Wells Fargo (WFC) Q1 2018 Earnings Conference Call Transcript

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Wells Fargo (NYSE: WFC) Q1 2018 Earnings Conference CallApril 13, 2018 10:00 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wells Fargo First-Quarter Earnings Conference Call. [Operator instructions] I would now like to turn the call over to John Campbell, director of investor relations. Sir, you may begin the conference.

John Campbell -- Director, Investor Relations

Thank you, Regina. Good morning. Thank you for joining us for our call today, where our CEO and president, Tim Sloan, and our CFO, John Shrewsbury, will discuss preliminary first-quarter results and answer your questions. This call is being recorded.

Before we get started, I would like to remind you that our first-quarter earnings release and quarterly supplement are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risk and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings release and quarterly supplement. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings, in the earnings release and in the quarterly supplement available on our website.

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I will now turn the call over to our CEO and president, Tim Sloan.

Timothy J. Sloan -- Chief Executive Officer and President

Thank you, John. Good morning, and thank you for joining us today, I know it's a busy morning for everyone. As we noted in our earnings release, our first-quarter financial results are preliminary. These preliminary results are subject to change due to ongoing discussions that we're having with the CFPB and OCC to resolve matters regarding our compliance risk-management program and our past practices involving certain automobile collateral protection, insurance policies, and certain mortgage interest rate lock extensions, which the CFPB and the OCC have collectively offered to resolve for an aggregate of $1 billion in civil money penalties.

At this time, we're unable to predict the final resolution of the CFPB/OCC matter and cannot reasonably estimate our related loss contingency. Accordingly, the preliminary financial results we report today may need to be revised to reflect additional accruals for the CFPB/OCC matter when we file our final statements in our quarterly report on Form 10-Q with the SEC. It is important to note that these are not new matters. Turning to our preliminary first-quarter results, we earned $5.9 billion.

Our results included continued strong credit performance, liquidity, and capital levels. We returned $4 billion to shareholders through common stock dividends and net share repurchases in the first quarter, up 30% from a year ago. There were a number of noteworthy items that impacted our results, which John will highlight later on the call. I want to focus my comments on the actions we took during the quarter to transform Wells Fargo as part of our efforts to build a better bank and rebuild trust with our stakeholders.

These efforts include progress on our six goals. Starting with our goal of becoming the leader in customer service and advice, we focused on new ways to create a better customer experience. This includes a number of changes to help our customers better manage their accounts by leveraging data and technology. In the first quarter, we rolled out Predictive Banking, which provides personalized insights and guidance to mobile deposit customers.

A year ago we introduced automatic zero-balance alerts, and we now send over 20 million low- and zero-balance alerts a month. In November of last year, we introduced Overdraft Rewind, which has helped over 800,000 customers avoid overdraft charges. We also offer our customers a variety of ways to waive the standard monthly service fees on checking accounts based on account usage or direct deposit. And as a result, approximately 90% of our checking account customers do not pay a monthly fee.

These actions are designed to help our customers succeed financially and to build long-term relationships. And we've made changes to compensation and processes in our branches, which are also improving customer service. And in the first quarter, customer-loyalty survey scores reached their highest levels since August of 2016. Team member engagement is our second goal, and I believe we have the best team in the industry.

In March, we increased the minimum hourly pay rate for U.S.-based team members to $15 an hour, and approximately 36,000 team members received an increase. We also reviewed pay for team members whose salaries were slightly above the new minimum wage. And this month, we're increasing base pay for approximately 50,000 additional team members. In March, we granted an award of restricted stock rights to about 250,000 team members, including 50 shares of stock for full-time-eligible team members and 30 shares for part-time team members.

In the first quarter, our team member turnover continues to be about 15% below fourth quarter of 2016 levels. Our next goal is being a leader in innovation. In the first quarter, we rolled out our digital mortgage application, which combines the power of Wells Fargo's data with a You Know Me customer experience. In many cases, homebuyers are now able to receive preapproved loan decisions immediately, either online or through their mobile device.

In March, 10% of competed retail applications were through our digital mortgage application. We also started a team member pilot of our Control Tower feature, designed to provide customers a comprehensive view of the places their Wells Fargo card or account information is connected. In January, we were named one of only 12 companies in Apple's business chat pilot, which is a new way to connect with our customers and accelerates our customer service transformation toward messaging. Our industry-leading technology was recently recognized by Dynatrace, which named Wells Fargo's mobile app No.

1 in overall performance, functionality and quality, and availability. As part of our goal of setting the global standard in managing all forms of risk, over the past 19 months, we've taken significant actions to strengthen the way we manage operational and compliance risk at Wells Fargo. In March, we announced a new risk-management organizational design, which is an important step to ensuring that risk-management functions operate independently and provide improved and effective oversight of our businesses. In addition, per the consent order, earlier this month we submitted governance and oversight, and compliance and operational risk-management program plans to the Federal Reserve.

Our goal of making a positive contribution to the communities we serve was recognized in the first quarter by United Way Worldwide, who named our workplace-giving program No. 1 in the United States for the ninth consecutive year. We also increased our charitable contributions in the first quarter as part of our goal to increase donations to nonprofit and community organizations by approximately 40% in 2018. As part of our goal of delivering long-term shareholder value, we've been making progress on streamlining and centralizing processes and our organizational structures.

In our auto business, we completed the centralization of collections and funding from 57 regional business centers into three regional centers during the first quarter, which helps us to further standardize processes in that business. Our auto relationship team remains in the individual markets, keeping us close to our customers. We're also closely looking at how our customers are using our channels. Branches continue to play an important part in serving our customers, and we will have as many branches for our customers to use for as long as they want to use them.

However, our customers are increasingly using our digital channels and digital sessions, and they increased 13% from a year ago, while teller and ATM transactions declined 4%. We closed 58 branches in the first quarter and we're on track to close approximately 300 branches this year, which is an increase from the 250 branches we announced at our last Investor Day. As we highlighted last quarter, we currently expect our total branch network to decline to approximately 5,000 by the end of 2020. I'm confident that we're on the right path with the transformational changes we are making and with our progress against our six goals.

We have more work to do and it will take time to put all of our challenges behind us, but the result will be a better Wells Fargo for all of our stakeholders. John will now discuss our financial results in more detail.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Thanks, Tim, and good morning, everyone. We highlight the noteworthy items that impacted our preliminary results on Slide 2. Our revenue included a $643 million gain from sales of Pick-a-Pay PCI mortgage loans; $250 million in mark-to-market unrealized equity gains due to the new financial instruments accounting standard, which I'll discuss a little later on the call; a $202 million gain on the sale of Wells Fargo Shareowner Services; and $176 million reduction from a LOCOM adjustment relating to $1.9 billion of loans transferred to held for sale. Our expenses included $781 million of seasonally higher personnel expense and $668 million of operating losses, largely litigation accruals.

Our results also included a $550 million reserve release, driven by a significantly improved outlook on hurricane-related losses, and our effective income tax rate in the first quarter was 18.8%. On Page 3. we provide an update on the consent order. Tim mentioned, we submitted governance and oversight, and compliance and operational risk-management program plans to the Federal Reserve.

