Wells Fargo & Company (WFC) Earnings Call Transcript & Summary

Good morning, again. For those of you who are with us virtually, not enjoying the sunshine in Florida, I'm Susan Katzke, I cover the large-cap banks for Crédit Suisse. Our next presenting bank is Wells Fargo, a top pick in the bank space for us, given both the progress that we've observed and what I would call, increasingly clear potential for this bank to materially improve its return profile. I'm pleased to be joined once again by CFO, Mike Santomassimo, [ you're 2 ] in this role at this conference. So let's jump in, because we've got a lot to cover with you.

So why we start kind of where we always start? And I realize it's a very dynamic environment. But let's start with a bit of a macro update just so we level set and talk about the macro and the operating environment because a lot seems to change in a 4-week period since earnings. So whether it's the yield curve, loan demand, I'll let you take this where you want to.

Yes. Well, thanks again for having us. Great to do it in person again, finally. So it is nice to be -- I think I left New York yesterday, it was 15 degrees, so it's slightly better to be here. I think, as you say, the only constant right now is change, right? As you sort of think about the environment and week-to-week quite a bit is moving around. But I think when you look through a little bit of that, there's some good things that are there. We've got strong job growth. We've got wage growth as part of that. Consumers still have a good amount of liquidity -- a good more amount of liquidity than they had pre-COVID, maybe down from the peaks, but still up. People are out spending. Now we've had -- you'll have little blips here and there from -- in different parts of the country in different categories. But nonetheless, people are outspending and living their lives. And so I think that's a good thing. So there's a lot of good things that are sort of underpinning, I think, what we're seeing. Obviously, inflation now is the topic du jour, and it's -- we'll see how the Fed begins to sort of tackle that. I think at this point, we're all sort of guessing what's going to happen and the pace of the increases and other actions they're going to take. And so I think we'll all know more. And I think, actually, 4 weeks from now, when the first meeting is over. And certainly, since the beginning of the year, we've seen a big flattening of the yield curve. I think if you go back even slightly further to the end of the third quarter, I think the 2 year's up 130, 140 basis points, depending on when you look at it and the 10 year is up a lot less than that, right? And so I think you've seen this really flattening of the curve, obviously, with the expectation that short-term rates will continue to increase. And obviously, we're going to be the beneficiary of that. But as I said, we're all guessing in terms of exactly what the pace is going to look like. I think when you start looking at loan growth, we did see some loan growth in the fourth quarter for the first time, particularly towards the end of it. And I think if you look at the industry data that's out there, what you've seen is, on average, the loan balances are up a little bit versus the fourth quarter, but they're down a little bit from end of period. Some of that's seasonal, as you seen credit card balances come down off holiday, the holiday spending that was there. But you're not seeing that growth continue yet, but it's still really early. I think we're all confident that we're going to continue to see some of that as the year goes on. But you haven't seen that really start to ramp up in a big way yet. But underneath that, we are still seeing some signs of growth. In our commercial bank, you're seeing a continuation of what we saw in the fourth quarter where both we're winning some new clients that are driving a little bit of loan growth there. We're seeing people start to try to build inventory, even though it's a little hard, given the demand/supply imbalance that's still there. And so I think there's some good trends underneath it that we continue to see. But that will take some time, I think, to play out throughout the year. And so I think we're optimistic things will continue in a pretty healthy way. But I think it will take some time to play out. I think you're also seeing a little bit of credit spread widening, not a ton yet, but a little bit that's starting to happen there. And so that's an area to watch. As we go through the next number of months and a couple of quarters to start to see if there's any cracks that start to emerge. We haven't seen it yet in any significant way in our portfolio, which I'm sure we'll get into more later. But that's an area that we continue to think about as well.

