Jim Rowe - Director, IR John Stumpf - Chairman & CEO John Shrewsberry - CFO

Ken Usdin - Jefferies John McDonald - Bernstein Paul Miller - FBR Erika Najarian - Bank of America Merrill Lynch Matt O'Connor - Deutsche Bank Bill Carcache - Nomura Securities Kevin Barker - Piper Jaffray Joe Morford - RBC Capital Markets John Pancari - Evercore ISI Betsy Graseck - Morgan Stanley Mike Mayo - CLSA Eric Wasserstrom - Guggenheim Securities Nancy Bush - NAB Research Marty Mosby - Vining Sparks

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 First Quarter Earnings Conference Call. [Operator Instructions]. 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 Chairman and CEO, John Stumpf; and our CFO, John Shrewsberry, 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 release and quarterly supplement 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 release and quarterly supplement. Information about any non-GAAP financial measures referenced, including the reconciliation of those measures to GAAP measures can also be found in our SEC filings, in the earnings release and in the quarterly supplement available on our website. I’ll now turn the call over to our Chairman and CEO, John Stumpf.

Thank you, Jim. Good morning and thank you for joining us today. Our performance in the first quarter once again benefited from our diversified business model and our continued focus on meeting our customers’ financial needs. While the persistent low rate environment, market volatility and continued weakness in the oil and gas industry provided some near term headwinds, our long-term results continued to be driven by our focus on the real economy. For example, we are the largest lender in the U.S. and our loan and deposit balances are at an all-time high. We continued to grow our customer base both organically and through acquisitions and February was the strongest month for retail bank household growth in five years. We worked to make every relationship, new and existing, a lasting one and our focus on providing outstanding customer service was recognized with Wells Fargo ranking number one in customer loyalty among large banks in the 2016 Customer Loyalty Engagement Index conducted by the firm Brand Keys. Let me now highlight our results in the first quarter. We generated earnings of $5.5 billion and EPS of $0.99. We grew revenue compared with a year ago by 4% with growth in both the net interest income and non-interest income and our pre-tax pre-provision profit grew 5%. Average loans grew $64 billion or 7% from a year ago. Our deposit franchise once again generated strong customer and balanced growth with average deposits up $44.6 billion or 4% from a year ago, and we grew the number of primary consumer checking customers by 5%. While deterioration in the oil and gas portfolio drove a $200 million reserve build, the rest of our loan portfolio continued to have strong credit results with our total net charge-off rate remaining near historical lows at 38 basis points annualized, reflecting the benefit of our diversified loan portfolio. Our strong capital position enabled us to acquire assets from GE Capital and we returned $3 billion to our shareholders through common stock dividends and net share repurchases in the first quarter. As you know, yesterday the Federal Reserve and FDIC announced their response to the 2015 resolution plan submitted by eight banks, including Wells Fargo. While we were disappointed to learn that our submission was determined to have deficiencies in certain areas, we are focused on fully addressing these issues as part of our 2016 submission. Turning to the economic environment. While signs of economic uncertainty remain in the global economy as well as volatility in the capital markets, the U.S. economy, which is the primary driver of Wells Fargo's results, continues to be resilient. For example, while low energy prices have negatively impacted the oil and gas industry, the U.S. is still a net energy importer and the benefits of falling prices have outweighed the costs for consumers and most businesses. Job creation in the U.S. remains robust with 2.7 million jobs added over the past year alone. Consumers have also benefited from low interest rates and modest borrowings. In fact, servicing financial obligations require just 15% of household income at the start of the year, more than a percentage point lower than the long term average and several percentage points lower than what the recession level was in late 2007. The housing market continues to do well with steady gains in sales, construction and prices. This improvement has continued to benefit our consumer real estate portfolio where net charge-offs were down 41% from a year ago. Commercial real estate also remained strong with vacancy rates low in apartment, industrial and retail sectors and our CRE portfolio continued to generate net recoveries. So while the start of 2016 has shown that the economic recovery remains slow and uneven, we remain focused on the long term drivers of our success, namely: increasing customers, loans, deposits and building capital. This unwavering focus on our diversified business model positions us well to benefit from future growth opportunities. John Shrewsberry, our Chief Financial Officer will now provide more details on our first quarter results. John?

