markets and bring people together and help them understand the steps to become successful homeowners and help them realize the dream of home ownership and the intergenerational wealth opportunities that it creates. Very strong commitment to these markets, and I'm feeling like we're in a very good position. Now let's talk about the age of the consumer and how digital is expanding. Clearly, more and more Americans own a smartphone, and many people are going digital only. Increasingly, people are starting their home buying and financing process online, doing their research, and the lenders that are there providing online information, pre-application, application, and pre-approvals. The first one there typically to provide a valid pre-approval is a lender that typically wins the business about 90% of the time. It's very important to couple the things I talked about on the prior slide with a very strong digital application offering. It's going to be a key driver of lender selection for home buyers. Avid mentioned some of the things that are being worked on around digital account application. I want to raise this notion of multi-channel experience. That's about having consumers maybe start online and then begin interacting with us over the phone or interacting with us in the local markets, having that ability to seamlessly move between channels. We are also investing heavily in the digital application, and I want to highlight some of that here now. We have, as Avid mentioned, a digital application that's in production. It is live. We're working with customers every day with it. We partnered with a fintech company that Avid mentioned on our slide, Blend Labs, which actually its offices are only three blocks down the street here, to produce and create this digital mortgage application. Later this afternoon, for those of you that are here in San Francisco, you'll have a chance to see it demonstrated. And Michael DeVito, who's the head of mortgage production, is here as well, and he'll be walking you through what that looks like from a customer angle. The customer feedback is fantastic. They really appreciate the intuitiveness and simplicity of it. And it's going to be a key part of our offering as we move through 2017. But over the coming years, I would suggest that a digital mortgage application will become universally something that most all lenders have. The question is, what is going to be different about Wells Fargo's offering? The answer to that question is we have Wells Fargo data on so many of our customers. We have the opportunity, in many cases, to provide a unique Wells Fargo experience and pre-populate a lot of that data, use that data to provide earlier pre-approvals than anybody else can, and provide a different process and a different customer experience than somebody who is not known at all to us. When we think about how we are getting data, as I mentioned earlier, it is about moving away from documents towards trusted source. Leveraging the source data and asking less of the customers is a key part of not only providing a great customer experience, but it reduces risk and it makes things more efficient. We have this waterfall here where, when possible, we will get the data directly from Wells Fargo. We have direct relationships with some other financial institutions. We can get the data from them directly. We can go to other third-party aggregators. You will see some of that again this afternoon. Last, and only if we cannot get it through any of these other vehicles, would we ever go get the data from the customer through a document that they have to provide us. This changes the whole model upside down of how the mortgage industry has been for decades, where the process has been to get documents from the customer and then analyze them. Very important model change for the mortgage industry. You can see I am very excited about how well-positioned for the new home buyer market and the demographic trends that are here and coming in the coming years. How we are intending to use data combined with a digital application experience to position us with what the marketplace is looking for these days and improve our process as well. I talked about our relationships that we are deepening across the enterprise and how important that is, not only in Wells Fargo, but also in the local communities with consumer groups, with realtors, with auto dealers, with other partners, and of course, efficiencies that exist as we bring digitization into our process. In closing, we are absolutely building a better bank for our customers. We are making the right decisions and commitments that are going to strengthen our organization. I have covered the impact of the sales practice to our business. I have shared with you how we are de-risking and improving the auto business, and I have also shared with how well-positioned we are in the mortgage business going forward. With that, thank you for your interest, and Jim, I think I have a few minutes for questions. We've got just about 15 minutes, Franklin. Great. Here we go. Questions for Franklin. Right here, John. Thanks. John Pancari, Evercore ISI. Just regarding the auto business, I know you mentioned that the contribution of non-prime has been coming down. What is the actual contribution to your originations and your outstandings of what you would consider non-prime, in terms of FICO of the borrower? Then secondly, around charge-offs and delinquencies, I know they've been heading higher. Do you expect that they're going to inflect as you're pulling back on the volume, or are they likely still to head higher as severities are getting worse with used car values? Thank you. I'll answer the second part of your question first, which is the way the math works obviously is there's a lag when we originate the loan versus when there might be a delinquency or a charge-off if that's going to happen. As the portfolio shrinks, that's the denominator. We might see the impact of credit tightening is going to be manifested itself later this year and into 2018. Typically, between origination and what I'll call maturation of a portfolio is 12 to 24 months for those vintages to come forward. We'll watch those trends and the changes that we made in the fourth quarter, first quarter of this year will benefit us towards the end of 2017 and into 2018. As far as non-prime, we have a series of buckets that customers come into when we credit grade them, and we have seen, and I showed you the data there of the mix change that has occurred. We are still lending in different cells, but we have enhanced our underwriting process for certain populations so that we are seeing clear demonstration of ability to repay as we make the loans. Sticking with the auto, this is Gerard Cassidy, RBC Capital Markets. What is the current yield in the non-prime portfolio, and what is the current net charge-off rate in that portfolio? Do we disclose, John, the actual auto yield overall? No? Not by bucket of- Not by buckets. As I mentioned, we have different credit grades. Depending on which credit grade you are in, there are other factors such as the age of the vehicle, the mileage of the vehicle that come into play. There is a very broad range of pricing that exists. Clearly though, historically, the non-prime portion of the business has the highest ROA. It also has the highest credit exposure volatility to it, and the super prime and prime businesses tend to have the lowest return, but a much more predictable return to it. As a follow-up, traditionally, it seemed like the auto delinquencies and charge-offs were linked to the unemployment rate. As the unemployment rate went up, those ratios went higher. There has been a divergence recently on the national data. Any suggestions on what is causing the diversions? Is it completely in the subprime bucket? There is a variety of factors that can drive it. You mentioned employment, obviously, is one of them, income confidence, vehicle performance, if you will, and how the cars are maintained. There are a lot of studies out there about what might be driving it. We look closely at our customers, just credit performance, because we can see their bureau performance over time as we look at the estimated losses and how we are going to work with the portfolio. All right. Saul Martinez. Yeah. Do you worry at all about the health of the consumer, especially in the younger age demographics? Because you mention a lot of the growth is coming from- household formation from certain minority groups and whatnot. But if you look at the overall indebtedness levels in the U.S., it's come down, but the breakdown is sort of differentiated. You've seen student debt move up, obviously auto debt move up. Younger demographics have a lot more debt and have levered up, and that's precisely the demographics you're targeting. How do you think about that, and how do you square that away with your strategy? Yeah. I'm glad you highlighted student debt. There are certainly parts of that population that have a lot of student debt, and it's one of the issues that we need to make sure we solve as a country. We have been, for example, working with. I know Fannie and Freddie have been thinking a lot about student loan debt as it comes to looking at capacity for potential home ownership. How do you think about deferment? How do you think about refinance options on that student debt? Like every generation, people learn about how to use credit and how to manage their finances. I think some of the tools that Avid and Mary showed you can be very helpful for our younger consumers who are learning about things like their FICO score, learning about how to budget appropriately, how to manage their credit, because it's getting a lot easier to get access to credit because the digitization is reducing the friction, which is very positive. But it also means the responsibility is there on the consumer to make sure they understand the credit that they're looking for. Other questions? Anything else from- Yeah, we got one- Betsy? Yeah, Betsy here. Group's getting hungry. Hey. Just a quick one on auto lending. You mentioned that there was some shrinkage in the first quarter, obviously, and that that will continue. Can you just give us a sense, is that the same kind of pace that we should expect, like a 3% decline Q1 Q over the next until the portfolio adjusts to what your new underwriting standards are? Yeah, I think, you can take a look at, as we report our volume trends each quarter, we can see whether the impact of the credit tightening is having other effects. But that portfolio, as I mentioned, typically has a pretty short life compared to mortgages. So, assuming that we see the level we have, that portfolio should decline the rest of the year at a pretty predictable rate that we're seeing. So think about it as our market share and origination and our portfolio are going to continue to converge. Sir. Got one more in the middle, so- Got a couple more there. Yeah, it was Ken. Yep. Who's got a bigger arm? There we go. Question on the mortgage business. As originations do shrink, how do you anticipate just broad industry capacity will change, and how do you think that will affect profitability gain on sale margins? Yeah, certainly in the first quarter, we saw more pricing competition in the industry. We are seeing it, and usually when the market shrinks historically, there are a couple phases to how the industry reacts. The first phase is pricing competition. The second phase is capacity diminishment, both sales and what I will call operations capacity. Then in some cases, there is for particularly organizations that are monoline production only, there can be sometimes a capitulation because we benefit, for example, Wells Fargo, from having originations, portfolio, and servicing. There are revenue streams that come from all parts of the business, which gives us a chance to continue to invest in the business in down cycles, whether that be innovative technology or other capabilities. It affords us more staying power for the long term when there are stresses in the production side. We will see how it plays out this year. Right now, we are headed into typically the time period we are in now through the early fall is the peak purchase season. The volume opportunity in the marketplace in general is stronger than it is in the wintertime, typically from a purchase market. Can I just ask you a follow-up on that? Yes, sir. To follow up just on that servicing point, because one of the things Wells has always enjoyed is that kind of macro hedge, the balance between production and servicing. Yeah. But the servicing book continues to shrink, too, and as originations do, that will continue. I guess where is the balancing point between where rates move and you get that true balance between production revenue and servicing? Ideally, the share of production, in other words, call it the sales capacity that we have, would roughly match the share of our servicing portfolio, so that if rates went down, we had enough capacity to capture the runoff of the portfolio. Clearly today, our origination market share is below our servicing market share. So there will be some natural drawdown there. That said, I would like to see that portfolio stabilize and ultimately start to grow again, because that is about customers. Our servicing book, yes, it is an MSR asset. Yes, it has a yield. We do a nice job hedging the interest rate risk and have for years. But at the end of the day, it is customers that we can work with, both with their home needs and other financial service needs. So it is very important to me that that portfolio stabilize and start to grow. I think we have time for one more. Marty. Marty Mosby, Vining Sparks. Hi. Following on that question with the servicing portfolio, the valuation has been subdued because of the expectation that prepayments would stay elevated. Typically, after you go through a refi boom, you have refied most everybody, so when rates start to move up There's nothing that's eligible to be refied. We still have a large portion of the portfolio that's still above the market rate. The models keep thinking they're going to prepay when they're not. To get the macro heads that Ken was just talking about, you have to be able to revalue the portfolio, but the models won't let you do that because they're still assuming that they're going to prepay. At what point are you going to disconnect the historical model with real facts of what's happening right now? I would suggest that the primary driver of servicing value changes more recently has been the elevated cost to service loans, not prepayment delinkage, as you said. There are customers that a model might say should be eligible to refinance that are not taking action. There may be a number of reasons for that, and the models are actually very good at finding that data in the data. I look at, over the last few years, the steady increase in the cost per loan of performing servicing, and especially of default servicing, which has gone up orders of magnitude. That's part of the cash flows of the valuation has been a key driver in all else being equal, servicing values being lower. We have taken a number of adjustments, and we've disclosed them over the years to compensate for changes in the servicing cost structure as well as the cost of foreclosure and so forth in the servicing models. Then the easy way to be able to really tell is in net profit that you get from your servicing portfolio. How many years are you assuming that that stays around to validate the current valuation? Well, I'd say servicing life, the mortgage-backed security market does a nice job of projecting average duration. Duration of mortgage-backed security is the same as the duration of servicing, if you will, from how long are the customer is going to be in the portfolio on average. As far as the profitability of servicing and the yield thereof and the break evens, I'll leave that to you to figure out. Jim. We're good, Franklin Codel. Okay. Thank you very much. Okay. Thank you. So very quickly, thank you. It was a great morning. We have a lunch break now for an hour. So a reminder for our guests, lunch is straight out on the patio in the back. Open seating. Each table will have two to three hosts from Wells Fargo. So for the Wells Fargo team, if you're a host, you'll see your table number on the back of your badge, and for others, we have Wells Fargo designated tables. So same drill. Enjoy lunch. There's no presentation during lunch, and we'll see you back here at 12:30 sharp. Thank you. Déjame adivinar. Dejaste tu billetera en tus otros pantalones. [Foreign language] Sí, necesito dinero ya. No puedo llegar tarde al juego. [Foreign language] No hay problema. Puedes usar tu app de Wells Fargo para retirar dinero de nuestros cajeros automáticos. [Foreign language] Oh. Sí, mucho mejor. Muchas gracias. Ya sabes, el equipo la verdad me necesita. [Foreign language] Claro que sí. No, es que en serio, sin mí no pueden ganar. Oh. How can I help you? Have you ever walked into the paint store feeling like you should really know more than you know, like satin versus semi-gloss, and I don't know. Yes. I know the feeling. That's how I feel right now about all of the financing options for this project I'm doing. I feel like I should know more than I know. Don't sweat it. We have this new tool, My Credit Options Guide, that gives you a customized comparison like this, which helps you discover which credit options might be right for you. Oh, this is better. They should make one for paint. Want to get started? Sure. Here we're constantly working to make our security even better and stronger to help keep your finances safe. You familiar with fingerprint sign-on? Yes. Over there we're exploring eye scans. And over here, voice recognition. Hello. See? It recognizes me. I'm going to be my own password. Exactly. That's biometric security. That's much better. Now I have to take good care of myself. Okay, I have to renew my gym membership, get back into yoga. No more pizza for breakfast. ¿Puedo practicar mi español contigo? [Foreign language] Por supuesto, señor Robinson. [Foreign language] Transferencias, pagos. Todo suena mejor en español, ¿no? [Foreign language] Pero qué bien lo habla. [Foreign language] Hasta cambió su app de Wells Fargo para recibir algunas alertas por teléfono móvil en español. Así practica y está al tanto de sus cuentas. [Foreign language] Qué bien. ¿Y en qué más les puedo ayudar hoy? [Foreign language] Quisiéramos abrir una cuenta conjunta. [Foreign language] Sí, una cuenta eléctrica. ¿Eléctrica? Corriente. Ay. [Foreign language] Quisiéramos abrir una cuenta de cheques. Please welcome the Head of Wealth and Investment Management, David Carroll. Good afternoon, and let me add my thanks to all of you for being here and for your interest in Wells. I hope you enjoyed your lunch and sauna. Jim, one of our investors suggested next year that we include welders' goggles with the lunch. A little bright out there. I really am excited to tell you, or give you an update on our wealth and investment management businesses. I really am. These are great businesses for our company that have produced really, really, I think, superior investment results for you, our investors, and for our clients. There are five businesses in our group. They're both retail and institutional. There are a couple of common or unifying strategies that run through them. The first, I'm bad about the clicker here. The first of those common or unifying strategies would be a very, very consistent focus on client outcomes. It's not about selling securities. As much as I'll talk about planning, it's not about that either. It's about creating outcomes for clients, and we'll talk a little bit more about that. Second, we have been very, very financially disciplined, managing expenses, creating efficiencies to fund over $800 million in investment spend over just the last four years. While doing that, we've lowered our operating efficiency ratio by 15% over that same time period. By the way, that $800 million in investment spend in our division came out of our baseline. You won't see a jagged spike in our expenses, and it affords us the opportunity to invest in things like Intuitive Investor that Eddie Queen will show you later this afternoon, our version of a robo-investment platform. The third sort of common unifying strategy is a very consistent emphasis on risk management, avoiding surprises, all of which have conspired to allow us to grow earnings over eight years at a 26% compound annual growth rate. Just a bit of an overview about our businesses. As I mentioned, there are five businesses here spanning the spectrum of wealth, and includes the Wells Fargo Investment Institute. Wells Fargo Advisors has five distinct channels, all sharing a common architecture and platform for technology, risk management, and product. We serve the mass affluent, and high net worth client segments. Our private bank, principally serving high net worth investors. Abbott Downing, serving ultra high net worth families, family offices, foundations, and endowments. Wells Fargo Asset Management, serving both individual and institutional clients. Wells Fargo Institutional Retirement and Trust, providing recordkeeping and asset management services for almost 5,000 institutional clients. These five businesses together, we manage or advise on over $2.2 trillion in client assets, and here you can see our relative ranking and scale in each of those businesses. This is my favorite chart of all time. I have laminated this and directed my wife to use them as place mats at all meals at the Carroll household. I am going to dwell on this, not because of the 26% eight-year CAGR in after-tax earnings, but I am going to labor on it for just a minute because it tells you something about our strategy, about execution, and about how deliberate we've been over a long period of time. We do have, I think, a very good track record of producing results for shareholders and for our clients in this business. After-tax earnings have grown from $529 million in 2009 to over $2.4 billion in 2016. It'll be tough to continue compounding earnings at that level at that rate, but it did continue at double-digit fashion in the first quarter. We were up 14% over the same period a year ago. I want to point out here that in non-interest expenses here, it includes brokerage commissions. Even as commissions have grown in line with sales revenue, we've held our non-interest expense to 2% CAGR for eight years. Sales revenue in the brokerage business have grown at 100 basis points faster than commission expense, and the point there is we've managed very consistently and very deliberately to have positive operating leverage in the biggest revenue line item in our division. If you were to take commission expense out of non-interest expenses, for eight years, we've held non-interest expense growth to 1% CAGR, and we funded those same investments out of that line there, so you don't see any jagged peaks. That emphasis on positive operating leverage has allowed us to improve our operating efficiency ratio from 89% in 2009 to just under 75% last year, and it has funded over $1 billion in investment spend in our division in technology, platform, process, people, recruiting, and development. I hasten to remind you that I probably don't need to, these are inherently by composition, higher OER businesses, but much higher return on equity businesses than our pure banking. As such, I think it's a nice complement to the other great businesses that we have at Wells Fargo. Our strategy over the past eight years has been very deliberate, on another note, and it's been in a meaningful change in our revenue mix. We have decreased our earnings volatility and tie to financial markets. Recurring revenue, principally through our emphasis on advisory asset programs and net interest income as we've broadened relationships and grown the balance sheet, have grown recurring revenue from 63% of revenue to 80% of revenue. Tim also reminded me that we did that at a time when we grew revenue by $4 billion, or about 35% point to point. That's not by happenstance. Given our client base, you would likely expect us to have the lowest risk profile in the company, and we do. Having said that, we have put enormous emphasis on risk management in wealth and investment management. We have a very attractive and growing loan book, just over $70 billion. We have had 15 consecutive quarters of double-digit loan growth with terrific credit quality. But credit quality is not where we would present the greatest risk to the company. It, for us, would be in regulatory risk, compliance, reputational risk, and operational risk. With respect to those, our leadership team has been very intent on raising risk consciousness across the 34,000 team members that populate our businesses. We were an early leader in establishing comprehensive risk metrics for all of our businesses. We established a much more robust risk governance structure, and we moved to the first line, second line of defense risk oversight structure in 2009 that the enterprise has more recently adopted. Mary kind of stole all the thunder from this page, but it is worth repeating. This is the partnership that we enjoy with the community bank. Recall the effort that we have together, now in its fourth full year, maturing to identify affluent households that grace us with their banking business but maintain their investments away. Some 6.8 million affluent households with $2.2 trillion of investment assets. Again, that is not their entire holdings. That is just our equivalent wallet share that we have today. It has been an incredibly good program for us. It has been institutionalized. It is not ad hoc. Through great effort by Mary and the leadership in the community bank, there are formalized roles, responsibilities in terms of handoffs and how they work. We were obviously negatively impacted by the sales practices results, for sure. Mary talked about that. Our 2016 monthly production of closed referred investment assets of just over $1 billion