Wells Fargo & Company (NYSE: WFC) Q4 2021 earnings call dated Jan. 14, 2022
Corporate Participants:
John M. Campbell — Director of Investor Relations
Charles W. Scharf — Chief Executive Officer and President
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Analysts:
John McDonald — Autonomous Research — Analyst
Ken Usdin — Jefferies — Analyst
Betsy Graseck — Morgan Stanley — Analyst
Erika Najarian — UBS — Analyst
Matt O’Connor — Deutsche Bank — Analyst
Scott Siefers — Piper Sandler & Co. — Analyst
John Pancari — Evercore ISI — Analyst
David Long — Raymond James Financial, Inc. — Analyst
Steven Chubak — Wolfe Research LLC — Analyst
Gerard Cassidy — RBC Capital Markets LLC — Analyst
Presentation:
Operator
[Starts Abruptly] [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 M. Campbell — Director of Investor Relations
Thank you, Brad. Good morning, everyone. Thank you for joining our call today where our CEO, Charlie Scharf; and our CFO, Mike Santomassimo will discuss fourth quarter results and answer your questions. This call is being recorded.
Before we get started, I would like to remind you that our fourth quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com. I’d also like to caution you that we may make forward-looking statements during today’s call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today containing our earnings materials.
Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website.
I will now turn the call over to Charlie.
Charles W. Scharf — Chief Executive Officer and President
Thanks very much, John, and good morning, everyone. I’ll make some brief comments about our 2021 results, the operating environment, and update you on our priorities. I’ll then turn the call over to Mike to review fourth quarter results and some of our expectations for 2022 before we take your questions.
Let me start with some 2021 highlights. We earned $21.5 billion, or $4.95 per common share, in 2021. Expenses declined 7% from a year ago, reflecting lower operating losses and progress on our efficiency initiatives. Revenue increased 6% as we benefited from strong gains from equity securities and gain from sales of our student lending, asset management, and corporate trust businesses. We also have broad-based revenue growth across our businesses, including home lending, consumer and small business banking, credit card, auto, commercial real estate, banking, and wealth and investment management. Credit quality improved significantly as the economy improved and our customers had high levels of liquidity. Our loan chargeoff ratio declined from 35 basis points in 2020 to 18 basis points in 2021, and our allowance for credit losses declined by $5.7 billion.
Deposits increased $78 billion, or 6%, and loans grew 1% with declines in the first half of the year offset by a 5% increase in the second half. We also returned a significant amount of capital to our shareholders, including increasing our common stock dividend from $0.10 per share to $0.20 per share in the third quarter, and we repurchased $14.5 billion of common stock predominantly in the second half of the year after the return to the SCB framework. Our results in the fourth quarter also showed continued broad-based momentum. We earned $5.8 billion, or $1.38 per common share. We grew loans by $32.6 billion or 4% and deposits by $12.1 billion, or 1% from the third quarter. Expenses declined 1% from the third quarter and 11% from a year ago, and we generated positive operating leverage over both periods. Most importantly, we continued to prioritize our risk and control work.
And the strong economy continues to positively impact our customers and our results. Consumers continue to have more liquidity than prior to the pandemic, though we do see this declining as the median balances today are 27% higher than pre-pandemic levels but are down 10% from the third quarter consumer credit card spend also continued to be strong, up 28% from the fourth quarter 2020 and up 27% from the fourth quarter 2019. Holiday sales were strong with spending up 31% in the three weeks leading up to Thanksgiving, and that momentum continued post-Thanksgiving. All spending categories were up in the fourth quarter compared to a year ago, with the largest increases in travel, fuel, entertainment and dining.
Weekly debit card spend during the fourth quarter was up every week compared to both 2019 and 2020. This increase was driven by higher transactions but also higher spend per transaction reflecting inflationary impacts and increased spending in higher cost categories such as travel. We are watching the impact from Omicron on consumer spending, and while there is some softening in restaurant travel and entertainment in recent weeks, overall spending remained strong in the first week of January with credit card up 26% and debit card up 29% versus the same week in 2020. And we saw strong loan growth from the third quarter across our commercial businesses, including commercial real estate, asset-based lending, middle-market banking, and our markets and banking businesses.
