WFC
#Thank you, <UNK>.
Yes.
The first one there was NoMa, north of Massachusetts, and we had a second now we're doing a couple others in other markets.
But I don't want to suggest for a minute that you'll see 6,200 NoMas with 1,000 square feet across the franchise.
I think it's a bit of everything, meaning that there is some hub-and-spoke where you have a larger established branch or a store that's been there for many years.
And then you have others around that maybe wouldn't be as large.
You have some like the case in north of Massachusetts where you couldn't get 5,000 square feet and 1,000 square feet is optimal for that market.
So, this is really about looking at our distribution, and we call actually health of your distribution.
Are you in the right location, with the right hours, the right people, the right footprint.
And does the store or the branch work in concert with all the other channels of distribution.
So customers can start transactions at one place, finish another place.
Is there ubiquity.
Is there one version of the truth around information, and how customers serve themselves or want service from us.
So it's a whole bunch of things that really matter in this, and I think the proof in the pudding is our ability to grow primary checking accounts.
I've never seen growth at 5.7%, and like <UNK> mentioned, it's not that we overpay on deposits, 9 basis points.
This is the magic of how this thing all works together.
At one-time, this goes back a number of years, in 1998 when the former NorWest decided the family I came from and Wells merged, Wells was hugely indexed, over indexed to grocery stores.
And then we've been adjusting that since that time, but again, we think of it as density within a market.
And sometimes to fill up that density, a freestanding ATM machines, sometimes it's in store.
Sometimes it's a NoMa 1,000 square foot.
So it all fits into what we call the S curve, and maybe I'll just digress for a second.
If a community has, let's say, 500 banking locations.
That's optimal for a community.
And you have 20% of those, 100, and that's the optimal amount, you'll actually get more than 20% of the business, you'll get 25% of the business.
Because certain compares will have 10% of the stores, and they'll get 8% of the business.
So there's a magic to the density and where the density is and how it works together, and that's just part of our learnings after many, many years.
So sometimes grocery stores fit into that, sometimes they don't.
It surely would not be a lead only strategy, but as an augment, it's very powerful.
<UNK>, hello.
Oh, yes you've got to ---+ there's two <UNK> S' around here.
It's a good question.
We think of customer, <UNK>, and I'll get to the specific question.
But the way we think about the business here is around relationships.
Relationships with team members.
My 11 direct reports have 28 years with the Company.
We think of relationships with our customers, our communities, our shareholders.
Buffet has been an owner of ours for 25 years, or we love long term things.
So as it gets to investment banking activities, we think of that as another solution, another product, another service.
And most of the revenue that comes from that business is from existing customers who have been doing business for a long, long time.
When you are the number one middle market bank, when you have leadership positions in energy and ag and commercial real estate, and you do business with 80% plus or 90% of the Fortune 500, you're going to get opportunities to serve customers deeply and broadly.
And if that means that through our skills, and our people, and our value proposition that customers, corporate customers, want us to help with valuation, issuing debt, issuing equity, wonderful.
If we're not good enough to get that and it goes someplace else, we just have to work harder.
So I don't really look at lead tables.
I guess I read where ---+ in fact, I read for the first time, when I read the Journal that we were number seven or eight or nine, I can't remember the number, I could have cared less, absolutely cared less.
I only care we do the right thing for customers, and if that means we're moving up, terrific.
If that means that others are growing faster because they're taking risks or doing things that don't make sense to us, God bless them.
So that's how we think about it.
Not as a standalone business, as one more way to help customers succeed.
Exactly.
Just based on our skills and the market availability.
I've got a couple of data points that I'd give you, <UNK>, just to help you dimension it.
But if you look at Wells Fargo compared to the peer group on the risks that we run that we report in our 10-Qs and 10K, we've got a more modest set of trading businesses with a very low risk profile.
At least as measured by VAR, which is the popular public version of that.
Our investment banking fees, while we're thrilled and happy to have them, amount to $2 billion a year or something like that on a $90 billion revenue base.
We've got ---+ I think this quarter we were in the $420 million to $430 million range for trading revenue, which is appropriate for the needs that we have for customer accommodation and for managing our own risks.
But still, in the scheme of a $1.7 trillion balance sheet, the equity that we carry, and $90 billion worth of revenue, it's just a couple of the 90 plus businesses that we referred to.
And it's not imagined to grow in an outsized way from where it is today.
We're always trying to do more, serve customers better.
We have great people.
But imagine if we doubled the size of the business over some period of time while the Firm grew at its steady organic rate, we'd still be in a relatively modest percentage of the overall Firm.
And, <UNK>, the risk really would be if you ever saw where the market is shrinking, let's say, in investment banking or capital markets.
And we're outsized growing because we're taking on risks with customers relationship that we have not known, that's where you see the imbalance.
And that's, again, just not who we are.
So the first quarter was at about 2%, a little more 2.06%, which is the high end of the five quarter range.
And the second quarter is operating in that neighborhood.
So we feel like we're going to be at the high end of the range in the second quarter as well.
There's a lot more discipline this time around, <UNK>, with gain on sale margins as you well know because you've been around, you've seen this industry over a long time.
And that's a healthy thing.
Hello, Matt.
I don't know if it's a mix of going after as much as a mix of what's coming in.
We've been very consistent, as you said.