dropped immediately by about 40%. But we are in recovery mode right now, and I am very enthusiastic about this. We are averaging just over $800 million a month in closed referred investment assets, and we have had our first $1 billion month this year. We are adding specialty bankers, and we are adding financial advisors to further round out the effort here. This is not about pushing stocks, bonds, mutual funds, checking accounts. It starts with: what is the client need? The basic construct is that our team members in the community bank have been trained to identify client opportunities with affluent customers and then to bring in the specialists that are able to help meet those needs. It is plan-based, and it is based on that client's financial goals, time horizon, financial literacy, and risk tolerance. I am going to use the word plan a lot because it is so central to what we do. It is a refer-only model. Every sale is approved by a supervising principal. It has been a great source of organic investment growth for our company. Over 60% of the assets that we win in this effort are with customers that are new to investing with Wells Fargo. I know most, if not all of you, invest in other businesses in this sector, competitors of ours. I would love to know of anyone that comes anywhere close to birthing a billion-dollar mutual fund, so to speak, once a month, purely as a result of the interaction of their partners in the company. I do think it is unique. For our shareholders, you can see that these joint bank wealth investment customers are five times as profitable as bank-only customers, and they grow at 2.5 times the rate of our investment customers alone. The truth is, while we are four years in, we are really just skimming the surface. We have so much more we can do here to further learn about this and how to be more effective for our customers. For those of you that have followed us for any amount of time, you know we talk about planning a lot. It is all about customized investment plans. It is our most important single strategy. We have invested in the tools, the technology, the training, and the talent. We have over 500 people between Wells Fargo Advisors, the private bank, and Abbott Downing as professional resources to support the proliferation of planning instruments and putting together the right investment or overall wealth management plan so that our advisors can deliver that customized experience. Planning is critical. Only about 6% of the $36 trillion in assets held by households in this country are in movement over the course of any one year. The more affluent those households are, the less movement there is. Having a plan that is calibrated to that client's goals, time horizon, risk tolerance is critical to growing this segment. But more importantly, it is critical to actually delivering those client results that they need, and it is why we are so committed to it. We have been at this, planning that is, for over a decade. Again, it is our single most important strategy, and it pays huge dividends for our clients and for our shareholders. A bit over 75% of all of our affluent households at Wells Fargo have a customized roadmap calibrated, again, to their circumstances. The client benefits are obvious to us. We deliver definitively better investment results with a plan that has an asset allocation that has been directed and molded by the Wells Fargo Investment Institute. Planned relationships have a far superior growth history than those relationships without it. For our shareholders, the client retention is much better, client loyalty is much better. They grow faster than relationships without a plan. When we are together again years from now, we will also be talking about this very same strategy. I want to shift gears a bit, if I may, and talk about one specific business in particular, and it is revitalizing our asset management business. A couple of years ago, when Tim was running the wholesale division, he called me and said, "Let's talk about asset management." He said, "I think it probably would fit better in your division." It had been in wholesale and prospered and done a great job for our clients and for our company for a long time, but given the regulatory environment, the commonality of issues that we shared with talent and technology, et cetera. So it was Tim's then very selfless act to say, "Let's move that over into your world." So about a year and a half ago, we moved, we realigned Wells Fargo Asset Management to be a part of our division. This is a business that hasn't gotten a lot of daylight, I guess you'd say, in our investor days in the last couple of years, but it's an established business, and we have the scale and the diversity of product, client, and mix to be successful in this rapidly changing world of investment management. We have just shy of $500 billion in client assets. We have diverse strategy capabilities, and we have a very good long-term track record, and I'm very enthusiastic about what we can do with this. In addition to diverse investment strategies, we have a very nice blend of institutional and retail clients. Just as we benefit in Wells Fargo Advisors and in wealth management in our partnership with the community bank, this business also benefits enormously from relationships with wholesale, with corporate banking, investment banking, with all the rest of the company. As you can see here, we have, I think, a relatively good track record from growth. We've had a 15-year CAGR on AUM growth of 19%, and almost half of our assets are with shared relationships from some other part of Wells Fargo. I also would suggest that's probably pretty unique for us as well. In addition to the traditional strengths that we have had for a long time in fixed income and liquidity products, we have a very nice historical performance track record in fundamental strategies, as well as a relatively new genre, systematic or quantitative factor-based strategies as a consequence of a great acquisition we made last fall with Los Angeles-based Analytic Investors, and more recently, our newest discipline, multi-asset solutions. You all know that much of the debate these days in the world of asset management centers on the active versus passive narrative. We tend to think about it a bit differently than that, more along the lines of replicators versus creators, if you will. We think about it that way because we believe that client needs or those client outcomes required don't so cleanly fall on either side of the passive-active divide. Replicators we tend to think of as focused on beta, and they require enormous scale to justify the ever lower and lower fees. Creators, on the other hand, focus on delivering efficient beta and alpha, but priced to reflect the amount and the type of expected return. More focused on client outcomes and risk-adjusted returns. Here you might think in terms of LDI. Over the past 18 months, we have been on a path to strategically reposition this business. Our historical strengths have been in fixed income and liquidity, as I said, and select equity products, although a number of them have been in capacity-constrained strategies. As you can see here, though, we've been focused on rounding out our traditional strengths with four key strategies. First is to build out the systematic capabilities. You can see the outstanding acquisitions that we have done in recent periods. Second would be building out a relatively new multi-asset class capability where we see meaningful flows for those equipped to participate. Third would be investing in team and tools to further improve our fundamental investment capabilities. Last, a heightened emphasis on the defined contribution space and ESG, also where we see flows in the future. This slide gives you just a sense of the progression of initiatives undertaken to reposition this really important business. Almost a year ago this month, we were fortunate enough to attract Kristi Mitchem to join us as the CEO of this business from State Street. She has been here about a year and has had a huge impact. Last fall, we completed the strategy reset. You see the Analytic Investors acquisition. Strategic talent acquisition is very important to rounding out these new capabilities. Nico Marais joined us from Schroders in London to head up multi-asset solutions, and Fredrik Axsater joined us from State Street to focus on strategic business segments, and more specifically, the DC space. Lastly, the Golden Capital buy-in. I am going to wrap up quickly here and go to whatever questions you may have. As you can see, you may recall, we rolled out these targets in 2010, which was Wells Fargo's first Investor Day following the Wachovia acquisition. There is not a lot changed here. We are delivering on these. We still feel good about the ability to generate 4%-6% revenue growth over the cycle. You can count on us to manage to index our expenses to what the revenue environment allows us over time. We also feel very good about maintaining that recurring revenue. It is about where we would like it to be. Customer activity will take us marginally on either side of that. Lastly, we do think 30% pre-tax profit margins are very much achievable. So we are bullish on this business. With that, Jim, we will take any questions. Terrific. Thanks, David. Questions for David? No. While people are Oh, here you go. Ken. Thanks. David, the last couple of years, you mentioned the active, the passive, and then you had the markets down and now back up again. Can you give us some perspective when we talk about the fee side of your businesses, just some of the moving parts. Are we getting past the worst of that migration and the commissions moving to asset base, just in terms of when do you start to see just a better long-term growth path again? The rate of growth has been slowing. It has been good, but just obviously underlying things going on. In all of these businesses or asset management in particular, or brokerage, or all of them? Well, asset management and brokerage, I think- Okay Specifically with that. Well, in asset management, we are about 55 or so percent fixed income, stable value, 25 or 6% money market, and 20-ish%, 24% equity. I don't want to set the bar low, but given the fact that for the past, call it four years, institutional flows have gone 5x into passives as opposed to active and about that same with retail. I feel very good to have been able to hold our own in that space from an AUM standpoint. The strategies that I just mentioned were very deliberately put in place to address where we think flows are going to be and where we think we have a shot at being competitive from a performance standpoint. We're not going to control pricing, but we basically earn, call it 20 basis points on fixed income, 60 or so on equity, and call it 12 on cash and liquidity. And we like that a lot. We are a very logical place for Perry's customers to park liquidity, and whether it is in institutional money markets or on the balance sheet, we are indifferent. We just like it being at Wells Fargo. So in that business, I think you can expect, we do not break out margins by individual businesses, but I expect over time, once these strategies have a chance to take root and show green shoots, we will have some margin expansion just because of the business mix change here. In brokerage, really an interesting story, it is to me anyway. We have been hard at work for well over a decade to make some fundamental changes in that business. The recurring revenue mix was very pronounced there. About 32% of our client assets are in an advisory or a recurring fee. That was up from less than 15% five years ago, and we are pari passu or so with Merrill. Morgan Stanley would be the leader in that place. But net interest income has grown enormously in our broker-dealer as a consequence of our partnership with Franklin and the work we are doing in lending. And we have got the lowest cost, most stable core deposit funding in our broker-dealer sweep. So the margin mix there has changed as well. Somebody asked me at lunch about how awful is the fee pressure, and I cannot remember a time in my career where anybody was crowing about how easy it was to pass on cost to anybody. We have been under pressure for years. You adapt and you change, and we have changed business mix, we have expanded the things that we do with clients, and that is what has caused us to grow our margins to where they are, and it is what I think will take us to 30%. Other questions for David? Over here. Hi. Brian Kleinhanzl with KBW. Just a quick question on the affluent segment. I hear you talk about the opportunity away from you, but how do you actually plan to capture that opportunity? Your competitors are all doing the same things as you are. What makes you different to capture those affluent markets? It's a great question. As they say, it's not rocket science. It's not about strategy. There's nothing proprietary about what we're doing. We don't have any product advantage over anyone. But for all the angst that the company has been through over the last seven or eight months, one of the things that I do think is an enduring differentiator is the way people work together from one part of the business to the other. There's no one that I compete against that has my job, that has the level of inbound help from somebody in the retail bank or from their corporate and investment bank. So when Mary and I both have said that that partnership has been institutionalized, again, there's nothing terribly profound about that. We've got roles, responsibilities, and it starts with can we recognize a client need and then put the right team around them? It's all about execution. Can we replicate that in however many stores that Mary has? Up until Mary took this role, we didn't mine for affluent opportunities with customers who don't frequent our branches. We have an enormous cohort of customers that are adopting digital online and whatever comes after that, telepathic banking, which we'll be a leader in, I'm sure, Avid. I'm not trying to be glib about it, but it's really can you execute methodically, consistently across 1,000 touch points? Can we identify an affluent customer at an ATM and ask a provocative question on college, retirement, how secure they are? We are mobilizing all of those touch points. Again, I have a very healthy regard, respectful regard for our competition. I don't know anybody that's booking $1 billion a month of new investments as a consequence of some other part of the company. They may be trying to do it, but I don't know of anyone that is. Other questions for David? David, we had one come into IR, which was around how you feel about your ability to continue to invest in the business, given the expense initiatives that Yeah John touched on earlier this morning. Yeah. We will generate our share, so to speak, but I go back to my favorite chart of all time, and we do have them laminated in the back if you'd like one. We figured out a long time ago that it would be pretty unfulfilling once a year to go to Tim or the CFO and say, "We need $800 million this year as a one-time," because it's not going to be a one time. We had to wean ourselves onto an investment spend and we centralized finance, HR, marketing, risk, compliance at the division level 8 years ago, and used savings there and further opportunities to combine with other divisions things to create that baseline of spend that I referenced, $1 billion. We have a baseline of investment spend. Ours will come down. We have had two really large infrastructure projects, multi-year, one in brokerage and one in wealth management, who will begin to tail off meaningfully in 2018 and 2019. And so those two projects alone were multi-hundred million dollars each. They will come to an end at some point, and that'll be a big part of our contribution. Thank you. Okay. Other questions for David? No? Looks like we're good, David. Thanks a lot. Thank you. I now introduce my partner, Perry Pelos, who runs the best corporate wholesale bank in America. Thanks. Thank you. Thanks, David. We're almost there. I'm glad you guys got to experience the efficiency compliance lab at lunch out on the porch over there. That's where John and Tim put us if we don't come up with the $2 billion in additional expenses that they talked to you about, and we have to sit there until we come up with a plan for it. If we don't execute on it, they take us back there and they say bad things about us. If you don't think that that's a great way to do it, you can go back out there again and spend more time there, but it's very effective, and I think it's going to work really well. I'm Perry Pelos. I run the wholesale banking group. I used to run commercial banking, and I think I know many of you in the audience, either by having been at these events before or meeting you in your offices. I do make a lot of house calls in my line of work, and that's what we do in wholesale banking, is we're focused on long-term client relationships, being where the customer is and making sure that we listen to them and provide complex solutions to real-world problems that these customers have. We're going to spend a little bit of time talking about the business, and then we're going to take a deeper dive into a couple of things about the business and a couple of parts of our business that you may not be as familiar with based on prior conversations that we've had. So a quick overview, wholesale banking is 10 major business lines, diverse customer segments, everything from business banking up through corporate banking, all sorts of specialty lending businesses, a huge commercial real estate business. We've got 32,000 team members in 627 domestic locations and 42 countries and territories overseas. The numbers you see at the bottom of the slide are first quarter numbers. What I would point out is there are few wholesale banks of size that have our kind of profile of being balanced between deposits and loans, and quite frankly, none that have our profile of customer base and the way that we go to market. These are the only first quarter 2017 statistics that you'll see. The rest of the slides will be focused on annual information, most of which you've seen before. Wholesale banking represents about a third of the revenue of Wells Fargo and just under 40% of the earnings of the company. The great thing about my job is we wake up January 1 and as long as we take care of customers and we go to market with the same strategy we've had for a long time, most of our revenue is recurring. That doesn't mean it's easy, but it means that we're tied into the basic day-to-day operations of our customers. We make a lot of money doing things like lending, treasury management, trust services, foreign exchange tied to their day-to-day operations as opposed to having a big trading book of things that we do. All of these things are tied to the economic cycle. They're tied to customer day-to-day activity, and as long as we manage the relationship and meet the customer's needs, we have an opportunity to earn that business every day. Our major competitors don't start with that profile. They have a bigger share of their revenue stream that is much more tied to market activity and is a little bit more volatile than our earnings stream over time. Our financial performance over the past three years has been steady. The revenue and non-interest expense, you'll see ticked up in 2016. As John mentioned during his presentation, that's due to the lease accounting for some of the GE assets that we brought over. Thankfully, the revenue bumped up by more than the expense bumped up for that business, which is great. Unfortunately, our bottom line was steady because we took greater provisions in 2016 than we had the past couple of years. Those are almost exclusively due to losses in our energy book, which I'll talk more about in a minute. Our credit quality at Wells Fargo is the hallmark of what we do. Those of you that have been with us for a long time know that we take a very balanced approach to growing our business at Wells Fargo, not only in wholesale, but across the franchise. You heard Franklin talk earlier about some of the steps we're taking relative to the auto portfolio. We do that in all of our businesses. We try to be very balanced. We're through-the-cycle lenders, and our credit quality has remained very strong for a long time. You can see here some recent results, that our charge-offs peaked a few quarters ago, and they've gone down to 7 basis points in the first quarter of 2017. We don't expect to operate at this level over the cycle. We shoot for a 30 to 50 basis point loss during the cycle, which is still pretty good for a wholesale banking portfolio, and obviously, that's going to fluctuate depending upon what's going on in the real economy. Most of the losses, as you can see from the bottom of the chart, were due to our energy book. We are very committed to that business. We think it's good long-term business. The industry had probably the most difficult cycle that they've ever had in recent memory. By sticking with our customers and by making sure that we offered solutions to them in terms of how they could adjust their profile and add liquidity to their balance sheets, which were under a lot of stress, we've been able to earn not only great long-term customer relationships, but more fee-based income. As many of those customers access public markets, we're helping them access those markets. We're helping them look for strategic acquisitions because there are some companies that are making acquisitions. Some of our customers are spinning off divisions or deciding that they're better off being part of a larger organization. We're advising them on how to do that. They're rewarding us with that business because we stuck with them in these difficult times. The reward is coming on the back end of the credit piece. Even if we take a look at the credit profile and the losses we took in that business, that business still generated a lot of revenue for Wells Fargo through that cycle. We're going to continue to focus on client selection in all of our businesses, and we feel that that continues to be a hallmark of how we go to market in our wholesale banking group. Many of you have seen a slide similar to this in past presentations. We talked about 50-plus lines of business at Wells Fargo. We've grouped them into 10 major lines of business, and I'll highlight a couple of changes since the last time you've seen this. The first thing is the treasury management business under Danny Peltz has moved to Avid's group. That makes a lot of sense because as we're thinking about developing products and services for the enterprise, wholesale banking customers are very much a part of that. It makes sense to align some of our innovation and some of that thinking with what we're doing on the treasury side. We're the number 1 treasury management bank in America, by the way, and it's really important for our customers to experience the innovation that's coming out of that group. Having Danny's team aligned with that business will produce, I think, some great results for the wholesale customer base as well as our retail customers. The business banking group on the upper left is new to us. That group moved over last year from the community bank. That's the team that focuses on companies with sales of $5 million to $20 million. The financial institutions business up in the center of the second column is a new business that we formed by bringing the domestic financial institutions group together with the global financial institutions group from our international business. Bringing those together, having a renewed focus on those opportunities, and having that business report directly to me, I think is going to give us even more opportunity to grow with those important segments. You may notice that there is no international group on this page. That is because we evolved to the point with our international strategy where we felt that it was reasonable to embed what we were doing in that business into our major lines of business. For example, our corporate banking business now has a global corporate banking focus. The folks that were involved in those major relationships that were part of the international group are now a part of the corporate banking group. We think the same way in our real estate business. The real estate business has a global approach as opposed to a domestic approach. That fits the profile of how our customers go to market. It fits the profile of how most of our larger customers kind of think about themselves when they have a subsidiary in Canada, for example. They do not think of that as a separate company per se. They think of it as part of their global strategy. By aligning ourselves with how our customers think, we are able to serve them even more effectively. On the bottom right is our new wholesale Chief Operating Officer organization. Wholesale banking, we have a number of businesses that are scale businesses, but we have not really taken advantage of our scale as effectively as we could. Let me give you a couple of examples of what this new wholesale COO organization is going to help us do. We have several lines of business that process loans in a very similar way, but they do not do it as collaboratively as they could. We are going to look for opportunities to process loans more effectively by bringing people together who do things, picking best practices, and aligning those things so that we can pick up the efficiency, not only to meet our efficiency targets at the enterprise level, but that will give us the opportunity, much like David has done in his business, to reinvest in where we think we have growth opportunities. In addition, a lot of our compliance work that we are doing for purposes of meeting our regulatory obligations can be done in a more efficient fashion if we group things together. The wholesale COO organization is going to allow us to do that. I am excited about some of the changes that are going to come about from that for the wholesale organization by kind