Wells Fargo and Co (WFC)’s 4th Quarter 2014 Earnings Conference Call Transcript

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John Stumpf, Chairman and Chief Executive Officer

Well, I think we had the range. We knew that we would, you know, sure, we would love to be at 55% but we also recognized that that’s why you keep a range. Think of them as guardrails. We are spending more in cyber today. We’re spending more on all things risked. On the other hand, we’ve not yet pulled out all of our expenses around loss mitigation. We continue to make investments and distributions. So, you know, I guess a range is a range. I can’t guarantee the low end but if we are at the high end that’s also acceptable. In our mind, if we are making the right investments in the right things, and eliminating expenses where we think they can be eliminated. So that’s how we feel about it.

Mike Mayo, CLSA

And then the follow-up, the cyber expenses or the all things risk expenses, have these ticked up some or is this kind of what you had expected?

John Stumpf, Chairman and Chief Executive Officer

They’ve ticked up in the terms of, we continue to make more investments there, and we are starting to get the annualization of expenses we made last year. We will get more efficient in that over time, but we’re spending the money we think we need to spend – sometimes that’s hiring consultants and then over time you can convert whatever they’re doing to team members –which tends to be more efficient. You are not as efficient on every process the minute you adopt it or employ it. But more money is being spent there.

Mike Mayo, CLSA

All right. Thank you.

Operator

The next call is coming from the line of Matt O Connor with Deutsche Bank.

Matt O Connor, Deutsche Bank

Good Morning. If I could just follow up on the net interest margin which was down just two basis points which I think is very good in this kind of environment. I looked at some underlying details on the yields of the securities and using the loan yields, I guess I don’t totally understand how they’ve been so stable and wondering if there’s anything, may be, and that you can add on, maybe first securities, you have been growing it. And the yields have been, you know, remarkably resilient.

John Shrewsberry, Chief Financial Officer

It’s just math. What we’ve been growing hasn’t been that extraordinary in terms of incremental contribution to the weighted average because the denominator is as big as it is. If we continue to deploy as I know you know, in this environment, ultimately it will start to skew down the weighted average returns. And also we have been attending to invest in treasury and agency securities and just from a credit quality point of view, that’s going to bring down returns. Setting aside historical book yields versus current book yields in the shape of the curve when the investments were made. We’ve got corporate and communities [inaudible 53:20] and some other things in the starting portfolio. We are just adding US treasuries, it is going to bring things down but it just hasn’t revealed itself yet because the numbers have not been big enough yet.

Matt O Connor, Deutsche Bank

Okay. And then on the loan yields, I guess they’ve been surprisingly resilient as well. Do you feel – I know it’s a blend of eight or 10 categories, the way you disclose but – generally speaking, loan yields have stabilized? I was looking at the C&I , it was actually up a couple of bits, but really up and down, the portfolio, it feels like there’s been pretty good stability the last three or four quarters.

John Shrewsberry, Chief Financial Officer

I think that’s right. We are in the fiercely competitive market. Not every bit of composition is in the last basis point of spread on the loans. Sometimes it’s in the structure of the loan – of course there are places we will back away from when that happens – but it is competitive. It hasn’t all shown up in price.

Matt O Connor, Deutsche Bank

Okay. And then, I guess, putting it all together, as you think about net interest margin percent going forward, probably largely dependent on loan growth, but how do you think it shakes out? Obviously the rates where they are, doesn’t help. Is it just mild pressure or is there more material pressure to come?

John Shrewsberry, Chief Financial Officer

It depends on on the pace of continued deposit inflows and how that gets redeployed. If deposits remain steady where they are, then the loan growth and the redeployment from cash into investment securities is going to be very supportive of income [inaudible 54:56]. If we keep getting high single digit or even low double digit deposit growth and the loan growth isn’t happening at the same pace, or redeployment into investment securities doesn’t make sense at the same pace, then the math is going to put pressure on that calculation.

And as you know that’s not a calculation. We are managing too. It’s an outcome of the other things that we’re doing. But the driver there is the growth in deposits and how you responsibly deploy that into either loans or securities in the same timeframe that the deposits are coming in.

Matt O Connor, Deutsche Bank

Okay. Alright. That makes sense. Thank you.

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