So I’ve been at the company for a little over two years now, and I thought I’d spend a few minutes giving you my thoughts on our progress. Overall, I feel great about what we’ve accomplished and continue to feel energized about the opportunities in front of us. I think about this along several dimensions: talent, leadership, and culture; risk, regulatory, and control; financial and strategic progress; and our work on ESG and broader reputational issues. I’ve spoken of the substantial talent changes we’ve made, but just to remind you, 11 of 18 members are new to the Operating Committee, and two are new to their job since I arrived. Additionally, well over half of the senior-most people at our company, meaning those who are one level below the Operating Committee are new to their roles, and a significant proportion of them were hired from outside the company.
This is a dramatic change in our leadership, and with it, we’ve changed how we run the company, how we prioritize our work, and how we view our responsibility broadly. We began a process two years ago to change the culture and priorities of the company and the most significant part of this prioritization was the building and implementation of an effective risk and control framework across the company. Our approach and our progress are entirely different than they were when I arrived. We are laser-focused on meeting our own expectations and those of our regulators. We have clear plans in place and clear owners for every regulatory deliverable we have. We have detailed reporting on how we’re progressing on those plans. We review this reporting every single week at the Operating Committee level.
The detailed involvement of the Operating Committee members is very different from what was happening before I arrived. Our ability to identify issues has also improved from two years ago. I continue to believe that we’re making significant progress, and this is based on what we see in our internal reporting. It doesn’t mean that we’re perfect. The fact that we have multiple consent orders makes it complex. It takes time to build all of our capabilities, and it’s certainly in the regulator’s purview to look at issues that have been outstanding for a long time like the OCC did in the third quarter. But I would point you to the comment made by the OCC in their recent consent order that highlights that we have taken steps to comply with their 2018 order, and we’re committed to addressing remaining requirements.
I remain confident in our ability to continue to close the remaining gaps over the next several years. Having said that, it continues to be the case that we’re likely to have setbacks along the way, but that doesn’t change the fact that we believe that the quality of the talent we now have and the processes we now have in place will enable us to get the work done. We’re making progress increasing the earnings power of the company and have also begun to invest in a more holistic and aggressive way to drive stronger organic growth in all of our businesses. We’re just now beginning to bring things to market that are differentiated and the number of significant opportunities are exciting. We’re continuing to track to the financial return goals we’ve discussed: first, achieve a sustainable 10% ROTCE, subject to the same assumptions we’ve discussed in the past and then target 15%. We continue to believe that we will achieve the 10% during one of the quarters in 2022 on an annualized basis. To achieve this, we’re aggressively focused on driving efficiencies, and we’re seeing net expense reductions after significant investments in our control buildout and our businesses. We are aggressively returning excess capital to shareholders now that we’ve returned to the SCB framework. We continue to manage credit well, and we’re seeing early benefits from higher interest rates, growing loan balances, and higher fees in certain businesses. We’re doing this while devoting significant resources to building our franchise.
We had fallen behind in providing competitive digital capabilities for our clients. This is changing. In the fourth quarter, we announced a rebuilt mobile banking experience for consumer and small business customers that is set to beginning roll — set to begin rolling out this quarter. It has a new modern look and feel and a simpler user experience that will help our customers more easily accomplish their banking needs. This platform is necessary to drive significantly higher digital adoption from our customers. Even with our existing capabilities, in the fourth quarter, our customers logged in 1.6 billion times using a mobile device, up 7% year over year. Teller transactions remained more than 30% lower than pre-pandemic levels. We also announced that later this year we’ll be adding an all-new virtual assistant, Fargo, to the app. Customers will be able to get answers to their everyday banking questions, ask Fargo to complete the task for them, and Fargo will also provide personalized insights and recommendations to help customers better manage their finances. We will also be introducing the first phase of the redesign of our public website early this year.
In addition, we’re beginning to come — we’re beginning to become more active on the wholesale side. For example, we announced that we’re collaborating with HSBC to optimize the settlement of foreign exchange transactions through a blockchain-based solution which will reduce settlement risks and associated costs. We’re also approaching payments and credit cards very differently. We believe credit cards will remain important, as both credit and as a payment vehicle. We were also doing additional work around non-card payments and believe we must succeed here to be a key financial services provider. Two years ago, our products and capabilities supporting those products were not as competitive as necessary. In 2021, we launched two products, including Active Cash, which we believe is the best cashback product in the marketplace, and Reflect, which rewards customers for on-time payments.