of streamlining our approach and getting better focus on some things that are very important to us. You have seen this slide before. We have a diversified set of revenue streams in wholesale banking. These numbers do not add up to 100%. It is not to confuse you, it is just that one customer may be a customer of several different businesses within wholesale. For example, our largest business, Wells Fargo Commercial Capital, a portion of that business does equipment finance loans. That equipment finance customer is a customer of Wells Fargo Commercial Capital. It also could be a customer of the middle market business as well. We are counting it in both areas just to make sure that the teams recognize that that is an important customer for Wells Fargo, and then we eliminate it at the top of the house. These diversified stream of revenues strongly position us across economic cycles. Again, there are market-specific developments in each of these, but because we have many of them, typically we have a balance point where if one is not as strong as another, we have an opportunity to still grow the business over a period of time. Here is our loan portfolio. It is a well-diversified portfolio of assets. What I would tell you in terms of the year-over-year growth is most of our growth occurred in businesses where we have an asset on the other end of the loan, and we did not grow quite as quickly in businesses where we do not have an asset. If a building, a piece of equipment, inventory, receivables, those are things that we do each and every day. We grew those lending businesses a little bit faster than the ones that were unsecured or did not have an asset attached to them. Let me take a minute here to just touch on our commercial real estate business because many of you have had questions about that as we have had an opportunity to meet over the past few months and talk about the business. The commercial real estate business at Wells Fargo is an end-to-end business, meaning we have a balance sheet piece of the business, but we also have a piece of the business that helps customers get to markets. What tends to happen is when the market gets a little tight in certain parts of the real estate market, our balance sheet is not growing quite as quickly in those segments of the market. But the overall market may be more receptive to those assets than we are ourselves. We are going to help our customers access those markets so they can continue to run their businesses as they see fit. That is where we have the pickup. Our balance sheet, we may not be making quite as many loans, and I am sure that our long-term investors are probably happy to hear this. In certain segments like multi-family housing or maybe lending to developers who are building in certain markets, we are being a little bit more cautious about certain things. But the overall market may be still open to those, and we will try to help our customers access those markets. It is really a balanced business between the origination of credit and holding it on balance sheet, and then helping customers access markets, be they private or public. We have many businesses that are like that are complete businesses. The reason that people choose us for real estate is because we have been in the business a long time, we have great long-term relationships, we understand the markets, and we can help the customer access those markets at any time. When the market is not there in terms of the public market, we are a great balance sheet lender. Let me pause for a minute and talk about some of the impact of recent events on wholesale banking. As you know, we are not immune to any of these things in wholesale banking. Many of our customers are customers of the retail bank or the wealth management group or other parts of Wells Fargo. Some have been directly affected by some of these events. Some are just curious because of things they hear and this news cycle being what it is, and have questions about how these things affect their relationship with us. There is no question there has been an impact on a number of our businesses relative to some of these events. From a financial standpoint, that impact has been limited, but not zero. It is very difficult to measure it exactly, as John mentioned in his remarks, but there is no question there has been an impact. Probably the biggest impact has been in our government and institutional banking business, which serves municipalities and not-for-profits. You have seen some headlines out of that business. But even where we have had headlines in that business, we have had people continue to do business with us. Even some of the generators of headlines have continued to do business with us in many respects. We think we are going to be able to work our way through that without having long-term impact to our businesses and our relationships. Our teams are doing a great job continuing to serve customers in all of our markets. As an example, the state of Nevada recently came out and publicly said that they have extended their very large and important treasury management contract with us for a few more years. Let us talk about how we are organized around our customers, and we will do a little bit of a deeper dive into some specific businesses. First, our strategic priorities in wholesale banking. We want to simplify our operating model. We have 50-plus different businesses and 10 major business lines. We can do whatever customers need that have a commercial need. But sometimes how we accomplish that is complex from the standpoint of the customer. We might understand it within Wells Fargo, but when we involve the customer in how we do things, sometimes it is not intuitive to the customer how we work together. We have to work to simplify our operating model so that it is more intuitive to the customer. When we process things in a much more straightforward, simple fashion, we can invite the customer into that process. Some of the innovation that you saw earlier, specifically focused on the retail customer, can be applied to the wholesale customer base as well, as long as we simplify our process to the point where we can bring the customer into the equation. Then we can use technology to have the customer access the bank more effectively. That is where we are going in the future for the wholesale bank, but we first need to simplify our processes, and that is what the wholesale COO organization will help us do. The second thing we want to do is focus, and when we focus, we can drive growth. We are going to talk a little bit more about some of our strategies relative to the verticals. That is going to help us focus to drive more growth in wholesale banking. Finally, we need to invest. We need to invest in our people, we need to invest in technology, in our products and services. We also have markets that are untapped for us. We are going to take the opportunity to invest in those so we can drive growth across the wholesale banking franchise. I picked six examples of growth opportunities we have in wholesale. I could have picked more. There is plenty more. But I picked these six because they may be businesses you are not as familiar with or things you may not have heard about. I thought I would use these as good examples of things that we are focused on over the next few years to drive growth in wholesale. In addition, much as we did in 2016, we are going to continue to look at divestitures of businesses that maybe don't fit our long-term growth objectives or don't have the same risk-reward characteristics as some of our other opportunities. First, we start with our extensive presence in North America and our franchise. The person that put this slide together told me to let you guys know Alaska is not to scale. Just saying. This slide looks a lot like Mary's slide. It is really, again, in many cases, we are co-located or close to our branch distribution network. If you think about it, that makes a lot of sense. If you are a $5 million company or even a $50 million company, maybe you are a Wells Fargo customer on the retail side of the bank. It is important to you that Wells Fargo is a member of your community. You want a bank with a bank that you think is committed to your market, is going to be there for a long time, giving you advice, taking care of your needs. It is important for us, with this broad distribution network, to be as close to the customer as possible. We are the only major bank that I know of that is in New York and Charlotte and Atlanta and L.A., but also Green Bay and Fresno. We make money in all of those markets, and all of those markets are important to us. We also want to give our global customers access to the domestic marketplace. There are many companies, many multinational companies around the world that want access to the U.S. market. They are looking to buy businesses. They are looking to expand what they are doing here. This is the best network there is for businesses in the United States, and we want to give all of our global companies access to this North American network. Our vertical strategy. We have some businesses that are themselves verticals, and then we also have verticals within other businesses, like corporate banking. Let me pick a couple of examples out of this to just give you an idea of how we work this. On the bottom in the center, the technology, media, and telecom vertical, which is part of our corporate banking effort. That is an effort that sits within the corporate banking group, and we have many customers and many household technology names that you would recognize that are customers of this vertical. But this vertical also helps us manage our relationships with some customers who come in through the business banking channel. It may be a startup technology company that is the successful technology company of the future. We can help them access, right away, expertise and people that can help them grow and be more successful in the long run. People that have worked with companies that started out very small and got very large and sophisticated very quickly. We can give them access to that. No other bank does it the way that we do it. It's a huge opportunity for us to continue to do that. We started this business, obviously, being in the Bay Area here, there's a lot of these companies, but there's also a lot of these companies in places like Austin and the Research Triangle in the Carolinas, in Boston, Seattle, Los Angeles, San Diego. They're forming elsewhere, and we're tracking them, and giving them access to this vertical is very important to help them grow. Another one is our financial institutions vertical. I mentioned that earlier. We brought together our global financial institutions and our domestic financial institutions business. That is a business line in and of itself. We've built great businesses being the payment solution provider to global financial institutions and domestic companies like big insurance companies. What we think is an additional opportunity is to help them with their strategic needs. By bringing these together, by adding investment in people, by bringing some additional resources into the business, we think we can become an advisor to global financial institutions to help them make strategic decisions because that business is changing more than almost any other business that we operate in. We think we can be right at the center of that, helping these customers with some of their strategic needs. Our corporate and investment banking effort, very important, very big growth opportunity. We don't run the business to manage the league tables, but we do pay attention to them because customers pay attention to them. The top half is the league table by number of transactions, and you can see we're number 3 there, and there's not much separation between the top 3. That kind of would make sense to you because we do a lot of transactions. Our traditional customer base, vis-à-vis our major competitors, skews a little smaller, maybe a little bit more middle-market type customer base versus the large corporate customer base. You maybe have guessed that. The bottom chart, where we're number 8 on that chart, is where the opportunity is. We're already doing business with many of the companies on the Fortune 500 list. We do their treasury management. We're in their credit facilities. We have an opportunity. We have a great investment banking team. We have an opportunity to capture more of that advisory business, to capture more of that bond business than we have in the past. We think that is an opportunity. We don't need to take any additional risk. We don't need to do anything differently than what we've been doing. We need to be in the room. We need to offer good ideas and solutions, and we're starting to win more of that business. The great thing about that business is when you win, it's big. The other great thing about that business is it's a core business of our major competitors. Every time we win, they lose. Huge opportunity there. Very good from a competitive standpoint. They do not have the franchise that we have in wholesale banking in the middle market and in business banking. Very hard to replicate that. Takes years. This one, very hard to replicate as well, but we are catching up fast, and the way you get there is with really good people. We have added a lot of really good people. We have got a great team, and we think it is a huge opportunity for us going forward. On the other end of the scale is business banking. Again, these companies tend to be smaller. They tend to be almost exclusively entrepreneurial, privately owned businesses that really need our advice, and we have an opportunity to even go deeper here. We are the number one bank to business banking. We are the number one SBA lender in the country. You heard during Mary Mack's presentation. Many of our business banking customers are also SBA customers, so that business is embedded within the business banking group here. You have heard me say this before during my presentation a year ago, I have never been to a $500 million company that was not a $5 million company. They all start out small. This business is a huge opportunity for us to onboard customers, to give them advice, to help them grow, and then as they grow and become more successful, to retain them for many, many years. These are the future big companies. These are the future technology wizards. These are the future great manufacturing companies. And we have an opportunity to start with a relationship with them in a local market, helping them grow, helping them with their first acquisition, helping them with their first strategic thing, helping them buy out a parent from the business. We are the bank for these companies, and if we do this right, we have an opportunity to help them grow. The asset-backed finance business, this has been a great growth story. Now, again, this business, if you think back to the financial downturn, prior to that, this business helped customers with asset-backed needs, structure solutions, and typically access public markets to help them finance their businesses. After the downturn, a lot of those markets shut off, and we saw an opportunity to continue helping these customers. It is good risk-reward. They are typically very sophisticated people. And we had an opportunity to use our balance sheet to help them continue to fund their businesses. And then when, as markets opened up, and by the way, we could help create some of those markets, we could help them access those markets. So right now, this business is starting to shift more from a strictly balance sheet basis to a more hybrid basis, where we are helping customers access markets that are now open to them, but we are also continuing to use our balance sheet when needed when there is good risk reward there. And again, much like we do in the real estate business, we will help our customers access markets, and then when the market seize up, we are there because we like to lend people money when there is good risk reward in it. We also like to have long-term relationships. Customers choose us. They choose us to help them go to market because they know that we are also a balance sheet lender. They know we have a deep understanding of these markets. So they are more likely to choose you when you just do not have a monoline solution to what their need is. The Commercial Distribution Finance business, this is a business that came over from our acquisition of some of the GE assets. Think about, it is primarily a dealer business. There is some OEM component to this, but this is a dealer business that involves RVs, snowmobiles, water sports, fun stuff to do. Couple of ways that we think we can grow this business. One is that, by the way, they have been at this for 60 years, and they are the market leader. This is a great business in and of itself. What we have the opportunity to do is to add all of the other things we do that I talked about earlier, the treasury management business, the foreign exchange, trust, all those things that we do for most wholesale customers, these customers have not had access to before, and now they do. One way to grow is to simply give them an opportunity to know what else we can do for them. Another way to grow is there are other segments that we are not in right now that we could get in from a dealer finance standpoint. There are many other businesses that have dealer networks that we are not in right now, and we have a great platform that we could use to get into those businesses. Two ways to grow this business. I am very excited about it. We are going to continue to invest in our talent. My directs have about 22 years average tenure. I am one of those people that believes tenure is a good thing. I have been around for 30 years. Unlike Franklin, people do not mistake me for starting when I was 15. I do think tenure matters, because when you are in a relationship business, those relationships ebb and flow, and you get the benefit of the doubt, much like we have because of some of the sales practice things that occurred in our company. We are getting the benefit of the doubt with our customers because we have been with them for a long time. In our middle market business as an example, the tenure of the average customer is over 10 years, and many have been with us for decades. These customers typically do not change their banks very often, and when they do, it is a big decision. If you have been with them for a while, you have got established relationships, you have been through a couple of downturns with them, they are more likely going to give you the benefit of the doubt when you need them to. That is what we have experienced over the past year at Wells Fargo. We have got an opportunity to collaborate more within our wholesale banking group. Again, I gave you a few examples of that. Finally, innovation is a huge opportunity in the wholesale space. The kinds of things that our retail customers care about, our wholesale customers care about. The solutions that our retail customers are starting to experiencing, our wholesale customers are going to begin experiencing in the years ahead. I am excited about that, and I think they will be as well. We remain an industry leader in several of our businesses in wholesale banking, and we are going to continue to press our advantage there. All of these represent great growth opportunities, whether it is our Commercial Capital, our real estate, our business banking franchise. We have some opportunities in some of our newer businesses to grow even faster, like our CDF business I talked about, our Wells Fargo Securities in conjunction with our corporate banking team. We've got great opportunities there. But it all starts with a relationship. It all starts with giving good advice to customers and helping them be successful. If we can continue to do that, we can continue to grow the wholesale franchise. Thank you for listening. I'd be happy to take any questions you have specific to wholesale. Jim? Thank you, Perry. John, right here. Thank you. John Pancari, Perry, Evercore ISI. John. You mentioned that you'd pursue divestitures of businesses that don't meet your return hurdles. There's been some press about potentially divesting the insurance brokerage business. Can you talk about that a little bit? Would that be something that's a candidate for looking to exit? Also, can you talk about what the returns are in that business? We had viewed it as a stable and relatively high return business, but I guess the reports will claim otherwise. Thanks. Yeah. Well, look, I'm not going to comment on news reports on specific businesses. But I will tell you that we look at all of our businesses on an ongoing basis to make sure they do several things. One is they produce appropriately risk-adjusted returns for the business. Two is that they're integrated into what we're doing from a wholesale standpoint and they meet the needs of customers. And three is that they fit a vision of where we want to go in the future. I think if you look in the past where we've divested things, the reason that we did that was primarily because they didn't fit all of those things, and we felt that they could be part of somebody else's platform more effectively. Yep. Up front, Jimmy. Hey, Perry. It's Jimmy Hannah. Just curious on the whole collection of your businesses and wholesale, if I focus on the lending side of the businesses, which businesses would you describe where you might be seeing a little bit of spread widening, so maybe getting better returns today, at least, or better spreads today, versus which businesses feel like the competition is just narrowing spreads? Sure. God, spread widening. What a great dream that is. Well, look, spread widening typically happens during a downturn, right? When people pull back. So there aren't many where that's occurring, and the ones where it's occurring, we probably don't want to be in those. But you got to think of our model, right? So if all we had to do is rely on the loan spread, we'd be in trouble, right? Because you're at the vagaries of the market, and you have to be competitive. But we can make money a lot of other ways. We can make money in the treasury management space, our securities businesses, our foreign exchange business. We have a lot of different ways to make money. When one is more difficult, we probably press on the other one a little bit more to keep the earnings growing, and that's what we're doing in this market. Okay. One quick- Yeah. One quick follow-up. Just in terms of some of the banks smaller than you, where they've come into commercial real estate concentrations that are above where the regulators want them to be. From the way I understand it, they're diversifying into other asset classes, really focusing on C&I, and then I've heard equipment finance and asset-based lending is very good business today, and a lot of banks are telling me they're going into those verticals. Are you seeing, I guess, undue exuberance into those verticals, or does it feel like anything's stretched, whether asset-based lending, equipment finance, or other industries? Yeah. Great question. I think, look, in pockets, you do. Certainly, there are regional competitors that we've seen come in and out of businesses, and it's usually at the end of a cycle when they're reaching for growth a little bit. We've seen a little evidence of that in certain markets. But if I step back and I look at the bigger picture, really the customers that we're banking in a number of those businesses, we bank for a long time. We're more at risk for the individual business doing or not doing well than we are at some competitor because it's really difficult for a competitor to break into a relationship that we've had for a long time. We do their equipment business. We've got their treasury. Maybe we've got a revolver at the corporate level. It is real tough for somebody to give them the whole piece there. They may be able to pick off a little piece every once in a while, but again, it is not anything that is going to affect our business model. It may be that they are trading off with other competitors who are more monoline competitors than us. Thanks. Yep. Other questions for Perry? We got a two-parter for you. Yep in IR on GE. So where are you on the integration cost front of the acquired businesses, broadly defined? And where are you on capturing the synergies that you thought you might get from those businesses? Yeah. Well, a couple things on GE, and Tim Sloan talked about it during his remarks. First of all, the most important thing that we look at relative to acquisitions are the people issues. I can tell you that we have retained almost all of the people from all the businesses we bought from GE. By the way, they are terrific. The thing you worry about in these deals is not the back room and those kind of things, although those things are important. The most important thing is, do the people feel like they are welcome here? Do they feel like they could be successful here? Do they buy into being part of Wells Fargo? Because if you do not get that piece right, none of the other stuff matters. I can tell you that we brought in some terrific people from GE. Now they're Wells Fargo, and they're really excited to be here. They're offering a lot of ideas. A lot of the excitement I have for the CDF business comes as a result of them coming up with ideas and saying, "We could do this, and we could do that." They're leading those discussions, and they're leading the business. I feel really good about how we've onboarded the teams and the quality of the people that we have. In terms of what else we need to do there's still a little bit of work to do with some of the technology transition. We've got an event coming up this summer that's really important to that. We've got the right people focused on it, and I feel very confident that that's going to go well. Great. Thanks, Perry. From the audience here? No? Looks like we're good, Perry. Thank you. Okay. Thank you. I think we're going to do a panel with my colleagues, and Tim, and John. Everyone's got to remember