Thanks, John and good morning everyone. My comments will follow the presentation included in the quarterly supplement starting on Page 2. John and I will then answer your questions. We had another quarter of solid results. We have now generated quarterly earnings of more than $5 billion for 14 consecutive quarters, one of only two companies in the country to do so, demonstrating the strength of our diversified business model and our consistent risk discipline. While earnings declined from a year ago, our results in the first quarter last year included a discrete tax benefit of $359 million or $0.07 per share and a $100 million dollar reserve release. Our results this quarter included a number of noteworthy items. Our revenue benefited from the previously announced sale of our crop insurance business resulting in a $381 million gain recorded in all other non-interest income. All other income also included $379 million of hedge ineffectiveness primarily on our own long-term debt hedges reflecting the impact of lower rates and foreign exchange rate fluctuations during the quarter. We would expect the hedge ineffectiveness to be neutral to our results over the life of the hedge relationship but the impact in every quarter will vary. We had a $124 million of other-than-temporary-impairment, OTTI, in our debt and equity securities related to oil and gas in the first quarter. The deterioration in the oil and gas portfolio drove the $200 million credit reserve build in the quarter also. I will get into more detail on oil and gas later in the call. Expenses included $752 million of seasonally higher employee benefit expenses from higher payroll taxes and 401(k) matching as well as annual equity awards to retirement-eligible team members. Our first quarter results also included the GE Capital acquisitions we completed during the quarter. On Page 4, we show the strong year-over-year growth John highlighted, including increases in revenue, pretax pre-provision profit, loans and deposits. Turning to Page 5. Let me highlight a few balance sheet trends. Investment securities declined $12.7 billion from fourth quarter as we paused most of our purchase activity due to the volatility in the bond market. We had $5 billion of gross purchases during the first quarter compared with last year's average of $26 billion per quarter. Long-term debt increased $28.4 billion with $23.8 billion of issuances, including $11 billion raised in advance of closing the GE Capital acquisitions. We also assumed $3.6 billion of debt from previous GE Capital securitizations. Short-term investments and Fed funds sold increased $30.4 billion reflecting growth in deposits, long term debt and our disciplined approach in managing liquidity and investment securities during the quarter. Turning to the income statement overview on Page 6. Revenue increased $609 million from the fourth quarter with growth in both net interest and non-interest income. I will highlight the drivers of this growth throughout the call. As shown on Page 7, we had continued strong loan growth in the first quarter, up 10% from a year ago and 3% from the fourth quarter. Commercial loans grew $31.6 billion from the fourth quarter, including $24.9 billion from the GE Capital acquisitions and broad-based organic growth. Consumer loans declined $923 million from the fourth quarter as growth in first mortgage loans, auto and securities-based lending and student lending was more than offset by reductions in junior lien mortgage and seasonal declines in credit card. Our total average loan yield increased 8 basis points from the fourth quarter, reflecting the GE Capital acquisitions as well as the benefit of floating rate loan repricing. We added a total of $30.8 billion of loans and leases from the GE capital acquisitions. The benefit of our strong balance sheet and industry expertise enabled us to add these high quality businesses, including talented new team members and valuable customer relationships. This is our largest acquisition since 2008. The integration is on track and we continue to expect it will be modestly accretive in 2016. We completed the GE Railcar Services acquisition on January 1, which included $918 million of loans and interest earning leases and $3.2 billion of operating leases reported in other assets. Most of the revenue from this business is reflected in non-interest income as lease income. On March 1, we acquired the North American-based portion of GE Capital C&I loans and leases which included $24 billion of loans and interest earning leases and $2.7 billion of operating leases. The remaining $2 billion of assets is expected to close in the second half of the year. The loans and leases we acquired were marked to fair value under the purchase method of accounting so that there was no associated allowance added as a result of these transactions. Slide 9 highlights our broad-based loan growth. C&I loans were up $50.5 billion or 19% from a year ago driven by the GE Capital acquisitions and broad-based organic growth. Core one-to-four family first mortgage loans grew $17.3 billion or 8% from a year ago and reflected continued growth in high quality non-conforming mortgage loans. Commercial real estate loans grew $15.8 billion or 12% from a year ago, benefiting from the second quarter GE Capital acquisition and organic growth. Auto loans were up $4.3 billion or 8% from last year. We've consistently grown this portfolio in the upper single digits over the past year, reflecting the strong auto market while we have remained disciplined in our approach to credit and pricing. Credit card balances were up $3.1 billion or 10% from a year ago, reflecting new accounts and increases in active accounts. Other revolving credit and installment loans were up $2.7 billion or 8% from a year ago with growth in securities based lending, personal lines and loans and student loans. As highlighted on Page 10, we had $1.2 trillion of average deposits in the first quarter, up $44.6 billion or 4% from a year ago. Our average deposit cost was 10 basis points, up 1 basis point from a year ago and up 2 basis points from the fourth quarter. The slight increase in deposit cost reflected an increase in deposit pricing for some wholesale banking customers. We continue to believe that deposit betas will be lower during this rate cycle than they have been in past periods of rising rates, especially if the outlook for future rate increases remains uncertain. Page 11 highlights our revenue diversification. Our revenue continued to be relatively balanced between net interest and non-interest income. We grew net interest income $79 million from the fourth quarter, reflecting growth in earning assets, including the partial quarter impact from the assets acquired from GE Capital, the benefit from higher short-term rates and disciplined deposit pricing. These increases were partially offset by reduced income from variable sources, including periodic dividends and loan fees and one less day in the quarter. The net interest margin declined 2 basis points from the fourth quarter with lower variable income. All other growth and repricing were essentially neutral to the NIM. We grew net interest income in the first quarter by 6% from a year ago and continue to believe that we can grow net interest income on a full-year basis in 2016 compared with 2015 even if there are no additional rate increases. Total non-interest income increased $530 million from fourth quarter driven by the increase in all other non-interest income that I highlighted at the start of the call. The non-interest income also benefited from the increase in lease income related to the GE Capital acquisitions we completed in the quarter, which also included related lease depreciation expense. The linked quarter increase in trading gains was due to higher customer accommodation trading results across our markets businesses. The volatile markets we experienced in the first quarter impacted our trust and investment fees which declined $126 million from the fourth quarter. We also had lower debt and equity investment gains down $281 million from the fourth quarter. While linked-quarter trends in deposit service charges and card fees were negatively impacted by seasonality, both of these fees grew 8% from a year ago driven by account growth. Mortgage banking revenue declined $62 million from the fourth quarter. Origination volume was $44 billion, down 6% from the fourth quarter due to seasonality but purchase originations were up 13% from a year ago, reflecting a stronger housing market. Applications were up 20% from the fourth quarter and we ended the quarter with a $39 billion application pipeline, up 34% from the fourth quarter. We expect origination volume to increase in the second quarter reflecting normal seasonality and strength in the housing market. Our production margin on residential held-for-sale mortgage originations was 168 basis points in the first quarter, down 15 basis points from the fourth quarter due to a higher mix of correspondent originations in the first quarter. Releases of our mortgage loan repurchase liability declined $107 million from fourth quarter, which also contributed to lower production revenue. Servicing income increased $120 million from fourth quarter, from higher net MSR servicing hedge results and lower unreimbursed servicing costs. As shown on Page 14, expenses increased $429 million from fourth quarter. As I highlighted at the start of the call, the increase was primarily driven by $752 million of seasonally higher personnel expenses in the first quarter. While we will not have the seasonally higher personnel expenses in the second quarter, there are certain expenses that will increase, including salary expense reflecting annual merit increases which became effective late in the first quarter, and certain expenses that are typically lower in the first quarter, such as outside professional services and advertising costs which are also expected to increase. We had $454 million of operating losses primarily driven by litigation expense in the first quarter. Now that the FDIC has issued their final rule, I want to update you on the expected impact of the FDIC surcharge that I mentioned on our call last quarter, which is lower than we previously expected. We currently estimate that the surcharge along with a previously approved base rate reduction will increase our total FDIC assessment by approximately $100 million per quarter starting in the third quarter of 2016. Our efficiency ratio was 58.7% in the first quarter and we currently expect to operate at the higher end of our efficiency ratio range of 55% to 59% for the full year 2016. Turning to our business segments, starting on Page 15. Community banking earned $3.3 billion in the first quarter, down 7% from a year ago due to the discrete tax benefit we had in the first quarter of 2015 and up 4% from the fourth quarter. We continued to successfully