Mike Santomassimo
Chief Financial Officer at Wells Fargo & Company
Thank you, Charlie, and good morning, everyone.
Net income for the first quarter was $5 billion or $1.23 per diluted common share. While there was a lot going on in the banking industry around us, we continue to focus on our priorities and our results reflected the progress we're making, which I'll highlight throughout the call. Starting with capital and liquidity on Slide three, our CET1 ratio was 10.8%, up approximately 20 basis points from the fourth quarter, reflecting our earnings in the quarter and lower risk-weighted assets. After pausing share repurchases for the prior three quarters, we repurchased $4 billion of common stock in the first quarter. Our CET1 ratio remained well above our required regulatory minimum plus buffers and we expect to continue to prudently return excess capital to shareholders in the coming quarters. In the first quarter, our liquidity coverage ratio was approximately 22 percentage points above the regulatory minimum. We continue to benefit from a diversified deposit base with over 60% of our deposits in our Consumer Banking and Lending segment as of the first quarter, which is a higher percentage than before the pandemic.
Turning to credit quality on Slide five. Net loan charge-offs continue to slowly increase to 26 basis points in the first quarter, but we're still below pre-pandemic levels. Commercial net loan charge-offs decreased $16 million from the fourth quarter to five basis points. However, while losses improved, we continue to see some gradual weakening in underlying credit performance, including higher nonperforming assets. We are proactively monitoring our clients' sensitivity to inflation and higher rates and are taking appropriate actions when warranted. We are also closely monitoring our commercial real estate office portfolio, and I'll share some more details on our exposure on the next slide.
As expected, we've seen consumer delinquencies and losses gradually increase. Total consumer net loan charge-offs increased $60 million from the fourth quarter to 56 basis points of average loans, driven by an increase in the credit card portfolio. While most consumers remained resilient, we've seen some consumer financial health trends gradually weakening from a year ago and we continue to take credit tightening actions position the portfolio for a slowing economy. Nonperforming assets increased 7% from the fourth quarter, driven by higher commercial real estate nonaccrual loans over down 12% from a year ago due to lower residential mortgage nonaccrual loans. Of note, 87% of the nonaccrual loans in our commercial real estate portfolio were current on interest and 75% were current on both principal and interest as of the end of the first quarter.
Our allowance for credit losses increased $643 million in the first quarter reflecting an increase for commercial real estate loans primarily office loans as well as an increase for credit card model loans. Given the increased focus on commercial real estate loans, especially office, we provided more details on our portfolio on Slide six. We had $154.7 billion of commercial real estate loans outstanding at the end of the first-quarter with 35.7 [Phonetic] of office loans, which represented 4% of our total loans outstanding. The office market continues to show signs of weakness due to lower demand, higher financing costs in challenging capital market conditions. While we haven't seen this translate to meaningful loss content yet, we expect to see more stress over time. As you would expect, we have been derisking the office portfolio, which resulted in commitments, declining 5% from a year ago and we continue to proactively work with borrowers to manage our exposure, including structural enhancements and paydowns as warranted.
As you can see on this slide, we provide some additional data on the office portfolio, including approximately 12% owner-occupied, therefore the loan performance is mostly tied to the cash flow of the owner's operating business rather than rents paid by tenants, nearly one-third have recoursed to the guarantor typically through repayment guarantee. The portfolio is geographically diverse and as you'd expect, the largest concentrations are in California and New York. Over two-thirds of our office loans are in the corporate investment banking business and the vast majority of this portfolio is institutional-quality real estate with high-caliber sponsors. While approximately 80% of it's Class A, keep in mind that this is a single measure that it's hard to evaluate in isolation, for example, newer or refurbished properties may perform better regardless of whether they are Class A or B. We are providing this data to give you more insight into the portfolio, but as is usually the case in commercial real estate, each property situation is different in a myriad of other variables such as leasing rates, loan-to-value and debt yields can determine performance, which is why we regularly review the portfolio on a loan-by-loan basis.