their places. Jim, before you take questions, I wanted to comment on something that came up at lunch while we were sweating it out on the patio. People were looking for more clarification about our hypothetical 2018 in this morning's deck. Simply put, and I thought this was self-evident, but I was definitely proven wrong by the feedback that I've gotten, is that that's a sensitivity analysis. What would it take up 1%, down 1%? The numbers that we're using in that analysis are up and down 1% from a reasonably good view at what 2017 is likely to look at. If you're looking at the bottom and it shows some trailing 12-month metrics, that's not the starting point for the analysis. It's our view of a reasonably good shot at '17 versus those changes for '18. I wouldn't want you to think about it as, it's not guidance, which we've said, it's sensitivity analysis. This is how you get back to the middle of the range, up one, down one. Easy numbers to do the math with, and that's all it's really intended to be. I hope that's helpful. I know that it stumped some people and including some news reports that looked like it was guidance. Okay, ready to open it up to questions. We have a couple here, and then Susan. Right here. Chris. Yeah. In particular for Tim and John, but for anyone. We've been looking at this industry for a long time, and I wonder what your view is on the payoff of investment spending now versus in decades past. I guess what I'm getting at is, you're obviously one of the winners of consolidation, and it gives you scale, and it makes your customers harder to poach. But there have been other winners in the consolidation, and 20 years ago, you were trying to blast customers out of companies like United Banks of Colorado and Barnett Banks and First Wisconsin and Security Pacific. Now everywhere you turn, you're bouncing into JPM Chase, B of A, and US Bank. And is the return on investment the same, and how do you move market share without either getting into concessionary pricing or the kind of adverse selection that we've seen in the credit card wars? Okay, so how many questions was that, Chris? That's a lot. Just one. Right. First, I appreciate the observation that we're one of the winners. Thank you very much. You'll get a little extra drink at the end. That's terrific. I think about on a timeline, and I'd invite everybody to jump in because I think it's different for every one of the businesses. You could look at David's business, for example, and say any point on the continuum of his favorite slide that's at his house and all over the place would be a good time. Right? From a time standpoint, I think the best time in terms of getting a return for investment is in the depths of a crisis. Right? Because wherever you're going to be, wherever you're going to put money, if you've got a company that's going to survive, you're going to get incredible returns. Every dollar we invested in 2008, 2009, and 2010 got an incredible return. I think the returns are probably a little bit lower on average today. But when I look at some of the investments that Avid talked about, I think the short answer is we don't know for sure, but we sure as heck know that if we don't make them, 5 to 10 years from now, we're going to be sorry that we didn't make them. Right? When you step back and you look at our returns over time, I think you should hopefully agree, based on the conclusion you came to, that we're pretty good stewards of capital in terms of where we're making investments. And investments can be not only investing in a project, but also in terms of making an acquisition. GE is a terrific example. In terms of the competitive landscape, which you also ask about. Look, the higher quality the competitor, the more difficult it is to take the relationship. But when you look across all of financial services, even in our businesses, many of which we've talked about today, where we have pretty dominant market share, it's not like we have 50% or 40% or 30% of the market. I think that there's tremendous opportunity in this industry over the next few years to continue to bring customers into the business. But I'd invite my colleagues to jump in. Yeah, it's interesting when you think about investments, I tend to think a little bit about, for now, internal investments rather than, say, buying a company. One observation after years of being in management is if you set a hurdle that says an investment has to have a 15% return, every investment that hits my desk has a 15% return. Really for me, the way I think about it, some of the investments are about positioning the capabilities for the future. So, for example, over the last few years, we've migrated off of what I'll call old mainframe platforms onto more web-based, cloud-based server platforms, which gives us the ability to then add on top of it some of the digital and innovative things you heard about today. You can't put those things on top of 20-year-old platforms. A lot of our investments are always about trying to stay on the edge, not necessarily the bleeding edge, but whether it's telephony, whether it's customer-facing technology, wellsfargo.com, you name it, we have to stay very relevant there so that we can continue to innovate on top of it. And there's a fair amount of that investment that occurs in the consumer businesses. The other thing I would also add to what Tim and Franklin mentioned is when we look at the investments we're doing around innovation, in the past, typically investments were around new products, growth, get market share, or consolidate systems, automate, and get cost efficiencies. A lot of what we are doing in the PVSI and across the company would help us. The intent is to get more engagement with customers and grab share, but it would also create a lot of streamlined processing, take paper out of the process. There is also an efficiency return on many of the things that I shared this morning, and we are going to go into more detail later. They tend to have more benefits than just getting share. Janine, Susan had her hand up, and then we will come back over here. Thank you. Susan Katzke from Credit Suisse. Just following up really on Chris's question, what then do you consider to be, and how do you think about a sustainable revenue growth rate for the company? Going back, I am sure I misinterpreted some of John's hypothetical as a forecast 1% growth rate for next year, which I think is hopefully not the case. Do we start with GDP growth as the baseline for what you should be measured against, and then add to that market share gains? Susan, it is a great question, and I wish my crystal ball worked as well as you would want it to work, and I could give you a specific number. I do think that it is reasonable to assume, and everybody can jump in because I am going to stand out on a ledge and hopefully you are not going to cut the board here from it. We should be able to grow at GDP, and we should be able to grow at a multiple of GDP. What that number is going to be based on a set of circumstances that are going to happen in the future, which any of us are smart enough to see. But it should be at a multiple of GDP given our franchise. Thank you. Thanks. Eric Wasserstrom with Guggenheim. I have a few questions, please. First, John, I just wanted to probe on the incremental cost cuts that you announced earlier today. Intuitively, it seems like a couple of the areas where they were derived from would be the continued rationalization of the brand structure and the third-party costs. But if I understood some of your comments earlier, it looks like a lot of the third-party costs are not necessarily related to the project expense that's going on right now. On the branch stuff, it seems like 450 branches equates to approximately $170 million of savings. That is about $400,000 of savings a branch. Multiply by 1,000 branches, it is not that much money. Can you just help us understand where these savings are actually deriving from? Sure. I think the biggest part of it is going to be from like what we have been doing among staff groups most recently, which is part of the first $2 billion. You bring teams together that do similar work. You aggregate the work. You sort the work out, high value, medium value, low value. You take the lowest value and you stop doing it. You automate it. You move it to a lower cost workforce, entry level, et cetera, but you really work through how work gets done. That is a big part of it. Then you think about the automation that you bring in, the tools that you bring in. We have, just for example, Perry mentioned the COO organization in wholesale banking. We have 50 or more loan systems in wholesale banking. We make corporate loans, and we make commercial real estate loans. All of those systems have different operations that have to be attended to. All of that in every business. That opportunity stands on its own because there are so many lines of business, but it is things like that. It takes a little longer to get to. We are in the planning phases now. We will be in the execution phases in time for 2019. But it takes fewer people. It makes us better risk managers. It makes our data better. It makes us more insightful on behalf of customers. The customer experience should be better as a result of it. There are things like that that are incremental that I would point to. My second question is, I recognize that this is a sensitive topic, but I am sure everyone in this room read the independent director's report. Many of those issues, it seems to, from what we have seen from other institutions' experience who have gone through similar kinds of things, touch on items that might be part of the Fed's qualitative components for CCAR. Particularly as it relates to board oversight, transparency of information to the board, and board review. Given what we have seen with respect to your CRA rating, given what we have seen with respect to the living will, how confident are you about passing the qualitative component of CCAR in this cycle? I will take the first crack. The gist of CCAR is that we have to understand our risks, we have to identify our risks, and we have to address them in a sensible way as it relates to forecasting over the CCAR time horizon, and then shocking them for what might happen. Just to address the sales practices issue, we have to imagine what our revenue and cost run rate might be as a result of maybe lower mean, higher volatility for bits and pieces of that, as we have talked about. Then shock it in different ways for what the future might hold, and then demonstrate that we have adequate capital resources to sustain ourselves given that and every other bad thing that happens in the CCAR severely adverse scenario. We have taken that very seriously. We have done that collaboratively with our regulators. We have been through the first part of the CCAR cycle, where we sit down 100 times on different component pieces and walk through it with our regulators, and it has gone quite well. But now the ball is in their court to do their process and roll it up and see how they feel about it. Have we identified our risks well? Have we addressed our risks well? Those are the things that we can control. How they would react to the things that you mentioned that reflect governance, oversight, et cetera, we will have to see. But the back and forth actually has been very healthy. Great. Vivek. Two questions. Let me start the first one. Following up on Susan's question on the revenue growth, what does that mean for expense growth? Especially, given that you are spending so much on technology and you have got all this management information systems that you have been trying to ramp up since the scandal, and given the board report. Can you give us some sense of, if you can do if revenue growth is GDP plus, what is expense growth? Think about our efficiency ratio, Vivek. We have said that 62.7% is unacceptable. We think this year is in the 60%-61%, John? Yeah, that is right. That was in the slide. We have said that over time, meaning the next few years, we have got to get back into the 55%-59%. That is how I would think about it. Okay. Then that brings me to the next question. Given the $2 billion cost savings you're talking about, the one that's supposed to drop to the bottom line, that's almost 2% of revenue. So why no change in the efficiency ratio guidance? Well, we'll be back here next year. I know you like to come to San Francisco. We set our framework in 2-year cycles, and we'll talk about it then. What we're doing today is talking about where we are in our 2-year framework from a year ago. We'll reestablish what our expectations are in our next Investor Day for the following 2 years, which we'll pick that up. You mean you went off cycle for the Investor Day. You should have gone off cycle for your targets too. To be consistent. Well. Looks like we've got two over there. Janine, you. Then Scott. Hi, Scott Siefers. Just one of the items that came up, particularly in the consumer-oriented presentations, was just the notion of speed and efficiency in delivery. Just as you go through those and kind of transform the way, whether it's opening accounts or providing credit, what's the extent to which that stresses your underwriting and things like compliance in a regulated industry? How does that all come into the fold as well? Well, let me start, and then guys, jump in. They're not separate decisions, Scott. It's a really good question, by the way. Meaning that when we think about a new process or we think about a new product, or we think about new technology, it's done in conjunction with the risk organization. For example, when Avid talked about some of the new products, the Facebook pilot that we're doing, we've got a risk orientation and overlay on that decision, and we wouldn't make a decision like that unless we had sign-off from both the business line, but also our risk organization. And Scott, what I- We just can't put ourselves in a position to make those be independent given what we've been through. Yeah, and also how we approach many of these initiatives. We have what we call speed to market squads. That actually comes across the organization. It's product, technology, risk, credit, underwriting, marketing, operations. We really bring these capabilities to the market, looking at it end to end as we develop. Then from a governance perspective, clearly there are reviews all along. We have processes and we, not just from a financial perspective, but from a process, from risk, from controls, we go through a governance process where it goes all the way up to what we call the ERMC, Enterprise Risk Management Committee. But frankly, all of them are really end-to-end capabilities. The example I use around moving from a product-centric underwriting to a customer-centric underwriting, most of the lead for that project is our credit risk team. We have a speed to market squad, but the project sponsor and the lead is our credit risk team with support and engagement from technology, product, marketing, and our digital channels. The risk component is very much integrated in how we develop, how we visualize, imagine, build the business requirements, and bring them to market. A good example, Scott, would be in Mary's presentation, she talked about the FastFlex loan product for small business. The primary driver there was actually not technology, even though it was very important. It was credit. We ran a pilot. We ran a pilot for about six months, as I recall, to make sure that we were comfortable being able to make decisions for customers we generally knew because they had a deposit account at Wells Fargo. But to be able to make a decision in 45 seconds or 60 seconds, you want to make sure that you get the credit right. And so that would- And then structure the credit on the back end. Exactly so that you've got the kind of repayment mechanisms and everything you'd want to fulfill against the credit standards. The automation, first of all, you can embed a lot of compliance into the process itself. It's very automated, so it's very predictable. But above all, from my perspective is the consumer is much more in charge of the pacing of the transaction, and it's very transparent to them. So from their perspective, they're in control. From our perspective, we have a complete audit trail of everything that happened very systemically versus, and it's very predictable. So I actually think it strengthens the customer experience and the compliance at the same time. It takes labor out. Yeah. It's a more efficient approach. It's part of the next couple of years as productivity enhancements increase as a result of the use of technology. All right. Perfect. Thank you. John, I was hoping you could spend just a quick second discussing the NII guidance. I think it feels like it was tempered just a little from previously mid-single digit, down now to low to mid-single digit. Just curious what, if anything, changed or if that's just a nuance. I'll just say at the margin, it's loan growth. At the margin, its rates are now lower, even though we've had a couple of recent rate increases. They're certainly not moving up the way that it felt like they would previously. So the pace of our reinvestment and the return when we do get incrementally invested is a little bit less attractive. Low to mid-single digits and mid-single digits are overlapping, so there's that. But the bias at the margin is really just that we've gotten a little bit more invested, so the starting off point for the comparison is probably a little bit higher than it was. Now we have a little bit more trepidation about how incrementally invested we get, because we don't know if the big step off upward for rates is as certain, as near, et cetera. Should we wait for it? Should we not? Loan growth is probably a little bit slower than we all imagined a quarter ago, but still gets you to an overlapping spot in the outlook. Thank you. Yeah. I think we have a couple over here. Before we ask the next question, just a reminder to our guests on the webcast, you can still ask questions via the webcast, and we'll take a look at those as well. Betsy? Oh, hey. Betsy Graseck, Morgan Stanley. I just have a question on the consumer loan exposure that you have, and I'm wondering, with everything that we've been talking about, with the technology that we're going to see soon in the next panel, could you give us a sense as to does it give you the opportunity to increase your risk appetite? Do you think that the technology advancements that you're making is going to drive you higher in the consumer profile that you're attacking? Just want to understand how your risk profile is likely to change over the course of the next 3-5 years with everything you're doing. Let me speak to maybe some of the credit card perspective, and then maybe Franklin, if you may want to comment on other consumer loans. In the credit card space, as you very well know, over the last couple of years, we have been looking at how do we extend our business model from being branch-only, tenured-deposit customers only, to become multi-channel, extend to non-deposit Wells Fargo customers, extend over time to prospects. What these capabilities are doing is help us be more effective in executing on those strategies. That we started with a strategy of what are the customer segments, what are the products, how do we want to engage with those? And then we're building capabilities, and many of those capabilities include very much a digital component. I think it's not that the digital is extending our risk appetite, but we look at our opportunities and the risk returns, and we have strategically made the decision to extend our model. No, absolutely, when our cost of acquisition in a branch network is hugely lower than if we did direct mail, although once you go digital, it's going to be much lower than direct mail. It's still very, very attractive ROAs, ROEs, margins, and so on. Relative to our very traditional card business, it's going to be probably slightly higher net charge-offs, higher cost of acquisition, but the returns at the margin are still very, very healthy ROAs that we would take any day. We'll always look at our risk appetites. I'm not a believer that reaching for risk is a sustainable way to grow a business. I'd rather grow the business by giving great service and being attractive to our customers, and that's where so much of the innovation can be helpful. I'm comfortable with our risk posture now. We're always looking to fine-tune things as the market moves and as we see opportunities, but I'm not looking at anything dramatic as far as risk expansion. Hi. Two questions. First off, I'll start off with sort of a broader open-ended question on technology and disruption and the opportunities that it provides. As you look across all your businesses and what you do and what banks do, provide credit, store value, facilitate transactions, everything that matters, whatever it is, and you think about technology and fintech and digital disruption, where do you think there is the biggest risk of disruption and technology sort of getting in between you and your clients? Where do you think there's the biggest opportunity in terms of investing and partnering with technology providers? Let me start. I think the reason that we formed the PVSI group was because we saw the biggest risk of disruption in payments. We have and had great payments businesses. But we were thinking about them as monoline product, even though they worked together, which was good. But we weren't thinking about them as holistically as we should based upon the customer, number one. And number two, we weren't applying all the benefits of our innovation and our technology on all of our customers in a similar way. So that meant that there was a risk of us not being less efficient, which is why we moved innovation together now almost two years ago and a little bit slow. So I think it's number one in payments. This is going to sound like a pretty simplistic answer in terms of the opportunities. The opportunities are everywhere. I think one of the benefits that we have, given our scale and given our earnings, is that we can provide great returns to you by investing $7.1 billion in technology and having it apply across every one of our businesses, not only for a defensive standpoint, but an offensive standpoint. And you'll see more of that in a few minutes when we work through, just give you some examples, and they're only going to be some examples. Yeah. And then Sorry, go ahead, Dave. No, go ahead. Yeah. The other place across all the businesses, clearly there's a lot happening in the payment space, but the other place that we are very focused on, and hopefully you saw in the examples I used, and you're going to see more in the panel, is how financial services are delivered. The experience that customers have as they are consuming financial services, whether it's credit or payments, or transactions, deposits. The disintermediation risk there is really around where that point of interaction is, where the data and information is provided. A lot of the things that we are driving is to make sure that we are where our customers want to be. That's really part of the ubiquity of our strategy, is that we want to be everywhere. We don't want to create these closed-end networks that's only with Wells Fargo. We're seeing where our customers are and then build capabilities to be there. So we are the ones that are delivering our products and our capabilities and our services where our customers are. I was just going to add, in the world of investing, I think about disruption a little differently than being outflanked by some startup. I think the biggest disruption risk to us from technology would be our failure to adapt, adopt, and invest. There's no God-given right for small startups to outflank big companies. We run one of the most technologically complicated platforms on the planet. We're very well equipped to compete in technology. So the real issue is, do we have the appetite to change, to reinvent ourselves? Do we have the capacity to make these substantial investments? I think this is a 165-year-old company that has proven time and time again it very much has reinvention in its DNA. That's very helpful. Thank you. I'll follow up with a more mundane question. I'll challenge John a little bit on his answer to Scott and for the NII guidance. If I look at your first quarter NII and I straight line it, you're at 3%-4% NII growth. If you grow that 1% per quarter, you're at 5.5%-6%. Given everything you said, I get the trends, but doesn't it seem fairly conservative that the guidance when you look at where you started the year? Yeah. The only thing that I would add to your illustration is we've been fortunate on deposit pricing not to have much movement in the first quarter, even though we've gotten a little movement in risk-free rates. If the move continues and the industry catches up fast, the benefit of short-term rates moving may be a little bit less impactful later in that cycle of rates rising. So that's a possibility. Okay. In the back here, Amy. Just on the mortgage side, I was wondering how you guys think about the opportunity for you longer term if you get some regulatory changes, including maybe changes that allow you to box the rep and warranty risk and anything else you guys are following. Well, since you brought up rep and warrant risk, let me break that into two pieces. First of all, with regard to Fannie Mae and Freddie Mac. Over the years, they've done a really nice job creating a commercially operationalizable quality control process so that lenders of all sizes know when they deliver production, whether it met the quality standards, what the path to remediate it is if it didn't, and ultimately, if you fail, how to bring that back in and own that risk. So the history of big put backs and repurchase exposure in Fannie and Freddie is a bygone era, in my view, and I think they've done a nice job. It helps the industry be accountable for its quality with clear standards. If I contrast that with FHA, which is the other large