grow retail bank households and increased our primary consumer checking customers which were up 5% from a year ago. This growth along with increased usage and new product offerings benefited our debit and credit card businesses. Debit card purchase volume was $72.4 billion in the first quarter, up 9% from a year ago, and credit card purchase volume was $17.5 billion, up 13% from a year ago. Customers are increasingly using our award winning digital offerings with digital active customers up 6% from a year ago, including 17.7 million mobile active users with continued double-digit growth in mobile adoption. Wholesale banking earned $1.9 billion in the first quarter, down 3% from a year ago and down 9% from the fourth quarter. The decline was driven by the higher provision expense in our oil and gas portfolio. Revenue grew 6% from the fourth quarter with growth in both net interest and non-interest income. This growth was driven by the gain on the sale of our crop insurance business and the benefit of the GE Capital acquisitions. Investment banking declined on overall market weakness and some of our commercial real estate related businesses had weaker results coming off a very strong fourth quarter performance. Loan growth remained strong driven by acquisitions and broad-based organic growth with average loans up $49.8 billion or 13% from a year ago, the sixth consecutive quarter of double-digit year-over-year growth. Average deposit balances declined $3.7 billion from a year ago, reflecting lower international deposits from market volatility and the competitive rate environment. Wealth and investment management earned $512 million in the first quarter, down 3% from a year ago, down 14% from the fourth quarter. The year-over-year results reflect a strong balance sheet growth with net interest income up 14% offset by the impact of weak equity market conditions on fee income. The decline in linked quarter results was primarily driven by seasonally higher personnel costs. Balance sheet growth remained strong with average deposits up 8% from a year ago and loans up 13%, the 11th consecutive quarter of double-digit year-over-year loan growth with continued growth in non-conforming mortgage loans and securities based lending. We successfully completed our recruiting of financial advisors pursuant to our agreement with Credit Suisse. We were able to recruit substantially all of the advisors that we targeted. We are pleased with the success we've had recruiting these financial advisors and look forward to their contributions to our continued growth in wealth management. Turning to Page 18. Credit results continued to benefit from our diversified portfolio with only 38 basis points of annualized net charge-offs. Net charge-offs increased $55 million from the fourth quarter, including an increase of $87 million from our oil and gas portfolio. While our oil and gas portfolio remains under stress due to low prices and excess leverage in the industry, the rest of our loan portfolios have performed well. Non-performing assets increased $706 million from the fourth quarter, we had $1.1 billion in higher oil and gas non-accruals and $343 million in nonaccrual loan from the GE Capital acquisitions which was within our acquisition underwriting assumptions. These increases were partially offset by lower residential and commercial real estate non-accruals and lower foreclosed assets. As I mentioned earlier, we had a $200 million reserve build during the quarter as continued improvements in our residential real estate portfolio were more than offset by higher oil and gas reserves. Since first quarter 2015 we have released $1.8 billion of allowance that was allocated to our residential real estate portfolios while providing $1.4 billion of additional allowance allocated to our oil and gas portfolio, demonstrating the advantage of our diversified loan portfolio. The total allowance now stands at $12.7 billion. Slide 19 highlights the characteristics of our oil and gas portfolio, which is less than 2% of total loans outstanding. We had $17.8 billion of oil and gas loans outstanding at the end of the first quarter, up $474 million from the fourth quarter, including $236 million in loans acquired from GE Capital. The remaining increase was driven by utilization of existing lines primarily in the E&P sector. The composition of our portfolio has remained relatively stable with 55% of our outstandings to the E&P sector, 21% to midstream and 24% to service companies. Approximately 7% or $1.2 billion of our outstandings to investment grade companies based on public ratings. However there are other factors that are important to consider when assessing the quality of these loans. Our loans are primarily to middle market companies that we know well and have worked closely with across cycles. Of the approximately 100 bankruptcies that have occurred in the industry since the start of 2015, only eleven of our borrowers have filed during that time. Our outstandings also included $819 million of second lien and $374 million of mezzanine loans. Our total oil and gas loan exposure which includes unfunded commitments and loans outstanding was down $1.3 billion or 3% from the fourth quarter with declines across all three sectors. This decline reflected reductions to existing credit facilities in part from spring redeterminations and net charge-offs. Approximately 34% of our unfunded commitments were to investment grade companies as their line utilization is generally lower. In addition to our exposure to oil and gas in our loan portfolio, we also had a total of $2.4 billion in our securities portfolio. Slide 20 highlights the credit performance of our oil and gas portfolio as we work through this cycle. The sector's performance has been driven by a number of factors that cumulatively have impacted loan quality. In addition to low oil and gas prices, cash flows and collateral values have been impacted by reduced production, run-off of hedges and limited additional cost levers. Reduced access to capital markets has also impacted borrowers’ financial condition. As a result of these factors we had $204 million of net charge-offs in the first quarter. There were no losses from the midstream sector during the quarter. Non-accrual loans were $1.9 billion. We reviewed our loan portfolio on a loan-by-loan basis and placed loans on non-accrual status when the full and timely collection of contractual interest or principal becomes uncertain, and loans are written down to net realizable value when appropriate. Approximately 90% of the non-accrual is recurrent on interest and principal. Payments received on these loans are applied to reducing principal which decreases future losses. Substantially all of our non-accrual loans are senior secured. Given the conditions in the industry, criticized loans which include non-accrual loans increased 57% of the portfolio reflecting continued downward credit migration. This migration reflects changes in the borrower's financial condition. Reflecting the downward credit migration, our allocated allowance for the oil and gas portfolio increased $504 million to $1.7 billion. This portion of the allowance was 9.3% of total oil and gas loans outstanding. But as I've noted before, the entire $12.7 billion allowance is available to absorb credit losses inherent in the total loan portfolio. Turning to Slide 21. In addition to building allowance for our oil and gas portfolio, we continue to focus on other areas where the trends in the oil and gas industry may impact performance as we manage through the cycle. For example, we have assessed regions of the country and have been monitoring 15 regions in eight states where greater than 3% of employment is directly tied to oil production and are also monitoring performance in Houston and Alaska, neither of which have 3% of employment directly tied to oil production. We're tracking changes in outstandings, utilization, delinquency rates, FICO scores and LTV migration across our consumer portfolios in these regions and having outperformed the rest of our portfolio for the past several years consumer delinquencies in oil dependent regions have increased and are roughly in line with the performance in non oil concentrated communities. We currently anticipate further deterioration and while we remain committed to serving our customers, we’ve tightened our underwriting standards across our consumer portfolios in oil dependent regions. We're also actively monitoring commercial real estate exposure on a loan-by-loan basis in geographies highly correlated to the oil and gas industry. Our CRE and energy management teams are working closely together and coordinating monitoring activities. Our total exposure is manageable and these loans are generally structured with significant cash equity and various other credit enhancements. In summary, we are actively monitoring the impact from the disruption in the oil and gas industry in all areas of our business and we're working closely with all impacted customers. We've increased the size of our workout team and the senior members of our credit team are devoting significant time to monitoring our exposures. We've started the spring redeterminations and are decreasing borrowing bases. We’re proactively reviewing credit agreements and modifying credit terms and commitment amounts accordingly. While the level of losses we have in our oil and gas portfolio will continue to be impacted by the volatility and stress in the industry and it will take time to move through this part of the cycle, the experience of managing through many cycles will continue to be beneficial to our overall performance. Turning to Page 22. Our capital levels remained strong with our estimated common equity tier one ratio fully phased in at 10.6% in the first quarter, well above the regulatory minimum buffers and our internal buffer. Our strong capital generation positioned us to deploy capital for the assets acquired from GE while continuing to return capital to our shareholders. We issued 35.5 million common shares in the first quarter reflecting seasonally higher employee benefit plan activity. But we still reduced our common shares outstanding by 16.2 million shares through share repurchases of 51.7 million. Our net payout ratio was 60% in the first quarter. In summary, our first quarter results demonstrated the benefit of our diversified business model as we continued to produce strong financial results in an environment that included some near-term headwinds. Our consistent focus on executing on our vision continued to benefit our fundamental drivers of long term growth, including adding customers, loans and deposits while maintaining our strong capital position. We look forward to providing you more details on the strength of our business model while highlighting the quality of our team at our investor day on May 24. John and I will now answer your questions.