What happens when rates pop down and refis spike up is that our own servicing portfolio results in a lot more applications.
Because the easiest thing for somebody to do when they want to take advantage of a rate rally is call Wells Fargo, because we probably already have their mortgage.
And so that's going to have a bigger influence on a strategy that we might have around correspondent.
And I think you can see in the supplement that retail was $28 billion and correspondent $20 billion of this quarter's activity.
And that's not an inconsistent blend versus the last several quarters.
There are more correspondents these days, as you know, that go direct to the agencies.
Because the agencies have opened the window to them, and that's also a lower margin business for us.
So all things being equal, we're happy to be a retail lender but we do serve a big correspondent constituency.
And, Matt, if you go back in time, we actually had a larger share of the correspondent, because there was a number of compares who backed away walked away from that market.
Who come and go from time to time.
So that will ebb and flow as participants either stay in or get out or whatever.
Yes, I wouldn't look toward mortgage.
I would look toward risk management and investments that we're making and along those lines.
The beauty about mortgage in the first quarter was that this refi pipeline helps use the capacity that we would have needed in the fourth quarter and we anticipate needing in the second quarter.
So it was a greater level of utilization.
For better or worse, the changes in year-over-year are a variety of other things.
Including business mix, by the way, in terms of how commissions get paid and other revenue-related incentives.
But it would be that plus investments made in compliance and risk management, cyber and information, security, things like that.
We have the best people, and those are not inexpensive.
I don't have an accurate number.
I think we've talked about $100 million a quarter.
A couple quarters ago as having been an observable increase in that category, and it's not any lower than that today.
Maybe we'll see if next time around we can put a finer point on that.
You're welcome.
There was a little bit of downward migration.
Not enough to meaningfully drive the reserve.
There's a little bit of an increase in NPAs, but negligible.
And we realized minimal losses in the quarter in the energy portfolio.
But the change in reserve reflects all of what the actual migration and the actual observation of performance in the energy portfolio.
I'd have to say yes.
We're in the middle of our Spring redetermination process for the borrowing based loans, so we'll have a better feeling afterwards.
We have noticed a lot of capital raising going on in the space.
We talked last quarter about the risk to our investment banking income around energy related firms, because we're large in that space.
And we had a great first quarter in energy and investment banking, because lots of equity was raised, lots of firms went to the debt market to turn themselves out.
So that's a very positive sign there's people taking steps, and changing their balance sheets, and improving their risk profiles.
So that and the combination of where the forward curve demonstrates the energy prices might be going is helpful, but that's, again, that's reflected in our early view of our allowance.
And it will be better informed once we finish our borrowing base redeterminations.
During this quarter.
Actually, I think that's a pretty astute observation.
Because we would be valuing the MSR on the prepayment expectations, which reflect that lower interest rate.
And we have been taking the gain on the pipeline and what's locked, and insulated the close in the second quarter.
It's a good observation, but it's tough to say.
We look at that calculation regularly, but in connection with our preparation of our financial statements on a quarterly basis.
And take everything into account that's available then, and that's when we strike the value.
Tough to know.
We don't know what hasn't happened yet, and that's what's going to the applications that will be received and pulled through in the quarter.
So, too early to speculate.
That's right.
It's more PCI loan recoveries and lower loan fees than competitive pricing pressure.
So those things that we call the variable components of interest income are harder to predict.
And when a loan gets resolved that's been sitting in work out, sometimes it comes through the margin line.
And then if a loan prepays or there's loan fee hung up in its carrying value, then that sometimes comes through interest income as well.
It's those types of items that are tough to plan for, tough to budget.
And in this particular quarter, we're lower than the prior quarters.
It's too tough to call, because it depends on what happens with deposit growth.
It depends on what happens with loan growth, and then other investments that we make in the securities portfolio.
That's what's going to drive it.
It's lead by what happens to deposit growth.
And, of course, if there were a move in interest rates, that would have an impact as well.
We're not trying to forecast it in this instance.
Our real focus is on generating growth in net interest income, and the margin is more the result not the reason.
Tough to call, because it depends on the mix.
We've got a variety of commercial and consumer asset types here that each have their own market and cyclical dynamics.
I think we expect cards were probably at a seasonal low in the first quarter.
So between seasonality and issuing new cards, that business probably grows.
Auto, we've kept ---+ its grown, but kept relatively stable.
It's gotten to be a more competitive market, and we've picked our spots, I think, a little bit more delicately.
In commercial real estate, it's going to be tough to spot the organic component of it.
Because the purchase of the GE portfolio and this incremental loan to Blackstone Mortgage Trust is going to have a big impact in the second and the third Quarters.
But if I'd add anything to that, it's that now the competitive dynamic in commercial real estate lending is a little bit different because a big competitor is exiting the business.
So that probably means something for us organically.
If that's helpful.
We don't call it out specifically.
We capture the whole portfolio in our overall allowance for loan losses, and feel that that is absolutely adequate for the loan book that we have.
Which incidentally, has never been better overall.
Oil and gas loans are approximately 2% to the total portfolio.
Thank you.
Okay, this concludes our call, so thanks.
First of all, I want to say thank you to all 265,000 team members for a very, very good first quarter, and thanks for all of you on the line.
We will see you next quarter.
Bye-bye.