We take the consent order seriously and we'll work to fully satisfy all of the consent order's requirements. We're focused on compliance with the consent order's asset cap in maintaining liquidity and other financial risk-management targets, while minimizing the impact to our customers, minimizing adverse long-term strategic effects, and maintaining our financial risk discipline. With nearly $2 trillion in total assets, we believe we can meet our customers' financial needs and continue to deliver strong results without growing our balance sheet in the near term. As a reminder, prior to the consent order, we were already focused on reducing our exposure to riskier assets, including certain legacy consumer real estate loans and near prime and sub-prime auto loans.

We've also maintained our credit risk discipline for new originations in commercial real estate during a period of high liquidity and increased competition, resulting in four consecutive quarters of lower balances. Our balance sheet declined $36.4 billion from year-end, primarily due to a $32 billion decline in commercial deposits from financial institutions, including approximately $15 billion of actions taken to comply with the consent order asset cap. The earnings impact of managing within the asset cap was modest in the first quarter due to the minimal actions we needed to take. We'd expect the earnings impact to increase in subsequent quarters, but we continue to estimate that the net income after tax impact will be $300 million to $400 million for the full year of 2018.

I'm going to highlight much of what's on Page 4 later on the call, so let me just point out that the decline in deposits drove the $20 billion reduction in cash and short-term investments in the first quarter, and the decline in stockholders' equity was driven by a $2.8 billion decline in OCI, resulting primarily from higher rates. I'll be highlighting our income statement drivers on Page 5 throughout the call. So let me just mention that we adopted new accounting standards in the first quarter, which will summarize -- which we summarized on Page 17 and 18 of the earnings release. I'll summarize here the two most significant impacts.

With the adoption of the new recognition and measurement of financial instruments standard, all equities, including those previously classified as AFS, are now required to be mark-to-market through earnings each quarter. And as a result, in the first quarter, we recognized $250 million of unrealized gains on equity securities. This accounting standard will increase volatility. And while the impact this quarter was positive, in future quarters the impact could be negative or positive.

The second one is the adoption of a new revenue-recognition standard, which didn't significantly impact our bottom-line results, but it does change where some of the revenue and expense items are reported. The most meaningful change for us is card fees. In the first quarter, card fees were reduced by $43 million due to card payment network charges, which were previously reported in outside data processing expense, now being netted against related interchange and network fees. Turning to loans on Page 6.

Average loans declined $798 million from the fourth quarter with commercial loan growth of $1.8 billion more than offset by a $2.6 billion decline in consumer loans. The decline in loan balances was not related to any actions we took in connection with the consent order, but was driven by opportunistic or strategic loan sales, seasonality, and continued declines in certain portfolios that we've been reducing for some time, including auto, Pick-a-Pay mortgage, and junior lien mortgage loans. I'll summarize the specific drivers of period-end loan declines starting on Page 7, but let me first point out that average loan yields increased to 4.5% in the first quarter, the highest yield since the fourth quarter of 2012. Commercial loans were relatively flat compared with fourth quarter, with C&I loans up $1.6 billion, offset by continued declines in commercial real estate due to continued credit discipline in the competitive, highly liquid financing market as well as ongoing paydowns on existing and acquired loans.

Consumer loans declined $9.5 billion from the fourth quarter. First mortgage loans were down $1.4 billion, driven by sales of $1.6 billion in Pick-a-Pay PCI loans. The sales were consistent with our ongoing evaluation of nonstrategic portfolios and were similar to the decision to sell part of the Pick-a-Pay portfolio in the second quarter of last year. We continue to have the growth in high-quality and nonconforming loans, which were up $3.2 billion from the fourth quarter.

Junior lien mortgage loans continued to decline as paydowns more than offset new originations. Credit card loans declined $1.9 billion from the fourth quarter from seasonality, consistent with the decline we had in the first quarter of '17. The balances increased $1.4 billion from the first quarter of '17 due to higher purchase volume and 11% growth in new accounts, reflecting higher bonus offers and a 55% increase in digital channel acquisitions. Forty-three percent of new credit card accounts in the first quarter were originated through digital channels.

Our new credit cards have higher balances, 31% higher than a year ago. We expect credit card balances to grow as we continue to focus on digital channels and customer engagement. Auto loans were down $3.8 billion from the fourth quarter and included the transfer of $1.6 billion of loans to held for sale as a result of the pending sale of certain assets of Reliable Financial Services, the Puerto Rican subsidiary of our auto business. This sale is expected to close in the second quarter.

After declining for five consecutive quarters, auto originations have stabilized the last two quarters. With the completion of the centralization of our collection and funding activities, which Tim highlighted earlier, we're now positioned to start increase originations over time and currently expect the portfolio balances to begin growing in early 2019. Average deposits declined $14.4 billion from the fourth quarter, driven by lower commercial deposits. Average consumer and small business banking deposits declined $2.1 billion, as higher community bank deposits were more than offset by lower deposits in wealth and investment management, reflecting movement into other investments.

Our average deposit cost increased 6 basis points from the fourth quarter and was up 17 basis points from a year ago versus a 75-basis-point change in the Fed funds rate. The increase in our average deposit cost was driven by increases in commercial and wealth -- wealth and investment management deposit rates, while rates paid on consumer and small business banking deposits have remained stable. Since the increase in interest rates began at the end of 2015, betas of more price-sensitive commercial deposits have been relatively consistent with prior interest rate cycles, and we expect this trend to continue. It's important to note that our commercial deposits include a high percentage from financial institutions, which drive our deposit betas higher, as most of these deposits have betas of almost 100%.

The response rate in wealth and investment management has increased over the past couple of quarters but is still somewhat below historical trends. Although we expect it to increase over time. While other consumer and small business banking deposit pricing has not yet responded to rate movements, we expect deposit betas in that category will start to increase. However, the timing of the increase is difficult to predict.

Net interest income in the first quarter declined $75 million from the fourth quarter. The drivers of this reduction included an approximately $160 million decline from two fewer days in the quarter, $148 million from hedge-ineffectiveness accounting, and $144 million in lower swap-related income related to the received fixed-loan-swap position that we finished unwinding early in the first quarter. These declines were partially offset by the net repricing benefit of higher interest rates. Our NIM was stable at 2.84% as the impact of hedge and effectiveness accounting and lower swap income was offset by the repricing benefit of higher rates.

I also wanted to update that impacts from the tax act reduced our NIM by 4 basis points in both the fourth quarter, from a one-time adjustment related to leverage leases, and in the first quarter, primarily from a decline in tax equivalent yield on municipal bonds. We expect the reduction in tax-equivalent yield that we reported this quarter to remain at approximately the same level throughout the rest of the year. And while it should not impact linked-quarter trends, it would reduce year-over-year trends by approximately 4 basis points. We highlighted on the call last quarter that we had started to unwind our receive fixed commercial loan swaps, which provided a hedge against lower rates, and we completed that unwind in the first quarter.

The cost of unwinding the swaps, which was approximately $1 billion, will be amortized through C&I interest income over the remaining life of the original contracts, which is approximately three years on average. It's important to note that during the extended period of low interest rates, since the swaps were are entered into, they generated incremental net income of approximately $3 billion. While the elimination of these swaps will reduce interest income in '18, it has increased our asset sensitivity to be slightly above the middle of our previously provided guidance of 5 to 15 basis points for a 100-basis-point parallel shift in the yield curve, and is expected to improve interest income in future periods as interest rates increase. From an interest rate risk-management standpoint, we're fairly well-balanced and we will generally perform better in both higher and steeper interest rate environments.