We improved the core experience, including investing in advertising, simplifying our digital application, and enhancing our underwriting. These efforts have driven an increase in digital card activation, paperless statements, and enrollment alerts. We are opening, approximately, twice as many accounts as we were pre-launching these products, and importantly, we’re not competing on credit. In fact, the quality of applications and the accounts we’re booking continues to be better than what we were booking historically. Away from card, we’re beginning to invest in our broader digital payments across the platform, enhancing our capabilities, increasing limits, and broadly reducing the friction in moving money. As evidence, Zelle momentum continued to accelerate with Zelle transactions up 46% from a year ago.
We’re also taking a very different approach in that we believe that for us to be successful, we must consider a broader set of stakeholders in our decisions and actions. This is not in lieu of shareholders. In fact, we believe it will enhance our returns to shareholders over time. We have taken significant efforts to support small businesses since the beginning of the pandemic and recently fulfilled our roughly $420 million Open for Business Fund commitment to assist small businesses in recovering from the pandemic by working with not-for-profits to offer capital, technical assistance, and long-term programs. The fund was created by donating the gross processing fees we made from administering the Paycheck Protection Program loans in 2020.
Additionally, we made significant climate commitments in 2021. In the fourth quarter, we joined the Net-Zero Banking Alliance, an industry led leadership group designed to foster collaboration and support banks and aligning their financing with the goal of achieving net-zero greenhouse gas emissions. Climate change is one of the most urgent environmental and social issues of our time and last year we announced our goal to achieve net-zero greenhouse gas emissions, including emissions attributable to financing, by 2050. We expect to announce our first finance emission targets for the oil and gas and power sectors later this year. We made our first solar plus battery storage tax equity commitment. Once it is operational, it will be one of the largest solar and battery projects in the company. Last year, we surpassed $13.3 billion in cumulative tax equity investments in nearly 600 wind, solar, and fuel cell transactions. These investments have provided 13% of all utility-scale wind and solar capacity in the U.S. over the past 16 years. We continue to be one of the top investors in affordable, multifamily housing in the U.S., as well as an active lender for affordable rental housing developments.
Additionally, we’re committed to expanding affordable homeownership. For example, in the fourth quarter, we committed to invest $5 million through the NeighborhoodLIFT program to help more than 300 low-and-moderate-income residents in Houston with home payment down assistance — I’m sorry, home down payment assistance. We’ve also supported our employees and in December we announced that as part of our commitment to providing comprehensive benefits and competitive pay, we’re increasing U.S. minimum pay hourly pay levels to a range of $18 to $22 effective at the end of this month. Just this week we announced new efforts that will roll out over the course of 2022 to help our consumer customers avoid overdraft fees and cover short-term cash needs, building on other changes we’ve made over the last several years. The changes we announced include the elimination of transfer fees for customers enrolled in overdraft protection, the elimination of non-sufficient fund fees, early access to direct deposit by providing customer access to funds up to two days before their scheduled deposit, a 24-hour grace period for customers that overdraw their account to cover the balance before incurring an overdraft fee, and a new short-term credit product for customers to meet personal financial needs. This builds on existing features we already have in place, including Clear Access Banking, our no overdraft checking account that we launched in September 2020 and we now have over $1.1 million outstanding customer accounts; Overdraft Rewind, which was introduced in 2017, which automatically rewinds overdraft fees when a covering direct deposit is received by the next morning, which will be replaced by our expanded 24-hour grace period; balance alerts that help customers avoid overdrafts by sending more than 1.3 million alerts every day. Putting all of these changes in perspective, these fees are down significantly since the financial crisis. We have alternatives for both customers that do not want a overdraft and those that do. This is a competitive marketplace. We continue to review our capabilities and pricing with the goal of providing value to our customers.
And let me make a few comments now as we look forward. While there is a risk with the continued growth of the Omicron variant, or potentially other variants later this year, I expect to see continued strong economic trends in 2022. Consumers’ financial condition remains strong. Modest debt growth, strong asset appreciation, and higher deposit balances have left household balance sheets in excellent condition, which should help drive continued strong consumer spending. Corporate America has demonstrated the ability to adapt to the ever-changing pandemic conditions. Inventories remained unusually lean as businesses adopted a defensive posture and supply chains have been disrupted. This is expected to result in substantial gains in industrial production as they continue to restock. We’re beginning to see loan growth and expect this to continue.
In a moment, Mike will provide our thoughts on net interest income and expenses for 2022. I commented earlier that we remain on target to achieve a sustainable 10% ROTCE subject to the same assumptions we’ve discussed in the past on a run rate basis at some point this year, and that once we’ve achieved this goal, we’ll discuss our plan to continue to increase returns. But at a high level, we continue to believe we can further improve our returns through a combination of factors, including a modest increase in interest rates or further steepening of the curve, ongoing progress on incremental efficiency initiatives, a small impact from returns on growth-related investments in our businesses, continued execution on our risk and regulatory control framework, and moderate balance sheet growth once the asset cap is lifted. It’s important to note, we currently have the ability to grow loans even under the asset cap.