[Operator Instructions] Our first question will come from the line of Ken Usdin with Jefferies.

Just on the reserving and energy question -- thanks for the color John. So it seems like you've had a little bit more of the acceleration we've seen so far of those who have reported as far as the actual losses and the reserve build as well. How do we just get the understanding from here of the kind of pace of potential reserve additions? And then underneath that, are we effectively at the point where many benefits from lingering consumer reserve have kind of moved past? Thanks.

Well, on the second part of your question, it’s tough to say. Now we’re analyzing the reserve every quarter and to the extent that there's continued improvement in consumer real estate in particular, it’s certainly possible that that produces incremental benefit that absorbs some of what's happening on the oil and gas side, that's been true for a while and it may continue to be true for a while. Housing -- housing has been strong and that doesn't feel likely to reverse course right now. But again we only know at the end of the quarter. With respect to the pace or the trend of incremental reserving throughout the year. We're constantly reassessing borrower quality, we're doing a semi-annual borrowing base redetermination on E&P loans where we are in the middle of the spring redetermination period right now, call it 20%, 25% have been completed, so we'll have the rest of that information, that's name by name, capital structure by capital structure. So that will continue to inform things and we've definitely taken steps or -- for example, categorize loans as non-performing even if we haven't completed their spring redetermination. But my sense is there's more information there. So this is going to go on for a while. We’re in the $40 context today, we were in the 30’s for a while. Some of these capital structures just need to be restructured. That will take some time. And my assumption is that we're going to be talking about this all year. I don't know that we'll continue to reserve at this pace all year. Because we feel great about a reserve at the end of the first quarter and it reflects everything that we know. But I'd be hesitant to tell you that this was the big quarter, or this was the quarter, things will unfold as they're going to unfold depending on what happens with what prices, both spot and forward and the pace of restructurings of services and E&P companies.

Ken, to remind you that, I mentioned that residential real estate losses were down 41% year over year. And I think that sometimes goes a bit unnoticed. When we went into the downturn, we had over $100 billion of pick-a-pay loans and over $100 billion of home equity loans and those were the two toughest residential portfolios. Today those portfolios are less than half of what we started with and the performance is really really good. So there is a lot of momentum on that side that has been – that’s happened over the last few years, but especially in the last year or two.

That's a fair point, John. Thanks for that. And just one follow up, on the redeterminations and the structuring, John, how far ahead can you get a redetermination? I get your point that we're only 25% through the spring. But have you already been able to get ahead of that just in terms of anticipation or you can only make those adjustments when we get there? And then also with the price back up, do we go into spring redetermination using a $40 plus starting point or do you still end up being much more punitive in terms of how you discount and how you redetermine?

Yes, I think that the price tag for this cycle is -- the front month is more in the mid 30s context. And it's a curve that you're using not just the spot price but we’re probably 20% lower across our price deck curve in the spring versus where we were six months ago. And believe me that's not the only item that impacts the outcome. It's what's been going on with incremental exploration -- what are the reserves in terms of quantity and a variety of other things. But in terms of getting in front of it, as I said we're categorizing loans as non-performing. We're recognizing loss – these loss determinations, the $200 million that we've taken, that's our own credit folks determining that there is -- that there's something to be done, it’s not as a result of a final resolution or a workout or the completion of a bankruptcy plan. And we can do that even before we've completed redetermination. So from an impact to Wells Fargo point of view, we're always trying to stay out in front of it.

Your next question comes from the line of John McDonald with Bernstein.

Hi, I'll switch it up. In terms of net interest income, John, how much have you benefited from the December hike in the first quarter? Have all the variable loans repriced and will there be additional pull through benefit from that December hike into the second quarter?

So our estimation is that we've gotten the full benefit of the December rate hike. The benefit on the asset side, the cost on the liability side, we talked about the impact on deposits which has been negligible. And so I think that's in the run rate at this point.

And then question for John Stumpf. What's the market like John for additional portfolio purchases? That's part one, and then part two is in terms of broader M&A, because of your size and favored nation status you're the kind of preferred name for news reporters and others that speculate on M&A for big financial companies, and since a lot's changed around the environment the last few years, can you just remind us your strategy around M&A, maybe how it's different than when you were smaller and how Dodd-Frank and Too Big To Fail might affect your view on acquisitions going forward?

Sure. As you probably know and those who know us well, 97% of the revenue we produce is from U.S. based customers, consumers, small business men and women, middle market large customers. And while we love our international business, it’s mostly in support of our U.S. based businesses. And we have leadership positions in most of the businesses in which we do. And we don't set out to be number one, just to be number one. We work really hard and if we do really -- we provide great products and services and great value we grow because of that. There's a couple of areas where we are sub-optimized that we are working hard to grow. One of those, I think the most attractive area would be the area that David Carroll runs in wealth investment management. You heard me say a number of times where we have 11% of the deposits or so in the country and just a fraction of that in terms of wealth assets here, even though we have a powerful wonderful group of leaders and advisors across the geography, we could still do a lot more business. There’s a lot of our customers who call us their bank who have their wealth away. So we're working hard organically. That business has been growing double digits. If there was an opportunity to add something in that area that would make sense terrific. If there's not, that's also terrific. On the consumer side, we have leadership in terms of distribution of our online activity, of our checking activity, or debit activity but not a credit card activity even though we've grown that significantly internally, about over 43% of our customers who have their primary account here have a credit card. But that's an area that, that would be opportunistic. We've been doing a great job organically, if there’d be some opportunities along the line that would make sense we would surely consider that. But I would think of it this way, John. I would think of it that we have all that we need right now. And if something became available that we thought would be a bolt on, that would help us in those areas specifically but other areas generally, sure we’d look at that. But that's our focus right now, our best opportunity to grow long term shareholder values here, value creation is doing more or just doing it better.

Your next question comes from the line of Paul Miller with FBR & Company.

A lot of clients, a lot of questions that I have been getting is that yeah, energy, a lot of people might be reserved good for energy, but the second or third derivative of energy was a lot of the growth of this economy over the last year or two, and since energy is starting to struggle, that the economy's got in a recession, I know you've heard of it. But what are you seeing on the second and third derivatives on the credit book? Are you seeing any real deterioration in CRE markets in some of these areas like Texas where probably energy is hitting the hardest?

Sure. Well, as I mentioned in the prepared remarks in the consumer portfolios, all of them were growing, MSA by MSA and comparing the performance of our borrowers in the areas that are highly levered to energy. That the greater than 3% employment is one measure that we use but we've also included Houston for example to your point about Texas being hard hit even though it doesn't qualify with the 3% employment trigger. And what we've discovered is those areas have been performing better than average for a long time, no surprise, because that's where all the growth has been coming from and they're starting to look more average. So whether it's measures of delinquency, in some cases measures of LTV based on what's changing in asset values, they look a little bit more average. So it doesn't feel like it’s a at least at this point that it's another shoe to drop in the short term. But as you expect less employment, people will – loans will perform differently. In commercial real estate, which is where we have a big presence, we've recently done a deep dive in Texas in particular. And office vacancies are somewhat higher in the Houston area, no surprise, I think about 20% including sublease space. Multifamily is a little bit weaker. And so we're looking at that first and foremost frankly with respect to what it means to our risk, to our own portfolio and we feel fine about what our exposures are there. But those are things that those regions are going to have to grapple with. So when it comes to growth rates or people who have more concentrated exposures than that, that probably is the first second order what people are going to have to look out for. More broadly speaking, I think we still feel we're in a 2% environment. There are obvious pockets of strength around the country but when you move out of oil and gas, we're in the same low growth, better consumer, strong employment environment that we've been operating in for a couple of years, not enough to make it feel like rates are going to move as a result of it but not enough to feel like we're stalling either.

