Wells Fargo - Q1 2023
April 14, 2023
Transcript
Operator (participant)
Welcome. Thank you for joining the Wells Fargo First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star one. If you would like to withdraw your question, press star two. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.
John Campbell (Director of Investor Relations)
Good morning. Thank you for joining our call today, where our CEO, Charlie Scharf, and our CFO, Mike Santomassimo, will discuss first quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our first quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website.
I will now turn the call over to Charlie.
Charlie Scharf (CEO)
Thanks, John. I'll make some brief comments about our first quarter results and update you on our priorities. I'll turn the call over to Mike to review first quarter results in more detail before we take your questions. Let me start with some first quarter highlights. Our results in the quarter were strong and reflected the continued progress we're making to improve returns. We grew revenue from both the fourth quarter and a year ago. We continued to make progress on our efficiency initiatives, expenses declined from both the fourth quarter and a year ago, driven by lower operating losses, we continue to be focused on controlling other expenses as well. The consumer and majority of our businesses remain strong. Delinquencies and net charge-offs have continued to slowly increase as expected. We're looking for signs of accelerated deterioration in asset classes or segments of our customers.
Broadly speaking, we saw little change in the trends from the prior quarter. However, weakness continues to develop in Commercial Real Estate office, and Mike will discuss this in more detail. Given what we're seeing, we're taking incremental actions to tighten credit on higher risk segments, but continue to lend broadly. We increased our allowance for credit losses for the fourth consecutive quarter. Our economic expectations used to support the allowance have not changed meaningfully, but we do continue to look at specific asset classes, such as Commercial Real Estate to appropriately assess the adequacy of the allowance. We will continue to monitor the trends in each of our loan portfolios to determine if future action is warranted. Both commercial and consumer average loans were up from a year ago, but were relatively stable from the fourth quarter.
Consumer spending remained strong with growth in both debit and credit card spend, but spending began to soften late in the quarter. The decline in average deposits that started a year ago continued in the first quarter, primarily driven by customers seeking higher yielding alternatives and continued growth in consumer spending. We did see some moderate inflows from the few specific banks that have been highlighted in the press, but those inflows have abated. Our CET1 ratio, which was already strong, increased to 10.8% even as we resumed common stock repurchases in the first quarter, buying back $4 billion in common stock. Let me share some thoughts on the recent market events impacting the banking industry. We're glad that the work we have completed over the last several years has put us in a position to help support the U.S. financial system.
Along with 10 other large banks, we utilized our strength and liquidity, and we made a $5 billion uninsured deposit into First Republic Bank, reflecting our confidence in the country's banking system and to help provide First Republic with liquidity to continue serving its customers. I'm proud of everything our employees have done during this historic period to be there for our customers. We believe banks of all sizes are an important part of our financial system as each is uniquely positioned to serve their customers and communities. It's important to recognize that banks have different operating models, and that the banks that failed in the first quarter were quite different from what people think of when they think about the typical regional bank. These particular banks had concentrated business models with heavy reliance on uninsured deposits.
Our franchise and those of many other banks operate with a broader business model and more diversified funding sources. It is times like these that the many benefits of our own franchise become even more clear. Our diversified business model provides opportunities to serve our customers broadly, which reduces concentration risk across the different elements of risk. Most importantly, our customers benefit from our size and the range of banking services we provide, which helps us build a full relationship with individuals and companies. We also have strong capital and liquidity positions, which include a mix of deposits and access to multiple funding sources. Our continued focus on financial and credit risk management allows us to support our customers throughout economic cycles. Now, let me update you on the progress we've made on our strategic priorities.
Our top priority remains building out our risk and control framework appropriate for our company. I spent time in my recent annual letter highlighting why we remain confident in our ability to complete this work, including having much more effective reporting and processes in place to provide appropriate oversight, adding close to 10,000 people across numerous risk and control-related groups as part of our commitment to make the investments needed to complete the work, and building the management disciplines and culture to govern and execute the work, which includes the operating committee reviewing risk and regulatory progress and escalations on a weekly basis. I also summarized the actions we've taken to simplify the way we operate. This work continued in the first quarter as we largely completed the exit of the correspondent home lending business as part of our plans to simplify that business.
We're also narrowing our retail mortgage business to focus on predominantly bank customers and underserved communities. Our strategy includes broadening our existing investment from the Special Purpose Credit Program to include purchase loans, investing an additional $100 million to advance racial equity in home-ownership, and deploying additional home mortgage consultants in local minority communities. We continue to transform the way we serve our customers by offering innovative products and solutions. We announced a multi-year agreement with Choice Hotels to launch a new co-branded credit card this month, creating a best-in-class credit card program designed to enhance our customers' experience and bring them more value. We rolled out Early Pay Day late last year, which makes eligible direct deposits available up to two days early. In the first quarter, this enhancement provided customers early access to over $200 billion in direct deposits.
We launched Flex Loan in the fourth quarter, a digital-only small dollar loan that provides eligible customers convenient and affordable access to funds. Customer response continues to exceed our expectations, and we've originated over 100,000 loans since November. Digital adoption and usage among our consumer customers continued to increase. We added over 500,000 mobile active customers in the first quarter, and digital logins increased 6% from a year ago. Since rolling out Vantage, our new enhanced digital experience for our commercial and corporate clients late last year, we've received overwhelmingly positive feedback on the new user experience. Vantage uses AI and machine learning to provide a tailored and intuitive platform based on our clients' specific needs. We also continued to make progress on our environmental, social, and governance work.