Okay. Just for a reminder for everybody, in January, you talked about 3 times -- 3 Fed rate increases beginning in May. And a 10-year treasury, I think, 170-ish. So kind of keeping that in context, let's talk about where your guidance was. You spoke to, I think, the 2 things I focused on most were the $5.5 billion of operating expenses in 2022. And then with net interest revenue you spoke to it up as much as 8% year-to-year. So in the context of what we're seeing in the macro, and I understand the guessing game with respect to the timing and magnitude of Fed rate increases, but let's circle back to NII first and talk about whether or not you have any change in thoughts on where the NII is going. But do it in the context, of course, of what does it take to get to the 8%?

Yes. So let's break it apart a little bit. And the first piece is, one, we have a headwind that we face that others have, too. But maybe a little unique to us as well, where we've got PPP loans much lower than they were last year. So we're going to see lower revenue from PPP. We also have lower revenue related to some loans we bought out of Ginnie Mae securities a year or so ago. And so that's going to be a headwind of roughly $1 billion plus or minus. And then we've got, embedded in that, was the expectation that we're going to see loan growth. We said mid to -- or low to mid-single-digit growth versus fourth quarter of 2021, so fourth quarter to fourth quarter. And at this point, we're still optimistic that we're going to see that happen. And those things sort of net out to about 3% up from the full year of 2021. And then the rest is going to be rates, right? And there's obviously lots of ups and downs in terms of security, and the securities you're investing in. How fast does the short end go up? What happens to the premium amortization? And all that sort of baked in. And so what we gave you in January was the assumptions we used for that incremental up to 5%. And so if we're above it, we'll -- we could be more. If we're below it, it could be less, right? And I think what we've -- what the last 18 months have shown is, it's going to be -- it's probably going to be a little volatile. And so it's hard to predict exactly where rates are going to be at any given point. We certainly saw that last year with a bunch of see-sawing on the 10-year. And so we'll see. We'll see how it plays out. So if -- all else equal, if things go up, then that would be a positive. And if they don't play out that way, that would be negative. But I think we're all going to have a lot more information 4 weeks from now to have a better view. But other than that, we're just guessing. So...

But we would have to agree that sitting here today with where the yield curve is, this is a better environment than what you had in January.

Well, certainly, rates are higher, if that's what you mean, so far. .

Yes.

So that -- so certainly, in the last 4 weeks, rates are on average a little bit higher. So we'll see if that continues to play out.

Understood. Not asking you to guarantee me that they stay here, but the status quo is better.

The first 30 days have been slightly better.

Perfect. Okay. So let's shift to liquidity deployment because you have a lot of liquidity. So I'm curious on 2 fronts. One, you're -- based on the loan growth you're seeing, what's the level of comfort of deploying into securities? Where are you deploying when you're deploying into securities? And how much liquidity do you want to be holding right now? You've gotten to very high levels at 1 point in the last couple of years.

Yes. Well, first, as we sort of think about deploying liquidity, it starts with like what do we expect clients to do with us, and what we expect on loan growth. And so as we said, we're starting to see some of that, and we expect to see more of that. And so that will be -- we're the first -- how we deploy it first. And if that goes a little bit faster, we'll have a little less to put in securities. And if it goes a little slower, we'll have more to put in securities. And so it will really be driven first and foremost by the demand we see there. And as we look at the liquidity that we have to deploy, like we've got plenty of liquidity to be there for our clients in terms of what we expect and be able to grow beyond that. So -- and then as we think about the securities portfolio, you sort of have to zoom back just a little bit and look at what we did last year and then sort of help think about what we're going to do this year. Last year, we really grew the mortgage part of the book. We grew structured products, CLOs as well. And where we didn't -- where we shrunk was in treasuries. And so as we look at this year, what you'll likely see us continue to do is when the opportunity is there, is look at -- continue to add mortgage, continue to add treasury, treasury positions at the right time. And we'll look for opportunities where there's more credit-sensitive assets where they make sense. I do think we have to keep in mind OCI impacts as we sort of look at where rates are going. And so you might -- we really want to be patient and not be imprudent as we sort of look to deploy more of that because we need to deal with that OCI impact as rate starts to go up. So you'll see us sort of be somewhat patient to deploy more, but we've got plenty of liquidity to be there for clients. And so we're hopeful that we're going to see that growth.

