Wells Fargo & Company (NYSE:WFC) Q1 2024 Earnings Call Transcript

Wells Fargo & Company (NYSE:WFC) Q1 2024 Earnings Call Transcript April 12, 2024

Wells Fargo & Company beats earnings expectations. Reported EPS is $1.26, expectations were $1.11. Wells Fargo & Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome and thank you for joining the Wells Fargo First Quarter 2024 Earnings 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. [Operator Instructions] Please note that today’s call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.

John Campbell: Good morning. Thank you for joining our call today where our CEO, Charlie Scharf, and our CFO, Mike Santomassimo, will discuss first quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our first quarter earnings materials, including the release, financial supplement and presentation deck are available on our website at wellsfargo.com. 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, including the Form 8-K filed today containing our earnings materials.

Information about any non-GAAP financials referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie.

Charlie Scharf: Thanks, John. I’ll make some brief comments about our first quarter results and then update you on our priorities. I’ll then turn the call over to Mike to review our results in more detail before we take your questions. Let me start with some first quarter highlights. Our solid results reflect the progress we’re making to improve and diversify our financial performance and the continued strength in the US economy. It’s gratifying to see the investments we’re making across the franchise contributing to higher revenue versus the fourth quarter as an increase in non-interest income more than offset the expected decline in net interest income. Non-interest income also benefited from higher equity markets, which benefited our wealth and investment management business.

Net charge offs were higher than a year ago, as expected, and stable from the fourth quarter. Credit trends remain generally consistent, consumer delinquencies continue to perform as we’ve forecasted and year-over-year growth in consumer spend remains consistent with prior quarters. In our commercial portfolios, the weakness we see continues to be in certain commercial office properties, but our expectations have not significantly changed versus what we anticipated last quarter. Mike will discuss the specific items that drove an increase in expenses from a year ago, but we continued to execute on our efficiency initiatives, including reducing headcount, which has declined every quarter since the third quarter of 2020. Average commercial and consumer loans were both down from the fourth quarter as higher rates are impacting demand and we are continuing to reduce our exposure in certain portfolios.

Average deposits were relatively stable from the fourth quarter as growth in interest bearing deposits offset lower non-interest-bearing deposits. Our capital position remains strong and returning excess capital to shareholders remains a priority. As we stated on our last earnings call, we expect to repurchase more common stock this year than we did in 2023. In the first quarter, we repurchased a total of $6.1 billion in common stock and our average common shares outstanding declined 6% from a year ago. Now, let me update you on the progress we’re making on our strategic priorities, starting with our risk and control work. Earlier this year, the OCC terminated a consent order issued in 2016 regarding sales practices misconduct. The closure of this order was an important milestone as it is confirmation that we operate much differently today around sales practices.

As I repeatedly said, our risk and control work remains our top priority and closing consent orders is an important sign of progress. This is the sixth consent order that our regulators have terminated since I joined Wells Fargo in 2019. Building our risk and control framework is a continuous, ongoing effort. And as we implement changes, we track effectiveness along the way. The numerous internal metrics we track show that the work is clearly improving our control environment and we see that we are completing interim deliverables, but we will not be satisfied until all of our work is complete, so it will remain our top priority and our approach will not change. As I highlighted in my recent annual letter, we have added approximately 10,000 people across numerous risk and control related groups and we’re spending over $2.5 billion more per year than in 2018 in these areas and we are a stronger, better company for our customers, communities and employees.

While we’re moving forward with confidence, I will repeat what I’ve said in the past. Regulatory pressures on banks with longstanding issues such as ours is high, and until we complete our work and until it is validated by our regulators, we remain at risk of further regulatory actions. Additionally, as we implement heightened controls and oversight, new issues could be found and these may result in regulatory actions. At the same time, we’re making progress on our risk and control work. We’re executing on our strategic priorities to better serve our customers and help drive higher returns over time. We continue to introduce attractive new products as we build our credit card business. Last month, we launched Autograph Journey, designed for frequent travelers who can earn points wherever they book travel.