We announced a $50 million grant to the NAACP to support efforts to advance racial equity in America. This is the single largest donation the NAACP has ever received from a corporation and builds on our long-standing relationship with the NAACP that spans more than 20 years. The Wells Fargo Foundation expanded its commitment to housing affordability through another $20 million Housing Affordability Breakthrough Challenge to advance ideas to help meet the need for more affordable homes across the country. We also announced a $20 million commitment to advance economic opportunities in Native American communities, including addressing housing, small business, financial health, and sustainability. Before concluding, I wanted to highlight the management changes we announced yesterday. Mary Mack, the CEO of Consumer and Small Business Banking, is retiring this summer.
She spent her entire career at Wells Fargo and has led Consumer and Small Business Banking for the past seven years through a significant amount of change, including defining a new path forward for the business. I can think of few Wells Fargo colleagues who have done as much for our company and have been as visible in the communities that we serve over such a long period of time. We also announced that Saul Van Beurden, Head of Technology at Wells Fargo, will succeed Mary Mack. Saul is a strong leader, a technologist, and he knows how to run a business. This makes him the ideal person to lead Consumer and Small Business Banking into the future. Our branch network will continue to be the key to the business, but our customers expect us to provide them with increasingly digitized and seamless banking experiences across all channels.
Saul understands this deeply and has consistently proven his ability to convert new products and services across Wells Fargo. Finally, Tracy Kerrins, currently Head of Consumer Technology, will become Head of Technology for the company, reporting to me. Tracy has worked in the technology and finance industry for more than 20 years and has led a series of business-critical initiatives to modernize our technology platforms across our consumer businesses. She's a strong, results-driven leader. It's always great when we can tap our own leaders for roles within the company, and I want to thank Mary for everything she's done during her tenure at Wells Fargo. It's truly been a pleasure working with her. As we look forward, we're carefully watching customer behavior for clues on how the economic environment is changing. Customer activity is still relatively strong and delinquencies remain low, though they are increasing.
There are pockets of risk, such as commercial office real estate, which will likely impact institutions differently, and we're proactively managing our own exposures. We continue to expect economic growth to slow, and we are prepared for a range of scenarios. We will continue to monitor both the markets and our customers, and we'll react accordingly. Our diversified business model should enable us to support our customers throughout economic cycles. I will now turn the call over to Mike.
Mike Santomassimo (CFO)
Thank you, Charlie. 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 is 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 continued 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 5 basis points. While losses improved, we continue to see some gradual weakening in underlying credit performance, including higher non-performing 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. 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 remain resilient, we've seen some consumer financial health trends gradually weakening from a year ago. We've continued to take credit tightening actions to position the portfolio for a slowing economy. Non-performing assets increased 7% from the fourth quarter, driven by higher commercial real estate non-accrual loans. We're down 12% from a year ago due to lower residential mortgage non-accrual loans.
Of note, 87% of the non-accrual 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 and auto loans. Given the increased focus on commercial real estate loans, especially office, we provided more details on our portfolio on slide 6. We had $154.7 billion of commercial real estate loans outstanding at the end of the first quarter, with $35.7 billion 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, and 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 de-risking 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 pay downs as warranted. As you can see in the slide, we've provided some additional data on the office portfolio, including approximately 12% is 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 1/3 had recourse to a guarantor, typically through a repayment guarantee.
The portfolio is geographically diverse, and as you'd expect, the largest concentrations are in California and New York. Over 2/3 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 is Class A, keep in mind that this is a single measure that is hard to evaluate in isolation. For example, newer or refurbished properties may perform better regardless of whether they are Class A or Class B.
We are providing this data to give you more insight into the portfolio, as is usually the case in Commercial Real Estate, each property situation is different, and 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 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 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 continued 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. While our period-end deposit balances were slightly higher than we expected at the beginning of the quarter, they're 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 noninterest-bearing deposits declined from 35% in the fourth quarter to 32% in the first quarter, but remained 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 from 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 efficiency initiatives.
The increase in personnel expense from the fourth quarter was driven by an approximately $650 million of seasonally higher expenses in the first quarter, including payroll taxes, restricted stock expense for retirement-eligible employees, and 401(k) matching contributions. Our full-year 2023 noninterest expense, excluding operating losses, is still expected to be approximately $50.2 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 are up 4% year-over-year. 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 from the corresponding channel and lower revenue from the re-securitization of loans purchased from securitization pools. We continued to reduce headcount in the first quarter, 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, 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. Auto 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 and underserved communities.
The size of our auto portfolio has declined for four consecutive quarters, and the 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 nondiscretionary 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 nondiscretionary spending. Spending growth slowed throughout the quarter but was still at double-digit levels in March.
We continued 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. All deposit related fees were lower, reflecting higher earnings credit rates on noninterest-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 the 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 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, were down from the fourth quarter. Lower balances in banking reflected a combination of slow demand, increased payoffs, and relatively stable line utilization. Declining 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 alts, 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 reflected an improvement in our earnings capacity.