Okay. And on the loan demand, just circling back to that. You did note that in the last month or so, the growth rates have flattened out from where we were at the end of the fourth quarter and the card is obviously seasonal. And so that's to be expected. In the commercial, can you just kind of get a little bit more granular in terms of where you're seeing some growth? And what's driving confidence?

Yes. Look, in the commercial bank, it's really -- there isn't one segment or sector that we're seeing. And it's really a little bit across the board, which I think is -- gives us more confidence that it will continue in the commercial bank. If it was 1 or 2 big things that were happening, I think, obviously, you'd have a little bit less confidence that it'll keep going. But as I said, we're seeing it both in good pipelines for new business where we've seen that over the last quarter or 2 in particular. We're seeing clients continue, as I said, try to deal with like some inventory issues. Supply chain issues are still real. They're still -- but more -- even more so these days is the demand for product as they can't keep up with producing product and -- because that demand is real. I was talking to somebody in the commercial bank just yesterday, and they were saying in some client forums that they had is, people are able to get stuff out of ports, maybe at the same pace we were doing it -- they were doing it pre-COVID. But the problem is the demand is so much higher. And so although like you're seeing some of those bottlenecks, loosen, it's just not fast enough to really get all the product to customers in the way they want it. And people are starting to take some actions. Like we deal with some of the big trailer-leasing companies in the country where, generally, those types of leases are very short term and -- very seasonal, very short term. People are taking what longer leases now to make sure they've got committed capacity to transport product. And so that's causing some tightness in some markets as well. And then you're also seeing inflation impact, just the value of the amount that they need to finance. And the good news is so far, they've been able to pass those -- that inflationary increases over -- on to clients. But I think that will -- that may -- that will be interesting to see how that plays out for the rest of the year as well.

Okay. So let's switch to the deposit side of the equation for a minute and talk about -- kind of in the context of we talked about liquidity deployment, we talked about the NII guidance, in a tightening scenario that happens more quickly that comes with a faster pace of QT, what's your expectation around deposit runoff and deposit beta? I think you're in a bit of a different situation than others.

Yes. We certainly -- over the last 18 months, 2 years, we've pushed off a lot of deposits, hundreds of billions of deposits given the situation we have. And so the good part of that is that the mix of our deposit base has changed quite a bit from where it was 3, 4, 5 years ago, where a much higher percentage of the deposit base, close to high 50 percentage points is in our consumer business, which are the least rate-sensitive deposits, and we've pushed off a lot of the most rate-sensitive deposits. So as you sort of think about betas on average for us, it may look a little bit different on average than it did prior to -- in the last cycle. Having said that, I think as you sort of break apart the different segments and products, for the first number of rate rises, it probably doesn't look that different than it did for the last one where you're going to see much lower betas on consumer and higher betas on some of the wholesale deposits. And I think we'll see how that plays out over but I think that's the expectation that we would expect, is that it's somewhat similar, maybe marginally lower given the amount of liquidity is there. But for us, on average, the beta should be lower just given the mix of deposits that we have now. And I think if you look at some of the industry data through the last couple -- last week or so, deposits have sort of come down a little bit in the banking system. So you're seeing a little bit of that already start to move, and so we'll see how that plays out.

Yes, we weren't used to seeing that trend for a while.

Yes, for sure. It will be a -- for us, though, it will be a nice thing to have to stop asking clients to move deposits away. So first and foremost, that will -- if we get a little bit of capacity, that just gives us more room to work with clients.

So you set up perfectly to my next question, which is to play what if for a moment here. Because really, you can't -- I can't have you here for a fireside chat and not play what if around the asset cap.

You know how much I enjoy what if's, right?

I know. So let's talk about a world without the asset cap. And I know that your 2022 guidance does not rely on a world without the asset cap. But in that beautiful world, what would your incremental balance sheet growth look like? And how do you think about not just the balance sheet growth for the sake of a carry trade or what have you, but what businesses would you also be more able to fund and take advantage of?