Paul, if I can just give you an anecdotal. I lived in Texas for six years in the mid to late 90’s, so 20 years ago and there was a period of time there -- there was volatility in the oil and gas space. And there was some challenges. And I've been back, I was just in Houston last week. And I've been back a number of times in the last year and things do feel different 20 years later. It's a much more diverse economy. And if you take Texas generally but Houston specifically and it feels different this time around. Downturns are always heard. Volatile markets always have an impact. But this feels different this time because of what the state has done to diversify their economy.

Your next question comes from the line of Erika Najarian with Bank of America.

So my first question is actually a follow-up to John’s question. My conversations with investors have often paired well just to be frank with either large credit card companies or there is clearly the rumor for Wells potentially buying a large investment bank which you formally denied. As we think about what you were saying, John, about looking at bolt-on opportunities, should we think about the deal size as sizes that are manageable enough that maybe sort of – the real stop here is Wells Fargo not moving up the SIFI surcharge? As we think about the opportunity for non-organic growth, should we think about sort of the hard stop in terms of size being that, you would like to keep your SIFI surcharge where it is today?

Erika, here's how I think about it. I think about Wells Fargo as an organic growth company. We have -- I've been here almost 35 years and I have probably been involved in – if there’s 250 acquisitions we've done with all different companies, as we come to the modern Wells Fargo, I’ve probably been involved in half of those, just because it happened during my career time. And they're hard to do. There is a lot of work in those things and we now have a company that is the best company I have ever worked for, the strongest brand, the best people, the furthest reach, the deepest relationship, the long enduring customer, thing so. So – and we are very very careful buyers. And I see us as has a lot of opportunity to grow, as I said organically. If something -- and what we've done in the last four or five years have been largely bolt on, I would say GE was a bigger, a little bigger bolt-on. But those are the kind of opportunistic things that make sense for our team, for our customers and ultimately for our shareholders. After all this is your money, our investors' money that we are the stewards of. So it would be out of character for us to do something that would be -- have a high degree of risk and a low degree of shareholder reward on it. That's just not who we are.

Thank you, John, that was very clear. My second question is just looking to capital return, since you have been CCAR participant, it seems like your GAAP earnings volatility is the least among your large peers. As we look forward -- obviously you can't tell us about this year’s CCAR submission -- but as you look forward, how are you feeling about potentially continuing to push on that 30% dividend – implicit dividend ceiling?

It's hard to comment on that during the middle of the CCAR cycle. But I admire you for asking.

Your next question comes from the line of Matt O'Connor with Deutsche Bank. Matt O'Connor: I just want to delve into a couple of potential earnings levers going forward. I guess the first one would be, as we think about the liquidity that you've built, since you chose not to reinvest as much in the securities book, how are you thinking about that pool of funds going forward and there's not really any signs that rates are going to rise materially as we think about market rates, we’re obviously off the bottom. But what's your approach to managing that liquidity from here?

So it will be informed week by week, quarter by quarter as we assess the likelihood of increases in both short and consequently long term rates. We won’t sit idly on continuous increases in cash forever. We're going to have to put some of it to work, we’re very cautious about what it means entering at these levels in terms of capital impact in the future, if a subsequent rate rise does occur that's obviously a big issue for us. And we'd like to be smart about our entry points. But if we're going to hover in the 170s, just to pick a number on the ten year and with mortgage rates where they are, then there will be some amount of redeployment. We’ll probably talk about it a little bit more at investor day. But it was really the abrupt market volatility that happened after the first of the year that caused us to say, let's take a pause here and figure out where this is going to settle out. It's happened to have settled out not much above the low points, at least again on a ten-year from January, early February. But that is an earnings lever when and if we redeploy. Matt O'Connor: And then just separately on the expenses, maybe just talk about – is there any kind of change or even tweak on the approach to expense management given maybe weaker revenues and some of the ongoing pressures in energy likely lingering?

There is a continuous drumbeat and a high level of vigilance around how we spend all of our business as usual types of dollars, we’re constantly trying to find levers and ways to be more efficient to streamline to make things consistent. We've provided some examples of that in the past in certain areas there. At the same time we've talked about the investment that we're making in technology, the investments that we’re making in product capability, the investments that we’re making in risk management compliance and being a better firm. Those are going to be elevated for some time and they have been for some time. We're still comfortable in our 55% to 59% range which is where we've guided that, I don't need to remind you but that is a very attractive level for a firm of our size. We think we're pretty lean overall. But it's because we take this seriously day in and day out looking for ways to be efficient.

Your next question comes from the line of Bill Carcache with Nomura.

Thank you. Good morning. Of your borrowers who drew on their oil and gas lines this quarter, was there any notable deterioration in their credit profile? I was just trying to understand the extent to which heightened degrees of financial stress is a factor, leading your borrowers to draw down their lines. And although you mentioned that your current reserve reflects everything that you currently know today. I was wondering how you're thinking about the probability that more and more of your unfunded exposure will eventually become funded as we move deeper into the credit cycle?

Sure, that's a good question, and of course we absolutely have to make estimates about what we think the exposure at default would be for any borrower who's got a remaining unfunded commitment, that's how the process works. In the quarter there were some of these, what you might characterize as defensive draws that we've observed, not that many of them. You can see the increase in the total outstandings in oil and gas rose by about $400 million and about half of that was from frankly leases that we picked up from GE that have a credit mark in them incidentally. So it really didn't amount to that much. But it is a phenomenon that we've seen, that we've read about. It isn't having that big of an impact today but we do think that we're capturing that risk as we assess what the appropriate size is of our allowance for both funded and unfunded commitments in the space.

So when I guess a previously unfunded energy loan commitment becomes funded, how does that transition from unfunded -- funded impact your allowance, I guess I think generally the reserve rate on unfunded commitment is lower than it is on funded commitments but just trying to understand the reserving dynamics there of shifting from one bucket to the other?

So in the calculation of the allowance and the migration of credit that leads up to our – whether we consider a borrower relationship to be non-performing or what status we're marking at, we're imagining on a credit by credit basis what the exposure at default would be if it is meaning that it could be greater than the currently outstanding amount. That's part of the loan by loan process, analysis by analysis that we do when building it -- when rewriting loans every quarter and building up for the allowance. So there's some estimation of what today is currently unfunded will become funded in the future.

Thank you, and if I can just ask a final follow up. Can you discuss the methodology underlying your energy reserve, is it based more on the ability of borrowers to repay their loans through cash flow generation or is it more a kind of reliant on collateral coverage based on reserves in the ground? There are some reports suggesting that regulators are less happy with collateral coverage and I was wondering if you could kind of speak specifically to the approach that Wells Fargo has taken?

Well, it's a combination of both. And they're highly correlated for E&P companies in particular. But if their sources of repayment both principal and interest in full and on time and we’re taking into account our projections of their cash flows, and we're taking into account our projections of the value of collateral that we might have to liquidate in order to get paid back or that they might have to liquidate in order to pay us back.

