Investor update

Mar 20, 2017

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wells Fargo conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Jim Rowe, Director of Investor Relations. Mr. Rowe, you may begin your conference. Thank you, Regina, and good morning, everyone. Thank you for joining our call today, where our CFO, John Shrewsberry, and our Head of Community Banking, Mary Mack, will discuss customer activity in retail banking for February and answer some questions regarding these trends for a total of approximately 30 minutes. This call is being recorded. Before we get started, I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings. I'll now turn the call over to our CFO, John Shrewsberry. Thanks, Jim. Good morning, and thank you all for joining us today. It's been six months since we announced the sales practices settlements, and we remain committed to greater transparency, including these monthly updates on customer activity in retail banking. February trends were negatively impacted by having fewer days when compared with January 2017 and February 2016. If you factor in day count differences and seasonality, trends have generally stabilized, and many have shown improvement since October 2016, which was the first full month after the sales practices settlements. Our existing customers continued to actively use their accounts, and we grew our primary consumer checking customers, our most active customers, in January. The drivers of our near-term revenue, deposit, and credit card balances, and transaction volumes from debit and credit cards were all higher than a year ago. Mary will now highlight the retail banking trends in more detail, and then we'll take your questions. Thanks, John. While rebuilding trust continues to be our top priority, we're also taking actions to move beyond sales practices issues and create a new and better experience for customers and for our team members. This includes creating three new organizations within community banking: customer segments, customer and branch experience, and business strategy and administration. These changes will enable us to focus our resources on the unique needs of our customers across segments, the branch and team member experience, and the structure to drive our business priorities. Turning to the numbers we disclosed today, on an average per-day basis, branch interactions were up 4% from January, and branch banker interactions were up slightly from January. The improvement in branch banker account open interactions that began earlier this year continued. Customers still opened more checking accounts than they closed, and attrition rates continued to improve and were back to pre-settlement levels. We had 23.5 million primary consumer checking customers in February. That's the first month-over-month increase since September of 2016. Primary consumer checking customers increased 1.9% from a year ago, and we expect this growth rate to continue to decline in the near term, driven by the year-over-year decline in checking account openings. However, we're pleased that average consumer and small business banking deposits increased 6% from a year ago. The slight decline in average consumer small business banking deposits from January was not in community banking but was driven by deposits in wealth and investment management, reflecting normal seasonality, including quarterly tax payments, as well as an increase in client investment activity and cash alternative products. Debit and consumer credit card transactions showed slower growth compared with a year ago, which was impacted by 2016 being a leap year. On an average per-day basis, debit card transactions were up 4% from a year ago, and consumer credit card purchase volume was up 6%, relatively consistent with the year-over-year growth rates in January. Credit card balance growth remained strong, up 8% from a year ago. New credit card applications have not improved since stabilizing in October. However, point-of-sale active consumer credit card accounts were up 4% from a year ago. Our team members remain focused on providing outstanding customer service, and our customer experience scores have improved for four consecutive months. Branch customer experience scores are almost back to pre-settlement levels, reflecting the outstanding customer service our team members are providing. Customer loyalty scores have steadily improved from the lows in October of 2016, up over five percentage points, but have not yet returned to the pre-settlement highs. In summary, we've taken many steps over the past several months to rebuild trust with our customers and team members. We have more work to do, and the changes we have made will take time to be reflected in our results. We resumed marketing for community banking in January and further increased our marketing efforts in February across our channels, segments, products, and regions. Starting next month, we'll roll out a new marketing campaign across many different channels that highlights Wells Fargo's unique offerings throughout our businesses. I'm optimistic that the changes we have made, including our retail banking compensation plan and organizational structure, will result in better alignment with our vision so that the customer is truly at the center of everything we do. These changes will make us a better bank for our customers, for our team members, our communities, and our shareholders. Now, John and I are happy to take questions about the customer activity data that we shared today. At this time, I would like to remind everyone, in order to ask a question, press star and the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of John Pancari with Evercore ISI. Please go ahead. Hey, John. Hey, John. Hey, Mary. Thanks for taking my question. Just regarding some of the issues we've seen at some of your peer banks, I know TD Bank announced a similar issue in terms of investigation into their sales practices. Amid that and any increased scrutiny that other banks are seeing, are you seeing any change in posture of the regulators in terms of their own efforts there at Wells Fargo, and any motivation that you're seeing out of them to expand the review even further across your franchise? Mary, you want me to take that? Sure. Go ahead. The work that we've been doing in connection with the consent order is pretty broad. It's in the public domain, but it describes how widely we're looking both backward in terms of root causes, et cetera, as well as to what we're doing today. It'll make recommendations about what we might do in the future. We've voluntarily commissioned reviews of really the rest of Wells Fargo. Our regulatory interactions reflect that. They're very comprehensive and because of all that we're doing with them, it's hard to imagine them expanding it even further. It's very transparent. We posted a document on the website a couple of weeks ago that's a compendium of all that management, and frankly, the board have done to date. If you look at that, you'll see, I think, some of the things that I'm talking about, in addition to these business-by-business reviews. I don't know. I certainly can't say much about what other banks and what the scope is of review that regulators might be having, but it certainly wouldn't surprise me that they're taking what they're learning and applying it more broadly. Okay. All right. Thanks, John. Separately, I know you announced some of the executive departures earlier in the quarter, and wanted to just get an update on the board investigation. Should we expect additional departures or any update there? I know you said the board investigation's still ongoing, and you expect it to be completed by the April shareholder meeting. I just want to see if you have any additional findings on that front. Well, so you should take a peek at this document that's on the website that describes everything to date. In that document, they make it clear that as they've come across things in their investigation, they've acted on it at that time. I don't think there's any pent-up activity that hasn't been acted upon yet. They also make it clear that they intend to publish the report with enough time before the shareholder meeting for people to process it and form their judgment. I assume that means in early to mid-April. Okay. All right. Lastly, just around the cost side. As you continue with this investigation and as you address the living will issues and prepare for CCAR or have prepared for CCAR, that is. I just want to get an idea on the regulatory expenses in your annual run rate. How's the efforts going in terms of offsetting that pressure with the cost save efforts that you announced that you're looking into for 2017? Sure. We'll spend some more time on that on the quarter, which will be on April 13th, but I'll confirm that at the end of last quarter, we talked about $40 million-$50 million per quarter of out-of-pocket for third parties, so lawyers, consultants, et cetera, in connection with these reviews that I was just referring to. The effort that we're doing more broadly to take expense out, in part as a reaction to these elevated expenses we initially addressed last quarter, and we'll talk about it a little bit more on April 13. Okay. No changes to your branch closure expectation of 200 branches in 2017 and over 200 in 2018? We will tell you if we change that. You should expect to hear more about that at our Investor Day in May as well. Yep. Got it. All right, John. Thank you. Thank you, John. Again, for any questions, please press star one on your telephone keypad. We have no further questions at this time. Thank you very much. We look forward to speaking to people on our April earnings call. Thanks. Bye-bye. Ladies and gentlemen, this concludes today's conference. Thank you all for joining. You may now disconnect.