We have much larger repricing exposure for both assets and liabilities at the front end of the curve, and our earning simulations are particularly dependent on deposit rate betas given the scale of that funding source. While we have significantly less assets and liabilities with repricing exposure at the long end of the curve, our net asset sensitivity to long-term rates is a meaningful part of our overall asset sensitivity profile. This sensitivity reflects both the reinvestment and premium amortization that occurs in our long-term debt securities and loan portfolios. Noninterest income declined $41 million for the fourth quarter.

While the dollar decline was minimal, I want to spend some time describing the different drivers. Starting with deposit service charges, the $73 million decline from fourth quarter was driven largely by the impact of customer-friendly initiatives including the full -- the first full-quarter impact of Overdraft Rewind. Card fees declined $88 million from the fourth quarter. The new revenue-recognition standard reduced these fees by $43 million.

The rest of the decline was driven by seasonality. Mortgage banking results were in line with the fourth quarter. Servicing income increased to $206 million, driven by higher net MSR valuation gains, lower unreimbursed servicing costs, and lower payoffs. Residential mortgage origination revenue declined $200 million from the seasonal declines in originations, with volumes down $10 billion from the fourth quarter.

We expect originations to increase in the second quarter, reflecting seasonality in the purchase market. The production margin in the first quarter was 94 basis points, down from 125 basis points in the fourth quarter. Approximately two-thirds of the margin decline was driven by market competition and the remaining one-third was driven by a higher percentage of correspondent originations in the first quarter, which is significantly lower margins but also lower cost. Given current market pricing trends, we would expect our production margin to continue to decline into the second quarter.

The $109 million decline in insurance fees was due to the sale of Wells Fargo Insurance Services in November. Finally, other income was up $44 million. The first quarter included a total of $845 million of gains from the sale of Pick-a-Pay PCI loan portfolios and Wells Fargo Shareowner Services in the fourth quarter included an $848 million gain on the sale of Wells Fargo Insurance Services. Turning to expenses on Page 12, expenses declined $2.6 billion from the fourth quarter, largely driven by $2.9 billion of lower operating losses.

On Page 13, I'll explain the drivers in more detail. The $594 million increase from the fourth quarter in compensation and benefits expense reflected a $781 million of seasonally higher personnel expenses in line with the seasonal increase last year. These seasonally higher personnel expenses will decline in the second quarter, but salary expense is expected to grow, reflecting increases which became effective late in the first quarter. Revenue-related expenses declined $233 million from lower commissions and incentive compensation, primarily in wholesale banking and home lending.

Third-party services were down $213 million, primarily from lower project-related spend, which is typically higher in the fourth quarter and from lower legal expenses. The $2.6 billion decline in running the business nondiscretionary at that category reflected lower operating losses. On Page 14, we show the drivers of the $450 million year-to-year increase in expenses. Compensation and benefits expense increased $143 million, primarily due to salary increases and higher employee benefits expense, partially offset by the sale of Wells Fargo Insurance Services, which drove FTE reductions in wholesale banking.

Our total FTE were down 3% from a year ago and also reflected lower FTE in community banking and consumer lending. The increase in expenses was also driven by a $386 million increase in higher operating losses from an increase in litigation accruals. On Page 15, we highlight the expected full-year 2018 total expense range, which has not changed since we provided it last quarter. The range of $53.5 billion to $54.5 billion includes approximately $600 million of typical operating losses and excludes any outside litigation and remediation accruals and penalties.

We will provide a dollar range for 2019 expenses at our Investor Day in May. Last quarter on our earnings call, we said that we expected to achieve a quarterly efficiency ratio with a 59 handle by the end of 2018. However, that expectation was prior to the issuance of the consent order. The expected decline in revenue from the balance sheet actions needed to comply with the consent order's asset cap will likely result in our efficiency ratio remaining above 59% throughout this year.

However, we're still on track to achieve our targeted $4 billion of expense reductions by the end of 2019. As a reminder, this does not include the completion of core deposit intangible amortization expense at the end of this year, which will amount to $769 million in 2018. It also doesn't include the completion of the FDIC special assessment, which we expect should happen by the end of this year. Finally, it doesn't include expense savings due to business divestitures, which we highlighted on Page [Inaudible].

We provided a similar page last quarter, which we've updated to improve Wells Fargo Shareowner Services in the first quarter. Turning to our segments, starting on Page 17. Community banking earned $2.7 billion in the first quarter. The majority of the benefit from the tax act was included in community banking results in the fourth quarter, which was the primary reason for the linked-quarter decline in earnings.

On Page 18, we provided our community banking metrics. The primary consumer checking customer annual attrition rate was at the lowest level in five years, and we've now had modest year-over-year growth in primary consumer checking customers for two consecutive quarters. On Page 19, we highlight strong growth in credit and debit card purchase volume, both up 8% from a year ago. As Tim highlighted, customer loyalty survey scores reached their highest level since August of 2016, and overall satisfaction with the most recent visit -- survey visit overall satisfaction with the most recent visit -- survey scores continue to improve.

Our team members have made great progress by focusing on customer service, and providing exceptional service remains a priority. We know that exceptional customer service leads positive outcomes and we continue to reinforce that within our branches. Turning to Page 20. Wholesale banking earned $2.9 billion in the first quarter, lower taxes drove both linked-quarter and year-over-year increases in net income.

Wealth and investment management earned $714 million in the first quarter. And similar to wholesale banking, the lower tax rate drove the growth in that. Turning to Page 22. Our credit performance remained strong in the first quarter and our loss rate was 32 basis points of average loans.

For the second consecutive quarter, all of our commercial and consumer real estate loan portfolios were in a net recovery position, including our residential junior lien portfolio. Nonperforming assets have declined for eight consecutive quarters and were less than 1% of total loans for the third consecutive quarter. As I highlighted earlier, we had $550 million of reserve release in the first quarter with approximately $400 million, driven by a significant improvement in our outlook for 2017 hurricane-related losses. As you may recall, in the third quarter of last year, we increased reserve coverage by $450 million for potential hurricane-related losses based on an initial review of our portfolio.

The release this quarter also reflected continued improvement in residential real estate and lower loan balances. Turning to Page 23, our estimated common equity Tier 1 ratio fully phased-in remained flat at 12%, still well above our target of 10%. Capital generation from earnings was more than offset by approximately 20 basis points of higher unrealized losses in OCI from higher interest rates and approximately 35 basis points of capital return to common shareholders. Risk-weighted assets were modestly lower than fourth quarter.

Given we're well above our internal target, we remain focused on returning more capital to shareholders and returned a record $4 billion through common stock dividends and net share repurchases in the first quarter, up 30% from a year ago. As a reminder, our share issuance in the first quarter is typically higher, reflecting annual issuances for benefit plans. Period-end common shares outstanding declined by 123 million shares, or 2% from a year ago. In summary, our preliminary results in the first quarter continued to reflect strong asset quality, liquidity, and capital, and we remain on track to achieve our target of $4 billion in expense saves by the end of 2019.