We grew revenue and reduced expenses and had strong growth in pre-tax pre-provision profit. As expected, our net charge-offs have continued to slowly increase from historical lows, and we are closely monitoring our portfolios and taking credit tightening actions where appropriate. Our capital levels grew even as we resumed common stock repurchases, and we expect repurchases to continue. In the guidance we provided last quarter for full year 2023 net interest income expenses excluding operating losses has not changed. We will now take your questions.
Operator (participant)
We will now begin the Q&A session. If you would like to ask a question, please first unmute your phone and press star one. If at any time your question has been answered, you may remove your request by pressing star two. Our first question for today will come from Scott Siefers of Piper Sandler. Your line is open.
Scott Siefers (Managing Director and Senior Research Analyst)
Morning, everyone. Thank you for taking the question. Mike, was hoping to just start out on the deposit side. When you talk about the influx of deposits, from some of the, you know, sort of special situations having abated, did that money actually leave the bank or is it just sort of the inflows that have stopped?
Mike Santomassimo (CFO)
Yeah. The... Hey, Scott. Thanks for the question. You know, look, the inflows stopped, right? You know, they came in, you know, in a pretty short period of time those inflows stopped. I think what you're seeing, you know, since then is just normal, you know, spending in the consumer side normal activity across the, you know, across the other, businesses.
Scott Siefers (Managing Director and Senior Research Analyst)
Okay, perfect. I guess maybe to switch gears just a bit. I think in your prepared remarks, you had discussed plans to sort of prudently return excess capital in coming quarters. You know, was very glad to see the resumption in repurchase in the first quarter. Just given all the kind of crosscurrents that we've got, whether it's uncertainty on the regulatory environment or, you know, uncertainty on the economy, you know, kind of countered against your very strong capital levels. Just curious for maybe a little more color around how you would be thinking about share repurchase through the remainder of the year?
Mike Santomassimo (CFO)
Yeah. This is Charlie. Let me take a stab. I would say. Listen, I think the way we feel about it is, you know, our capital levels grew quarter-over-quarter, even after we purchased the $4 billion of stock. It just, you know, shows our ability to generate capital if necessary, because of the environment or regulatory changes or things like that. Because of that, we do feel like we have the ability to continue to return capital to shareholders, while we still have plenty of flexibility to deal with anything which could come our way. You know, our excess above
Charlie Scharf (CEO)
The regulatory minimums plus buffers is extremely high beyond what we feel that it needs to be. We think we can continue to address that and still be very prudent with how we manage capital.
Mike Santomassimo (CFO)
Wonderful. Okay. Have a bunch more questions, but I have a feeling they'll be asked going forward as well. Charlie, Mike, thank you guys very much. Really appreciate it.
Operator (participant)
The next question comes from Steven Chubak of Wolfe Research. Your line is open, sir.
Steven Chubak (Managing Director and Senior Equity Research Analyst)
Hey, good morning. Wanted to get a little bit more granular on some of the expense trends that we're seeing. You know, we've gone through the exercise of benchmarking your segment efficiency ratios versus peers. Clearly, you've made significant strides improving profitability across virtually every segment, commercial CIB and wealth. The PPNR margins are running really in line with the peer group. It's still the Consumer efficiency ratio in the mid-sixties, which is running well above peers. I was hoping you could just speak to the opportunity on the expense side within Consumer. How much of a benefit should you see from the retrenchment in mortgage? Maybe what do you see as a normalized efficiency target for the segment, just given your current mix of business?
Mike Santomassimo (CFO)
Hey, Steve. It's Mike. I'll start. Charlie can chime in if he wants. The, you know, I think when you think about consumer, you know, I think we still have a lot more work to do there. You know, it's both in the consumer lending space or the mortgage space as we simplify the servicing side of that business. That just takes a little bit of time to work its way through. It needs to be thoughtful and, in some cases requires a little bit of investment in technology and the like. Then, you know, on the Consumer Banking side, you know, we've continued to rationalize the branch footprint and branch setup. We've, you know, we continue to see teller transactions and other things decline.
I think you'll see us, you know, focus there. Hopefully what you've seen in that segment is a consistent quarter-on-quarter, you know, decline in headcount and other factors, and that will sort of, you know, continue to hopefully be the case. When you think about just where the end state is, you know, we shouldn't look any different than our peers, our best-in-class peers for each of our segments, including that one. Over a period of time, that's the goal.
Charlie Scharf (CEO)
I would just add, you know, when you look at our, you know, that segment, we obviously, you know, mix versus other people is an issue. Our home lending business is today extremely inefficient, which, you know, is part of the reason why we made the decisions that we made. We've got a lot of wood to chop there, which will play out over, you know, a period of time to make that business more efficient. As we've talked about on the Consumer Banking side, you know, we've done, I think, you know, for many, many years after Mary got her job in Consumer Banking operation, our focus was dealing with the cleanup, which they've done an exceptional job in the Consumer & Small Business Banking about.
Then turned our attention to becoming more efficient, which she has worked really hard on. That's a combination of looking at our branch footprint, staffing within the branches, migrating people to digital. We're behind on that. There's been a lot of progress made over the last, you know, year and a half to two years. You know, there's still a tremendous amount of opportunity there, but it's in flight.