Well, I think you have to look back what we've done over the last couple of years, and I think it probably gives you some clues of what you'd see first, anyway. We've pushed off a lot of deposits. Now we haven't done anything in our consumer business. But what we haven't done in our consumer business is market very much. And so you could see us do more marketing, just for -- on the consumer's side. And where we've had to push off a lot of deposits are really in our corporate investment bank and our commercial bank. And so I think you'll see us, as we be very thoughtful about where we want to add those back over time and really focus our energy on the commercial bank and in other parts, maybe select parts of the corporate investment bank. And then on the other side, what we've done is we've had to take our capital markets balance sheet down by close to $100 billion. And so some of that are financing trades that some of that comes back more quickly than other aspects of it. But those are the 2 things that we've really done, right? We haven't inhibited loan growth. We haven't really focused -- we haven't pushed away any retail deposits. So it's really starting to open the spigots a little bit there, would -- those are probably the areas you'd see some growth first. But all of it is going to be dependent upon the environment we're in at the time, in terms of what it looks like and how fast some of that activity comes back.

Okay. Fair enough. So let's just touch on fees for a minute and get a refresher, if you will, on kind of where you stand with your nuisance fees and fee waivers. You were actually pretty early with the Overdraft Rewind product. I think in 2017. But just any refresher on what that headwind is for you, if at all, in 2022.

Yes. Look, the whole topic for overdrafts is a pretty important one these days, and very topical. And the way we've sort of thought about it is you have to really start with like what does the customer need? And there are a set of our customers that don't want an account with overdrafts or those types of fees or other capabilities. And so we built a product called Clear Access. We've got 1 million -- a little over 1.1 million in accounts in customers using that, and it's actually going quite well so far. And we're going to continue to make sure that all of our clients really understand the choices they have. And if that's the right product for them, then we're going to help them make sure they end up there, and that's working quite well. But there's a whole series of other customers that actually need an ability to have access to whether it's an overdraft or some short-term financing to make sure that they can meet their own financial needs, and so we don't believe the answer is to move everybody into Clear Access because I think that doesn't really solve some of the issues from a customers' or clients' perspective. So what we focused on in what we announced in January, one, we eliminated some fees, non-sufficient fund fees and fees related to covering overdrafts out of other Wells Fargo accounts. And so we think that will be helpful for clients. We're building on some capabilities that we've had since 2017 where we're going to give people 24 hours grace period to go ahead and resolve an overdraft. With that, we're going to give them access to their payroll or their payroll deposit, their direct deposit 2 days in advance as well. So those are things that sort of should help clients manage when they have those periodic issues a little bit better. And then what we've announced, too, is that we're going to offer them the ability to have a kind of low dollar, short-term loan that should help them avoid overdrafts and really control whether or not they're going to use the overdraft product or not in maybe a different way. And the focus here is really to give clients a very easy, simple ability to have access to this. So we were going through the client experience just yesterday in terms of what the mock ups are going to look like. And it's actually a very easy product where clients are going to be prequalified. They're going to have the ability to go on their app and say, click yes, agree to the terms, all in a matter of minutes. I think we timed it at like a 2-minute experience, 3-minute experience. And so -- and that will give them the ability to cover those needs when they have them, so I think that will be really helpful. And as you sort of think about the suite of capabilities, we have, we operate in a competitive place. So everybody's -- competitive markets. So everybody is going about it a little bit different, which is not a bad thing. And I think you'll see everybody continue to evolve their offering over time as you really try to meet clients where they are in terms of meeting the needs they have to have that access to the short-term financing.

Okay. So let's switch gears over to expenses and the $51.5 billion expense guide for 2022. And let's break this into 2 categories, kind of the savings opportunities and then the incremental investments that Wells Fargo is making. And I want to go back first on the savings. You raised the target of the opportunities from $8 billion to $10 billion, which I don't think was all that surprising, not to us, not to many. But let's talk about the incremental savings and what it is that you learned over the last year to allow you to raise that bar.