Our new product offerings continue to drive strong credit card spend, up approximately $5 billion or 14% from a year ago. We continued to make investments in talent and technology to strengthen corporate and investment banking. More than 50 new senior hires have joined our CIB since 2019, with many of these in key coverage and product groups within banking. In February, Doug Braunstein, who has more than 35 years of industry experience, joined Wells Fargo as a Vice Chairman. Doug is a world class banker and he’s working alongside the great team we’ve assembled to continue to grow the franchise. In addition, given the breadth of Doug’s experience, he’s also providing counsel on broader business issues beyond client development. As we look forward, it’s always helpful to be grounded in the facts.

We continue to see strength in the US economy. Spending patterns of consumers using our debit and credit cards remain generally consistent and continue to grow year-over-year. Consumer credit is performing as we expect. Wholesale credit continues to perform well and our views around commercial real estate have not significantly changed since last quarter. These are all positives. In addition, we remain committed and confident in our ability to increase efficiencies across the enterprise and areas we have targeted for investments such as credit card, investment banking and trading are performing well. We are beginning to see early signs of share and fee growth, which will be important as we diversify our revenues and reduce net interest income as a percentage of revenue.

And we remain bullish on opportunities across our other businesses, again, more positive. Having said that, markets and rates will likely remain volatile, and as risk managers, we are prepared if trends were to change. We’ve historically managed credit through multiple cycles and believe that the actions we’ve taken over the last several years position us well. We have strong capital and liquidity positions. As we’re building many of our businesses, we have done so within a consistent level of risk appetite, and our business model and franchise value differentiates us from most of who we compete with regardless of the environment. So what does all of this mean for our outlook? Simply said, our views haven’t changed from last quarter. While we could look at specific data points on a specific date and alter our guidance, there is not enough of a consistent fact pattern to change our views, but what we see is helpful.

Our focus remains the same. We are transforming Wells Fargo and are investing to build a well-controlled fast growing and higher returning company while we work to become more efficient. I’m pleased with the progress we’ve made and I’m optimistic about the future opportunities ahead. I will now turn the call over to Mike.

Mike Santomassimo: Thank you, Charlie, and good morning, everyone. Net income for the first quarter was $4.6 billion or $1.20 per diluted common share. Our first quarter results included $284 million or $0.06 per share for the FDIC special assessment as a result of the regional bank failures last year. Recall, last quarter our results included $1.9 billion for the special assessment and this additional amount reflects recent updates provided by the FDIC, including potential recoveries which were highlighted in their disclosure. The ultimate amount of our special assessment may continue to change as the FDIC determines the actual losses and recoveries to the deposit insurance funds. Turning to Slide 4. Net interest income declined $1.1 billion or 8% from a year ago due to the impact of higher interest rates on funding costs, including the impact of customers migrating to higher yielding deposit products as well as lower loan balances, partially offset by higher yields on earning assets.

First quarter results were largely as expected with loan balances a little lower and deposit balances in the businesses a little higher than our expectations. Our full year net interest income guidance has not changed from last quarter and we still expect 2024 net interest income to be approximately 7% to 9% lower than 2023. We also continue to expect net interest income will trough towards the end of this year. It is still early in the year and ultimately the amount of net interest income we earn will depend on a variety of factors, many of which are uncertain, including deposit balances, mix and pricing, the absolute level of interest rates and the shape of the yield curve and loan demand. On Slide 5, we highlight loans and deposits. Average loans were down from both the fourth quarter and a year ago.

Credit card loans continue to grow while most other categories declined. I’ll highlight specific drivers when discussing our operating segment results. Average loan yields increased 69 basis points from a year ago to over 6%, reflecting the higher interest rate environment. Average deposits declined 1% from a year ago, reflecting lower deposits in our consumer businesses as customers continued spending and reallocating cash into higher yielding alternatives. While growth in average deposits from the fourth quarter was modest, we have grown deposits in our commercial businesses for two consecutive quarters, which reflected our success in attracting clients’ operational deposits. Period-end deposits included in the chart on the bottom of the page were up 2% from the fourth quarter, but some of this growth reflected a temporary increase driven by quarter end that was on a payday and a holiday.