While we continue to have some near-term challenges, we look forward to sharing more information regarding our financial outlook and the transformational changes we're making throughout Wells Fargo at Investor Day next month. And we'll now take your questions.

Questions and Answers:

Operator

[Operator instructions] Our first question will come from the line of Ken Usdin with Jefferies. Please go ahead.

Ken Usdin -- Jefferies & Company -- Managing Director

Thanks a lot, good morning.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Good morning, Ken.

Ken Usdin -- Jefferies & Company -- Managing Director

Good morning, John, Tim. I wanted to ask you guys to talk a little bit more about the outlook for net interest income and specifically, there's a lot of moving parts here with the asset cap impact. You mentioned it's supposed to increase from here, but then there's the benefit to come from the swap roll-off over time and the NII sensitivity improving. So can you help us just to understand like do you have an expectation you can grow NII and what will drive that? Will it be rate more than volume at this point?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

I'd say the -- you mentioned the big drivers, the swap roll-off probably will be a negative in 2018 because we're stepping down from the higher fixed rate to what currently is a lower floating rate. The expectation is that if that floating rate moves up through where we're previously capped out on receiving fixed. So that's probably more of a 2019 benefit than a 2018 benefit. With respect to -- the biggest driver, obviously, will be the growth in loans and deposits.

And related to that, what happens with deposit pricing, particularly among retail and small business deposits, will be a big driver. We've been -- we, the industry, have been outperforming previous expectations in this early part of the normalization of short-term rates. And to the extent that there's a meaningful catch-up, which I think people -- because of fair expectation, that will actually probably be a negative adjustment while we go through that until we figure out what the stable beta is for those types of deposits. So I would say those are probably the big drivers.

At the longer end of the curve, we're continually reinvesting what's coming through an amortization and prepayments from a mortgage securities portfolio. And if long range remain in the, call it, sub-280 range, then that won't be much of a driver. If they move up appreciably as the short end comes up, then there's an opportunity to earn more there as well. And one important point that I'd make that I don't think is really well-appreciated, is that a lot of what's been happening on the asset side of our books as we run down some higher-yielding assets on purpose, is that there's an increase in overall credit quality that's coming with a lower spread component.

So even though I mentioned that our loan portfolio has the highest coupon that it's had, with the highest rate that it's had since 2012, that's happening at the same time that the credit quality profile is improving. So it's not quite apples-to-apples when we're thinking about one year's assets versus the next.

Timothy J. Sloan -- Chief Executive Officer and President

And I will just reinforce a couple of themes that John mentioned, that the asset cap really isn't impacting our ability to grow loans. I mean, our folks are out there facing off with our customers every day across the entire platform, and so I don't think we would have an impact from the asset cap on loan growth. Where you'd see the impact from the asset cap on deposits is primarily what you've seen in the first quarter, at least for 2018, as it relates to some of the deposit relationships that we have in the financial institutions group, corporate and the like. Those tend to be higher cost deposits, and as we've talked about generally have higher betas.

Ken Usdin -- Jefferies & Company -- Managing Director

Yes. Good point. And my just -- follow-up would just be then on asset cap-related stuff to that point, Tim. John, how would that traject from here? Like you said you only got a little bit of that impact, does it get to a run rate quickly just from the actions you've already taken? Or is it just going to be kind of a bleed in as we go along?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes. It's what -- it depends on the organic rate of growth and underlying customer deposits and loans because the faster they grow, the more headroom it would create by taking out some of these big deposits, as Tim described. And so I guess if I were modeling it, I would bleed it in, but we're still -- we still think 300 to 400 of NII is the right number it was negligible in the first quarter because of just the seasonal roll-down in the size of the balance sheet, and so it's more of a second half of the year realization.

Ken Usdin -- Jefferies & Company -- Managing Director

OK. Understood. Thanks, guys.

Timothy J. Sloan -- Chief Executive Officer and President

Thank you.

Operator

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

Timothy J. Sloan -- Chief Executive Officer and President

Good morning, John.

John McDonald -- Sanford Bernstein -- Analyst

Hi, good morning. Just wanted to clarify what you can and can't do in terms of the -- I know you can't say too much about the pending legal matter, but in the -- did the 1Q results include any provisioning for an eventual settlement with CFPB and OCC? Are you able to put something in there? And you're saying that you might have to refine it from here?

Timothy J. Sloan -- Chief Executive Officer and President

John, it's a really fair question. And given the status of our discussions, all we can really say is what we said in the earnings release and then what I said in my prepared remarks. So I, again, appreciate the question, but that's as far as we'll be able to go today.

John McDonald -- Sanford Bernstein -- Analyst

OK. So just another somewhat related for you Tim. With a lot of negative headlines in the recent months, could you discuss how the team members and customers are dealing with the challenges this year? And specifically kind of how your employee and customer attrition, how has that been going in wealth management and the commercial businesses? We hear a lot of things outside the company. What are you seeing in terms of reaction to headlines and all the challenges you have?

Timothy J. Sloan -- Chief Executive Officer and President

Yes. John, it's a really good question. And as you and I have talked about, and we've talked about in these calls, it's really been -- when we think about rebuilding trust, first and foremost, our most important asset at this company is our people. And so we've made fundamental changes in how folks are compensated, making sure that more of our team members, now all of them have the ability to be Wells Fargo shareholders, which I think is an important connection between what we do for our customers every day and what we're doing for our shareholders.

We've made changes in how folks are -- how our incentive plans work. We've made changes in leadership and business practices. And the result has been a continued improvement in attrition or turnover. As I mentioned, it was about 30% better than it was in the fourth quarter of '14 -- or '16, excuse me.

I've heard the same anecdotal stories that you have about folks from some of our businesses leaving en masse. I don't know what company they're talking about, because it is just not happening. Not only is team-member turnover down across all of our business, but in particular, we're able to attract really high-quality folks in entry-level positions but at senior leadership positions in the company. In particular, when we look at the Wells Fargo Advisors that you mentioned, just to -- because I hear about that just a little bit, that the FA population that could be leaving to go to other competitors, that's down 24% year over year.

And in fact, our experience in FA recruiting is up year over year. And the productivity from our existing FAs is up about 7% year over year. So again, I hear the same anecdotal comments all the time, but it's not impacting our business to serve -- our ability to serve our customers and we just don't see it in the numbers.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

The other part of your question is around customer activity. And I would say where we either see it, hear about it, talk about it from customers themselves or from team members is around our most politically exposed types of customer groups. So the [Inaudible] types of business, there's more competition and more to talk about. We competed against other firms when they were going through perhaps analogous reputational cycles and now others are working their hardest to do the same with us, and we have to compete a little bit harder.

John McDonald -- Sanford Bernstein -- Analyst

OK. And one more follow-up on the regulatory side. While you're doing the work to satisfy the Fed's consent order, is there any opportunity to be interactive with the regulator? Can you get a sense along the way whether you're doing the things they want you to be doing? Or do you have to kind of wait to the end to find out whether you're kind of on track with -- what their expectations are and yours are aligned?

Timothy J. Sloan -- Chief Executive Officer and President

John, it's a good question. I would say that we have a very active engagement model with all of our regulators. I think that's very important. And so specifically, if you're referring to the consent order with the Fed, we handed in our two plans as they asked us to do and as we said we would do.