Well, where we've been focused is really making sure that we embed this discipline in how we run the place every day. We want people to come in every day thinking about how do we make it more efficient. Because by the way, it's not about just saving money, it's about improving the experience for customers, too. And 95% of the time, when we're saving money, we're doing something that's going to actually improve the client experience along the way. So that's helpful. And so we want them to come in thinking about how do I do that. And at the same time, we want them coming in and thinking about how do I make sure we're making all the investments we need to make across every single product, sales group, whatever it is. And we really need to do those things in concert with each other. And you can't sacrifice investments for -- to hit an expense number. And so we're really trying to make sure that we sort of build that in. We've talked a lot about it over the last 1.5 years or so. We still feel very strongly that we have a lot of opportunity to get more efficient. What we gave you the last couple of Januaries now is where we are at a point in time. We had $8 billion at the time last year. We had $10 billion this year. It's hundreds of initiatives across the company, and we're continuing to work on that almost every week. We had -- I'm certainly involved in conversations almost every single week. Not only are we executing on the plans we have, but also what's next and where are we in terms of uncovering those opportunities. And we're going to continue to really focus on that. And so I think as you sort of think about what we laid out for 2021, we still feel really good about the $51.5 billion and we're going to come in every day trying to make it better, but we feel like that's a pretty reasonable target given sort of where we are. And on the investment side, we're not sacrificing investments for -- to hit a number. We didn't come into 2022 saying like $51.5 billion is the magic number, and we're going to calibrate our investments to that number. We really are focused on what can we execute well. And even if we wanted to spend a couple of billion dollars more on technology, it would be really hard to execute that well and get the people in place, the subject matter experts to really deliver on it. You have practical limitations about how many weekends you can produce change windows. And so there's a lot of things that go into that. But we feel like that's the number for where we are. And we are still investing in our risk and control infrastructure as well. And so as those investments continue to get completed, we'll shift more of it to more business-oriented things. But we're -- what we feel like though we're investing at the right pace, and we're going to continue to make sure that we've got like the discipline across each of the businesses to do that.

So on that investment, the incremental $1.2 billion in 2022, if we think about it, and we kind of compare it, I think last year's incremental is $1.6 billion. And I understand the whole concept of doability and how much can you actually invest in a given year, but the composition of the investment dollars this year, when we think about what's so critical at this juncture for Wells is switching from playing defense on the risk management to playing offense and actually having a positioning where you can look forward and say, this franchise is going to actually grow outside of a rate cycle. So talk a little bit about the composition of the $1.2 billion and that shift from offense to -- from defense to offense.

Yes. More of the incremental investment is in people, both in the commercial bank, and most of those investments are frontline folks, whether it's salespeople, RMs, bankers. And we've had a series of bankers we've hired over the last year and continue to do in the early part of this year as well. We're also investing in technology and adding more engineers into our technology group. Now that doesn't take technology off the hook from getting more efficient as well. But as they get more efficient, we invest more of those dollars into engineers that are delivering more capabilities. And then we are also spending more on the risk and control work that we're getting done. But certainly, more of the incremental investment this year is in those people, those frontline people than has been in the last couple...

So I'm curious when you talk about people, one of the things that we track is the measure of efficiency and automation because there's only so many numbers that you're going to give us at any point in time. But we watch the headcount, right? You watch headcount, per dollar revenue, per dollar pretax income, and you're investing in people. You did bring your headcount down for the last couple of years. Where is that headcount trend going to go when you consider the hiring for production and the other?

Yes. I think you have to keep it in perspective. We have a little under 250,000 people, and the investments we're making on the front line are small in the scheme of 250,000. So we still believe the headcount number will come down over time while we're making the investments we need to make, and that's the plan.