Steven Chubak (Managing Director and Senior Equity Research Analyst)
No, really helpful color. Just for my follow-up, wanted to unpack some of the NII trends that we're seeing within the wealth side specifically. There's a big focus right now on yield-seeking behavior if the higher for longer rate environment persists. You and your peers have seen contraction in NII sequentially and continued deposit outflows. Was hoping you could speak to whether you're seeing any abatement in just the pace of cash sorting or yield-seeking behavior as of yet or if it's continued at a pretty healthy clip?
Mike Santomassimo (CFO)
Yeah, I'll take that. You know, when you look at the sequential change in NII, it's really the two fewer days in the quarter that drove it. You know, otherwise, it's pretty flat to the fourth quarter as we thought it would be when we talked in January. You know, when you think about wealth, you know, it's been pretty stable, the trend. You know, it's not accelerating. It's not decelerating at any significant clip at this point. What we see there is, you know, we're capturing that cash, you know, those cash alternatives that people are buying in the wealth business. I think that trend will continue for a while.
The good news is we're capturing that, you know, in other ways. The trend has been pretty stable, and that's probably going to be the case for a little longer.
Steven Chubak (Managing Director and Senior Equity Research Analyst)
Helpful color. Thanks for taking my questions.
Operator (participant)
The next question will come from John McDonald of Autonomous Research. Your line is open.
John McDonald (Senior Analyst)
Hi, good morning. Mike, was wondering what your outlook is for the second quarter NII? Maybe if you could talk a little bit about the puts and takes to that and what you're thinking for second quarter? Thanks.
Mike Santomassimo (CFO)
Yeah, John. You know, as you look at, you know, as things are trending, you can see, you know, where deposits are, you know, on a period end and an average, you know, basis. That's probably input number 1. You can see that, you know, deposit yields have increased, right? Those two things are going to be, you know, the biggest driver. You should expect a little bit of a step down from, you know, Q1 into Q2. We'll see exactly sort of what that looks like as we get a little bit, you know, into the quarter. I think the variables are there to kind of come up with a, you know, a range of outcomes.
John McDonald (Senior Analyst)
Yeah. Okay. The outlook for the full year obviously embeds a pretty big step down from the first quarter starting point. Can you give us any more color about the types of assumptions you have embedded into the full year outlook on deposit flows, mix shift, and reprice beta?
Mike Santomassimo (CFO)
Yeah. Sure. You know, and, you know, as we've talked over the last, you know, few quarters, there's still, you know, a ton of uncertainty out there, with regards to really all the inputs that go into that, right? Whether it's the mix of deposits, the absolute level, or where pricing will be. You know, our guide in... you know, assumes that it's still gonna be a pretty competitive space for deposits, on the pricing side, that we will still see some mix shift happening, and that we'll see some, you know, moderate declines as people continue to spend and the trends happen. You know, as we talked about even, you know, last quarter, I think, you know, we'll get as time goes by, we get more and more information.
We're hopeful that there's, you know, upside, but you know, to the forecast, but we'll see that in the second half of the year, and it'll be a function of how all those factors play out. You know, we're hopeful that we'll see that and there'll be some upside there.
John McDonald (Senior Analyst)
Okay, thanks.
Operator (participant)
The next question comes from Ken Usdin of Jefferies. Your line is open.
Ken Usdin (Managing Director of Equity Research)
Hey, good morning. I just wanted to ask a follow-up on the cost side. I think, you know, we're all pretty clear on your, you know, view of continuing to hold the core flat from here. I think an ongoing question is just, you know, as we look further out, and I know there's no crystal ball here, like at what point do you get the line of sight when that next wave of gross saves related to all the, you know, duplicative and extra buildup in the infrastructure related to risk compliance, et cetera. You know, when you get the line of sight of when you can start to sunset that.
I know you've talked about that as a big point of how you get the ROE, you know, up over the long, over the medium term.
Mike Santomassimo (CFO)
Yeah. Ken, let me try to clarify a little bit of that. you know, I think when you look at, you know, what we talked about last quarter in terms of getting to a, you know, 15% ROTCE, you know, in the medium term, that didn't assume that we would have to take out a significant amount of the cost related to the risk and regulatory, you know, build outs that we're doing. you know, that efficiency on those expenses will be, you know, be out a little while. Could be, you know, could be years in terms of, you know, before we really get at some of that.
But I think our focus is to get the return to a sustainable 15% in the medium term, you know, by not having to rely on that. It really, you know, goes back to what we talked about, really making sure capital gets optimized, not just in terms of shareholder return, but also across the balance sheet, requires us to continue to execute on the efficiency initiatives outside of the risk and regulatory work. Then we'll start to get the benefit of some of the investments that we've been making now for the last, you know, couple of years.
Charlie Scharf (CEO)
I'll just add to that, just to be clear. When we think about the opportunities to continue to drive efficiency in the company, like, we don't even think about all the expenses related to the risk and regulatory framework work that we're doing. You know, that work is, you know, and those expenses are, you know, they're necessary, and those are not an excuse for us not to be efficient in everything else that we do. As we talked about in the consumer businesses a second ago, we look across all the things that we do, and there's still significant opportunity to just become more efficient and either, you know, reduce the expense base or provide more capacity to invest going forward.
You know, at some point, can we become more efficient in how we run the risk infrastructure of the company? Probably. That's, that's not on the radar screen and not necessary for us to achieve our efficiency goals.