And we're having a lot of discussion about those plans, which is really good. It's good to be interactive because we both have the same goals. We want to improve compliance, and we want to improve operational risk at the company. So it's not a situation where you hand in your work and then you wait patiently at your desk for somebody to come back with the results.

We've also -- and here's another example of bringing on high-quality leaders, Sarah Dahlgren, who had been in charge of supervision at the New York Fed, joined us this quarter, and she's responsible for our engagement with our regulators and is doing a terrific job.

John McDonald -- Sanford Bernstein -- Analyst

OK. Thank you.

Timothy J. Sloan -- Chief Executive Officer and President

Thank you, John.

Operator

Our next question will come from the line of Erika Najarian with Bank of America.

Erika Najarian -- Bank of America Merrill Lynch -- Managing Director

I just wanted to follow up on Ken's question on your net interest income outlook. So as I think about, John, what you mentioned about the 59% efficiency ratio by year-end 2018 being pushed into 2019, does that mean that net interest income will not grow for the rest of the year?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Well, it depends on the drivers that I mentioned. When we had previously been asked the question and responded to could we see a 59% handle in 2018, it was before that last $300 million or $400 million worth of net interest income that we would attribute to actions that we expect that we would have to take to comply with the asset cap. And absent that $300 million to $400 million -- that's the NIAD number, not a revenue number, but it's interest income -- it's easy to do the math. That would be the drivers.

So as I said to Ken, a variety of things can happen, loan growth, deposit growth, deposit pricing, shape of the curve, Fed moves, etc. They're all going to have an impact on where net interest income is. But based on the forecast that we've been operating with, that $300 million to $400 million was a difference-maker between a calculated estimate of an efficiency ratio with a 59% handle at the end of the year versus one that's above that.

Erika Najarian -- Bank of America Merrill Lynch -- Managing Director

OK. My follow-up question is in terms of -- I heard you loud and clear in terms of your commitment to return more capital to shareholders. And the question I get a lot from your shareholders is, with the overhang of the outstanding fines, does that, at all, impact how you're thinking about your near-term buyback plans or dividends?

Timothy J. Sloan -- Chief Executive Officer and President

No, it doesn't. No. And I'm glad you're hearing the same things that we are, which is good. No, I mean, Erika, our plans, and John and I have reiterated this in a number of occasions over the last few months, is that we have an excess amount of capital to run and grow Wells Fargo.

And our plan is to reduce that excess over the next two to three years, and that's where we're going.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

And the magnitude of the operating losses that we've recently been experiencing, while it's very different than what we had been experiencing previously, is provided for even in the base case capital plan because of industry results over the years. So while we would rather not be experiencing it, it's not outsized.

Erika Najarian -- Bank of America Merrill Lynch -- Managing Director

And just a follow-up on all this, and clearly, this also comes into the conversations with your shareholders. But can you give us a little bit more insight on and as much as you can on the qualitative process? So clearly, there has been some debate about whether or not your consent order will impact a non-objection or objection on a qualitative basis. And I'm wondering if the qualitative process is really as broad as the market fears it is. Or is the qualitative process really more grading Wells Fargo's process and grading your data? Any insight here would be helpful.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes. It's -- the qualitative process is far-reaching. It always has been. Everybody gets a little bit of feedback every year on how they can be better.

We're no different. And every year, we strive to be better in the following year. And this year is no different. So it's a horizontal process.

There is every measure of the inputs into a capital plan that is subject to review, consideration, comparison and grading. And that's the basis on which we've always been compared and we expect to be compared this year. And the question, explicit or implicit, as to what that means this year given other things that are going on is one that makes us work that much harder to make sure that we've submitted a very sound plan based on a very sound process, and that's where we think we are.

Erika Najarian -- Bank of America Merrill Lynch -- Managing Director

Thank you.

Operator

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

John Pancari -- Evercore ISI -- Analyst

I wanted to just ask a couple of things on the expense side. For 2019, are you still confident that you could see a decline in overall operating expenses in '19 versus '18? And then also, on the efficiency ratio side, do you expect that you can see a decline in the efficiency ratio for the full year '19 versus '18?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes.

Timothy J. Sloan -- Chief Executive Officer and President

Double yes. And John, again, we'll provide a hard dollar number or a range, like we did for this year, at Investor Day. But assume that that's what you're going to hear.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

That's a great question. Do you have any more like that?

John Pancari -- Evercore ISI -- Analyst

I know. Kind of forgive me, but I guess what I'm getting at is the 55%-to-59% range that you had provided previously and before some of these issues, how long do you think it takes you to get toward that midpoint again, barring new issues on the regulatory front coming up?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

To get to the midpoint is a little bit more complicated. I mean, we'll set out our target at Investor Day for the next couple of years. Unambiguously, that's the direction that we're heading. There's the -- what we're doing on dollars of expense front, which will be -- we've been explicit about for this year, will be explicit about for next year, and we'll talk about all of the drivers that are in place to cause that to happen.

And then separately, there's what's happening with revenue, which is going to reflect all the things that we just talked about in terms of net interest income and then a range of drivers in noninterest income, more of which we'll talk about at Investor Day. But I sort of think about it as a distribution of potential outcomes based on what's happening with rates and interest income drivers, what's happening in all of our various businesses around noninterest income and then what we're doing about total expense to deliver it. So we'll try and be as transparent and helpful as we can at Investor Day. But overall, this notion of getting back to where we've historically operated or at some point through that, given all the possibilities in -- for automation, etc., that exist today that weren't as available a few years ago, that's our goal.

Timothy J. Sloan -- Chief Executive Officer and President

And let me just reemphasize a point that John just made, and that's getting through that range. I mean, our goal here is not to achieve the $4 billion in run-rate savings that you'll see in 2020 and then stop. Our goal is to have Wells Fargo be the most efficient company that we can be. And I think that -- I don't think I know that means continuing investments but also continuing to improve the efficiency of the company to get through that range over the next few years.

John Pancari -- Evercore ISI -- Analyst

Got it. OK. And then on the capital side, regarding the TLAC proposal from the Fed, it looks like it creates, I guess, ballpark $25 billion to $30 billion in additional debt that can ultimately roll off, which can be a nice positive for you. So could you just give us your thoughts on that and how you look at that?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes. I don't know that I would sign up for $25-plus billion that could roll off. I mean, we've got excess TLAC today just based on what's happened to our RWA. And we will continue to optimize our debt stack to meet the minimum requirement -- at least the minimum requirement based on where we are and where we're going with RWA.

But I didn't process a big step change positive. And incidentally, we're just probably even more focused on the stress capital buffer feedback this week and what that means for the right side of our balance sheet as it relates to proposed rule-makings.

John Pancari -- Evercore ISI -- Analyst

OK. All right. Thank you.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

You bet. Thank you.

Operator

Your next question comes from the line of Matt O'Connor with Deutsche Bank. Please go ahead.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Good morning, Matt.

Matthew O'Connor -- Deutsche Bank -- Managing Director

Good morning. Where do you guys stand in terms of de-risking the loan book and some of the business pruning that you've done? You talked about auto growing next year and that you're largely done there. But just in aggregate, are you kind of through the process of reviewing the businesses and loan portfolios for [Inaudible]?