Okay. So let's pivot from expenses. And I will check for a minute if we have any questions in the audience on this topic or I can go to capital management. Okay. Let's go to capital management. You actually have a lot of capital. CET1 over 11% at year-end. Two things caught my eye in January. Maybe it was less surprising to you, but you raised your dividend, which was good to see. To me, it expressed confidence in the forward look. And then second, there was speculation that you were exiting a 20% stake in Hong Kong, Shanghai Commercial Bank, which honestly, I didn't know that you owned. And that has not been confirmed. But I look at those 2 actions, I look at your CET1 and you've got pretty significant flexibility. And you have been repurchasing stock at a healthy pace as well. So let's talk about target capital levels but let's consider the dividend increase. Let's consider things that you have that you could sell that would either further bolster your capital as well as impact your SCB and your GSIB score. And kind of ultimately, where does this capital requirement go? So there's 10 questions at once.

There's a lot in there, and I'll start with remembering the [indiscernible] everything you read in the press. But I do think that we're very focused on continuing to optimize the whole place, and that includes the balance sheet. And we spend a lot of time making sure that we're doing our best to make -- to focus on our core businesses. And you may, over time, see us continue to find ways to optimize that. When you think about -- just more broadly, as you said, we've been on this path to continue to get closer to our targeted levels. And then obviously, there's a lot that goes into that, particularly this time of the year when you're in the middle of CCAR but it first starts with like how do you feel about your GSIB score, where you are. As we come out of 2021, there's still more work to be done to finalize it, but it's possible that our GSIB stays where it was last year. And lots of people have different views on where it was headed, but it's likely -- it's possible that it's going to stay there. And then as you look at your stress capital buffer, that's going to vary year-to-year based on the scenarios. And when you look at the scenario this year, it is -- again, another stressful scenario. So I think it's possible our SCB goes up a little bit, depending on how it all plays out. We just got it last week. So there's a lot of work between now and the submission, but I think it is possible that it goes up. And we'll see how that sort of filters across the industry. And you have to be careful you're not making strategic decisions based on a scenario or 2 in CCAR. And so we -- you sort of need to make sure you're thinking about it over a little bit of a longer time period, and we're trying to do that. Having said that, where we can, we'll optimize things to get to the right outcomes. And as you said, we've been bringing down our excess capital and we've said that we'll run it somewhere between 100 and 150 basis points over our -- whatever our regulatory minimum is. And I think that gives us opportunity to continue to distribute more back. As you talk about the dividend, we've said over the last year or so, we're on a path to get to a 30% to 40% payout of what we think are sustainable earnings over time, and you saw us take a step in that direction in the fourth quarter. And so we felt good about that.

So let's circle back to the SCB and CCAR. And I know it's only been 1 week since you've had the scenarios, and it's interesting to hear you indicate there's potential upside, which I think, look, it makes sense in the context of where the pain points are in both commercial real estate and residential real estate price declines. Is it that? Is it the reserve release? What is it that other than being naturally conservative?

Yes. Look, I think it's probably a little bit of a lot of the aspects of what you see in scenario. The industry is starting at a different place with less reserves than they were. Now I think we feel really good about where our reserves ended the year and maybe a little bit higher from a coverage ratio than some of our peers. You look at some of the assumptions around real estate and other things, I think, in there, so I think it's a little bit of a bunch of those things that could drive it up a little bit.

Okay. And on credit. You touched in the beginning of the conversation on seeing credit spreads widen out a little bit. You can see the sensitivity on credit in the Fed. We can see the senior loan officer survey talking about easing of standards. Where, if at all -- if you were sitting down with your portfolio today, where would you look first with concern that there might be any kind of cracks? And I know, just to be clear, you didn't say that you were seeing any.