While the pace of growth slowed, our average deposit costs continued to increase as expected, rising 16 basis points from the fourth quarter to 174 basis points, with higher deposit costs across most operating segments. Our mix of deposits continued to shift with our percentage of non-interest-bearing deposits declining to 26%. Turning to non-interest income on Slide 6. We were pleased with the growth in non-interest income across all of our business segments. Growth in non-interest income more than offset lower net interest income, reflecting a revenue growth from both the fourth quarter and a year ago. Non-interest income was up 17% from a year ago, with strong growth in investment advisory fees and brokerage commissions, deposit and lending fees, related fees, trading and investment banking fees.

As Charlie highlighted, we benefited from market conditions as well as the investments we’ve been making in our businesses. I will highlight the specific drivers of this growth when discussing the segment results. Turning to expenses on Slide 7, first quarter non-interest expense increased 5% from a year ago, driven by higher operating losses, the FDIC special assessment, an increase in revenue related compensation, predominantly due to higher investment advisory fees in our wealth and investment management business and higher technology and equipment expense. These increases were partially offset by the impact of efficiency initiatives, including lower professional and outside services expense, which declined 10% from a year ago. The higher operating losses were driven by customer remediation accruals for a small number of historical matters that we are working hard to get behind us.

The increase in personnel expense from the fourth quarter was driven by approximately $650 million of seasonally higher expenses in the first quarter, including payroll taxes, restricted stock expense for retirement eligible employees and 401(k) matching contributions. Not including expense for the FDIC special assessment in the first quarter, our full year 2024 non-interest expense guidance is unchanged and is still expected to be approximately $52.6 billion. However, we continue to watch a couple of items. Our guidance included $1.3 billion of operating losses for the year, which we still believe is a reasonable estimate even with a higher level of operating losses in the first quarter. However, we have outstanding litigation, regulatory and customer remediation matters that could impact operating losses during the remainder of the year.

Also, if market valuations remain at current levels or move higher, that would increase investment in advisory fees and revenue related compensation could be higher than we assumed in our expense guidance for this year, which would be a good thing. We’ll continue to update you as the year progresses. Turning to credit quality on Slide 8. Net loan charge-offs declined 3 basis points from the fourth quarter to 50 basis points of average loans. Credit performance trends were consistent with what we saw last quarter. The decline reflected lower commercial net loan charge-offs, which were down $131 million from the fourth quarter to 25 basis points of average loans. The reduction was driven by lower losses in our commercial real estate office portfolio.

We did not see further deterioration in the performance of our CRE office portfolio versus the fourth quarter and therefore our expectations have not changed. We continue to expect additional losses in the coming quarters. However, the amounts will likely be uneven and episodic. Consumer net loan charge-offs continue to increase as expected and were up $28 million from the fourth quarter to 84 basis points of average loans. While auto losses continue to decline, benefiting from the tightening actions we implemented starting in late 2021, credit card losses increased in line with our expectations. Non-performing assets declined 2% from the fourth quarter, driven by the lower CRE office non-accruals, reflecting the realization of losses and paydowns in the quarter.

Moving to Slide 9. Based on the consistent credit trends I noted before, our allowance for credit losses was down modestly, driven by declines for commercial real estate and auto loans, partially offset by higher allowance for credit card loans. The table on the page shows the allowance for credit losses coverage ratio for commercial real estate, including the breakdown of the office portfolio. We didn’t increase our allowance for this portfolio in the first quarter and the coverage ratio in our CIB commercial real estate office portfolio of 11% was stable compared with the fourth quarter. Turning to capital and liquidity on Slide 10. Our capital position remains strong and our CET-1 ratio of 11.2% continue to be well above our 8.9% regulatory minimum plus buffers.