government insuring entity, they do not have those attributes. You will probably, no doubt, all of you have noticed that the vast majority of depositories have dramatically reduced their FHA lending, and it is primarily because of this issue I just described, the lack of quality control standards, the imbalance between when there are quality issues and enforcement, and some of the servicing standards. So that has to do directly with production and servicing to point out an area there. Worth mentioning private label? Yeah, I guess. Yeah. You want me to mention it or you want to mention it? Just to be clear, Yeah to add to Franklin's point, if FHA woke up tomorrow morning and adopted the same standards, the same risk standards of Fannie and Freddie, we'd be back in the FHA direct business in a big way the next day. Yeah, that's right. If you want to get lending growing in this country, get more competitors in that business. That's a very important product. That's why we started the yourFirst Mortgage product, because we saw the potential risk of being in that business, and we had to come up with a different solution. But we'd be back there, and I think in no time we'd be the leader. Yeah. I agree with you, Tim. It's one of the things the administration could really address is FHA reform. It's roughly speaking, 15%-20% of the mortgage market. Which is a very important market, as I described earlier. It's a much larger percentage, and it's a concern for our economy and our housing finance system that it's not done well right now. As far as private label, there's been many, many years since Wells Fargo has participated in any kind of private label market. There's been a handful of deals done over the years by organizations. JPM Chase did one last year, I believe. Redwood Trust has done some, et cetera. This year, one of our aspirations is to come back to the market with a couple of deals, and we're taking a look at making sure we can structure those properly, et cetera, to try to test the market and see what we can do there to help bring some confidence back to that private label market. I think Marty had one over here. Okay. Marty Mosby. Tim, if we say we're going to move forward and we got this crisis mode behind us, we have to now start to think about growing again. First slide that we saw today was kind of a straight line for the last three years, which was not the MO you had when you had the CFO role and you had 27 straight quarters of sequential growth. Oh, Marty Mosby. Whoa, whoa. Marty, you're getting a little sensitive there. Let's- I know. Come on. But listen to this. Okay. I like John. John's a good guy. Not picking on John. Yeah. That's an enterprise-wide situation. I agree with that. So when you get there, what are the things that now is concluding that we can say, "Thank goodness we're not going to have that headwind or a couple of headwinds that you've gotten through," and what are the things that you have to accomplish in the next three years to get this back going north again? So that's my question. Well, I don't think we need two or three years to get this growing north again. When you think about some of the individual business presentations, you're seeing businesses within Wells Fargo that have been growing north, whether it was David or Perry's in particular, in terms of their first quarter year-over-year growth. That's half the company, right? Now, I think in terms of what's on our plate, right? We have stakeholders that we haven't rebuilt trust yet with over the last few months. We've accomplished a tremendous amount, and I referenced how proud I am of what we've been able to accomplish, but we still have some work to do. We have responsibilities to our regulators. We have responsibilities to our customers that we haven't fulfilled yet, but we're working on. We have responsibilities to continue to do a thorough review of our entire business, some of which we're required to do, and some of which we're doing to ourselves. So we've got to complete that, and that's going to take another six to nine months to a year to do. That's not an excuse. We just need to get that done, right? So that, I would say, is number one. Number two, we've got to execute on all of what we talked about today. The presentations were pretty exciting, but there's a tremendous amount of hard work and effort that it takes to be able to execute because there's a tremendous amount of change that's going on in the company, whether it's technology or, and we've talked a lot about expenses and efficiency already today. We've made some big commitments to all of you in terms of executing over the next couple of years on a $2 billion expense save that we're going to reinvest in the business, and then to take another $2 billion out of the expenses by 2019. That's a lot, right? The good news is, when you look at this leadership team and then you look at the rest of the leaders in this company, I'm very confident that we can accomplish all that. That's all in our control, right? What's coming at us, whether it's a headwind or a tailwind, that's just going to happen. I'm not smart enough, but if you're smart enough to know, tell me, and then we'll start to plan for it. Okay, great. We did have one come in over the webcast. John? Which area of lending do you believe has the most potential for a negative credit event when this benign cycle ends? Credit card, auto, commercial? Any examples. This is where we'd regret if Mike was here. Nobody wants to raise their hand. Nobody wants to. Well, I mean, Franklin talked about auto right now, so I would say that on a real-time basis, Yeah, but for us, I'd say it's auto. I went through, I will speak to the portfolios I cover. Residential real estate, you saw the stats there. I mean, the quality of that book is very, very strong. Even when we run things through CCAR, which I think is very instructional, it is a highly stressed environment. There is a lot of variables in there around the housing market and the unemployment rate, and so on. John probably has a better handle on the overall data, but at least the data from the consumer businesses shows, yes, there is some stresses that emerge in some of the portfolios, but they are very strong relative to where they were even five, six years ago. Right now, I think we are in a good spot there from the businesses. I talked earlier about the adjustments we have made in the auto portfolio to ensure we have that strength there, in case stresses emerge in that business. I do not know if credit cards or others. I mean, what I would say is, clearly in the credit card space, if you look at our older vintages, the ones that were originated pre-2011, pre-2012, they went through their peak losses during the 2008, 2009, 2010, 2011 cycle. The loss rate for that part of our portfolio is extremely low because the losses have been already worked through. As we are growing the portfolio, the newer vintages, we expect to be higher loss content than the vintage prior to 2012, which we are planning, we are forecasting. Again, to my earlier comment, when we look at our expansion strategies, the ROAs, the ROEs, the returns are very, very attractive. Even when you stress the portfolio to 2008, 2009, 2010 loss rates, it is still very positive return. We do expect trending up in the card losses because of the fact that the old vintages were so pristine. I think we are not concerned, and all the risk return numbers make a lot of sense. On the commercial front, Perry, see if you agree, but anything that's not completely built when the next one hits, construction loans, et cetera, is probably going to provide some risk. In C&I loans, the categories that we seem to spend most of our time talking about, although they're not bad in our portfolio, but they're probably the most at risk, would be energy while it works its way through completely, metals and mining, ag, and certain cyclical retailers, right? Those are probably the most vulnerable sectors in commercial. Yeah. The way that we build a portfolio, in any case, is we underwrite through the cycle. The expectation that you should have is the expectation that we continue to deliver as we have in the past, above average results when things are tough. That's how we underwrite the portfolio. So we're not smart enough to figure out timing or which sector is going to have a problem. If we were, we would've avoided a lot of the energy sector issues. But certainly, the way we underwrite is we underwrite to the downside case. While we're going to have losses on an absolute basis, on a relative basis, we're going to perform better than the industry through the cycle. The wholesale book is very much underwritten that way, whether it's the real estate business or the asset-based business or any of the other businesses. Okay. One in the front. Michael Chiang from Spruce Grove. So long-term shareholder. Hi. Two questions. Thank you. The first is the complexity of your organization. Today I feel like different people are talking different type of business. Now you're from asset management, from community banking, from a logical variety of investment banking now. Is the bank becoming more and more complicated? How should we look at the complexity of the company? The first question. Secondly, the balance sheet. One important aspect, as John mentioned, that almost a third of your balance sheet actually are liquid assets. How should we look at that, given such amount of money sitting on balance sheet and not making much money now? Is it a good thing or bad thing? I will take the last part first. Okay. I think that the approximate percentage of our balance sheet that is in liquid assets is a relatively permanent structure. Now, whether it is in cash versus three-year, five-year, 10-year high-quality liquid assets is a mixed change that can happen over time, which can make it higher yielding, depending on where we are in the cycle. But I think at our size, with our regulatory requirements, the liquidity framework that we are operating under, as I have said before, there are probably tens of billions of dollars of liquidity that could be instantly redeployed into some other area, but I would think about it the way that it is. I think the same is true for all G-SIB banks that have our structure. My first take on complexity, everybody will have a point of view. I think some of the things we have done in the last year or so are making us feel much less complex than we did since the crisis and up until recently, because we have been pulling like things together in a way that creates much more enterprise transparency, much less of a set of silos that are hard to see into if you are not inside them. From my perspective, it feels less complex. Yeah. We have also taken specific action to simplify the businesses, and mortgage is a prime example of that. Frankly, you may want to talk about it, but we exited products, we exited channels, like the joint venture channels, the broker channel. If anything, many of these businesses are simpler than what they were eight, nine years ago. Yeah. I was going to say that I actually think the Wells Fargo of today is a simpler, less complex organization than the Wells Fargo five or six years ago. I think because of the changes that you've heard about in terms of how we're organized, that gets into how easy is it to execute and manage. That I think is also getting simpler. So those two things together, I think, will help make us more nimble, and easier to operate in. Well, if you just think back about the work you talked about, Tim, with the consumer strategy. As we come across, we serve businesses and consumers. As we come together, we all bring to the table a focus on an element of the consumer business. But as I said earlier, our customers don't think of themselves as branch customers or digital customers or mortgage customers, they're customers. So how do we think about one unified strategy that actually simplifies what's the role that our organization is playing in the branches relative to that and in partnership with digital or the partnership with David's group, Franklin's credit. I'm not worried about credit underwriting, for instance, because I'm reliant on the simplicity of the structure that allows dedicated groups to be doing that. Yeah. I'll finish the answer. Notwithstanding, we've made a lot of changes to try to simplify the business, whether it's product or processes. We have a complex business, right? This is a $1.9 trillion balance sheet. We have one of the highest market caps in the world in any industry, certainly in financial services. I think for you to be comfortable at continuing to want to invest in Wells Fargo, you've got to believe in a management team. Right? Because every one of the people up here and the folks that work directly for them are running businesses that in and of themselves would be some of the largest businesses in this country if they were separate. Right? To me, there's no question there's about process, there's no question there's about technology, but you've got to get comfortable that you're comfortable with this management team. Which again, is why days like this are important, because you get to see us, all of our warts, right, all of our positives, and then you get to spend more time with more of our managers and decide whether or not you want to make that bet. I think it's a good bet to make, but again, we've got a complex business. Yeah. Got one more in the back corner it looks like. Bill? Thanks. Bill Carcache with Nomura Instinet. Tim and Avid, I was hoping that you could comment a little bit more to follow up on your prior comments on the cards and payments side. As we think about your aspirations in cards and payments, I haven't heard you guys explicitly talk about the migration of payments from the physical point of sale to e-commerce and the opportunity that that presents. To what extent, how much strategic importance is there to you guys in partnering with players like PayPal who have 200 million active customer accounts, or have a digital solution at scale that could potentially help you guys capture share in that migration from physical point of sale to digital? I'll start and let Avid give you the right answer. The first is the likelihood is that every one of the firms that you're talking about, PayPal is a great example, is a Wells Fargo customer today. So we partner with them. Many of these firms that are out there some days trying to separate us from our customers could not exist without Wells Fargo. So we've got those relationships today, and what we're working hard at is making sure that we can maximize those relationships, without having those firms take more of our customers. Yeah, what I would say is we actually think about payment in the context that even when you say digital payments versus point of sales, at point of sale, that payment is also migrating to a digital form when a customer pulls out their phone and uses their digital wallet to make a payment at point of sale. Our goal and all the strategies that we are working on is for consumers, the way we talk about it is that we want to be in their palm. Whether they're walking into a physical location, we want Wells Fargo. Even if they pull out a PayPal wallet, it's a Wells Fargo debit card. It's a Wells Fargo credit card that's inside that wallet that's being used by the customer at point of sale. If they choose to pull out their Wells Fargo proprietary wallet, that would also work. In the e-commerce space, the same thought, is that we want to be the first choice for all of our customers to pay with Wells Fargo in the e-commerce space. Examples I use around how are we using APIs to integrate into those e-commerce side, the reason that we want to issue debit cards and credit cards in a digital way is that as soon as our customers open that checking account or that credit card, they have us in their digital wallet that they could use in e-commerce spaces, or actually even in point of sales. Our goal is not just to engage in e-commerce spaces, but to be in any wallet that customers have and whether they go into a point of sale, physical location or an e-commerce site. Because we've come to the fundamental strategic conclusion that we can't tell our customers how they want to make their own decisions. Right? What we want to do is we want to have that relationship, and then they can decide how they get to us. Right? Some days it feels a little bit better than others, but if you allow them to have that convenience, they're more likely to want to have that relationship with you. When they have that relationship with you, that's where you get the long-term value. Great. We have time for one more quick one. I thought I saw a hand, but nope. Looks like Vivek, please. Where are you in the whole technology spectrum? Do you think that your investments have peaked? Meaning you obviously have a lot to do, but the spending, the dollar amounts are still growing or this is sort of the steady state, and what is the amount? How much are you spending on technology each year? Is that 2, 3, 5? We have no sense of what is it. Well, I'm John Schloegel. Across the company. Yeah, go ahead, John. This morning I mentioned that last year it was $7.1 billion in both the running the bank technology and the improving the bank technology. We'll always be spending more and more on innovation, et cetera. My sense is that the running the bank technology costs will come down. The whole number could grow a little bit, it could shrink a little bit, but that's the order of magnitude and there is a lot of innovation going on both in terms of customer service capabilities as well as the core infrastructure and how we run technology at Wells Fargo. Great. Thank you. Thanks, Tim. Tim. One, again, thank you very much for spending this part of the day with us. You've heard a lot of great presentations today, all focused on how we're building a better Wells Fargo. We continue to make progress on rebuilding trust, as I just mentioned, and we want to emerge, and we are emerging as a stronger company. Our consumer strategy demonstrates the focus on the customer. You've heard that word. That was probably the word that we said the most today. Jason, did you count? Because you're normally pretty good at that. But it's very important because it's how we're pursuing a customer experience that's integrated across all of our consumer businesses. We're innovating across Wells Fargo, you've heard a lot about that, to make banking easier and better for all of our customers, whether they're consumer customers in wealth or in commercial. And we're very committed. We've talked a lot about expenses today and efficiency, but we're very committed to improving the efficiency of the company. We've made that commitment to you, and we believe that we've got the right long-term plans in terms of executing on making the right decisions for our customers, our team members, the communities that we do business in, and for you, our shareholders. Again, thank you. Finally, while a lot of things have changed since our last Investor Day, the results will continue to demonstrate the benefit of a very diversified model and our ability to generate consistent returns over time. Thank you very much for attending, and thank you for your interest in Wells Fargo. When it comes to investing, looking from a fresh perspective can make all the difference. It can provide what we call an unlock, a realization that often reveals a better path forward. At Wells Fargo, it's our expertise in finding this kind of insight that has led us to become one of the largest investment and wealth management firms in the country. Discover how we can help find your unlock. Now in the Wells Fargo mobile app, you can request a one-time access code to use the ATM. Just my phone. Yeah. That will come in handy when you go out for tapas and you realize you left your wallet at home, but you cannot not eat tapas. Totally. Yeah. This is better. Now in the Wells Fargo mobile app, you can request a one-time access code to use the ATM. Just my phone. Yeah. That will come in handy if it is Halloween and your bumblebee costume does not have pockets. I was a bumblebee last year. Me too. Four years in a row. You were not. I was. My Credit Options Guide can help you find what credit products might be right for you. Great. Because you know how in every neighborhood there's that one house where all the kids hang out? Yes. We want to be that house. I love that. Tell me more. We have three kids, 10, 6. Ladies and gentlemen, please welcome back Avid Modjtabai. Well, thank you, and welcome back again. I am so thrilled that we have so many of our guests here with us for this session. I have been referring to this afternoon session or our innovation panel many times during my talk. This is our opportunity now to show you in real-time the experiences that we are creating and how it is impacting our customers as they do their day in and day life. I talked about a couple of key strategic areas of priority for us. You heard from Mary, from Franklin, from David, about some of the innovative work that they are also doing in their groups. This afternoon on our panel, we have leaders across all of these businesses to go a lot deeper. One of the words that you heard a lot today was transformation. In this segment, we are bringing that transformation to life. We are going to show you how it's going to be easier and simpler to become a Wells Fargo customer. We are going to show you how we are evolving the way that we think about channels and distribution. We are also going to show you how we are bringing personal advice to more of our customers. What you're also going to see hopefully, is that we're not just doing innovation for innovation's sake. We are starting with customers, and we are really innovative to better serve our customers. What that requires is end-to-end transformation. This is not just about some screens online that customers are doing, but looking at the end-to-end processes that we have, which is part of the reason why operations is part of the PVSI team. Because to do that end-to-end re-engineering and transformation, operations is a big part of that, and sometimes that transformation starts actually in our operations team. With that in mind, I'd like to introduce the moderator for our panel, Titi Cole, who's the head of operations, who would be leading us through the next hour. Please welcome Titi. Thank you. Thank you, Avid, and good afternoon. I'm pleased to be with you this afternoon. Yes, I do realize that this is the last segment before the end of the day and the reception. So thank you for staying with us this afternoon. Our goal this afternoon is to click down into some of the key themes that you've heard from the earlier presentations. You'll get a chance to hear from a cross-section of leaders driving some of the key innovations underway across Wells Fargo. What you'll see is not an exhaustive look at all the innovation across our teams, but you'll get a broad view of some of the new technologies that we're bringing to market this year, and also some of the important updates from the work we've done over the last year. You're going to hear from six presenters this afternoon, and they range across the different business units that you've heard from this morning. They will all return on stage at the end of their presentation, so you'll get a chance to ask those questions at the end of the segment. I also want to note that what you're going to see are experiences that we've brought to market through both homegrown technology, but then also partnerships with some of the fintech companies. To get us started, our first two presenters. They're going to talk about how we're accelerating digital account acquisition to really capture that opportunity we heard about this morning, which is we need to grow what percentage of our sales come through our digital channels. As Avid mentioned this morning, we know that our customers want simple, easy and secure interactions, and that's really what we're building, and that's what you'll get to see. First, we're going to have Brett Pitts. Brett runs our digital team across Wells Fargo virtual channels, and he will show you how we're transforming the end-to-end process for acquiring a new deposit customer. Then Michael DeVito, who is our head of mortgage production, will show how we're using data and a very intuitive application experience to make it easier for our customers and prospects to apply for a mortgage with us. As they go through their presentations, two things I'd like to flag for you. First, look for how we're leveraging both on us data and offers data to make the application process simple and fast. Then listen for how we're extending these simple experiences to more customers and broadening our reach. Now to get us started, I'd like to turn it over to Brett. Thanks, Titi. All right, now the fun part. I've been with Wells Fargo now for about 17 years, always in the internet and digital space. Over the course of that time, typically, whenever we've talked about digital, we've been talking about the servicing aspect. We've got about 28 million retail customers who come to us every day to check balances, transfer money, pay bills, deposit checks using their mobile phone. We've continued to see really large growth in customers and interactions, as Avid talked about a little bit earlier. Over the course of the past five or six years in particular, we've seen just as customers are looking to digital to buy and make purchase decisions for all kinds of other products, of course, they're also looking to that, and looking to digital for banking products and financial services. From an industry perspective and at Wells, we've had account applications for years, and we've worked really hard on optimizing those, streamlining them, trying to remove as many of the data fields as possible. Particularly as people are using mobile devices and have the small form factor, traditional bank applications were really, really big and long on a small form factor of a mobile phone, particularly for new customers