Ken Usdin (Managing Director of Equity Research)
Yeah. Thanks for those clarifications. One just a question on the fee side. I know watching your trading results are a lot different than watching some of the bigger peers. Just looking at that $1.3 billion on the face of the income statement this quarter, in the context of the environment, can you help us put that into context? Was that just an exceptional result this quarter? Did it have anything we should be mindful of as we think forward? Just, you know, your general outlook there. Thank you.
Mike Santomassimo (CFO)
Yeah, sure. You know, we certainly benefited from, you know, the volatility that we saw, particularly in the rate market and other some of the other asset classes in the quarter. You can see that in the results. You know, when you look at some of the, you know, core platforms in FX and other areas, you know, we've been just consistently investing in some of those platforms. Hopefully over time you'll see, you know, good results there. The quarter definitely was influenced by the volatility that we saw across the market.
Ken Usdin (Managing Director of Equity Research)
Okay, thanks very much.
Operator (participant)
The next question will come from Ebrahim Poonawala of Bank of America. Your line is open.
Ebrahim Poonawala (Managing Director and Head of North American Banks Research)
Hey, good morning. I just wanted to follow up on the capital comments. I guess Charlie, you talked about this. Is it fair for us to assume it's clearly we have the SCB coming out of the stress test, that'll be one data point, and then the Basel reforms. Should we assume that the CET1 likely drifts higher, maybe 11%, maybe higher in the near term while you still buy back stock? Is that the right assumption? Secondly, I think Mike, you mentioned about optimizing for capital in RWA. Just maybe if you can call out a few things that you can do to optimize RWA relative to where the balance sheet is today.
Mike Santomassimo (CFO)
Yeah, sure. Thanks. You know, I think the, you know, the simple answer to your first question is no. We don't expect that to continue to keep, you know, keep drifting up. You know, certainly we'll find out, you know, the results of CCAR with everybody else in June. Then we've got Basel IV, which is a little bit longer timeline than that. You know, but we're 160 basis points above the regulatory minimum buffers. We've got plenty of capital to deal with whatever, you know, comes out of that. As we said, you know, over time, we'll get closer to 100 basis points or so above those above the 9.2%.
I think there's, you know, plenty of capacity to deal with whatever comes and continue to return, share, you know, money back to shareholders, as Charlie said.
Charlie Scharf (CEO)
Just while you're thinking, the second part, just to be... Again, all I was trying to say is we have a lot of flexibility to deal with things that come our way. We're not anticipating, you know, significant additional capital needs. We're not anticipating that, you know, that any, you know, potential downturn could create, you know, additional capital needs inside of the business. All we're saying is that if anything of those things were to happen, we have the flexibility to deal with that, both because of the amount of earnings that we have, as well as the existing excess capital that we have. You'll add those... I mean, you take that and you say, we bought, you know, all those things happened while we bought $4 billion of stock back this quarter.
We feel we'll be able to continue to return capital and still maintain a very conservative position.
Mike Santomassimo (CFO)
Yeah. Just to give you a couple like, examples to help illustrate, you know, the capital optimization. You know, the Mortgage business is one of them. You know, if we want mortgage exposure, you know, we can buy securities. You don't have to always hold the Mortgage. If you're buying securities, you don't have to buy UMBS, you can buy Ginnies. You know, there's plenty, and then you can look at each of the underlying portfolios and make sure we're getting the return from a relationship point of view that we think, you know, whether that's in the Commercial Bank or the Corporate & Investment Banking.
I think there's a plenty of plenty of areas that we can either reallocate, you know, capital to clients that we think will get better returns for or, you know, optimize some of the underlying portfolios.
Ebrahim Poonawala (Managing Director and Head of North American Banks Research)
Got it. Just one separate question. You made tremendous progress, Charlie, since taking over on the compliance risk management front. There was a news article last night talking about some OCC MRAs. I don't expect you to comment on that, but just give us a sense from a shareholder perspective, your level of confidence around the risk of another shoe dropping on a major setback to all the efforts and actions that you've taken to address the regulatory orders to the extent you can. Just to give comfort that you know what, the progress that's been made is getting us closer to the finish line as opposed to another big setback that could push us back again.
Charlie Scharf (CEO)
Yeah. Listen, I would refer you back to my shareholder letter where I wrote about it extensively. You know, I think I still continue to feel exactly the way we felt when we wrote that letter. It wasn't that long ago. Which is, you know, we have continued work to do, feel very confident in our ability to get the work done, and that we're making progress. You know, we live in an environment where, you know, things can come up. That's always the case. We don't want to pretend like, you know, there are no risks of other things out there. You know, if there was anything specific, we would do our best to let you know.
We feel good about the progress that we're making and are extremely focused, on making sure that we've got all the attention decked against it. We're confident that the things that we're doing will close the gaps that existed at the company when we got here.
Ebrahim Poonawala (Managing Director and Head of North American Banks Research)
Noted. Thank you very much.
Operator (participant)
The next question comes from John Pancari of Evercore ISI. Your line is open.
John Pancari (Senior Managing Director and Senior Research Analyst)
Good morning. On the back to the NII drivers, can you maybe give us a updated expectation on how you're thinking about loan growth here, as you look through 2023? I know you cited some of the pressures on the consumer side, but some of the favorable trends still in commercial. Separately on the deposit side, do you have an updated expectation regarding your total deposit beta as you see pricing, you know, pressure continue?