We repurchased $6.1 billion of common stock in the first quarter. While the amount of stock we repurchased each quarter will vary, we continue to expect to repurchase more common stock this year than we did in 2023. Turning to our operating segment, starting with Consumer Banking and Lending on Slide 11. Consumer, small and business banking revenue declined 4% from a year ago, driven by our lower deposit balances. We continue to invest in talent, technology and branches to improve the customer experience. Our branches are becoming more advice focused with teller transactions declining while banker visits have increased. We are modernizing and optimizing the branch network. The number of branches declined 6% from a year ago, while at the same time, we are accelerating the refurbishment of our branch network.

In addition, the enhancements we are making to our mobile app continue to drive momentum in mobile adoption and we surpassed 30 million active mobile customers in the first quarter, up 6% from a year ago. Mobile logins also reached a milestone, surpassing 2 billion logins for the first time in the first quarter, up 18% from a year ago. Home lending revenue was stable from a year ago as higher mortgage banking income was offset by lower net interest income as loan balances continued to decline. Credit card revenue increased 6% from a year ago, driven by the higher loan balances. Payment rates remain relatively stable compared to the fourth quarter and were above pre-pandemic levels. Auto revenue declined 23% from a year ago, driven by continued loan spread compression and lower loan balances.

Personal Lending revenue was up 7% from a year ago and included the impact of higher loan balances. Turning to some key business drivers in Slide 12. Retail mortgage originations declined 38% from a year ago, reflecting the progress we made on our strategic objective to simplify the business as well as the decline in the mortgage market. We also made significant progress in reducing the amount of third-party mortgage loans we serviced, down 21% from a year ago. We also continued to reduce the headcount in home lending, which was down 33% from a year ago. Balances in our auto portfolio were down 12% compared to last year. Origination volume declined 18% from a year ago, reflecting credit tightening actions, but increased 24% from a slow fourth quarter.

Debit card spend increased 4% from a year ago with growth in most categories except for fuel and travel. Credit card spending remains strong. It was up 14% from a year ago. All categories grew with stronger growth in nondiscretionary spend. New account growth continued to be strong, up 12% from last year. Turning to Commercial Banking results in Slide 13. Middle Market Banking revenue was down 4% from a year ago, driven by lower net interest income due to higher deposit costs partially offset by higher deposit related fees. Asset-based lending and leasing revenue decreased 7% year-over-year and included lower revenue from equity investments. Average loan balances were stable compared to a year ago as growth in asset-based lending and leasing was offset by declines in middle-market banking.

Weaker loan demand reflected the impact of clients being cautious given the higher-rate environment and the anticipation of lower rates this year as well as some potential uncertainty in an election year. Turning to Corporate and Investment Banking on Slide 14. Banking revenue increased 5% from a year ago, driven by higher investment banking revenue due to increased activity across all products. Our results benefited from the areas where we have had strength for some time, such as investment-grade debt capital markets and from the talent we’ve been attracting into the business. While it’s still early, we are encouraged by the green shoots we are seeing. Commercial real-estate revenue was down 7% from a year-ago and included the impact of lower loan balances.

Markets revenue increased 2% from a year-ago, driven by continued strong performance in structured products, credit products, and foreign-exchange. Our trading results continue to benefit from market conditions and the investments we’ve made in technology and talent to round out the business have enabled us to produce strong results even as market dynamics have changed. Average loans declined 4% from a year ago. Banking clients have taken advantage of strong capital markets to pay-off loans. In addition to weak loan demand in commercial real-estate given market conditions, balances also declined due to credit tightening actions we implemented last year, along with our efforts to actively reduce certain property types in the portfolios. On Slide 15, Wealth and Investment Management revenue increased 2% compared to a year-ago.

Lower net interest income driven by lower deposit balances as customers reallocated cash into higher-yielding alternatives was more than offset by higher asset-based fees due to increased market valuations. While cash alternatives as a percentage of total client assets was higher than a year ago, it has declined in the past two quarters as the migration of deposits into cash alternatives has slowed significantly. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so first-quarter results reflected market valuations as of January 1st, which were higher from a year ago. Asset-based fees in the second quarter will reflect market valuations as of April 1st, which were higher from both a year ago and from January 1st.