Your next question comes from the line of Kevin Barker with Piper Jaffray.

Good morning. Thanks for taking my questions. I just want to switch gears here and look at your auto exposure. You're obviously one of the largest auto lenders in the country and you’re growing that portfolio by roughly 30% over the last three years. Given what we've seen in the industry and some deterioration in the subprime portfolios, could you help us get an understanding of what your expectations are through the rest of this year and into 2017 given the state of the auto industry and how hot it’s been over the last couple of years?

Sure. Well, we’ve – I think we've been pretty public with the fact that we're going to hold our ground with respect to what we think our quality loan terms and borrower profile, and we've actually seen our share slip a little bit as the overall size of the auto finance market has kept pace with the sale of autos, new cars in particular that has been at a record level now for a few years. And we were number one, I think we're number two right now and we’re bidding on buying the loans that we like at terms that we think are good risk reward and we're passing on those that we don’t. Some of the things that feel a little bit different right now, I mean seasonally obviously we're in a better place in Q1 than Q4 just because those loans behave that way, collections and losses are lower in the first quarter than they are in the fourth quarter. It's a little bit -- things are a little bit elevated first quarter to first quarter but we're still from a risk adjusted basis well within the bands to which we underwrite each level of credit risk in autos that we buy. Where we've always had our eye on the elevated level of used car auction prices, the Manheim Index in particular is evidence that we point to get a sense for whether loss given default is going to be worse in the future than it is today or in the recent past and that index has been down I think 3% linked quarter, 2% year over year. So all things being equal we'd expect severity to be a little bit worse when repossessions occur. But having said that we're still not in a bad place. We've allowed our market leading position to slip a little bit, let other people buy the loans that don't make sense for us, it’s still a great business for us and has been for a long time. We work very closely with dealers, have a big floor plan business, we have a big commercial banking business with the dealership community. And we're in this for the long haul. One more thing I guess, we've observed is because the ABS market has been under pressure, some of the probably most aggressive players in the subprime space have a little bit of a funding challenge I think in this environment that may soften things up a little bit. Those are my current observations.

So just to follow up on that, I mean, are you seeing better risk adjusted returns in sub prime auto versus prime auto right now and are you growing the subprime auto portfolio at effective rate?

We've sort of held the line. Using our own approach to what a subprime borrower and sub-prime dealer is we've limited ourselves to at about 10% of our originations which is amounted to about 10% of our outstandings that we’d consider to be -- we consider to be subprime. There's often an opportunity to grow that if we wanted to, we've chosen not to. And we like the risk return that we get in where we choose to participate in that space. It's performed very well. It's priced for the risk and it frankly doesn't compete directly with some of the specialty finance companies that are in that space, they tend to be a little bit deeper and they're running a different business.

Your next question comes from the line of Joe Morford with RBC Capital.

I guess, first, just a quick follow up on Ken’s question at the outset. Just I was curious how much the increased oil and gas reserving a provision this quarter can be attributed to the shared national credit exam.

I’d say very little. And the exam came and went and it worked out fine, there weren’t a lot of disagreements on how we rate loans and also the guidance around leverage levels et cetera was introduced and that didn't have much of an impact on it. This is just – these are our folks using consistent methodology making determinations on when loans should be non-performing, when we should take loss et cetera.

That's very helpful, thanks. I guess the other question was just, wondering if you could talk a bit more about the – how the GE Capital business integrations are going and how are you feeling currently about the potential for cross selling or revenue synergies. And also just wondering if you can quantify the impact we may see in the second quarter from a full run rate of expenses?

I like the first part of the question better. But it is a big opportunity. So this is early stages, this is an important and big integration. So It'll take a full year or two to get where we need to go into transition all of the services away from GE and over to Wells Fargo and get things running. I'm happy to say that the early reports are that we're doing great with customers and team members. I think we imagine that there's a real opportunity with these customers. These are businesses where GE has been an absolute leader and they've done that with credit. So now we've got that credit capability and that credit willingness and the perfect business model for that but we also have all of the other. wholesale banking products and services, wealth management services et cetera to bring to bear on this client group. So it will take a while to work with each relationship and find out what they're doing that might be done at Wells Fargo in addition to their credit but my sense is it will be a great adoption over time and that's part of what makes it such a high value opportunity for Wells Fargo.

Your next question comes from the line of John Pancari with Evercore ISI.

Just a couple more questions on energy and then on expenses. On energy, what percentage of that 1.2 billion in second lien exposure that you provided is nonperforming; do you have that?

Yeah. Let's see. $113 million of the combined second lien and mezzanine, it today is categorized as non-accrual.

And what is your energy criticized ratio as of March 31? I know last quarter it was 38% approximately.

Yeah. It's 57% now. And that reflects the environment that we’re in, that reflects what's going on with the stress of the borrowers, that's what -- that migration is what leads us to provide more reserve.

And then through the 25% of the spring redeterminations that you completed, what's been the average reduction in borrowing base that you have seen?

Well, so I guess I'd start by saying that 50%, 60% have actually had a reduction in the borrowing base. A quarter had no change in the borrowing base. And the balance actually had an increase in the borrowing base because of more reserves that were included in the borrowing base. But without getting too specific on the amount of the reserve for people who had a reduction, it was relatively significant and frankly reflected the curve that we're using today versus where we would have been a quarter ago.

And then lastly on the expense side, could you just give us a little more color on, why the incentive comp increases much as it did this quarter particularly on the backdrop of some of the revenue hedging?

Yeah, it's not really incentive comp so much. It’s -- think about FICA resetting in the first quarter, contributions to our 401(k) happened in the first quarter. And then for people who are retirement eligible -- there's lots of people at Wells Fargo who get an annual equity incentive as part of their pay, for most people it vests over a few years and the impact bleeds in over the vesting period. If you're already retirement eligible it all hits in the quarter that is granted because it's immediately vested. And that's why the first quarter has that extra impact. It's not so much about -- commissions and incentives are piece of it but it's just -- it reflects the actual business activity that's happening.

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

Couple questions, one and I'll get the energy one out of the way first. So I think you mentioned 25% of your loans went through the redeterminations process in the quarter; is that right?

That’s just where we happen to be to date for the spring redetermination, the rest of them are underway. It's a borrower by borrower analysis.

So as of the ones that were finished during the quarter, how much incremental reserve was required? Is that what drove the reserve up?

What drives the reserve up is our categorization of the loan as -- generally speaking as non-accrual or non-performing, meaning that we think there's a chance that we won't get full and timely repayment of every dollar of principal and interest. That can certainly come about in connection with the redetermination but it can come about for other reasons as well just in terms of our review of the company's overall performance, the value of their collateral, what their prospects are. So it's not really a linear – but you can't really draw a line between the redetermination specifically and the change in reserves.

It could have some impact but –

It would definitely have an impact, if we reduce somebody’s availability and if they were drawn above their availability and we actually had a moment of reckoning where they had to write a check, that will accelerate that analysis, because they will have something that they have to do right then and there. There aren't that many instances of that.