Mike Santomassimo (CFO)
Yeah, thanks. On the loan side, you know, I think we're definitely seeing pockets of growth in places like the Commercial Bank, that's been pretty consistent now for, you know, a couple quarters. It's not, you know, but the overall growth rate across total loans has moderated for the last, you know, three quarters which is exactly what we thought might happen, you know, when we were, you know, talking last summer. I think it'll still be pretty moderate. You know, I wouldn't expect huge growth in loans over the rest of the year. Embedded in our guidance is some, you know, low single digit, you know, growth rate, you know, in terms of loans for the year.
I think, you know, I think that's what we're assuming there. What was the second part again, John? Sorry.
John Pancari (Senior Managing Director and Senior Research Analyst)
Yeah, it was around your updated deposit beta.
Mike Santomassimo (CFO)
Sorry. Beta. deposit beta. Sorry.
John Pancari (Senior Managing Director and Senior Research Analyst)
Yeah.
Mike Santomassimo (CFO)
Yeah. No, look, on the deposit side, you know, to date, you know, betas have played out almost exactly how we thought they would. You know, I think from here, you know, the path of rates will matter, competition will matter. As I mentioned earlier, in the call, we're still assuming it's gonna be pretty competitive when we give you the guidance that we gave you. I think we may find that hopefully that it gets, you know, that maybe we're being a little conservative there, but we do think at this point it'll still be competitive.
I think the betas will be pretty reasonable though, on the consumer side when you look back, after the rates rise is stopped.
John Pancari (Senior Managing Director and Senior Research Analyst)
Got it. Okay. Thanks, Mike. Separately, on the Commercial Real Estate front, maybe if you could just elaborate a little bit on the stress that you're seeing? I know you discussed office. Maybe can you talk about your LTVs in office, maybe on a refresh basis if you happen to have that and maybe in other portfolios as well? Clearly the change between origination LTVs versus where we're seeing refreshed levels come in are clearly what is motivating some of the impact around reserve behavior. If you can give us a little color there, that'd be helpful.
Mike Santomassimo (CFO)
Yeah, sure. You know, look, in the office space right now, as many others have said, you know, too, like, this is gonna play out over an extended, you know, period of time. You know, we're not seeing a lot of near-term stress in terms of what, you know, whether clients are current or, you know, seeing, you know, very big issues on a, on a property-by-property basis at this point. We do expect some of that to come. I think it'll be for all of the reasons that everyone's reporting on, right? In particular, it'll be in cities that, you know, you see weakness in places like San Francisco and LA, a little bit in Seattle.
It's all the places where, either lease rates are already lower than the national average or, you know, the secular changes around, you know, back to office are changing in a little bit more of a bigger way. You know, but it's gonna take time, and we just haven't seen it translate into loss content yet. We're going very granular, property by property. Giving you LTV numbers from a portfolio at a portfolio basis really isn't that helpful at this point. Because it really is gonna be a matter of, like, what each of these underlying properties look like and what the issues are there. We haven't seen a lot of trades happening either recently, and so that also will impact, you know, how you think about the valuations.
What we're doing is really just making sure we stress it in a whole bunch of different ways on a property level basis to make sure we understand, where the potential issues might come from.
John Pancari (Senior Managing Director and Senior Research Analyst)
Okay. Thank you.
Operator (participant)
The next question comes from Betsy Graseck of Morgan Stanley. Your line is open.
Betsy Graseck (Head of Banks and Diversified Finance)
Hi. Good morning.
Mike Santomassimo (CFO)
Betsy.
Betsy Graseck (Head of Banks and Diversified Finance)
Good morning. Hi.
Mike Santomassimo (CFO)
How you doing?
Betsy Graseck (Head of Banks and Diversified Finance)
Couple questions. A little bit of follow-up, but one on the credit side. Wanted to just understand a little bit about the recoveries in Commercial. I know in the deck you mentioned that commercial NCOs were down in part due to higher recoveries, and just wanted to understand how long you see those recoveries persisting and, you know, is there any driver for them actually increasing from here? Thanks.
Mike Santomassimo (CFO)
Yeah. There really isn't any story there, Betsy. You know, I mean, we get recoveries, you know, every quarter. There really isn't a significant, you know, trend, you know, change one way or the other. Again, it's gonna come back down to individual underlying, you know, issues or situations that drive it quarter to quarter. I wouldn't read too much into the trend.
Betsy Graseck (Head of Banks and Diversified Finance)
Okay. Separately on the wealth deposits. I know earlier in the call you addressed this, that you would expect to see the wealth outflows continue at, you know, current pace or so for at least a little bit of time. I'm wondering, is there any anchor that you can give us with regard to wealth deposits as a percentage of client assets, you know, that existed pre-COVID that, you know, maybe we should anchor back on in modeling that line item?
Mike Santomassimo (CFO)
Yeah. I mean, what we gave you in my commentary was just cash as a percentage of assets. It's quite a bit higher than it was, you know, before. You know, about 12% now versus, you know, 4%. Obviously deposits is gonna be a sub-component of that. There are other drivers, right, of how much cash people are gonna hold as a percentage of assets. Right now you're seeing You know, a lot of what is going into cash alternatives is coming out of other asset classes.