Slide 16 highlights our corporate results. Revenue grew from a year ago due to improved results in our affiliated venture capital business on lower impairments. In summary, our results in the first quarter reflected the progress we’re making to improve our financial performance. We grew revenue, driven by strong growth in our fee-based businesses. We continue to make progress on our efficiency initiatives. We increased capital returns to shareholders and maintained our strong capital position. We’ll now take your questions.

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Q&A Session

Operator: Thank you. At this time, we will now begin the question-and-answer session. [Operator Instructions] And our first question will come from John McDonald of Autonomous Research. Your line is open, sir.

John McDonald: Hi, good morning. Guys, I wanted to ask about your profitability targets and kind of how you’re seeing the journey to the mid-teens ROTCE goal. Mike, maybe you could talk about that through the lens of 12% return on tangible common equity this quarter. Where do you think you’re kind of over-earning, under-earning, and what does that journey to the mid-teens look like over the next couple of years?

Mike Santomassimo: Hey, John, it’s Mike. Thanks for the question. So, look, I think not much has changed in our thinking on the topic. And so as you sort of think about it on a long-term basis, there’s no reason — we still — there’s still no reason why our businesses shouldn’t have returns like the best of our peers. And as we sort of go through that journey, obviously we are where we are in terms of the returns today. And as we get towards closer to 15%, it’s going to be the same kinds of drivers that we’ve been talking about now for a while. We’ve got to continue to optimize sort of capital and balance sheet. You saw us return some via buybacks today. We’re making investments on each of our businesses, and so we’ll need to start seeing some of the returns there.

And this was one quarter of it, but a good quarter that shows some of the benefits of those investments we’re making across a whole range of the businesses, which is good to see. And Charlie highlighted a bunch of that in his commentary. And then we’ve got to stay on the efficiency journey, which we continue to believe is not done. And we’ve got a lot of work to do to continue to drive efficiency across the company. And we’re going to stay at that as we look forward. And so I think it’s really those drivers that get in. And we still have confidence that we’re going to get there.

Charlie Scharf: Hey, John, let me — it’s Charlie. Let me just add a couple of things. Number one is, just as a reminder to everyone, we’ve tried to be clear as NII was rising and we got to, certainly either at the peak or near the peaks that we were outearning and that we didn’t look at those ROEs at those points as sustainable, but that our clear journey was to continue to get there on a sustainable basis. I think second of all, when we look at, obviously it’s very hard to draw any conclusion from a specific quarter, right? You’ve got the FDIC, we’ve got operating losses, which we’ve talked about where our expectations are for the full year, which are different than the quarter. So it’s very hard to draw a conclusion on a specific quarter.

But when we look at what is going to get us there, we are very consistent on what those things are. Number one is improved business performance. And we tried to highlight where we see that and those areas that we don’t talk about are areas that we are still bullish on but would like to see some more improvement in the ability to increase our returns in those parts of the company as well as continued capital return as well as the limitations we have because of the asset cap. So again, our thesis hasn’t changed, our views haven’t changed, and our confidence in getting there hasn’t changed.

John McDonald: Okay. And then one just quick follow up there. Do you think this 11% CET-1 is probably kind of the ballpark of where you hang out regardless of the minimum just because it feels like you have super regional banks that aren’t G-SIBs are running at, 10%, 10.5%. You have bigger banks at 12%, 13%. Does 11% kind of feel like the right ballpark, which means you can return most of what you’re generating now?

Charlie Scharf: I would say it’s something that we continue to think through. You know our existing needs today with buffers are at 8.9%. At 8.9%, everyone understands that Basel III Endgame is coming, but likely with significant revisions. So I think as the quarters continue, we’ll learn more about where that will come out and we’ll be able to be more informed about where we’ll wind up. We’ve always tried to be on the more conservative end, but there’s a point at which too much is too much, which is why we bought the amount this quarter that we bought back.