Timothy J. Sloan -- Chief Executive Officer and President

Matt, good question. In terms of the loan portfolio, I don't think there's any other significant de-risking that we need to do. The auto portfolio continues to decline not because there's really de-risking going on. It's just we just have more transformation that's going on in the business.

And we think that loan portfolio -- or that business will probably start growing again first part of next year. It seems reasonable based upon what we're seeing. In fact, we saw a -- other than the reclassification of the Reliable portfolio, we saw a slight improvement in the decline. But across the rest of the portfolio, I think you'll continue to see a run-off of the legacy home equity book, which is performing quite well, but it's pre-2009-type originations.

But I wouldn't describe that as kind of running off riskier parts of the business. That's just a normal amortization. And similarly, in the legacy mortgage book, the Pick-a-Pay portfolio, the sale that we did this quarter, I wouldn't describe as a derisking sale. I would describe it more as an opportunistic sale because of the dearth of those types of assets in the market.

And there was a really attractive bid for it, and so we moved on. As it relates to the other businesses, and John may want to chime in, too, but as it relates to other businesses, we're continuing to look through the entire company to make sure that all the businesses that we've got are performing as well as they can. And if it means, over time, that we need to look at other businesses like Insurance or Shareowner Service that could be worth more to others than they are worth to our shareholders, we'll go ahead and move forward. But I think that's going to be more of a continuing process that will take place over the next few years as opposed to one we complete by June or July or the end of the year.

Matthew O'Connor -- Deutsche Bank -- Managing Director

OK, that's helpful. And then just separately, your stock price continues to be under pressure. And obviously, some of it is because of the consent order and the regulatory concerns. Some of it is fundamental.

But just from your perspective, like is there an increase in urgency in terms of whether trying to get more cost saves sooner or push a little bit more on the revenue side, push a little bit more on the buybacks? And again, I realize like market movements, they are hard to control and influence, but -- and some of the stuff you can't control, like on the regulatory side, but at the same time, it has all our attention. I'm sure it has your attention. I'm just wondering if there's a little bit more that you can do a little bit faster.

Timothy J. Sloan -- Chief Executive Officer and President

Yes, a fair question. I mean, we're clearly focused on returning to our shareholders, and our current stock price is one measure of that. One way to think about our focus is that our focus is on the long term. As you point out, it's not on the day-to-day movement of the price.

But clearly, we have work to do. We've been very clear about the fact that we have work to do. I don't know and I don't believe we can increase the sense of urgency at the company. Folks have been sprinting now for about the last 1 1/2 years, and we're going continue to sprint for probably the next 10 years.

So I don't know if we can move a whole lot faster, but Matt, we certainly appreciate the sense of urgency and not only from our shareholders but all of our stakeholders, which is why we're transforming the company.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

I'd point out that we're all very focused on continuing to deliver the type of returns on the equity that we have. By doing that, we create the powder to return capital to shareholders. We're doing that through stock buybacks. We're doing that now in a low 50s context.

So if we continue to deliver ROEs north of 12%, ROTCEs in the close to 15% range, eventually, the market is going to catch up with that.

Matthew O'Connor -- Deutsche Bank -- Managing Director

Yes, I would agree on that last point. And if I could just squeeze in, I'd suggest -- it seems like this year is going to be more of a transition year, maybe even bleeding into next year as you deal with all these issues. I just wonder, as you provide expense guidance for next year, there's still going to be some lumpiness, I would think, in the cost. You're not going to [Inaudible] the cost saves.

So I realize 2020 is far our, but giving us a little visibility into what the cost might look like on a clean basis, what the capital, when you bleed it down, might be helpful as well.

Timothy J. Sloan -- Chief Executive Officer and President

Matt, do you think if we gave you an indication 2020, you'd want 2021?

Matthew O'Connor -- Deutsche Bank -- Managing Director

Well, no. But I think -- it seems like the, I guess, the related costs are going to be elevated this year. The consent order is going to be a drag to earnings into next year. So my guess is next year, on a full-year basis, won't be 100% clean.

And we'll all be wondering how much costs will further abate as these issues are resolved. So [Inaudible] look out for five years, but --

Timothy J. Sloan -- Chief Executive Officer and President

Matt, I was just giving you a hard time. Listen, I absolutely appreciate your question. What you want to see from us, what our shareholders want to see from us is better efficiency and better expense discipline. It's harder to see that this year, because of the pace of the investments we're making, with the $2 billion that we're saving this year.

I think it will be more apparent next year, and it will be even more apparent in 2020 and 2021 and so on. But I understand your point. And candidly, it was your advice, among others, that led us to conclude that we needed to be more specific about this year. So we listen to you.

Matthew O'Connor -- Deutsche Bank -- Managing Director

OK. Thank you for the time.

Operator

Your next question will come from the line of Marlin Mosby with Vining Sparks. Please go ahead.

Timothy J. Sloan -- Chief Executive Officer and President

Hey, Marty

Marty Mosby -- Vining Sparks -- Director

Hey, thanks for taking the question.

Timothy J. Sloan -- Chief Executive Officer and President

Hey, Marty, you did a great job on CNBC this morning. I was watching.

Marty Mosby -- Vining Sparks -- Director

Thanks. Appreciate it. [Inaudible] Question was -- as you look at net interest margin, you've had a hard time getting the actual margin to start improving. This quarter, we actually saw a nice pop in loan yields.

But I know you lost a little bit, and [Inaudible] impact was a little bit in day count. But is this the first time that we aren't going to see those asset yields move up enough to offset and even pace faster than deposit rates and maybe start to see margin expansion from here?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Certainly hope so. It depends what else is happening. So this quarter is the first time that you've seen the residual hedge ineffectiveness accounting item go through margin. That used to be entirely through non-interest income until the adoption of the new standard.

So that was another one of the things that contributed to the margin not reflecting the benefit of the increase at the short end of the curve. And that is a result mostly of a big move up in long rates during the quarter, which gave rise to that accounting outcome. So if we end up in a flatter long rate environment, so you don't have that noise running through and, as you say, day count will be different every quarter, then certainly, it's a possibility. But the big driver, again, is what happens to deposit costs.

As Fed funds or LIBOR or other market rates move up and our assets are pricing up, we've done, as an industry or as a company, done a good job at maintaining lower-cost deposits while those other items, those other benchmarks have moved up. And if that continues to be true, then you should see that.

Marty Mosby -- Vining Sparks -- Director

What was the basis point impact of that ineffectiveness?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

It was $148 million. I'll do the math for you. We'll let you know in terms of basis points.

Marty Mosby -- Vining Sparks -- Director

That's fine. I can do it from there. That's perfect. I can calculate that.

And then, Tim, I wanted to ask you, as you're doing all these transformations and you're moving to what's going to be the new Wells Fargo, what is the kind of overriding change? I mean, is it the change of getting out of maybe some riskier businesses that you're going to actually be now kind of looking at minimizing and now having much more of these core relationships? How would you kind of bring that so we can kind of sink our teeth into this transformation, what you eventually want to see Wells Fargo look like once you come out of it?

Timothy J. Sloan -- Chief Executive Officer and President

Well, Marty, I would really center yourself on our six goals, right, where we've been very clear in each one of those six goals that we want to be the leader in the financial services industry. And we've got work to do in all of them. But that's where I would focus. What the company looks like as we achieve those goals is really going to be a function of who our customers are, what they want, and what the competition looks like.

