Investor update

Nov 17, 2016

Press release

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 October 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 would ask today for our Q&A session that you limit yourself to one question to be fair to all others in the queue. I will now turn the call over to our CFO, John Shrewsberry. Thank you, Jim. Good morning, and thank you all for joining us today. As our CEO, Tim Sloan, has discussed, our highest priority right now is rebuilding trust in Wells Fargo, which includes being transparent about the trends in retail banking and updating you on those trends as we move forward. We will provide monthly updates during quarterly earnings and each month between quarters. The table we provided in our news release today should look familiar to you, and we plan to give consistent updates on this data so you can track our progress. Today's update will focus on October data, and our mid-December release will reflect November data. Mary Mack will walk through some of the trends and key takeaways for October shortly. But in general, the business trends we previously shared for September continued in October. Our customer base remained relatively stable. However, new account openings continued to decline. The drivers of our near-term revenue, deposit and credit card balances, and transaction volumes for debit and credit cards were all higher than a year ago. There are a couple of general drivers behind the expected decline in new account openings in October. First, as you may recall, the sales practice announcement was made on September 8, so October reflects the first full month impact. It is important to note that October had one fewer business day than September and October 2015, and three fewer business days than August. We also continue to have fewer product offerings and reduced our marketing efforts, which impacted visits to our branches and new account openings. However, anyone who watched the World Series probably saw our new advertising campaign that was focused on our commitment to make things right for our customers, which is our number one priority. We are fully committed to this goal. This was an important step toward reintroducing marketing, and we expect to continue to increase our marketing efforts in the weeks and months ahead. Before I turn the call over to Mary, it is important to note that today we are focusing on just one part of our diversified business model, and Wells Fargo's future results will continue to benefit from our overall diversification. Mary will now highlight some of the retail banking trends in more detail. Thanks, John. I am going to focus my comments on how we think about the trends that we report today, what we expect in the near term, and what we are doing to drive improvements in the future. Customers are still walking into our branches and opening accounts, albeit at a lower rate than they were a month ago and a year ago. Teller transactions were down about 10% from a year ago, but if you normalize for fewer and the types of business days, like Mondays or Fridays, in October of the year, teller transactions were actually down about 5.8%. This doesn't include the impact of Hurricane Matthew, for instance, on branch traffic in the East Coast. We have a total of over 33 million consumer checking accounts. Consumer checking account opens were down about 44% from a year ago, but we still opened over 300,000 new accounts in October. Our customers are closing checking accounts at a modestly higher rate than they were a year ago, with customer-initiated account closures up about 3%. There are also accounts that we systematically close for a variety of reasons. We compare the customer-initiated account closings, which measures actions our customers are taking since the announcement, to the number of accounts they are opening. Our customers continue to open more accounts than they close. It is also reassuring that our customers continue to use their accounts, with average consumer and small business deposits up 8% from a year ago and debit card transactions up 7% from a year ago. Period end deposits were up 7% from a year ago, but down 1% from September. This linked month decline was primarily due to the fact that September ended on a Friday, which is a payday with large deposit inflows, compared with October, which ended on a Monday when balances are typically lower. On an average basis, deposit balances were relatively stable compared with September. In the deposit section of the table, we provided details on primary consumer checking customer growth, which we believe is a key component of our long-term success. These are customers who actively use their checking accounts for things like debit card purchases, direct deposits of paychecks, and paying bills. These are the relationships we're focused on with products our customers want and use, which can lead to even more balances with us in the future. Primary consumer checking account customers were up 3.9% from a year ago. However, this growth rate continued to slow from 4.5% year-over-year growth in September and 5.7% year-over-year growth in October of 2015. Lower checking account openings will continue to result in slower primary consumer checking customer growth, which is our current expectation for the rest of the year. We've also seen a decline in credit card applications, which are down 50% from a year ago. New account openings began to deteriorate after our announcement on September 8 and continued to decline in October, but began to stabilize in early November. We currently expect a lower level of applications to continue throughout the remainder of this year. However, one of the most important drivers of future revenue growth in our card business is active account growth, and we continue to grow active customers by 9% compared with a year ago. We're also encouraged by the increased spending, with balances up 9% from October of 2015. We'll continue to closely monitor customer activity as we enter the peak consumer credit card holiday spending season. We're also actively monitoring customer experience scores, with over 140,000 branch-based customer surveys completed in October. While loyalty scores are down from an all-time high in August, we're encouraged that these scores improved from the lows we experienced in early October. However, we do have a lot of work to do to bring these scores back to pre-settlement levels as we focus on rebuilding confidence and trust with our customers. First, and most importantly, our team members are focused on taking care of our customers. Serving customers and helping them succeed financially is our number one priority. We're finalizing the compensation plans for our retail banking team members, which focus on growth, customer experience, and risk. We're ensuring that the new plans are aligned with customer outcomes and aligned throughout the organization, from our team members in the branch through our senior management. We're looking at every process in the retail bank to ensure that it contributes to a great customer experience. Nothing is sacred, and if a process doesn't serve that purpose, we'll get rid of it. We're committed to delivering new technology enhancements to