John McDonald: Okay. Thank you.

Operator: The next question will come from Ebrahim Poonawala of Bank of America. Your line is open, sir.

Ebrahim Poonawala: Hey, good morning. I guess just following up on that, as we think about Basel, your capital levels, even with 100 basis points above, you probably have $12 billion of excess capital. Given what we saw in 1Q and I heard you Mike, year-over-year you’re going to be higher, but that doesn’t give enough color. I’m just wondering should we expect the pace of buybacks to continue given that where the stock’s trading which is still fairly effective valuations?

Mike Santomassimo: Yeah, thanks. It’s Mike, thanks for the question. As you look at the pacing, we’re really not going to provide specific guidance on, like, what we’ll do quarter to quarter. I think, obviously, as you pointed out, we’ve got significant excess capital to where we need to be. We’ll be able to handle with whatever comes out of Basel III quite easily with where we are today, gives us the ability to be there and invest as we’ve got opportunities with clients. And so we’ve got lots of flexibility. And each quarter, we’ll go through the same process we go through every quarter, which is thinking about sort of where the capital requirements are going to go, looking at all the different risks that are out there across the spectrum, whether it’s rates or other, and then looking at what we’re seeing from client activity, and then we’ll make a decision on the pacing of it.

But as you say, we’re still very confident we’ll do more than we did last year, but pacing we’ll kind of leave to — we’ll cover that each quarter after we report.

Ebrahim Poonawala: Got it. And I guess just separately, I think there’s a lot of focus on market share opportunity for Wells, be it in capital markets, IB, corporate lending, and I think Charlie referenced the hiring of Doug Braunstein. Would appreciate additional color in terms of areas where you see within corporate capital markets where there’s market share to be had and what’s the level of investment/infrastructure needed in order for competing in that space and winning market share?

Charlie Scharf: Yeah, let me start out. I think, first of all, when we talk about the level of investment that’s necessary, we’re making the investment, and it’s embedded in what we’re spending. And so, we are funding that through normal course of business. Some of the folks that we’re hiring, are replacing other people and others are additions, but that’s part of what it is. And so we don’t anticipate any kind of step-up in the expense base to fund what we’re doing, which we feel great about. We’ve got the ability to spend along the way and to actually see them paying off for itself. And I said this very consistently, which is we are extremely under-penetrated across almost all segments of the investment banking space. We’ve been stronger on the debt side.

We have not been as strong on the equity side. And by the way, all for reasons that relate to our own willingness to invest over the last decade and a half, not because of the opportunity or because of our business model. It’s just the opposite. It’s just not something that the senior management team here was supportive of, and we feel very differently than that. And so when we look across coverage in the equity space by industry on the strategic side and how that relates to our existing high quality debt platform that we have, again, we’re prioritizing industries based upon where we already have strength in relationship and where there are significant wallets. But we feel really great about our ability to serve a broad set of customers and their desire to do business with us because of both the platform and the talent that we have here.

And then when we look at our — the trading side of our business, a big part of what we do there is to support our efforts within the investment bank, but it also is to leverage the broader institutional relationships that we have, where we do a lot with those institutions, but we haven’t necessarily leveraged trading flow as part of that. And so to do that, we’re making investments not just in people, but in technology. We are, as I alluded to, we’re not doing any of this by rethinking the way we think of our risk tolerances. It really is about getting the right products, the right services, the right people, and calling on our customer base with a different degree of credibility and desire that we’ve had in the past.

Ebrahim Poonawala: That’s a [good] (ph) color. Thank you.

Operator: The next question comes from Ken Houston of Jefferies. Your line is open, sir.

Ken Houston: Thank you. Good morning. I’m wondering if we could talk a little bit about just that kind of last mile of deposit repricing. You talked about the mix shift and non-interest down and interest bearing up, but just wondering just what’s happening on the pricing side and are you still seeing both sides, consumer and wholesale, if you can maybe just kind of give us the dynamics that’s happening underneath and how you expect that to continue as we get to this, as we stay in this rates peak? Thanks.