It's a little harder to give you know, a specific number of, like, deposits as a percentage of assets because you're seeing people, you know, sell equities and other asset classes and drive up those cash balances.
Betsy Graseck (Head of Banks and Diversified Finance)
Right. Cash for you is it's including things like MMF and Treasury Bills, things like that?
Mike Santomassimo (CFO)
Absolutely, yeah.
Betsy Graseck (Head of Banks and Diversified Finance)
Right. Yeah. Okay.
Mike Santomassimo (CFO)
I would just take the, you know, the current, you know, balance that you see in the wealth space on the deposit side and assume it, you know, continues to come down at a pretty, you know, stable pace for a little bit.
Betsy Graseck (Head of Banks and Diversified Finance)
Let me just. Last question here. On deposit betas, I know you indicated that it should be okay. I guess I'm wondering how you think about deposit betas this cycle versus last cycle. Similar, higher, lower? Any sense as to versus prior cycle in magnitude would be great. Thanks.
Mike Santomassimo (CFO)
Yeah. Look, I mean, it'll be different obviously. Part of what's gonna drive that is how long rates stay higher. I think that will, you know, that's, you know, we'll find that out over a period of time. You know, as you can tell, where betas have performed so far, they've performed pretty well when you look at it relative to the last cycle, particularly given how far rates have moved up in an excess of what happened last time. And they're behaving, you know, exactly as you might think, right? If you go portfolio by portfolio, the betas are pretty high on the corporate, large corporate side. That's been the case now for a couple quarters.
They're a little bit lower in the commercial bank, given the nature of that client base. In the consumer side, you know, they're relatively low given the amount of rate rises that we've seen so far. You know, I think on the large corporate side you'll see those be pretty consistent from here. The consumer side will be a function of all the things we talked about earlier.
Betsy Graseck (Head of Banks and Diversified Finance)
All right. Thanks so much.
Operator (participant)
The next question comes from Matt O'Connor of Deutsche Bank. Your line is open.
Matthew O'Connor (Managing Director and Senior Research Analyst)
Good morning. I was hoping you guys could elaborate on, the slowing consumer spending towards the end of the month. Any more color there, and any thoughts on what's driving that?
Mike Santomassimo (CFO)
Yeah. It was pretty small, you know, when you look at, you know, that change. I wouldn't read too much into it. You know, there's still a lot of activity out there, and consumers are still out spending both on the debit side and the credit side. You know, I wouldn't read into a couple weeks.
Matthew O'Connor (Managing Director and Senior Research Analyst)
Okay. Separately, I know I always kind of, harp on some of these reg issues, and I appreciate, you know, the New York Post article yesterday you can't comment specifically on. You know, it did allude to some concerns in your trading business. Obviously, you know, it performed extremely well. You've been growing it, although I don't think you're growing it, you know, super aggressively. There's been some political comments, maybe it was, I don't know, six months ago or so that, you know, you shouldn't be growing your capital markets business while you're investing in these other areas.
I guess maybe you could just address the trading businesses overall in terms of, you know, how you're growing them in a responsible way and how you're making sure that the oversight and risk management is fine. I mean, 'cause again, externally it seems like everything is going really well, but, you know, it's hard to tell. Thank you.
Mike Santomassimo (CFO)
We have no concerns over what we're doing in the business. We're not increasing risk in any meaningful way. We've had strong oversight in that business, and we think it continues. You know, we benefited from business activity, which is focused on customer flow. We have strong financial risk management in the company and have had that for a long period of time. We have strong risk management over our trading businesses and controls. I would just be really careful to take, you know, the source that you're taking and using that to expand into anything beyond from whence it came. If it was anything meaningful to report, we'd report it.
As I said, we feel really good about the progress that we're making, and we feel good about the performance of the company, and I think it's that, you know, that stands on its own.
Matthew O'Connor (Managing Director and Senior Research Analyst)
Okay. That's very clear and very helpful. Thank you.
Operator (participant)
The next question comes from Gerard Cassidy of RBC Capital Markets. Your line is open.
Gerard Cassidy (Managing Director, Head of U.S. Bank Equity Strategy and Large Cap Bank Analyst)
Thank you. Hi, Mike. You talked about some of the reasons why your Commercial Loan growth was quite strong on a year-over-year basis. Can you share with us, are you guys seeing any reintermediation where, you know, the DCM market was very weak in the quarter for the industry? It was weak last year. Are you guys seeing benefits from that where people are, you know, corporate and Commercial customers are coming to you using your balance sheet more so than possibly a year and a half ago?
Mike Santomassimo (CFO)
Not in any meaningful way. There's always an anecdotal story, I'm sure, out there, but I wouldn't say it's meaningful.
Gerard Cassidy (Managing Director, Head of U.S. Bank Equity Strategy and Large Cap Bank Analyst)
Very good. As a follow-up, I know you gave us some details about the net interest income growth this year. There's still been ... If you annualize the first quarter results-
Mike Santomassimo (CFO)
Hey, Gerard, We lost you there for a second. Can you just repeat the whole second part?
Gerard Cassidy (Managing Director, Head of U.S. Bank Equity Strategy and Large Cap Bank Analyst)
Sure. You gave us some details on the outlook for net interest income growth, up 10%. If you annualize your 1st quarter number, of course that would be greater than the 10% growth for the full year. You gave us the reasons why. There's a lot of uncertainty. The one specific question, though, is as you're thinking on the yield curve, and I know this is very hard, nobody can predict it, where it's going to be, but are you thinking that the yield curve and maybe a rate cut could be coming sooner and the yield curve comes down when you look at your outlook? Has your outlook for the interest rates changed, I guess, is the question.