and people we didn't know who had a lot of information to enter. So we focused on that, but more broadly, there's more to it. We have to focus on the end to end, from the shopping experience, product comparison, account application, account opening, onboarding, and first time use. That's what we've been focused on, and that's what I'm actually going to show you right now. Revolutionizing our deposit account acquisition process in particular, which we then will start extending out to other products in the future. I am happy to say that most of what I am going to be showing you is going to be live beginning this weekend. There are a couple of pieces around enhanced identity verification, and instant issue debit card into a digital wallet that is actually coming over the course of the next several months. I will show you those as part of the experience, and I will call those out as we go. The vast majority of what you are going to see actually will be live here in the next couple of days. Let us take a look at the first part of this, the product selection and the application process. I am new to Wells Fargo. I come to wellsfargo.com on my mobile phone. I see everyday checking, decide that is the right product for me, and I see that I have the opportunity to upload and pre-fill a lot of information by taking a picture of my photo ID. I pull out my driver's license. I take a picture then of the front of it. I flip it over. I take a picture then of the back of it. Encoded in that, there is all kinds of information, my name, my address, citizenship, driver's license number. So much that we need to be able to open the new account. I can also then upload a selfie to enhance the identity verification, and you can feel free to laugh at that picture like everybody does every time they see it. I go ahead then and upload that along with the photo ID, and I go to verify the information, and I see that everything now has been filled out. I did not have to type any of that information. Again, this is really revolutionary, particularly for new customers. Of course, I have to enter my email, my phone number, my Social Security number, things that are not on my photo ID. Time to fund the account. I select to go ahead and just fund by transferring $50 using a debit card attached to an account that I have at a different bank. I can take a picture then of that debit card to capture the account number, the expiration date. I then quickly just tap in the security code or the CVV that is on the back of the card, and that is it. All of the information now has been uploaded literally as quickly as it just took me to talk through that. The account is open. I have got the account number right now. You can see that, again, even as somebody who is brand new to Wells Fargo, a much easier, much faster process than it has been in the past. Now not only do I have the new account, I have the ability to be able to start making payments, depositing checks, using the Wells Fargo mobile app to be able to withdraw cash from the ATM, all from the phone that I just used to get the account. That dramatically increases the likelihood that this is going to become my primary checking account, and I am going to have a primary banking relationship with Wells Fargo because I can start to use it right away. So now let's look at the second part of this, the onboarding and setup process. I can enter the four-digit PIN for the debit card. I also have the ability to enroll directly into online banking by creating my username and my password, setting my language preference. Accept terms and conditions, and that's it. I am directly now into mobile banking. You see the account that I just opened with the $50 deposit that I just made, and there are all kinds of things now that I can start doing immediately using the mobile app, including making a P2P payment. Avid talked about Zelle and how excited we are to be part of that network and part of the imminent product and brand launch around that. Wells Fargo customers the ability to be able to send money to anybody with a U.S. bank account, regardless of bank, in just a couple of steps, which I'm going to show you here. And increasingly, as more and more banks have joined the network, we also have the ability for the recipient to have real-time availability for those funds. If I transfer money to Titi, for example, she can walk right up to her ATM, even if she banks someplace else, and actually withdraw that in cash. We think that is a huge differentiator relative to some of the proprietary networks out there, where, yeah, you can move money from proprietary account to proprietary account. But if you want it in your bank account to withdraw as cash or pay a bill, typically, you have to wait two or three days for an ACH transfer into your bank account. That's not so with this network. It'll just go directly in for real-time availability. What I'm going to show you now is actually live in our mobile app, has been since the end of last year. As Avid mentioned, we were the first bank to start to offer the new unbranded experience, and you'll see the branding change over the course of the next month or so. But I'll show you what that looks like, and you'll start to see consistency of experience also across all of the partner banks in the Zelle network. Let's go ahead and take a look at that second piece now. I go to send money. I hit send. It pulls up the contact list in my phone. I didn't have to enter any of these. I've got names. I've got email. I've got the mobile number. I decide to send money to Sam. I type in $20. It comes out of the account that I just finished opening in the app. I can confirm that, add a memo to put a transaction description that Sam will see on the other end when it shows up in his bank, and that's it. It was literally as simple as those three steps to be able to send money. We think, again, that that experience compares very favorably to even the dominant fintechs that we see out there. And again, to Avid's point, on day one, as we start to launch this new rebranded network and product, the banks who are already working on this are 3 to 4 times on day one the size of Venmo payments. The other thing that we see is in the next several months, we are also going to make it possible to instantly issue new debit cards digitally. So again, at the end of the process, we would issue the card and be able to put it directly into wallets for use at e-commerce sites and point-of-sale devices with merchants. So an example of a point-of-sale device that Avid talked about earlier as part of the merchant services discussion is the Clover device. So in this case, I have just opened my account. I walk into a restaurant, and I want to go ahead then and make a payment. This is the merchant view that you see up here on the screen right now. I go up to the counter, and I order coffee, and I order pizza because nothing washes down pizza like hot cup of coffee, I always say. I go to pay that, charge it on the card. Because this is not actually my money, I leave a big tip. That is it. Literally that quick to be able to make an e-commerce or a merchant payment from a brand-new account and a brand-new debit card that has been issued directly into a digital wallet. Of course, I will go ahead and sign. Okay. So a quick reminder, what I have shown you is the end-to-end process, from shopping, product comparison, depositing, paying, again, being able to get cash from an ATM. Huge amount of new stuff here, and we talked about it throughout the day. New in terms of technology, new in terms of end-to-end processes that we have automated around decisioning to be able to open these types of accounts. Although leveraging the power, the convenience, and the ease of Wells Fargo digital to form new relationships. So again, as Titi said, I will be happy to answer questions and talk a whole lot more about this during the Q&A panel at the end. In the meantime, I am going to turn it over to Michael DeVito to give you the home lending view of the account open process as well. Thanks, Brett. Thank you. Well, good afternoon, and thanks for being here. I'm Michael DeVito, and I lead home lending production for Wells Fargo. It's been a privilege for me to be part of this Wells Fargo team for over 20 years now. This morning, Franklin referenced our innovation work in home lending. I'm going to describe a customer journey we are building that makes the mortgage application experience simpler and easier. Strategically, this is larger than an online mortgage application. It is a move to broaden our approach to reaching customers as we transform our mortgage origination business, connect our team, our customer's data, and technology together. The new online mortgage application will provide all customers with a process that is dynamic based on their situation. Our guiding principle here is that by harnessing what we know about our customers, we only ask them for what we don't know. By combining the power of our Wells Fargo team, plus innovative technology, we can deliver an unmatched customer experience that creates real advantages for Wells Fargo customers and a compelling experience for new customers. Let's take a look at some of the features of the online mortgage application. Accessing it, excuse me, will be easy from wellsfargo.com, from your phone, from your tablet, or from your desktop. A current Wells Fargo customer will sign in using their Wells Fargo online banking credentials and be welcomed to your mortgage hub. What you will notice is a series of dynamic interview questions based on the customer's answers, not static forms to be completed. At any point during the interview, the customer can reach out for help to one of our very best home mortgage consultants. The interview starts with the customer telling us if they want to purchase or refinance. Because this customer is a Wells Fargo, already does business with us, we know them, and they confirm details such as their name and current address versus typing them in. They tell us if they're applying with another individual. The next step in the interview is about the property. What type of property are they buying? What's the purchase price? How much are they looking to borrow? Is there a real estate agent involved? Next, we look at assets. Once again, we have the ability to demonstrate we know this customer by prepopulating the Wells Fargo asset data and allowing the customer to choose what information they want included and considered in the loan application. This is both fast and secure with no documents to collect or submit. This is actually an example of how we're using an internal API to connect to our internal Wells Fargo data. For any customer who wants to use non-Wells Fargo assets, they can also gather that information securely from other financial institutions. Within a few minutes, they can choose which accounts to use and at which financial institution and authorize them to automatically import the documents to us for use. As Wells Fargo customer data is more fully leveraged, we eliminate frustrating, document-intensive processes that the mortgage experience has been known for for years, and we transform our own operation, improving the quality of information, reducing risk, and limits our need to touch, image, evaluate paper. Income is the next step in this interview process. Customer is asked to select the types of income they'd like to add to support this transaction. We can support all kinds of income. The last step is about real estate. Do they own their current property? If so, what do they intend to do about it? We ask them additional information about the real estate that they own, such as the value. Do they intend to sell it? Do they intend to keep it? Do they intend to rent it? At every stage of the interview, the customer has the ability to review the application for accuracy. At this point, if we have not captured everything with data, we can also request documents with a personalized checklist. As an example, if we need pay stubs, they're able to be provided by securely connecting directly with their payroll provider and automatically importing or choosing to manually upload them. If tax returns are needed for each customer, they're given choices to auto-import from TurboTax or manually upload. At this stage, we're now ready to submit a mortgage application, and the information is currently being loaded into our origination system. We're retrieving a credit report and running our automated decision tools in the background to evaluate this customer's application. This information will flow directly into our existing tools like yourLoanTracker, where a customer task list and progress report are available for them to monitor. In this case, the customer submitted the information we needed, and we were able to generate a priority buyer approval letter. This is our form of credit preapproval in the marketplace. We did this in just a couple of minutes. This customer is now empowered to go shop in the marketplace for a home with the confidence that they're credit approved. This is just the first step on our journey to simplify the customer experience, harness the power of our data, and it's real. The technology I'm showing you today is currently in a live production pilot and will be further expanded later this year. This journey will enable a more customer-driven experience and will enhance the power of the Wells Fargo team by creating a simple, easy process. Our focus is to provide customers choices on how they want to be served and a range of possible interactions, with informed advisors at any point in time throughout the entire process. Thank you for your time today. I'll be happy to take your questions during the Q&A, and I'll turn it back to Titi. Great. Thank you, Michael. Our next two presenters, they are going to bring to life the theme about how we are expanding and integrating our distribution channels to meet our customers' expectations and preferences. We heard from Mary and Avid this morning about how customers' preferences are shifting, but convenience and accessibility remain absolute top of mind for our customers. First we are going to have Jonathan Velline, Head of Branch and ATM Banking, and he is going to highlight how we are using digital capabilities to modernize our branches, both for our teammates and for our customers, to enable more seamless and convenient and streamlined experiences. Then we will have Danny Peltz, who runs our Treasury, Merchant, and Payment Solutions teams, and he will talk about our enterprise gateway and how we are leveraging emerging technologies like APIs to expand our distribution and provide services and capabilities to our customers. As they present, look for how the investments we are making in technology are shaping the in-person experiences and really creating more seamless services in every single channel that our customers choose to interact with us. Also listen for how we are shifting the paradigm from asking our customers to come to us, to going to them wherever they are and however they choose to bank. To get us going, I would like to turn it over to Jonathan. Thank you, Titi. Hi, I am Jonathan Velline, I am with the community bank. I have been with Wells Fargo for 25 years. You saw me here last year. I was talking about how we are taking paper processes out of our branches, make the process more efficient end to end. It is a great efficiency story, but it is also a great experience story. Today I am hoping to show you what that really looks like for our team and our customers in the branch. Mary introduced the concept or the word, the digital branch, this morning. It is really about taking our team members and our physical channels and connecting them to our customers' digital lives. You saw some examples from Avid and Brett of what that looks like in the digital space and how they are weaving that into all of our channels seamlessly. Now, if we could, we would do this as end-to-end digital from the beginning, but we have actually a lot of process, legacy process, paper process in the branches that we have to re-engineer. It is important that as we re-engineer them, we are making them digital at the core. It is not just taking a process and making it electronic. It is really rethinking, how would we build this if we were building this 100% digital from the beginning? That is important. It is important for our customers. They have these expectations of us, expectations that were set maybe by the digital channels or more likely by other technology providers. It is simpler for our team, many of whom are digital natives themselves. As I said, it is efficient. Mary shared the number. It is $185 million that the digital branch has been able to deliver in terms of annual savings. So it's a savings story that actually delivers better customer and team member experience. This isn't a flagship or a one-off. The digital branch is every branch. We have this huge network, 6,000 branches in 463 markets. It's everything from rural to metropolitan. The digital branch is in all of those. If you walk around this hotel, we have a variety of branch formats. Just across the street, we have the classic Union Trust office with its columns. You go a little bit up Market Street, and you'll see our newer small format Transbay Gateway branch. Then up at the top of Market is our One California branch. All of these have elements of the digital branch. We built Transbay Gateway with these assisted service ATMs that replaced the need for a teller line. That allowed us to fit a full-service traditional branch into less than 2,000 square feet. So a really innovative use of technology and space to serve our customers differently. But we also use assisted service ATMs at our One California branch. I talked about this last year, where we're taking our existing teller lines and retrofitting them. We're putting an assisted service ATM into the teller line. This offers another option for our customers, but it's also a great way to efficiently add capacity at a busy traditional branch because those assisted service ATMs do more transactions than the tellers. So we've actually made those windows twice as productive. Even the classic Union Trust branch is a digital branch. We've replaced all of the teller slips with touch screens, and that's how our customers interact with the tellers, and that's in all branches. So we have this range, and that's what's important. The digital branch is about connecting our customer's experience regardless of which branch they walk into. I'm going to give you some demonstrations, and the key to remember is that we're thinking about this at scale. Most of these are either in all of our branches, or they could be in all of our branches with limited capital investment. So let's start. I'm going to show you what it looks like to make an appointment with a Wells Fargo banker. Mary shared that great story about the customer who was searching for a new bank account, came across Wells Fargo, made an appointment to talk to a banker, and this is how it works. You simply select the reason for the appointment from the map, select a nearby Wells Fargo branch, choose a date and a time, and you get this confirmation screen. The brilliance of this is that the branch manager also gets that confirmation screen, and they can reach out to the customer and create that human connection. So we're moving from digital to human even before they come to the branch. And obviously, when they come to the branch, they get that warmth of a Wells Fargo banker. So let's take a look at what that looks like when they do come to the branch. So our customer comes into Wells Fargo. She's greeted by our stage director. He says, "Welcome to Wells Fargo. What brings you in today?" We've given him a mobile application where he can see all of the appointments that are due today. He can check customers into the right banker. This is a way that we can connect our customers to the banker with a specialty that is going to make the most sense to them. He has some basic customer information here. He can provide some servicing, answer some questions. It is all a way to connect with the customer quickly, get them to the right banker at the right time. Now let us take a look at how authentication has been changing. We are installing NFC card readers at all of our banker desks, all of our teller stations, and this allows our customers to authenticate using their smartphone. Any of the leading wallets on the smartphone, customer simply holds up her phone to the PIN pad, puts in her PIN, and now she is authenticated. It has created a secure session with that banker. You have heard a lot about the card-free access at the ATMs. Here, our customer simply goes to her mobile phone, requests card-free access instead of using a debit card. She gets this 8-digit code, which is good for 30 minutes, and she can take that to any of Wells Fargo's 13,000 ATMs across the country. Put that code in instead of inserting a card, puts in a regular PIN, and then she has access to the ATM like she would in any other situation. This is a way that we can turn on the power of our physical network to all of our customers using mobile. We have launched this at all ATMs in March. We were the first large bank in the U.S. to be able to offer this to all our customers across our entire network. Let us talk about what else is new in ATM innovation. We are continuing to invest in the assisted service ATMs, and install these in new stores and also in the teller lines of our existing branches. Usually, the big, busy existing branches where we want to add capacity. Our customers can do more at these ATMs. They can withdraw ones and fives and hundreds in addition to 20s. If they need assistance, a banker is alerted on his wireless tablet and can come over to help. He has all the customer's information about the transaction, information about the customer that he would on his teller system or on the banker system. The difference is that he is untethered. Now he can come to the customer where she is and help her at the ATM. That allows her to withdraw larger amounts, get approvals, things like that. Finally, let us talk about collaboration. You heard earlier today about our digital advocate pilot, and this is where we are taking digital tools for our customers and introducing them in the branch environment. Here, a banker is taking a tablet and walking a customer through a what-if situation on saving money for a down payment on a car. So they work through all the scenarios, helps the customer develop a plan. She can save the plan and download it later on her phone. As he is setting up new accounts and services for the customer, she can actually follow along and engage in the process on her own smartphone. Here she is receiving the terms and conditions and acknowledging those terms and conditions on her own mobile phone, as opposed to receiving that stack of disclosures. She can download the Wells Fargo mobile app, the new tools like the Daily Change savings application. Our goal is to get the customer engaged digitally from the very beginning. As Brett said, if we can get them using digital and using mobile from the very beginning, that is going to lead to more primary checking usage. Our customers are still visiting us. You saw the stats from Mary today. We have 125 million visits at our ATMs and tellers every month. As long as our customers are coming to the branch, we are going to want to meet their expectations with digital, with modern, make that a relevant experience. For us, it is about taking our digital capabilities and introducing them to our customers in the physical space. Now let me bring up Danny, who is going to talk about taking our digital capabilities and bringing them to our customers wherever they are. Great. Thanks, Jonathan. Hi, my name is Danny Peltz, and I head up the Treasury Merchant and Payment Solutions Group here at Wells Fargo. The last time I got to speak to you was about 3 years ago at Investor Day, where I gave you an update on our approach to the treasury management business. During that time, I talked a lot about how we leverage technology, innovation, and continuous improvement to drive market share gains. As Avid and Perry has pointed out, we took our market share from number 3 to number 1 since the last time I talked to you. I have been at this company for about 27 years. I have seen and I have been part of a lot of innovation on the process side, on the product side, as well as on channels. What I am going to talk to you today is the Wells Fargo Gateway and the power of APIs. The exciting thing for me is that all three of those elements, process, products, and channels, are incorporated into our gateway approach. Before I get into how we are going to market, I thought it might be instructive to spend a couple of minutes talking about what an API is. It is easy to spell, of course. It is not so easy to always understand. The way I think about it is, it is a little snippet of code that a developer can ingest in their application to borrow a service from somebody else. APIs are all around us. In fact, every single one of you have used APIs probably today, maybe in the last week. If you have ordered an Uber, if you have watched a movie on Netflix, if you made a purchase on Amazon, if you have tracked a FedEx package, all those are being powered by APIs. It is a basic part of the fabric of the internet today. There are a couple of different approaches to go to market with APIs. There is a public API approach, and that is probably easily seen with Google Maps, which you see everywhere. Google Maps are embedded in things like Yelp and OpenTable or anybody who has a website that wants to direct you to where they are going. Why is that? Well, Google makes it available. Why would you build mapping software if you can just borrow it from Google, right? Simple approach. Our approach is going to be much more about delivering our services in a secure way to our customers through an authenticated session. I will talk a little bit about that. The important element here is that APIs are here, and there