But I would really focus on those six goals.

Marty Mosby -- Vining Sparks -- Director

Thanks.

Timothy J. Sloan -- Chief Executive Officer and President

You're welcome.

Operator

Your next question --

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Three basis points. [Laughter]

Operator

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

Betsy Graseck -- Morgan Stanley -- Managing Director

Hey, good morning. I just had a couple questions on the reserve release, and I know you mentioned earlier that a lot of that was driven by the improvement in the outlook for hurricane-related losses. Just wanted to see if that cleans that issue up, or is there still more reserve release that could happen based on loan performance from the hurricane side? And then I had a follow-up.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

So on the hurricane side, just for everyone's benefit, at the end of the third quarter, right after the hurricanes impacted Texas, Louisiana, and then Puerto Rico had hit, we granted 90-day payment holidays to our consumer customers in those geographies, so they can focus on getting their lives together and not worrying about making a payment on their loans and becoming -- or becoming delinquent. So there was a ton of uncertainty because we couldn't measure delinquency or default because we had this payment holiday. That came and went. And our customers got back on their scheduled payment plans, and so now we have real performance and a real understanding of home loss, auto loss, insurance claims, current versus delinquent, etc., which gave rise to an understanding that the loss has been negligible as a result of the hurricanes, and that's why now is the right time to take down that portion of the reserve.

I think that that's probably the last time you'll hear us say that a reserve release or build has anything to do with the hurricanes. I think it's pretty much cleared up. It's much more driven now by the size of the loan book, the quality of the loan book and what might be happening in other loan categories. And of course, the most consistent, other than energy, over the last couple of years, which has kind of run its course, really has been the improvement in real estate secured-related portfolios.

It's been sort of the big driver of the margin, I think of improvement in loan quality and the related appropriate amount of allowance.

Betsy Graseck -- Morgan Stanley -- Managing Director

Great. And then you mentioned that -- did you say -- did I hear you say correctly that all of your loan categories are in a net recovery position?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

All of our real estate secured loan category. So commercial real estate, consumer real estate, including second-lien consumer real estate, are all in that recovery right now.

Betsy Graseck -- Morgan Stanley -- Managing Director

So does that drive more reserve release going forward?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes, at the margin. I mean, it probably -- I'd look more to the path of home price appreciation as a driver. I mean, that's going to run its course because we haven't had losses in consumer real estate in a long time. So I don't think that's a big driver, but it has been the driver.

Betsy Graseck -- Morgan Stanley -- Managing Director

Got it. And then just lastly, the outlook with, I know it's in a couple of years, but CECL, and I know there's different folks running parallel starting this year on how reserve is likely to traject over CECL with implementation beginning in, I know, 2020, but next year, CCAR. And I know it's a long way away from now, but next year, CCAR includes CECL tails. So can you just give us your sense as to how you're thinking about dealing with that?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes. So right now, we're focused, first and foremost, on the modeling necessary to understand what CECL looks like in business as usual. And there will be an impact, like there will be for everybody. The required allowance for the loan portfolio will be somewhat bigger than it is today.

I don't think it's a boxcar change, and there's still a refinement to do. But it's a reasonable question in terms of what it means in stressing what -- our own version of stress and what it means to CCAR. And we're hoping that we have a lot of productive dialogue with the regulatory community before next year's CCAR to understand how they're going to be thinking about its pro-cyclicality and other things as we roll into CCAR 2019. But right now, the GAAP business-as-usual adjustment is something that's becoming better understood.

We'll begin to talk more about it with the passage of quarters as it's really, really understood and refined, and it's not going to make for a gigantic change.

Betsy Graseck -- Morgan Stanley -- Managing Director

Right. And it's not impacting your decisioning today on reserve?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

No, not reserving. And importantly, it's not -- we feel we began to think about it in terms of our thoughts about loan structure, loan price. The credit availability does that type of reserving because it can be -- it can influence how we feel about certain types of, specifically, longer-term loans. And those are discussions that we're having but it hasn't driven a big change in our approach to either pricing or availability yet.

Betsy Graseck -- Morgan Stanley -- Managing Director

All right. Thank you.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yup. Thanks, Betsy.

Operator

Your next question comes from the line of Nancy Bush with NAB Research. Please go ahead.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Good morning, Nancy.

Nancy Bush -- NAB Research -- Analyst

Good morning, how are you?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Just fine.

Nancy Bush -- NAB Research -- Analyst

John, a question for you just about the whole interest rate yield curve environment right now because I'm trying to fit this all in with what you've said about your sensitivity, the long rates, etc. I mean, how do you look at the flat yield curve? What do you do if it persists? Can you just sort of address this whole weird rate environment that we seem to be in right now and the panic that seems to be building up around it?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes. Well, so if the curve gets flatter from here because the short end comes up and the long end remains anchored, then we actually -- we do better. We make more and more assets sensitive at the front end of the curve, and we'll make more money as a result of it. We would make even more money if it was a parallel shift and the longer end moved up also.

And I guess one nuance to that is businesses like mortgage will do better on the origination front if longer rates remain at about where they are today versus be in the, move about 3%. There's some question about affordability in some markets, and so originations come down. But the reinvestment activity that we have in our investment portfolio at higher rates is something that we would miss if the long end doesn't move up from where it is today. But very specifically, if it stays put and the short end keeps coming up, we're still improving in terms of our earnings profile as a result of that.

Nancy Bush -- NAB Research -- Analyst

Are you building or thinking anything -- I mean, there's been apparently a slight inversion at the short end of the curve that's sending everybody into panic, and it seems to be some money market-related issue. Can you just talk -- can you just give us a little bit more understanding around that?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Sure. So there's a lot more issuance going on at the front end, both by the government because they're issuing at the short end, and they've got a lot to do because they're going to have even more financing as a result of -- well, depending on what happens with the deficit-related impact of tax reform. But they're in as a big issuer. You've got others in as big CP issuers, but as a result of money market reform, there are fewer takeouts for that to convert it into cash equivalents for retail and others.

And so investors, at that point in the curve, have a little bit more power. So yields are up. Incidentally, that feels like the driver of a piece of the LIBOR-OIS disconnect that I think you're referring to. It's technical.

It's supply driven from issuers at the short end.

Nancy Bush -- NAB Research -- Analyst

OK. But you're not concerned about the environment right now and don't see the flat yield curve as necessarily indicative of anything?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

No. I mean, I think if we didn't have the -- some of the trade-related and other political dynamics that can allow people to imagine that there could be economic problems as a result of that, it's probably true that the longer end of the curve would have drifted up even more than where it is today. It's -- but that's speculative, but that's my take.

Nancy Bush -- NAB Research -- Analyst

All right. Great. Thank you very much.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Saul Martinez with UBS. please go ahead.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Hi, Saul.

Saul Martinez -- UBS Financial Services -- Managing Director

Hi, good morning.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Good morning.

Saul Martinez -- UBS Financial Services -- Managing Director

First, just wanted to clarify a point on your expense guidance for '18. So the $53.5 billion to $54.5 billion, that includes, I guess, $600 million of typical operating losses? In this quarter, you had $668 million. So effectively, any incremental operating losses from here, when I compare your performance to your guidance, we should basically exclude that? I just want to make sure I'm understanding puts and takes around the guidance.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

That's right. Our sort of ambient run rate of operating losses for fraud and bank robberies and things like that is $150 million a quarter. And so in giving that guidance, we've basically accounted for that. And as you pointed out, we've achieved that in the first quarter as a result of litigation-related costs.