mobile banking to better meet the financial needs of our customers. Finally, as John mentioned, we've reintroduced advertising and have been monitoring customer feedback. While it's still early, we've started to see improvement in customer perceptions of Wells Fargo. In summary, while most trends in October were stable overall, the number of new accounts is not what we've achieved in the past. It's not what we want to have in the future. I believe the actions we're taking will be reflected in more positive trends as we move forward. But in the near term, I expect many of these trends to continue, including relative stability in our customer base and lower account openings, as it takes time to rebuild trust. We're also entering the traditionally seasonally slower months of November and December. I've been traveling a lot throughout the country, hosting listening sessions. I think I'm up to 19 cities now, and I've gotten a lot of great feedback and ideas from team members on how to evolve our strategies for the future. We have thousands of team members who are doing the right thing for customers every day and who are excited about the direction we're taking towards a service culture. Their commitment to serving our customers is the thing that gives me the most energy and confidence and optimism about the future of Wells Fargo. So John and I will now take some questions regarding October activity on the information we've provided today. At this time, I would like to remind everyone, in order to ask a question, press star, then 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. Morning. Morning, John. Just a question regarding the overall trends here. It appears that trends are generally in line with your expectations in terms of how you talked about how we should think about the October data. In general, is that generally the case internally? Are things trending as you would've expected on each of these metrics? If not, which areas are you seeing greater degradation than you would've expected? Thanks. I think right now, John, they're right where we would've expected them based on what we saw right out of the gate in September. In terms of things that we're looking at with regard to overall business performance or the results that we're posting, those are on the same track that we would have expected. There's not a lot about this. The biggest moves on this page are application data or account opening data, which are leading indicators based on what happens over the course of the first year of an account being open or a card being applied for. So that'll have an impact down the road. But in terms of how we're measuring business performance, et cetera, we're right where we would've expected to be. Given that, John, are you in any position to project a financial impact from this yet on deposit fees or card fees? There hasn't been much movement. I'd say that the arc of a credit card application is that it gets decisioned. If it's approved, it gets issued. As you know, it ends up in somebody's wallet. They grow balances over some period of time. They spend more over some period of time. So if we stayed where we are in the fourth quarter for the full fourth quarter for card applications, you could estimate that next year that's probably worth, in pre-tax terms, I don't know, $20 million-$25 million. Really not that much money. On the deposit side, we're still growing. We're still adding new accounts. I think we added hundreds of thousands of accounts in this quarter, and the incremental deposit fee, or pardon me, the debit card fees, et cetera, coming off of that are very incremental. On the revenue side, there's not much of an impact one way or the other. It's too early on most of the expense items because there's litigation, et cetera, and then there will be some new business-as-usual compliance and risk management expenses that are all being fed in. We'll try and do a good job at that as those things take shape to help people understand what they'll be over the medium term. But it's still even too early there. Okay. Thanks, John. Yep. Again, for any questions, please press star one on your telephone keypad. Your next question will come from the line of Mike Mayo with CLSA. Please go ahead. Good morning, Mary. Hey, good morning. Mary, your first bullet point highlights increased transactions through mobile channels. You are saying digital sessions are up 7% year-over-year. Is the change in sales practices pushing Wells to adopt and implement alternative channel options such as more online marketing? My usual second question here is, to the extent you are getting more traction on the digital channels, what is your current thinking about branch closures? Thanks. Thanks, Mike. I think the patterns and preferences of our customers are encouraging us to continue to invest in digital channels. You see it across the rest of your life in terms of your willingness and desire to engage digitally. So we have put a lot of focus on that and will continue to. As we talked about at BAAB, and then even in the last Investor Day, we are likewise committed to optimizing our service and distribution model. We have looked at that. We will continue to look at that, both our branch locations as well as the way we optimize inside a branch. So more to come on that. We have been focused on it and will continue to focus on it as we understand consumer behavior. All right, thank you. Your next question will come from the line of Vivek Juneja with JPMorgan. Please go ahead. Morning, Vivek. Hi, morning. Quick question, John, Mary. The customer loyalty score, can you just talk a little bit about that? It seems like it was not that different a year ago. Has it been in the 60s generally, and how do you interpret this decline to 52%? Trying to figure out what that means. Well, we've done a couple of things. One, we've increased the number of surveys by about 50% that we're doing as customers interact with us in a branch so that we can continue to gain more feedback. It's not surprising to me that given the news cycle, that we would've seen a dip in that. It is encouraging that since early October, we've continued to see that number climb back again. We're not back to where we were, but we're continuing as our teams are focused on customer experience. We're seeing that begin to show up in the scores as they rebound. Mary, has it historically been in the 60s even prior to October? Is that generally the run rate you're looking to get back to? We were at an all-time high in August, and of course, we would love to be back at that level and are aspiring for that as we move forward. It's a focus on the overall customer experience and customer loyalty, so both of those elements are important to us. Okay. Thank you. I will now turn the conference back over to Mr. Shrewsberry for any concluding remarks. Great. Well, thanks. We hope this was helpful, and we plan on doing it again in mid-December. We'll release the November data then. In the meantime, you can always contact IR with any questions that you have, and we'll try and help you through the information. Thanks for your interest. Ladies and gentlemen, this concludes today's conference. Thank you all for joining, and you may now disconnect.