are billions and billions and billions of calls happening every day that are powering the internet. When I think about what is happening right now, it parallels to me a lot of what I saw 17 years ago. At that time, Steve Ellis, who you will hear from a little bit later, and I led the development and the delivery of our Commercial Electronic Office, and we launched almost 17 years to the day today. It was June 24, 2000. Again, not that I am focused on dates too much. But today, our customers are initiating $11 trillion in payments through that channel. I remember quite vividly there were a lot of skeptics as to whether or not commercial customers were going to be willing to be able to make payments. But obviously, they voted with their feet and their pocketbook, and we have been enjoying that relationship with them online ever since. When I think about APIs and where the world is going digitally, it is the next phase. There are more and more distributed devices in everybody's hands, and with the onslaught of Internet of Things, it is going to allow us to be able to deliver our services wherever our customers happen to be. So it was about two years ago that we really saw the pickup of this trend of APIs powering digital innovation. We are very fortunate that we are located here in San Francisco and really just a stone's throw down to Silicon Valley. Our customers started to ask us if our services were going to be offered as an API that they can ingest right into their system as opposed to using browser-based technology. When you think about it, our assets and our processes are principally digital. So natural application to be able to deliver online. Perhaps you are a large corporate customer and you want to be able to use one of our services and include it into one of your CRM systems. Or maybe you are a small business and you want to leverage one of the existing third-party providers out there that do something unique, like provide accounting software. Or you are a consumer and you just want to be able to use our services where you are. APIs are going to allow us to be able to provide that to each and every single one of us and make it easier for us to do business with. I am going to describe how we go to market with the gateway and share three use cases, a corporate case, a small business case, and a consumer case, just to give you a glimpse into the power of this platform. As I mentioned a little bit earlier, our approach in terms of how we are going to deliver this to our customers is very much a relationship-based approach. So what you can see over here is a snapshot of what our 1.0 developer portal is. In order for a customer to be able to access that, we provide them with authentication. They are able to log on and look at all the services that we offer today. We're continually delivering the service on a regular basis. In fact, we launched this portal, the initiation of the portal on September 30, 11:31 A.M. About a year later, we launched it with these applications and these services. Why it was so important is that before a customer, we could deeply integrate with them, but it required us to create a statement of work and have our IT people on our side working with their IT people on their side to be able to integrate our services. Now a developer logs into this portal, goes to the code page, chooses the language that they want to use. Clicks one button, copies the code, and can import it right into their application. What used to take weeks or months can now take hours and days for them to be up and running and starting to test. In addition to building out what we consider a best-in-class portal, we also looked for a developer toolkit inside the bank to change how we deliver services. APIs require rapid delivery on an ongoing basis in order to be able to deliver those services. We brought in a tool stack of about 45 different developer applications in order to be able to do that. We were also able to go out to Silicon Valley and find the right talent to help us build it and power it and teach us how to build for the digital world. That was our developer portal. I'm now going to go through the three use cases. The first one is a corporate example. This would be an example where a corporate customer deals with consumers. Maybe this is a utility company, maybe this is a media company, and one of their customers calls them up to get information about a payment that they believe that they made. Today, a call center agent actually has to open up a new browser, log on to our CEO, click the service that they want, enter in the search data, and then retrieve the information that they're looking for. With the API, which we have in production today and are going to begin piloting in June, a developer from that company can simply take that code, incorporate it into their CRM, make sure they were able to pass the data right back to us, and get an image directly into that system, so that call center agent never has to leave the screen that they're on. It's a great use case for high-frequency, routine transactions. You can imagine, this is an image of a check, but you can easily see a wire, a foreign exchange rate being delivered, or any piece of information that we may want to deliver to our clients. The second example is a small business example. This is an example where we and we announced this sometime last year with a company called Xero. Xero provides small business accounting software. Prior to us coming up with this new API, which we call Secure Data Exchange, they had to collect the username and password from their customer, who also happened to be our customer, and they would then log into our system with a bot software and screen scrape all that information and pull it back into their platform. Inefficient for them, inefficient for us, and insecure for our customers. Through this partnership, we did a number of different innovations. First and foremost, embedded within the Xero ecosystem, if you are a customer of Wells Fargo and click on the Wells Fargo logo, you will be brought to a very specific landing page that allows you to be able to sign in with your credentials and authorize Xero to be able to access your information. That also provides a foundation for us to be able to provide to our customers a control tower-like experience to manage their entire digital financial lives. From the way that we are seeing the world, it is getting increasingly complex. If we can make it simpler and provide a single point of access for our clients to be able to manage their financial lives, it is going to be that much better to do business with Wells Fargo. The second innovation that we did was that we created the Secure Data Exchange API, which Xero can now ingest on a regular basis and update their information. In addition to Xero, we have partnerships with Intuit and Finicity, and we are actively seeking other customers to be able to leverage this service. This last example is a wonderful example of reuse. We took that same Secure Data Exchange API, and we were able to leverage our partnerships that we got through our Startup Accelerator that Avid had mentioned a little bit earlier, a company called Kasisto, that we view as a pioneer of leveraging artificial intelligence to power conversational interfaces in financial services, and built an artificial intelligent bot that we can then port out into a messaging platform, for instance, to be able to deliver personalized advice to our customers. The great thing is that we were able to just reuse the API we already had. We already had the relationship with Kasisto, and we got to market very quickly. We made this announcement about two or three weeks ago, and we are starting a team member pilot very soon. It allows us to be able to deliver our services where our consumers are spending their digital lives. Instead of talking about it, I am going to show you what the service looks like. You can see on the screen here. Here I am in a messaging session on Facebook, and I will ask, "What is my balance?" Here I am choosing to type in, "What is my balance?" I can also talk to the device. That is how my mom communicates with her little iPhone. She is always walking around like this. She does not like to type. It has natural language search capabilities. The reason the initial transaction is taking maybe five to eight seconds is because we are doing a full authentication, ensuring a secure connection with the end consumer. Here you can see that my available balance is $443, which would not even be enough to pay for a hotel room here today. It is a test account, so I guess that is okay. We give a couple of different options. You can just ask questions directly, or we have teach me a term capabilities down below. I can click the button to find out what last week's spending was, and it will pull up for me what those are and provide me the opportunity to be able to look at the different transactions that happened. Maybe I want to know how much I spent in April. Oops. Maybe I should be talking to this thing. Three hundred and nineteen dollars. How much on food? Two hundred and thirteen dollars. Do I want to see the transactions? Yes. How much on coffee? We have all the data of all your transactions within that API, so the types of questions we can ask are very broad-based. We have 10 matches for coffee. Apparently, I like a lot of coffee. What about February? It also contextually knows the date today, and you could ask it last month or the prior month to that, and it would be able to answer those questions. We can also answer generic questions. I think Avid mentioned that. Maybe I want to know where is the closest branch? They do not recognize my location. I am in San Francisco with all of you, and I send that to them right there on the map. Give me the various locations that are closest to where I am. What if I needed to send a wire and I needed instructions about what my routing number was? What is my routing number? Is this for a wire? Yes. It gives me the routing number right there, very easily and quickly. Thanks. No problem. Have a nice day. Nice banking with you. That is a nice touch. The whole idea here is that we can have actual conversations in a natural language with our customers through various platforms. We could take this to other messaging platforms. We could use the same concept and technology internally. What I have tried to demonstrate to you is to give you a few different use cases of how APIs could allow us to be able to go to where our customers are, and we are in the process of enhancing and building more and more APIs. We have eight today that are currently in production. We should be at 20 by the end of the year. This is supporting businesses across the enterprise, including within the community bank, within the wealth area. Michael talked about how it is powering a component within the solution that he showed you, and it is extremely exciting for me. Hopefully, it is exciting for you, and you could recognize the value of what this channel will be able to bring to both our customers and Wells Fargo. With that, I am going to bring Titi up, and she is going to introduce our next speakers. Great. Thank you, Danny. Our final two presenters are going to focus on how we're delivering personalized advice at scale. We heard from David this afternoon that many of our customers already benefit from our financial advice. It could be in a branch with a financial advisor, or it could be a savings consultation over the phone. What you'll see in these presentations, though, is how we're leveraging technology to deliver personalized conversations with our customers in any channel that they choose. First, we'll have Eddie Queen, our Head of Digital Investing in our Wealth and Investment Management business, share Intuitive Investor, which shows how we blend both robo and human advice to deliver solutions for our customers. Then we'll have Steve Ellis, our Head of Innovation, discuss how we're using artificial intelligence to drive financial insights for our customers. As Eddie and Steve speak, listen for how we're leveraging data and artificial intelligence to efficiently deliver personalized advice and insights at scale to meet our customers' needs. It could be a need like, how do I start investing for retirement? What should my asset allocation look like if I'm trying to retire in 2023? A whole range of other questions like that we can leverage technology to deliver advice for our customers at scale. Now I'd like to turn it over to Eddie to show the capabilities. Thank you, Titi. Hi, everyone, and thank you. I'm responsible for digital investing at Wells Fargo Advisors. Essentially, Intuitive Investor that we're going to talk about, but also our self-directed offering, WellsTrade. With this crowd, I feel like a newbie. I'm coming up on my fifth year with Wells Fargo, and in a very good way, it feels much longer. On Intuitive Investor, I want to cover this from two different angles. I want to quickly first hit on why this matters to us as a company, why we're doing this. Then I want to shift to the more important question of why will this matter to our clients. On the first, on why it matters to us, why we're doing this. Essentially, as Titi was saying, we are leveraging digital innovation technology to scale investment advice to a new segment of clients that we don't serve today. Very importantly, in doing this, what we actually try to do here is build a long-term growth pipeline of affluent and high-net-worth clients for Wells Fargo, and we'll talk more about this. Who are these clients that we are primarily designing for here? First, from an attitudinal standpoint, these are what we call convenience seekers. They want advice, but they are digital first. That's how they think. They do want, though, the ability to talk to someone. They want to know that if they run into a situation that they want help, that they can pick up the phone and talk to an advisor. They tend to be price sensitive, cost conscious, but at the same time, they're more open to consolidating their finances with us. That's the characteristic from an attitudinal standpoint. If you look at our research, these tend to be overwhelmingly Gen Y and Gen X today and mass affluent. These are the clients that want this today. We fully expect this to evolve with time, but if you ask us who are we designing this for, that's the sweet spot of our clients. When you think about our strengths, right, and what gives us the ability to win in this space, I think the first thing to keep in mind is, you think about what David Carroll covered today. In Wells Fargo Advisors and in the private bank, we have very accomplished, scaled, successful businesses managing $1.6 trillion in assets. Those businesses offer the services that these clients that we're talking about here will need and want 5, 10 years from now. In a way, not different than what you heard from Perry when he was talking about business banking. That's the same strategy here. We want to capture them early, and that's our pipeline strategy. David Carroll likes to say that, especially in this country, very few people just simply inherit wealth. They build throughout their lives through hard work and saving. We want to be along with them in that journey, and this offering allows us to start with them. The other key competitive advantage that we are tapping here is the vast reach of our retail franchise in Wells Fargo. If I were to just think about what I just described, Gen Y and Gen X clients that have more than $50,000 to invest, we have 6.5 million of those households with $3 trillion in assets being vested away from us. No doubt, great opportunity. As I said, this helps us close a gap that we have today with key competitors, but almost more importantly, it positions us for long-term growth with the affluent high-net-worth clients of the future. Now let's shift to the more important question of why it matters to our clients. There are four key things from a value proposition standpoint that clients want in this offering. The first thing is an intuitive and integrated digital banking and investing experience. The second thing is having an advisor just a phone call away. The third thing is that the technology that underpins the investment management capabilities has to be sophisticated, it has to be strong. And the fourth, no surprise there, clients want to have access to this at a low cost, and they don't want to have to compromise on the investment advice quality. I'm going to kind of take you through each of these four. On the first one, on the convenient experience. You heard from Brett and Michael that we're using technology to make client acquisition and onboarding easy. Same philosophy here. Our clients will be able to create their profile, they'll be able to see their recommendation, they'll be able to open the account, they'll be able to e-sign the documents, they'll be able to fund the account all online. No need for paper. And by the way, across phone, tablet, and browser. And more importantly, this was designed to be seamlessly integrated with Wells Fargo. They will be able to see everything in one place, and everything that is specific to this offering, they will be able to do online. They do not have to call us or send paper or fax us anything. Including, very importantly, set a recurring transfer from their bank account to their brokerage account so that they can save towards their long-term goals. That is what we are here for. We are here to help clients succeed financially and meet their long-term goals. Now, at the same time that I say this, make no mistake, this offering is designed so that if you do not want to talk to anybody and you want to do it all online, you can do that. However, what we find with research is that about two-thirds of investors, they want a combination of human and digital. And even if they do not use the human, they want to know that it is there. That the moment that they need it will be there for them. Investing can be emotional. People may want to talk through the risks that they are taking, really understand what it means to take those risks. They may want to talk about their financial goals and how those investments relate to their financial goals, and we want to be there for that, which leads me to the second point, which is having advisors just a phone call away. So we will make it very easy. At any point in time in the experience and at any point in time during the life of the relationship, these clients can call us, and they will reach our advisors that we have already across the country in three centers. So we are leveraging our scale here, and they will be ready to support them, actually, on an unlimited basis. We are not charging additional dollars for this service. It is part of the offering. Okay. Third key element of the value proposition, the technology has to be strong, which is why we partner here. We actually decided to work with SigFig, a venture company from San Francisco. I was talking to Brett Pitts, maybe a year and a half ago about this, and I am running the idea by him, and he said to me, "Eddie, we want to learn to work with this venture firm. It is important for us. We need to exercise these muscles." That is what we did. We partnered with them. We certainly accelerated our delivery, especially across devices, and we now have the ability to update our offering. Four key things that our clients will get. Daily, the algorithm is checking the portfolios for need for rebalancing. If appropriate, the algorithm will rebalance the portfolios on that frequency. In doing that, the algorithm is checking for opportunities for tax loss harvesting, essentially reducing the tax bill of our clients. Almost more importantly, every time that we take action, automatic digital communications go out to the client, so that the client stays engaged and informed about what we are doing, what is happening with their money, which is a key element of the value exchange that we have in a digital offering like that. So third, very important. Now, the last one is they want to get this at a low cost without compromising on investment quality. So we are going to offer this at half a percentage point, 50 basis points. But also, we're going to be extremely transparent about not just the fee that we charge, but also the underlying fees of the ETFs that make up the portfolio. We're choosing ETFs because we're embracing here a low-cost approach. It's mainly passive with a little bit of smart beta. All the intelligence here, the questionnaire, the risk profile, the asset allocation, the security selection, I'm looking at Daryl here at the back, all of this is going to be provided by our Wells Fargo Investment Institute, which is already the source of investment insight and strategy for the private bank, for WFA, for all of the wealth and investment management businesses. So that covers the offer. Needless to say, there's a fantastic group of people working to bring this to life, and we're extremely excited to take this to market. I think it's a great example of what Avid was talking about earlier on how we leverage technology to scale advice to a whole new segment of clients that we don't serve today. It's a great long-term growth opportunity. We are live in pilot now with employees, with team members. I have a couple of accounts. A few people here have their accounts open as well. We have a summer pilot with clients, and then we have, if all goes well, we have our broad launch scheduled for the fall. So that's it. More to come. With that, I'll invite Steve Ellis to close the section. Thank you. Thank you. Thanks, man. Hi, I'm Steve Ellis. I've been at the bank 29 years, 9 months and 28 days, as of right now. I've had the pleasure of being the head of our innovation group for the last 2 years, where we've been one of the catalysts of transformative change across our company. As many of you know, there's a lot of emerging technologies that offer vast promise to our customers, our team members, and our enterprise. I'm going to focus right now on one of those, which is artificial intelligence or AI. Simply defined, artificial intelligence is the ability of a machine to copy rational, hopefully intelligent, human behavior, which includes learning from experience. That's what AI is. When we take AI and combine it with the vast reams of data that we have, it enables us to create rich four-dimensional portraits of our customers and their behavior. When we have that information, we can then offer personalized guidance to our customers. All guidance starts with conversations. It could be a virtual conversation like that cool chatbot that Danny was just demonstrating for you. Or it could be an in-person conversation you heard Mary and David talking about earlier with bankers and advisors. Because this information isn't just to the customer's hands, it's in our team members' hands. Now, you'll notice that there are a lot, there's been a growing basket of things called AI technology. Basically, anything that has to do with data right now is called AI, which is a bit of a stretch. But many of these technologies you see here, the machine learning and the behavior analytics and some audio recognition, we've been actively working and are in our environment today and have been for over 10 years. AI is not new to us, and it's not new to the services we provide to our customers. AI is going to be one of the engines that fundamentally transforms the bank from front to back and back to front, right? Lots of data is our lifeblood. AI is going to become one of the tools along with our people as we change and transform our company. I'm not going to talk about a lot of the back end today, but what I want to do is talk about 2 new ways we're going to communicate with our customers. So I'm going to show you 2 demos. One demo is actually live. It's not really a demo anymore. It's a real thing. The other is going to be coming attractions. So what we have here is a person called Pat. Pat is an individual in his 20s. He kind of handles his money okay, but he's got a couple issues with it. He's also a Wells Fargo mobile customer. Just give this a second. This is a prototype demo. This is a real service that over half a million customers use today. He logs into Wells Fargo, and you see there's Pat's checking. He touches his checking, and he gets some information about his available balance. You see the little blue light bulb down in the lower left-hand corner there. He touches that light bulb, which gives him insight. When he logged in, we took all his account information, transactions, and also scheduled things like scheduled bill payments, and ran them through an algorithm, an AI, to develop insights. Some of these are not AI, they're just insights like, "Were you expecting a paycheck?" Normally, we see a paycheck. Right? Now, one here on the top, you notice there is a little, the third one from up, says, "Attention needed." Pat, being very attentive, touches that. He notices, we have noticed that he is only got a little over $1,200 in his account. He has got upcoming bills scheduled of $1,500 that is going to be deducted from his account. He has got a balance deficit. Turns out he has got some money in his savings account. We recommend that he move some money from his savings account into his checking account. He touches transfer funds, everything is done. Now it is, please rotate. Now it is a couple of weeks later, maybe a couple of months later, and Pat is logged in again to look at his account. He logs in, he sees now he has got his slight little light bulb again. He is going to have different insights because things have changed for Pat. Now Pat has a savings opportunity, because he has been getting better at managing his funds. We show him a savings opportunity when he clicks on it, to how much money he could save, and we suggest maybe he would want to talk to a Wells Fargo banker. He clicks on the phone, and he calls Wells Fargo, and boom, he is talking to a banker who has the same information in front of her, and he is working with Pat to help think through savings