Yes. No. We're always looking at the portfolio to try to look for the potential areas where we're seeing -- and the good news -- for the most part, the portfolio actually continues to perform really well, and you saw that in the fourth quarter, whether it's on the commercial real estate side or on the consumer side. Really, across the board, we have seen really good performance. In places like card, which are -- you start to want to look there first for problems. You continue to see some really high payment rates and roll rates performing pretty well in the card space. I think in the auto space, which is a pretty small portfolio in the scheme of the balance sheet, on the bottom end of the auto book, maybe you see a little bit of noise there. But again, it's small in the scheme of the overall balance sheet. So for the most part, things are performing pretty well. But you see a couple of small things that you continue to look at.

Okay. So we have 5 minutes left on the clock. I want to check if there are any questions again. Okay. We have a quiet group. The -- so I want to wrap up kind of putting a bunch of these pieces together. And we started by talking about the operating environment, and you noted that the constant in the environment is change, and I noted that, that change was feeling a little bit more positive right now. And I think, even more importantly, when we couple the operating environment with the initiatives at Wells Fargo in particular and the amount of progress that's been driven in terms of operating efficiency and revenue growth and balance sheet optimization over the last couple of years, step 1 was always to get to that 10% ROTE, and you've got to walk before you run, et cetera. But you are -- in my estimates, you're pretty much at that 10% ROTE already in 2022. And so with a more positive rate backdrop, is that enough to put that 15% next step in the line of sight? What does it take to get there?

Well, as we said in January, we still feel pretty good about getting to a sustainable 10% at some point this year. Everybody has their own estimates of when and how we'll get there. But nonetheless, I think we feel still that that's like a real possibility. If you sort of think about beyond that, yes, does higher rates help you get above that faster? Of course. So that's -- that would be a net positive. But what we've got to continue to do is execute on all the things that we've said we're working on. We've got to continue to get more efficient. We've got to continue to make sure we're operating the capital levels at the right place. We've got to continue to make progress on the risk and regulatory work and make sure that we lift that burden over time. And what we said a year ago was that we would need to see the asset cap lifted. We would need to get the benefit of some of the investments we're making to get there. And so what -- and what's changed since then is that rates are going up a little bit faster than -- or depending on your view, a lot faster than maybe you thought back then. And so we'll see over the next couple of quarters, how that starts to play out. And then once we get to a place where we feel that 10% is sustainable, we'll sort of outline how we think what the trajectory looks like. And by that point, we'll know a lot more where rates are or rates are going, I think which is -- will be a big part of it.

And just to clarify. In terms of ultimately being more confident in that 15%, can you get there with the asset cap? Or do you need flexibility to grow the balance sheet to ultimately get to 15%?

We'll see. I think the question really will be where rates go and what trajectory do we see there. And then what impact that has on the economy and sort of the operating environment we're in. But again, what we said 1 year ago was that we would need that lifted to get there. Now rates have changed things a little bit, and so we'll see. But once we get to 10%, we'll -- and once we have a better view on like the pace of where rates are going, then we'll sort of outline what we think it takes to get there. Now the good news is, we still -- we feel really confident that the business we have should be able to get there. It's just a matter of putting one foot in front of the other every day and doing all the things we've got to do to make sure we get there in a sustainable way, and that's really what we're focused on.

Well, so far, so good. And just -- you've always put out these ROTE targets. And I'm curious, there's very mixed views on this. How do you feel about setting an efficiency target?

Yes. I think it's -- what's -- it's a little bit hard to do that when you're in a world where you're constrained from growth. And I think where we've been focused right now is just we got to get the number down. And the long -- the medium-term or longer-term efficiency ratio that we're -- where we end up with, you need that top line to move as well. And part of that is the asset cap. And so we've been very intentional about forgetting about like the efficiency ratio in the short run and really focused on the absolute dollar we're spending and continue to push the company to get more efficient. But I think we -- over a period of time, we should be able to be in a much more reasonable like efficiency ratio as well. And -- but that will be the outgrowth of a lot of things that we're working on. But the focus right now is just every day make the place more efficient.

Okay. Well, we'll take more efficient, underscoring the potential for higher returns, and we will look forward to seeing you back here next year. Thank you for being here, Mike, and seeing you in person.

Thank you, and thanks for having us.