It's just that as we go through the rest of the 75% of redetermination for the spring, that could drive some more expense reserve requirements.

It could. I mean it could. We capture a lot of that in our general assessment in our risk rating before having the actual results of the redetermination. But it certainly could.

And then just a question on recent balance sheet. So you brought down Fed funds a bit, is that right?

We’re up. We were $30 billion higher in cash and cash equivalents at the end of the quarter because we were less active in the bond market.

And that was mostly because of your view on rates and where you wanted to reinvest?

Yes.

So a 25 bp increase in rates today, are you in a more asset sensitive position now because of that?

I think that's right.

Any sizing or –

No, we are more asset sensitive as a result. We also have more long term debt that came under in the quarter. So there's a handful of things going on at the same time. But at the margin we're probably a little bit more asset sensitive.

And then on the redeployment into securities, I know, you might want to have a higher rate to redeploy into, but is there a point where you say you know what, I wanted to but it's been 17 for five, six, seven, eight months whatever it is, I am going to start to redeploy some of my cash into longer duration paper. I mean, can you just give us a sense as to how you think about?

Well, that is the discussion that we're having it regularly in our ALCO meetings with the board et cetera. My sense is that in this low rate environment we’d probably not go as far out in terms of duration so that we were taking less capital risk even though the dollar for dollar return would be a little bit lower. But it's the tradeoff between foregone earnings, capital sensitivity and a handful of other things that we're having to assess and we're doing it with our best estimate of where we think rates are going and what happens if they don't go there. And so the long and the short of it is I don't think that we're going to continue to build cash balances like we did in the first quarter. But we know we're reassessing every day to make a determination on at what entry point and at what point in the curve we’re interested in putting on more duration risk.

Your next question comes from the line of Mike Mayo with CLSA.

Hi, how much did the GE acquisitions add to EPS this quarter and what do you expect it to add for the rest of the year?

So we're not breaking out what it added during the quarter. And what we're saying is we think it will be modestly accretive for the rest of the year. And it really is about what it costs to transition people, technology, premises etc. throughout the remainder of the year. We'll update that as we move along and we've got more information about how those costs are actually coming in and being spent. But I’ll tell you that the average asset yield for those assets reflects the same kind of loan mix that we have in wholesale banking in general and the expectation once it's -- once they're fully integrated and we've finished our process is that they will carry the same type of efficiency ratio as the average wholesale lending business.

Actually Mike, in the first quarter it was a little bit of -- couple moving parts here, we actually, if you will, pre-funded the liability side, meaning that we've raised the debt to fund this and that was on the books at the start of the quarter and most of the loans only came on March 1. So there's a lot of stuff going on in the first quarter. But there's one month worth of really revenue if you will.

So three months of funding, one month of revenues, so you'll see the full benefit in the second quarter. I was just wondering if you could size that a little bit more.

Well, we're talking about $30-ish billion worth of assets and the same type of loan yields that we have on average in wholesale, which gets you to a revenue number. What we're not specifically breaking out is what the expense impact is until we understand what the full integration expenses are. But you'll see $350 million per quarter of NII from the loans and leases themselves.

And how much of that did you have in the first quarter, the $350 million?

Well, so as John said we had one month of the revenue side of it. We had not quite three months worth of the funding cost because we weren’t fully funded for those three months. But more than one month's worth of funding costs about that.

And then separately, John, did I hear you correctly, you said benefits of falling oil prices offset the costs. I think you said that at the start of the call.

Yeah, I said -- since we're still a net importer of energy and what's interesting, Mike, is that much of that savings at the consumer level have been saved, if you will, and have not yet been spent. So not all the savings at the pump. What consumers have done and that not exclusively but they're saving more of that what's happening at the pump as opposed to spending it.

And how do you see that? In other words, when oil prices go down, the stock market declines, bank stocks sell off. And you're saying the market's wrong with that. What do you see in your business that you think maybe the market has wrong in how they think about oil prices?

I don't – I have long stopped trying to figure out the market and why bank stocks or stocks seem to move in concert with commodity prices especially oil prices but be that as it may, the consumer, much of this economy, 60%, 70% is consumer based and in retail and the consumers have never been in better shape. I mentioned in my comments just the debt service requirements is 15% of their earnings and wage is certain of up a little that and we're seeing savings rates go up. These are some of the strongest savings rates we've seen in some time. I don't know if that’s a statement about confidence or whatever but there is -- consumers are benefiting from filling your tank at the dollar something a gallon or two dollars a gallon versus three or four and not all of it has been spent.

And then the last question, just give us a sneak preview of the investor conference. What do you hope to achieve at the investor conference and do you think you will have a director show up again at?

Well, thank you Mike for reminding everybody that Steve Sanger, our lead director showed up last time. Obviously we invite our directors and just give me a chance to invite all of you. It's on the 24th of next month, it’s a Tuesday. We have an exciting day to share with you. We will get very granular about how we think about distribution, how we think about our businesses. It will give us a chance to showcase next generation leaders in the company. So we're looking forward to it. We also will think about Guardrails around our three big metrics, we talk about ROA, ROE, and efficiency ratio, if I talk about that, so it's a bunch of things. And also everybody talks about FIN Tax and clearly there's a good reason for that. I think our company specifically and our industry generally have been innovators for a whole long time. So if we weren't we'd have stagecoaches on the freeway right now. So we’ll talk a little bit about that.

Your next question comes from the line of Eric Wasserstrom with Guggenheim Securities.

There's been some recent media attention to the buildout you've been doing in some of your advisory and capital markets capacities. And I'm wondering what your -- how you view that now in light of course the broader marketplace for those services which may be under some pressure and then also the fact that your exposure specifically to the energy industry within those business lines is a bit higher than peers. Is that changing your interest in investment in those areas?

Not really. The pattern has been the same since the merger of Wells and Wachovia to make sure that we've got the right level of capability for capital raising and advisory activity and hedging and risk management activity for our corporate and commercial customers and other customers of Well Fargo who need it. We think our risks are well sized, we think our capabilities are well sized. As always, as you point out there are things to add here and there but from a return point of view, from an ability to service our customers point of view, we like the trajectory we've taken. That's why it's so easy to respond pretty quickly when people speculate that we might be thinking about adding an investment bank to our mix or something. That's not what we need. What we need is what we have today and more great people like it to serve more customers but we're not thinking much differently about it. Our results frankly were -- we think they're pretty good in the first quarter. As you say we have been a leader in capital raising and advisory work for the energy industry for a while. There will be plenty more need for that as the industry repairs itself and being in a position to provide that is actually it's good for us. We've got industry leading positions in a handful of other industries as well, energy is just one of them. But like others it's a cyclical business and while there is less capital raising going on there right now there's more going on in other spaces and a lot of advisory work to do. So it fits together very nicely with our wholesale bank.

And is your intent to continue to add personnel into those business lines?

Yes I think so. We're always -- we're always – as I say industries come and go with respect to their capital needs and advisory needs and so we want to make sure that we've got the right people in positions to do the right thing, where we become an employer of choice for a lots of those activities. Wells Fargo is a very nice place to work. We've got a great customer franchise who wouldn't want to work here in those businesses compared to some of the places that they might be coming from and we're always adding good people.