opportunities. Now it is a little bit later, Pat comes back in. Pat is still not managing his funds that great. He touches his light bulb and it says, "Oops, spending increase. Your spending at Starbucks is higher than usual." Apparently, Pat and Danny Peltz are hanging out a lot and drinking a lot of coffee in Starbucks. Now, this guy, here is his Starbucks coffee pattern over the last 5 months. This guy is a little too beaned up if you ask me. He clicks on this and get all his details, and he can see everything that is going on in his account. This is a live. This is not. I would not think of this as a pilot. It is in over 500,000 customers' hands today. We rolled it out earlier this year, and we are expanding it and rolling it out across our broad base of consumers later this year. Now I have got another pilot I want to show, coming attraction. I want to preface this and think of it, we have. This is a real customer of ours. April is a working mother of two. She has a hard time making things hook together, right? She finds financial services a little complicated and confusing. She is living paycheck to paycheck, and she wants less worry and less stress. Her exact quotes, less worry and less stress. She puts her kids to bed, she gets on workingmother.com, and there is a Wells Fargo ad right there that says, "Let us help take the worry and stress out of your life." She clicks on that button, and what pops up is a lot of the things you just saw. Right? The instant identity management platform that Brett showed you, which is, as Avid also mentioned, CIP compliant, a simple, easy, intuitive way to go from prospect to Wells Fargo customer, and it is compliant and risk, and makes the regulators happy. They said it could not be done, but it is done. Right? So now she is online, she is a Wells Fargo customer, and in that, we have. Now she is, assume she is 3 months in. She is using this, our new cash management app, which helps her manage cash inflow and cash outflow. Let us walk through some of these scenarios here. Loading the prototype, which we are actually actively testing this with hundreds of real customers right now. April had signed up to get alerts when things are going on. She puts. She is at work, she has got a break. She gets this alert that pops up on her phone that says, "Congratulations, April. Your monthly bills have been paid. You have opportunities to save more." She thinks that is good. Let us find out. She clicks on this. She logs in with whatever her biometric is that she is using to log in, because why would she use a password and ID anymore? She gets into our app that says, looked at her spending pattern and run through some algorithms, said, "You know what? You are spending your discretionary spending. There might be ways for you to trim this back, and if you trim that back, then you will be able to save more." She says, "Well, let us set up a spending target." She touches this button. She has a virtual debit card that she can put certain amounts on it that she cannot spend more than. This would be. She can spend $250 a week. That would be it. That is what our algorithm would say. She can change this number. She can change it. She might want to set up that spending thing every 2 weeks or every month. Anything that looks red, she can change. She accepts our algorithm because our algorithm is smart, because it has been working with 70 million customers, and we have learned a lot of stuff. Now she has set up a spending target, and here is how much money we hope she is going to save, and then she will get this little thing that looks like a diamond. She is done with that. That is one example. Now it is 4 weeks later. April is driving her car. It breaks down. They have got to take her car to the shop. She is at the shop. The guy says, "You need. This is going to cost you $300 to repair her car." She does not know. She logs into her Wells Fargo app using her biometric marker again, and now she goes to her homepage. She sees she has got $52 on that spend card. She has got $2,700 in her account. You can see these numbers across the side. That would actually be a slow ticker going. She goes, "Oh, 100. I spent $123 in August." You can tap on that and see that she was shopping Amazon. She can pay bills. She can do anything she needs to do here. But one thing she needs to do is she needs to move money. She has taken her money and put it in envelopes. She has $250 set aside for next week's spending. She has got a rainy day savings fund she set up for $400, and she has got bills that she has already put $2,000 away. She goes, "Well, I have got to fix my car right now because I have got to pick my kids up." She goes in, and she sees these, she can slide and move money from one envelope to the other. Obviously, she has to pay her rent. She is not going to go to next week's spending. She touches the rainy day and slides it over from $400 to $100. Immediately moves the $300 from the rainy day savings to her card. She pays for her car. She drives home. She picks her kids up, and then she drives home. She is happy about that. Now it is later again, and April gets this alert from us 3 months later, says, "Good news, April. Looks like your income has been steadily growing. You want to take advantage of it?" She touches that. She logs in. Now, I want you to just assume this is not all happening. This could be like the chat bot that Danny Peltz just showed you, but she could simply be talking to her phone. Or maybe she was driving her car, and when she logged in through Wells, we authenticated her from her voice. Assume this is a conversation she is having, where we talk to her and say, "Welcome back, April. It looks like your paycheck has been up 10% for the past 2 months. Did you get a raise?" April says, "Yes." We say, "Congratulations. You know, you could save some of that. Does that sound good?" She says, "Okay, that is not a bad idea." We say, "Great, would you like to use the rainy day savings that we have already set up for you as an envelope?" She says, "No, I want to start something new, something that is a little more long range." "Okay, what do you want to call it?" She wants to call it My Future Self because she is building for the future, right? We say, "That is a great idea. How about if we start with 10% monthly of your salary for your My Future Self?" She goes, "No. How about we start with 5%?" We say, "Okay, we will set up a My Future Self savings plan, setting aside 5% a month. It is going to build about $2,900 in a year. Does that sound good?" April says, "Yes." We say, "Done. It is all done." She is driving the car home. April says, "Thank you, Wells Fargo. You rock." That is real stuff that takes into account a lot of the things you have seen today. It uses the APIs. It uses some of our cool partners, and it is enabling us to build a rich experience. April is no longer worried and stressed. April is in charge. She is in control of her finances, and she is more confident than she was before. Something Mary Mack had put on one of her slides said, "Now we have a good financial outcome for our customer." Now, more things happen with April. Maybe she wants to start investing. Maybe she is going to buy a house. She would probably go and use one of our cool new digital services like Intuitive Investor or the mortgage application. Good financial outcomes for customers create good business outcomes for Wells Fargo. That is what we are really after here. It is not about cool technology. It is about making things work for our customers. With that, I want to welcome Titi Cole back up to the stage. Great. Thank you, Steve. I hope that what you saw this afternoon really helped you understand why we're so excited about what we're delivering for our customers. Because a lot of what you saw is actually in the hands of our customers, and it is absolutely helping them live their financial lives with that kind of control and convenience and security that they want. To summarize, what you've seen this afternoon is really bringing to life the five things that Avid talked to us this morning about, our goals and our opportunities, how we're accelerating digital account acquisition, how we're providing best-in-class digital payments, how we're delivering on personalized advice at scale, how we're expanding and integrating our distribution channels, and finally, how we're building a platform for customer-focused innovation. At this time, I'd like to invite the panelists to join me on stage, and we'll open up the floor for any questions you may have. We could help. We could help. We could help. We could help. There goes it, yeah. Jim Rowe will be watching the questions app, if you'd like to submit that way, or you can absolutely raise your hand with any questions you may have for us. Tick, tick. Okay, so we're ready. We're ready. Fire away, Betsy. I have a question right there. Could you just talk a little bit about how you deal with fraud and how you've designed the system to assess when you have fraud coming in, and how you deal with it without tipping off the person so that you can make sure that doesn't happen in the future from that angle? Tick, tick. I can start. Why don't you? Good. So on the retail end, we've always taken and have continued to enhance what we call a layered approach. So we've got perimeter defenses that are constantly protecting sort of our overall infrastructure and environment from all sorts of automated attacks that everybody is subject to. We obviously have lots of authentication protection. And again, one of the things that's really cool about the new authentication technologies now- In the past, there's been sort of a trade-off between customer friction and risk management and authentication, meaning if we wanted to reduce risk, typically we would have to throw up obstacles, questions that somebody had to answer, "What was your second-grade teacher's maiden name?" in order to be able to get into session. With biometrics, with a lot of these other more sort of passive ways of doing it, we have actually increased the security, decreased the risk, and simultaneously decreased the friction. We also have a lot of existing operational processes, where we look for out-of-pattern expenditures, all sorts of more traditional things that happen not just within the digital space, but also across all of the different ways that customers interact with us. So it's not any one thing in particular. It's not any one technology in particular. It's the aggregation of all of these things that we're doing to try to most effectively manage risk for ourselves and certainly on behalf of our customers. In particular, the account opening- -with the transaction and then usage, the account opening piece. Yeah. Because I know regulators have in the past been very concerned about that, and we didn't have such a great experience like 10 years ago. That's a great question. I said I wasn't going to say that when I got up here because everyone else said all the questions have been great, but that was the greatest question so far. Getting identity right upfront is critical to everything we do because every one of our interactions with our customers, our billions of interactions, means we've got to know who you are, right? So what we've been spending a lot of time with in building identity platform is with our cyber folks, with our risk folks, with the compliance folks, with operations, right, with the monitoring folks, is spending a lot of time working through the details, right, of how we can be very confident we've got the identity right. Then we spend a lot of time beating on the system trying to break it and look for ways bad guys might try to circumvent the things that we have built. If you get identity right upfront, the door opens. You don't get identity The door opens to good things, sorry. If you don't get identity right upfront, bad things can happen to you. We have a question over there. One here. Tom? Yes. I've wanted to use this all day. Now's the time. I think maybe 18% of GDP is spent on medical services in some form or another, and the way that you have technology assisting the onboarding here, where you can fill out everything by just taking a couple of pictures and cross-referring back to pools of information about the customer, would have a terrific application for healthcare, I would think. I wonder, since you have many people have to pay for their healthcare anyhow, whether you've been able to integrate in any fashion a service that you offer with that extraordinarily large pool of our economy. Yeah. Do you want to take that one? I'm looking at you. Yeah. I'm not sure if you're referring to the consumer or on the commercial side. Obviously, on the commercial side, we provide a lot of healthcare solutions. We don't do identity management for other people besides ourselves, but we're pretty good at it. It's a good idea. Oh. Hey, Mark. Yeah. Do you have analysis you can throw? Yeah. I think when we build out these services, one of the things that Danny and his team have been doing is driving those out to our wholesale customers and to other platform providers. We bank a lot of healthcare companies. You can see a way that you package up your identity platform with APIs. You could offer that as a potential solution, which is one of the things we have brainstormed on, but we want to make sure we've got to make We really want to make sure these things work before we roll them out to anybody because our stuff has to be industrial strength because we've got 70 million customers. There's a question over there. I think you guys done excellent job. It's very cool stuff. My question is that, how much are you ahead of your peers, and can your peers do the same thing as what are you doing? If not, what is they are lacking in order to catch up? You can take that. Sure. We're ahead. I want to be We have been building up digital assets for 20 years, right? We were the first mobile We were the first web bank. We were one of the first mobile banks. We have a big investment in parties around this. We have billions of transactions. We learn from all of them. And we have been spending a lot of time looking at that next gen, partly by looking outside of Wells Fargo, outside of the banking industry, at what's going on in other industries that other people are doing. Our identity platform, I would say, is a fairly cutting-edge approach to how to think of these things. We strive, though, it's really about what our customers want, right? Where they use these things, we do more. We found that when you build really good services that's simple, easy to use, that they want to do more things with you. Yeah. I would add. I'm sorry. Go ahead, Michael. I would add that the technology is interesting, and other people may develop similar technology over time or may, in fact, in the case of mortgage, some people have some things that we don't have yet or we haven't fully deployed yet. What I would say is what's the differentiator is what we know about our customers and the sheer size and scale of the customer experience here and how we can reach customers in different ways and change the experience for someone we know in a way that no one else can do. I think that that is the durable advantage here. I think it is easy to get, particularly in the digital space, particularly with mobile, to get preoccupied on features and functionality. At any given time, there is lots of jockeying about who launches a particular feature first, and sometimes we will be first, and sometimes we may be second or third with particular features. Where I feel like we have got a lot of leadership to both Steve and Michael's point is around the enterprise-level integration, the level of partnership, how conversant we are with each other's businesses and technologies and channels, and the degrees to which we take a customer-centric approach and look for opportunities to bring the channels together into a much more holistic experience. It is really easy to say that, and it is extremely difficult to do that. It is at an operating model level to be able to execute something like that, and that is where I feel confident that we are far ahead of our competitors. Yeah. Just to pick up on that for a second. It is not about what we are doing, it is how we are doing it, and we really infuse the voice of the customer in everything we do in terms of the user experience we are providing to them, making it easier for them to do, taking out clicks as often as possible, reusing data when we have it. That is really a differentiator. On the gateway approach that we have taken, I haven't seen too many competitors do it the way that we are doing it. It is much more relationship-centric than I have seen a lot of other providers. I have seen them put up APIs that anybody can access. But for us, this is about building that value to our relationships, whether or not they are a consumer or a business. Other questions. Amy, right here, please. When you say you know your customers, what level of detail does that go down to? If you have the primary checking relationship, do you see that they are making payments to Chase and making mortgage payments to Cap One and transferring money to Schwab? Is that the level you can see customers at? Sure. The short answer is yes. If you are talking about a deposit relationship, all of the inflows, all of the outflows, who is paying the customer, who the customer is paying, we have vast amounts of information like a lot of other retail banks do. Again, the trick is turning that vast amount of information into meaningful insight and being able to actually provide it to customers in ways that are simple and understandable. That is the key, not just in financial services, but across a lot of retail and not coming across as creepy. People generally do not have a creepy reaction if you are very insightful and targeted and adding value with the information that you provide. It is not so much a matter of just sheer amounts of data, it is how we use it, and I think that is a lot of what we have been talking about. Well, I would even go further to say that depending upon the generation of customer we are talking about, they expect us to know that. They have a growing expectation that we know them in deep ways, and that we will turn it into an advantage for them. I think that is the place we start. I think everybody up here starts at the place of how does this advantage the customer? Right. If it creates advantage for the customer, it will certainly create advantage for us. I think one of the keys is really recognizing it's the customer's data. Right. How you use it, how they want you to use it is what matters. That's right. Right. That's how we've got to come at all of this stuff. Yep. Next question. Other questions. Yep, Betsy. Here it comes. So two questions. One, how long did it take you to create the AI platform to get it to the level that you were comfortable putting it out there into the marketplace? Because I'm guessing in the beginning, you had to train it somehow, and was that a short training period or long? You want to take that? Yeah. Since you predicted that. Yeah. The short answer for that is to begin with, AI was more of a concept for us, and in a lot of cases, we actually are partnering to be able to bring in a lot of the AI capabilities. The chatbot that we talked about earlier is a partnership with a company called Kasisto. The predictive banking demo that we went through is a partnership with a company called Personetics. It's a very new space, and we're looking for best of breed at doing certain types of things and areas. Companies who have trained their AI engines really well for particular needs that we have. The longer-term vision that Steve was talking about that you can elaborate on is more how we actually internalize both external solutions and things that we build to actually put together an AI platform that's much more comprehensive than the pieces we have at this point. Yeah. I think we're at the place, if I was thinking of AI and how people evolve, we're walking. We're not running, we're not crawling, we're in the walking stage, and we want to run and grow and mature. We've been using AI in production around financial crimes and behavior analytics for fraud management and alert and online authentication services for many years. Homegrown things that we built. There's a lot of good platforms out there now. What are the things we need to build or not? We really want to figure how to leverage. The key with many of these platforms is they bring algorithms to you, but you have to train them in how Wells works, how we use words, and how our customers think of things. It's not a snap and go. To your point, it takes a while to build up the learnings. Over time. Yeah. You have to think about that in terms of the use cases of the pilots or where you start, because again, customers, even if they understand they're in a pilot population, don't have endless amounts of patience for an interaction that doesn't work very well because we're in the process of training something. So it's a matter of starting in a contained way where we can add genuine value and sort of radiating out from that, and that is the approach that we've taken up to this point. The second question is just on Zelle. You mentioned on Zelle, there's a rebranding that's going to happen. Could you just talk us through timing and what you think the impact of that is going to be on your business? And then also, how you're planning on rolling it out to your customers. I would think that there would be some kind of need to enroll more people in Zelle or to get your customers to enroll their contacts in Zelle. What's the program for getting that done efficiently? Yeah. Again, this is a partnership with banks across the industry. Obviously, this is a jointly owned company, EWS, who we're rolling this out with. You will start to see the brand in the marketplace over the course of this summer. It's imminent, and there's going to be a staged approach where you're going to wind up seeing it with Wells Fargo and in a lot of the bank apps with a lot of the experiences, and then extending out into more of a standalone version of the experience as well. It's going to be something that you're going to be seeing over the course of the second half of this year, and then accompanying that considerable advertising support and marketing support as we start to come out into the marketplace. But it's going to be something that's going to take place over the second half of the year. In terms of the impact of the experience or our customers, it's actually going to be minimal because, again, we launched the new redesigned experience. You're looking at it in terms of what we went through or if you have our mobile app now. It's out in the market, and so it's going to be a cosmetic rebranding. Navigation will change, headings will change, but the experience itself is already there. All right. Time for one more quick one before we wrap. No. Tom. Okay. I will squeeze two in quickly. Dan, you had a sample on the screen that seemed to answer well all questions asked of it, and I wonder if for our favor, you might ask of it, what is the value of Wells Fargo shares? Make it easier on us. I guess it depends on how you think today went. Fine. The real question is you seem to have so many products that if you just get somebody at the site, they can convert within 5 minutes. They can deliver exactly what you want. They can give you the answers or qualify you for a mortgage and everything else so quickly. Given that the service levels are so high, how much can you afford to spend on search to deliver people to your site? Because the ability to convert them, given the ease of use on your site, seems so high. How much do each of you spend on just search to drive the unbranded customer your way for your product? That is a marketing question. Hundreds of millions of dollars. Our Chief Marketing Officer is in the back. I think the important point is it's not only to drive them to our sites, but also to actually go out to the sites where they are Yes and for them to actually be able to apply right there. Jamie is in the back, and during the reception, she can give you a very precise number for how much we spend on marketing. The other real quick thing, though, I'd add to that point is, again, end to end, and throughout Wells Fargo, we've spent the last several years, to your point, working on the sales funnel, sort of bottom up. What are all the things we can do to make sure that we're increasing conversion at all points through the sales funnel so that as we're making investments from a marketing perspective to drive that traffic, that we have a much higher fidelity of conversion into bringing people into Wells Fargo? That's critically important to making sure that we're making the best possible use of the marketing dollars. Well, that's all the time we have for questions today. Our CEO, Tim Sloan, is on the stage, and he will wrap up for the day. Thank you very much for spending nine hours with us. We saved clearly the best to last. We talked a lot about how technology is transforming our business across the entire platform, and we wanted to make sure that you saw the folks that are heading up a number of pretty interesting projects and groups within the company in terms of delivering those products and services to our customers and those experiences. I think the important thing from our perspective is that sometimes when you think about technology, you think about how technology is going to change your business in the next day, or you think about it defensively. We think about how what you've heard today is going to transform this business and how it's creating the value or recreating the value of Wells Fargo 5 and 10 years from now. Tom, the answer to the question is, at the end of the day, it's always more. Again, thanks very much. Please join us for cocktails, and again, thanks for your interest in Wells Fargo. You guys did a great job.

Data Source: Quartr Last updated: May 11, 2017

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