As a result of market conditions and the recent increases in criticized assets and non-accrual loans, we've increased our allowance for credit losses for office loans for the past four quarters. The allowance for credit losses coverage ratio at the end of the first quarter for the office portfolio in the corporate investment bank was 5.7%. We will continue to closely monitor this portfolio, but as has been the case in prior cycles, this will likely play out over an extended period of time as we actively work with borrowers to help resolve issues they may be facing.
On Slide seven, we highlight loans and deposits. Average loans grew 6% from a year ago and were relatively stable from the fourth quarter, while period-end loans declined 1% from the fourth quarter with lower balances across our consumer and commercial portfolios. I'll highlight the specific drivers when discussing our operating segment results. Average loan yields increased 244 basis points from a year ago and 56 basis points from the fourth quarter, reflecting the higher interest rate environment. Average deposits declined 7% from a year ago and 2% from the fourth quarter due to the consumer deposit outflows as customers continue to reallocate cash into higher-yielding alternatives and continued spending.
During the market stress last month, we experienced a brief increase in deposit inflows that has since abated, and while our period-end deposit balances were slightly higher than we expected at the beginning of the quarter, were still down 2% from the fourth quarter. As expected, our average deposit cost increased 37 basis points from the fourth quarter to 83 basis points with higher deposit costs across all operating segments in response to rising interest rates. Our mix of non-interest bearing deposits declined from 35% in the fourth quarter to 32% in the first quarter, but remain above pre-pandemic levels.
Turning to net interest income on Slide eight. First quarter net interest income was $13.3 billion, which was 45% higher than a year ago as we continue to benefit from the impact of higher rates. The $97 million decline for the fourth quarter was due to two fewer business days. Our full-year net interest income guidance has not changed from last quarter, as we still expect 2023 net interest income to grow by approximately 10% compared with 2022. Ultimately, the amount of net interest income we earn this year will depend on a variety of factors, many of which are uncertain, including the absolute level of interest rates, the shape of the yield curve, deposit balances, mix and repricing and loan demand.
Turning to expenses on Slide nine. Non-interest expense declined 1% from a year ago, driven by lower operating losses and the impact of the business unit sales. 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 401k matching contributions. Our full-year 2023 noninterest expense, excluding operating losses, is still expected to be approximately $2.2 billion, unchanged from the guidance we provided last quarter. As a reminder, we have outstanding litigation, regulatory and customer remediation matters that could impact operating losses.
Turning to our operating segments, starting with Consumer Banking and Lending on Slide 10. Consumer and Small Business Banking revenue increased 28% from a year ago as higher net interest income driven by the impact of higher interest rates was partially offset by lower deposit-related fees driven by the overdraft policy changes we rolled out last year. We are continuing to make investments in this business, we're beginning to increase marketing spend, we're accelerating the efforts to renovate and refurbish our branches for our bankers, we're investing in new tools and capabilities to provide better and more personalized advice to customers, we're continuing to enhance our mobile app and mobile active users were up 4% year-over-year, and we're also seeing increased activity and positive initial indicators after our rollout of Wells Fargo Premier last year. It's early on for all of these initiatives, but we're starting to see some green shoots. At the same time, we continue to execute on our efficiency initiatives. Teller transactions continue to decline with reduced headcount -- we reduced headcount by 9% and total branches were down 4% from a year ago.
In Home Lending, mortgage rates remained elevated and the mortgage market continued to decline. Our Home Lending revenue declined 42% from a year ago, driven by lower mortgage originations including a significant decline in the correspondent channel and lower revenue from the resecuritization of loans purchased from securitization pools. We continue to reduce headcount in the first quarter and we expect staffing levels will continue to decline due to the strategic changes we announced earlier this year. We stopped accepting applications from the correspondent channel as announced in January and began to reduce the complexity and the size of the servicing book.
During the first quarter, we successfully marketed mortgage servicing rights for approximately $50 billion of loans serviced for others that we expect to close later this year. We will continue to look for additional opportunities to simplify and reduce the size of our servicing business. Credit card revenue increased 3% from a year ago due to higher loan balances, driven by higher point-of-sale volume. Other revenue declined 12% from a year ago, driven by lower loan balances and continued loan spread compression from credit tightening actions and continued price competition due to rising interest rates. Personal Lending revenue was up 9% from a year ago due to higher loan balances.