Mike Santomassimo (CFO)
Well, I think certainly the market expectations are implying that there'll be a decrease in the late part of the year. You know, I think, you know, that's certainly being priced in at the moment. You know, I do think that you need to be prepared that that's not gonna happen. I think, you know, it's possible it doesn't. I think as we get a little closer you'll, we'll all know.
Gerard Cassidy (Managing Director, Head of U.S. Bank Equity Strategy and Large Cap Bank Analyst)
Okay. No, yeah.
Mike Santomassimo (CFO)
What we try to do in our guidance is use what the market's telling us, right? If that doesn't happen, there's a, you know... Rates are higher than what the market's implying, there could be, there'll be a little upside there.
Charlie Scharf (CEO)
Yeah. The only thing I'd add is, listen, you know, in all of this, you know, you can, you know. I tried to say this in our remarks, which is, you know, we've said constantly we don't know what the future holds. We see what the market is saying. Who knows whether the market is right or wrong. You have, you know, the Fed chair who's talking about expect rates higher for longer. We're prepared for a range of scenarios. When we think about giving guidance, we just try and choose a benchmark, which is the market, which is, you know, it's a, it's a scenario. Pick your own scenario based upon what you all think, and you can make your own determination what it'll be.
We're just trying to give you both, like, a benchmark and what supports that benchmark, but also be clear that there are a range of alternatives out there which, you know, could.
Mike Santomassimo (CFO)
You know, could make the result differ. Just trying to be as transparent as we can.
Gerard Cassidy (Managing Director, Head of U.S. Bank Equity Strategy and Large Cap Bank Analyst)
I appreciate the further insights. That's very helpful. Thank you.
Mike Santomassimo (CFO)
Sure.
Operator (participant)
The next question comes from David Long of Raymond James. Your line is open.
David Long (Managing Director of Equity Research)
Good morning, everyone. I appreciate all the color on some of the deposit flows. Let me just ask it a little bit different way. From a noninterest-bearing deposit figure, the percentage of has come down. How do you expect that concentration to change over the course of the next several quarters?
Mike Santomassimo (CFO)
Well, I wouldn't try to predict it exactly over the next couple quarters, but I think if you look at the... You know, we're about 32% in the quarter, and if you go back a number of years pre-pandemic, that was in the mid-20s. It could, You know, and we've said this in other forums that, you know, you could see it start to trend, you know, towards there. Will it get down there? Unknown. I think you'll see it trend down a little bit more.
David Long (Managing Director of Equity Research)
Sure. If you look back over, call it the last 15 years since the Great Financial Crisis, rates have been pretty close to zero outside of a brief period, you know, just before the pandemic. Do you see noninterest-bearing deposits going back to pre-Great Financial Crisis levels for Wells Fargo or the industry where we had numbers there in the mid to high teens?
Mike Santomassimo (CFO)
I think that's almost impossible to predict.
David Long (Managing Director of Equity Research)
Got it. Okay. Thank you. Appreciate it.
Operator (participant)
The last question for today will come from Chris Kotowski of Oppenheimer. Your line is open.
Chris Kotowski (Managing Director and Senior Analyst)
Yeah. Good morning, and thanks for taking the question. I guess I wonder, how do you anticipate managing the duration of your investment securities portfolio from here? I mean, obviously it must have extended out quite a bit last year. You know, we saw the mark-to-marks on it, increase, you know, across the industry. I noted, kind of the HTM portfolio was down about 7%, you know, during the quarter. I mean, do you anticipate running that down or? If so, how quickly does it run down if you do nothing?
Mike Santomassimo (CFO)
Well, I think, you know, obviously that's gonna be a little bit dependent on rates and where rates go, you know, given, you know, there's some mortgages and mortgage securities in the portfolio in terms of the burn down. I think, you know, we're gonna continue to, you know, be thoughtful as we have in the past around, you know, thinking about, you know, the size of the portfolio in total, including the AFS. That's, that's really a function of, you know, a bunch of things, including how much loan growth we expect to see over a period of time. Then we look at all of the other, you know, other constraints that we've got to, you know, worry about around liquidity and everything else.
You know, we decide on how much goes into HTM and what the makeup of it is. At this point we feel, you know, comfortable with, you know, with the quantum and, both in terms of the size of the portfolio and the duration of the portfolio.
Chris Kotowski (Managing Director and Senior Analyst)
Okay. You anticipate keeping it roughly at this size, all things being equal, or does it run down?
Mike Santomassimo (CFO)
I think we'll make that decision over time. I don't anticipate the portfolio getting much bigger from here over the next, you know, few quarters. I think we'll make that decision over time, and then the burn down will be what it is based on where rates and natural maturities of the portfolio go.
Chris Kotowski (Managing Director and Senior Analyst)
Okay. Thank you. That's it for me.
Mike Santomassimo (CFO)
All righty, everyone. Thanks so much. Appreciate it, and we'll talk to you soon. Take care.
Operator (participant)
Thank you all for your participation on today's conference call. At this time, all parties may disconnect.