Saul Martinez -- UBS Financial Services -- Managing Director

Got it. OK. I guess a broader question. John, you mentioned your stock will take care of itself.

You can continue to do 15% ROTCEs and 12% ROEs and 120 basis points ROAs. And I suspect we'll hear more about this at your Investor Day. But this quarter also did have a lot of noise in it, maybe net-net, a bit more positive than negative. But when we compare you to your peers, you're no longer sort of at the top of your peer group in a number of performance metrics.

And I guess the question is, how important is it to be in the top of your peer group? And is it still something that is feasible? And is it still something that is important? Or do you really need to get past your issues, all the issues that have risen, before that becomes a primary goal or should be a primary goal of the company?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yes. It's one of six primary goals in terms of shareholder value, in particular. And we absolutely expect, especially among GSIB peers because of the capital structure that we all have, that we would be at the high end of the performance range. So the north of the 12 3/8% ROE this quarter and 14 3/4% ROTCE with a 64% efficiency ratio, and we're as clear as we can be that our expenses should be substantially lower, will drive us to appreciably higher returns.

Also, we're carrying 200 basis points of capital above our -- what we think is appropriate for a company with our risk profile. So both of those things, as rectified, should return us to the very high end of the range. And we think that's appropriate given the scope of our business, the risk profile of our business, the scale we have in the businesses that we're in. And those are crystal-clear goals.

Saul Martinez -- UBS Financial Services -- Managing Director

Great. Thanks a lot.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Yep.

Operator

Our final question will come from the line of Gerard Cassidy with RBC. Please go ahead.

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Hi, Gerard.

Timothy J. Sloan -- Chief Executive Officer and President

Hey, Gerard.

Gerard Cassidy -- RBC Capital Markets -- Managing Director

HI, gentlemen, how are you?

Timothy J. Sloan -- Chief Executive Officer and President

Good.

Gerard Cassidy -- RBC Capital Markets -- Managing Director

Tim, can you give us maybe some color? Clearly, we know about the sales practices and the problems that you guys are wrestling with, with these issues. Subsequent to the discovery of your sales practice issues, you discovered some other issues in different lines of businesses. And if I recall, wealth management is now under some sort of investigation. Are you comfortable or are you confident enough to be able to say that you guys have looked in every corner, nook and cranny that you're now -- there shouldn't be any more incremental discoveries of issues that may bring regulators to look harder? Or can you not say that just yet?

Timothy J. Sloan -- Chief Executive Officer and President

Well, we certainly had a thorough look in every nook and cranny in the company, and we're continuing to -- on that process. And I think, Gerard, one of the lessons learned for us, candidly, over the last few years is that we should have been doing a better job of that when we were performing quite well in the prior years, and we're not going to make that mistake again, so we're going to continue to raise the bar on ourselves over time. But in terms of declaring victory and walking ahead, we're not at that spot right now. I think we're going to know that when we look in the rearview mirrors in six to 12 months after that happens.

And we're making a lot of progress. But as I mentioned in my opening remarks, we've got some challenges that we're dealing with right now, including the reason that we described our results today as preliminary, and we take those issues very, very seriously. But having said all that, we've made a tremendous amount of progress in terms of transforming the company. And so I think we're very far along in the journey to answer your question specifically.

But in terms of declaring victory and walking ahead, we're not quite there yet.

Gerard Cassidy -- RBC Capital Markets -- Managing Director

OK. And I apologize if you addressed this. I jumped on the call a bit late. On your Slide 5, where you guys talked about the noninterest income being down in the quarter, you talked about the impact -- the full-quarter impact of the customer-friendly changes, including the Overdraft Rewind product.

Can you give us some more color about what's going on in the consumer deposit fees? And then second, you also talked about the higher earnings credit rate for commercial customers. Was that just interest rate-related, as rates go higher, they get a higher credit? Or was there something else in there?

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

In terms of the second part of your question, that's exactly right. That's just a way to pay commercial customers for their deposits by charging them less for treasury management services. And the first part of your question is really -- it's a very big one, right? Part of the reason that our retail deposit franchise is as large as it is and as low-cost as it is, is because customers have a great experience with the whole range of capabilities and the whole experience. Part of that is what they pay for monthly checking, if anything, and most of them don't pay anything.

And part of it is what happens when things go wrong. And so we've made great strides. Overdraft Rewind, for those of you who don't remember, is the capability where, if somebody has direct deposit with us and they would overdraft on any given night, but on the next day, their direct deposit hits and they coverage it, and we don't charge them. We don't process what happened the night before as an overdraft.

Similarly, we've been sending out tens of millions of alerts to people to help to remind them before they would overdraft that they've got low balance, so they can handle their affairs appropriately and not get charged. So we lose revenue as a result of that. We lose overdraft fees. We -- it costs us hundreds of millions of dollars.

But as a result, people are happy with their relationship with Wells Fargo. We end up with the larger -- the large annual cost deposit base. I think of it as inseparable in terms of the value of deposits versus what we're missing in overdraft fees. We're not going to grow our way to greatness as the company that we are by charging people more for overdrafts.

And if we can maintain and grow those relationships by helping them avoid them when they can, then that's probably better for us both in the long term.

Timothy J. Sloan -- Chief Executive Officer and President

And that's a really important point, that we are listening to our customers. And one of the themes that we hear from them is -- and that is help us manage our finances better by helping us give them better information about how to manage their finances. And that's just fundamental to the long-term investments we've made in terms of, specifically, the two improvements that John mentioned for our consumer deposit customers. And in short run, it has an impact on revenues.

On the long run, what we're seeing is we're seeing a growth in deposits, a growth in primary checking accounts and better customer service and loyalty scores. And I think that's a real indication of the progress that we're making across the entire platform. And again, it just reinforces how we're thinking about the long-term sustainability and progress of the company. So I want to thank you all for your questions.

Again, I know it was a very busy day. I thought the questions were very good, and we are going to continue to listen to all the advice that you provide to us. And for our team members that we're mentioning today, I want to thank you for all of your hard work and effort as you continue to transform Wells Fargo. Have a good rest of your day.

Operator

[Operator signoff]

Duration: 77 minutes

Call Participants:

John Campbell -- Director, Investor Relations

Timothy J. Sloan -- Chief Executive Officer and President

John R. Shrewsberry -- Senior Executive Vice President and Chief Financial Officer

Ken Usdin -- Jefferies & Company -- Managing Director

John McDonald -- Sanford Bernstein -- Analyst

Erika Najarian -- Bank of America Merrill Lynch -- Managing Director

John Pancari -- Evercore ISI -- Analyst

Matthew O'Connor -- Deutsche Bank -- Managing Director

Marty Mosby -- Vining Sparks -- Director

Betsy Graseck -- Morgan Stanley -- Managing Director

Nancy Bush -- NAB Research -- Analyst

Saul Martinez -- UBS Financial Services -- Managing Director

Gerard Cassidy -- RBC Capital Markets -- Managing Director

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