The next question comes from the line of Nancy Bush with NAB Research.

And John, it kind of got lost in the hoopla yesterday about the living wills. But there was a Reuters news item that says Wells Fargo has become significantly more important to the health of the global financial system in the past few years, says a report by the office of financial research. And it strikes me with what came out in the resolution letters yesterday that maybe being too important to the global financial system may not be an entirely good thing. And I'm wondering if you feel at this point that your growth or lines of business your plans for those might be impacted by these findings.

So Nancy, we went and looked at that report after that wacky headline hit the cave and. And it reported the same thing it reported a year ago which is that we're number seventeen among GSIBs in the lowest risk category among globally systemically important banks. So there's no basis for that story. We are a big bank, we are globally systemically important and we're used to being measured. But we ended up toward the bottom of that list. So that was a funny conclusion that was drawn. With respect to the feedback that we got in the living wills. There are some actionable things that we're going to get right on. But there's nothing about size, about complexity, about the nature of our business model, about our capital, about our liquidity. And really it was much more around proper governance and maturation of the process et cetera which are things that are addressable. So frankly I don't think we're being criticized by our regulators for the types of things that work their way into the financial press.

But surely we're disappointed in the resolve and all hands on deck here and we value the feedback we got from the Fed and FDIC and we are committed to have a great submission later this year. Nancy, one thing I would like just to share for a few minutes, even though our company has grown and grown significantly organically, principally organically over the last seven or eight years, we have continued to simplify our business and we're – and we've shed businesses quietly that either didn't have scale for us or provided or had a risk reward relationship that was not consistent. So just let me just check off a few, I was just thinking while John was talking. We're no longer in the wholesale mortgage business. We're not in the joint venture business. We're not in the reverse mortgage business. We're not in the mortgage consolidation business. We have FHA overlays. So we're not as deep in that business as we had been in the past. We just sold our RCIS insurance business. The direct deposit advance business is no longer here. We're not in the government student lending business. We use it at our Wells Fargo financial business, that it's very different today. So yes we've grown in deposits. And we've grown in our corporate loans and all and wealth management and all other kind of things that we're involved in but a much simpler company, say, in many respects.

Now that you've – if I may ask, you've sort of opened up the living will issue and if I may ask if there are any of this feedback that you got yesterday that you feel is related to residual issues that are left over from the Wachovia deal. And I think I will just say that as an analyst it was no great secret in the industry that they were not the best on the reporting side. Are there any tasks left undone that were related to that merger that may have played into your feedback yesterday?

No, we own this and we're going to get this right.

If I could ask a totally unrelated question, home equity lines of credit seem to be coming back into favor both at the banks and among consumers. Can you just speak to that business? You've always been important in it. Is it growing now and how do you feel about it?

Because of the starting point that Wells Fargo has had the numbers have really only been going in one direction, which is down, down, down. The product that we have today where we do sell it is an amortizing product right out of the gate, so it's very different than it was in the old days where it was more just incremental leverage, that frankly didn't come down until it might hit some amortization point in the future. So we certainly offer that amortizing product to our customers. But I don't think you'll see it make a difference in our reported consumer real estate assets. Really on our balance sheet it’s more about prime jumbo and non-conforming by balance types of loans to prime borrowers.

Your final question will come from the line of Marty Mosby with Vining Sparks.

Thanks. John, I've done a little bit of the math when you look at the cost of the liabilities on the GE and then the delay in the assets. It looks like from a net NII standpoint you pick up close to $200 million as you move into next quarter just from the balance sheet side. Just trying to piece it together best I could. Was there any timing effect on the expenses? So as you came in and brought the operations on board, did you have a pretty full run rate on the expense side versus next quarter? That is my real question, is there any also leverage in a sense that the expenses were already kind of in place for this quarter going into next quarter?

The big expenses it’s related are people expenses. The people join -- the bulk of the people joined on March 1, so in the last month of the quarter, there are some people in the rail business that joined at the beginning of the year. Another meaningful expense will be depreciation expense on the lease assets that we're picking up and they come out of that -- that begins when the assets are in place. But importantly one of the reasons that we're describing this as modestly accretive in the year, is there's a whole lot of integration expense that needs to occur, including what we're paying for transition services that we're still getting from GE that will shift over to Wells Fargo at some point in the future – or very different points in the future. And then there's technology work to do. There's some loan file work to do, some paperwork to do, there's a lot of things that it takes to make all of those assets Wells Fargo assets in a regulated environment that we’re operating in and we will pay incremental dollars in the near term to do that. So I’d be hesitant to offer you up a run rate from March that reflects what Q2 or the rest of the year is going to look like.

Would you be, on the expense side, isolating those as integration costs so we can know, not the total, but just as integration like you would do with any other kind of merger? And when we look at the seasonal uptick that we have in those employee-related expenses, typically you don't see a net benefit as it goes down because there's other expenses that offset that. But would you expect in the core expenses to see somewhat of a roll-down, given how high the seasonal expenses were this first quarter? Just two things on that side.

Yeah. Well, I expect that it will be between 55% and 59% in our efficiency ratio for the rest of the year on the high side of that. And that would capture the change in seasonal expenses, it's a good point that not all of that seasonal comp expense disappears and the whole net benefit doesn't come back, we call out in our deck. But there are some other things that are seasonally depressed in the first quarter that pick up in the second quarter. Not as big but that are seasonal in that way. And we'll see how material it is but if it becomes appropriate to provide clarity on the GE transition related expenses you might consider calling that out. But we haven't begun to yet because we're still developing those expenses, we’re still coming into -- we're the early stage of execution on some of the technology oriented things that I mentioned and some other chunky early expenses that will start to run off after a bit.

John, lastly trying to climb into your head a little bit, as you were looking at the first quarter and you had the gain from selling the crop insurance business and rates were going down and you had so much market disruption, were you kind of thinking, since I have this gain over here, I don't really feel comfortable putting my liquidity to work because of what’s going on in the market. That gives me some breathing room to see where things fall and then start reinvesting in the second quarter, recreating the income that you gave up in the first quarter.

Investing in risk – in relatively risk free assets doesn't produce that much P&L in the quarter that we invest. So there really wasn't much of a trade off in the first quarter between the gain that reflects this business that we agreed to sell a few quarters ago, that closed this quarter. It's really -- the threshold issues on reinvestment are more around our capital sensitivity because we're going to be living with the valuation consequences of buying duration at a low yield entry point. And then that really is more where the trade off occurred. So thinking about the whole year impact maybe on interest income but also our OCI sensitivity if rates ultimately back up. End of Q&A

Okay, thank you all for joining us and also I want to say thank you to our 268,000 team members for serving our customers and producing a $5.5 billion of quarterly earnings that it’s just a wonderful result on their behalf. And one more shout out to all of you. Please join us on the 24th, Tuesday -- May 24 in San Francisco for our investor day. Thank you much. Bye bye.

Ladies and gentlemen this does conclude today’s conference. Thank you all for joining and you may now disconnect.