Turning to some key business drivers on Slide 11. Mortgage originations declined 83% from a year ago and 55% from the fourth quarter with declines in both correspondent and retail originations. As I mentioned, we stopped accepting correspondent applications in January. So going forward, our originations will be focused on serving Wells Fargo customers in underserved communities. The size of our auto portfolios declined for four consecutive quarters and balances were down 8% at the end of the first quarter compared to a year ago. Origination volume declined 32% from a year ago, reflecting credit tightening actions and continued price competition.
Debit card spending increased 2% in the first quarter compared to a year ago, an increase from the 1% year-over-year growth in the fourth quarter, discretionary spending drove the growth with non-discretionary spending stable from the fourth quarter levels. Credit card spending increased 16% from a year ago, in line with the year-over-year growth in the fourth quarter with sustained growth in both discretionary and non-discretionary spending. Spending growth slowed throughout the quarter, but was still at double-digit levels in March. We continue to see some slight moderation in payment rates in the first quarter, but they were still well above pre-pandemic levels.
Turning to Commercial Banking results on Slide 12. Middle-market banking revenue grew by 73% from a year ago due to the impact of higher interest rates and higher loan balances, while deposit-related fees were lower, reflecting higher earnings credit rates on non-interest bearing deposits. Asset-based lending and leasing revenue increased 7% year-over-year, driven by loan growth which was partially offset by lower net gains from equity securities. Average loan balances were up 15% in the first quarter compared to a year ago, driven by new customer growth and higher line utilization. After being stable in the second half of last year, line utilization increased slightly in the first quarter. Average loan balances have grown for seven consecutive quarters and were up 2% from the fourth quarter with growth in asset-based lending and leasing driven by continued growth in client inventory. Growth in middle-market banking was once again driven by larger clients, including both new and existing relationships, which more than offset declines from our smaller clients.
Turning to Corporate Investment Banking on Slide 13. Banking revenue increased 37% from a year ago, driven by stronger treasury management results, reflecting the impact of higher interest rates. Investment management -- investment banking fees declined from a year-ago, reflecting lower market activity with declines across all major products in nearly all industries. While commercial real estate market transactions are down across the industry, our commercial real estate revenue grew 32% from a year ago, driven by the impact of higher interest rates and higher loan balances. Markets revenue increased 53% from a year ago, driven by higher trading results across all asset classes. Average loans grew 4% from a year ago, but were down from the fourth quarter, lower balances of banking reflected a combination of slow demand, increased payoffs and relatively stable line utilization. The decline in commercial real estate balances were driven by the higher rate environment and lower commercial real estate sales volumes.
On Slide 14, Wealth and Investment Management revenue was down 2% compared to a year ago, driven by lower asset-based fees due to lower market valuations. Growth in net interest income was driven by the impact of higher rates, which was partially offset by lower deposit balances as customers continued to reallocate cash into higher-yielding alternatives. At the end of the first quarter, cash alternatives were approximately 12% of total client assets, up from approximately 4% a year ago. Expenses decreased 4% from a year ago, driven by lower revenue-related compensation and the impact of efficiency initiatives. Average loans were down 1% from a year ago, primarily due to a decline in securities based lending.
Slide 15 highlights our corporate results, revenue declined $103 million or 83% from a year ago as higher net interest income was more than offset by lower results in our affiliated venture capital and private equity businesses. Results in the first quarter included $342 million of net losses on equity securities or $223 million pre-tax and net of non-controlling interests.
In summary, our results in the first quarter reflect an improvement in our earnings capacity. We grew revenue and reduced expenses and had strong growth in pre-tax, pre-provision profits. As expected, our net charge-offs have continued to slowly increase from historical lows and we are closely monitoring our portfolios, taking credit tightening actions where appropriate. Our capital levels grew, even as we resumed common stock repurchases and we expect repurchases to continue. And the guidance we provided last quarter for full-year 2023, net interest income and expenses excluding operating losses has not changed.
We will now take your questions.