Mike Santomassimo: Sure. I’ll take that, Ken. As you look at the commercial side, not much has changed. It’s pretty competitive. We’re not seeing it move one way or the other in a significant way as you sort of look over the last quarter. Good news is we’ve been able to attract good operating deposits in corporate investment bank. We’ve seen some growth in commercial bank as well. And so all that’s kind of performing as you’d expect. And you wouldn’t really expect pricing to move there until the Fed starts to move. And it’ll stay pretty competitive at that point. And we still expect betas to be pretty high on the way down as you start to see that eventually happen. On the consumer side, standard pricing is not moving. Really what you’re seeing is you’re seeing people continue to spend some of the money that’s in their checking accounts and/or move some of it into either CDs or higher yielding savings accounts.

And so you still see some of that activity happening across the consumer space and the well space where you still have some people moving into higher yielding alternatives. The pace of that migration has slowed, at least for now. And so, we’ll see how that progresses through the rest of the year, but it has slowed a bit over the last number of months.

Ken Houston: Okay. And on the lending side, I think what you guys showed is not unexpected at all based on general softness at the start of the year. So I think you and others have just kind of generically hoped that we get an improvement. But with rates where they are, is there any impediment to just seeing an improvement in loan growth as the year goes on or is it baked into kind of the demand function that you’re seeing underneath?

Mike Santomassimo: Yeah, I think what we’re seeing so far is exactly what we expected to see at the beginning of the year. And I know there’s people — different people have different views, back in January. But this is exactly what we expected, which is pretty low demand. Now, as I said in my commentary, it’s a little bit lower than what we had modeled, but not substantially at this point. And it really is a demand function. When you look at what we’re hearing from clients in the commercial bank or some of the clients in the corporate investment bank, they’re being cautious still and saying, okay, I’m not going to build inventories as much as I might in a different environment. They’re being thoughtful about the cost of credit and how that impacts investments they’re making or the timing and the pacing of that.

And so on the commercial side, it really is a demand issue at this point. On the consumer side, you continue to see some growth in card balances. Given the size of the balance sheet, that’s not going to move the whole balance sheet very materially given where we start from. And then the mortgage side just continues to decline a little bit given the market that we’ve got there. And in auto, we’re seeing a little bit more decline given some of the changes we made about a year and a half ago, a year, year and a half ago on some of the credit tightening and eventually that will start to turn. So I think those are the dynamics that we’re seeing right now.

Ken Houston: Okay. Thanks, Mike.

Operator: The next question will come from Betsy Graseck of Morgan Stanley. Your line is open.

Betsy Graseck: Hi, good morning.

Charlie Scharf: Hey, Betsy.

Betsy Graseck: Hey. Okay, a couple of just quickies here. One is, on the net interest income outlook that’s unchanged, could you remind us what the interest rate environment is that’s the base case for that analysis?

Mike Santomassimo: Sure. Hey, it’s Mike, Betsy. Welcome back. Sure. When you look at the environment, we’re not guessing at sort of what’s going to happen, right? So, I think as you sort of look at the different variables that are embedded in our baseline forecast is that we would expect somewhere around three rate cuts this year. And that’s what’s underlying sort of our thinking at this point.

Betsy Graseck: And was that the same as last quarter, same assumption set, or has that changed?

Mike Santomassimo: No. I mean — yeah, no, like it’s definitely less than what I think was being projected by the market. And that’s what we wanted put out on our slide in January. And when you look at the impact of that in isolation, you certainly would see a benefit from less rate cuts. But I do think you have to put that in the context of, okay, now what’s going to happen with client behavior and mix shifts as we look for the rest of the year? I mean, it’s certainly clear we feel better today than we did in January about our guidance and our forecast there, but I do think we have to let some more time play out to see how people react to what’s happening. And I think even you got to be really careful to take what happened over a day or two and extrapolate too far, right?