The changes we’ve made to the company and continued strong economic growth prospects make us feel good about how we’re positioned entering 2022, but we also remain cognizant that we still have a multi-year effort to satisfy our regulatory requirements with setbacks likely to continue along the way, and we continue our work to put exposures related to our historical practices behind us. As we look forward, we will continue to be aggressive in driving progress and improvement in our performance, embrace our responsibility to our customers and communities, and I remain incredibly optimistic about our future.
I want to conclude by thanking our employees who continued to serve our customers through another challenging year. I appreciate their hard work and their resiliency. While we made progress on making Wells Fargo better. I look forward to all that we accomplish in the year ahead. I will now turn the call over to Mike.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Great. Thanks, Charlie, and good morning everybody. Charlie summarized how we helped our customers, communities, and employees last year on slides two and three. So I’m going to start with our fourth quarter financial results on slide 4. Net income for the quarter was $5.8 billion or $1.38 per share — common share. Our fourth quarter results included: a $943 million net gain on the sales of our Corporate Trust Services business and Wells Fargo Asset Management. There could be future gains related to these sales due to post-closing adjustments and earn-out provisions; an $875 million decrease in allowance for credit losses as credit trends continue to be strong; and a $260 million impairment of certain leased rail cars due to changes in demand for these cars. We also had $2.5 billion or $1.9 billion after noncontrolling interest of equity gains primarily from our affiliated venture capital and private equity businesses, the third consecutive quarter of strong returns on these businesses.
Our effective income tax rate in the fourth quarter was, approximately, 23%, including the discrete impacts related to business divestitures. Our CET1 ratio declined to 11.4% in the fourth quarter, reflecting share repurchases and an increase in risk-weighted assets, primarily from loan growth in the quarter. We repurchased $7 billion of common stock in the fourth quarter, partially offset by $1.4 billion of new issuances, predominantly for the annual matching contribution for our 401(k) plans. As a reminder, the regulatory minimum for our CET1 ratio will be 9.1% in the first quarter of 2022, reflecting a lower G-SIB capital surcharge.
Turning to credit quality on slide 6. Our net chargeoff ratio was 19 basis points in the fourth quarter. Commercial credit performance continued to be strong with net loan chargeoffs declining $10 million from the third quarter to 2 basis points. Despite the challenges created by the pandemic, the commercial real estate portfolio has continued to perform well. Commercial real estate valuations and investment activity has rebounded off their lows across all property types, although there still is some risk in office and select hotel and retail segments. Consumer credit performance also remained strong with higher collateral values for homes and autos, and consumer cash reserves remain above pre pre-pandemic levels. Consumer net chargeoffs of $393 million increased $172 million from the third quarter, $152 million of the increase is related to a change in practice to fully chargeoff certain delinquent legacy residential mortgage loans.
Nonperforming assets increased $145 million, or 2%, from the third quarter, driven by an increase in residential mortgage nonaccruals, primarily resulting from certain customers exiting COVID-related accommodation programs. Loans that were modified in 2021 upon exiting forbearance are reported as non-accrual until they perform for a period of time. Overall, early performance of loans that have exited forbearance have been aligned with our expectations. After increasing during the first four quarters of the pandemic, commercial nonperforming assets have declined for four consecutive quarters, and we’re back to pre-pandemic levels in the fourth quarter. Our allowance level at the end of the fourth quarter reflected continued strong credit performance, the ongoing economic recovery, and the uncertainties that still remain. If the economic recovery continues, we would expect to have additional reserve releases.
On slide 7, we highlight loans and deposits. Average loans grew 2% from the third quarter, with growth in both our commercial and consumer portfolios. We had strong growth late in the quarter and period end loans grew $32.6 billion, or 4% from the third quarter, with broad-based growth across most of our commercial and consumer portfolios. I’ll highlight the specific growth drivers when discussing business segment results. Average deposits increased $89.9 billion, or 7% from a year ago with growth in our consumer businesses and commercial banking, partially offset by continued declines in corporate — investment banking and corporate treasury, reflecting targeted actions to manage under the asset cap.
Turning to net interest income on slide 8. A year ago, we provided our expectation for 2021 net interest income to be flat-to-down 4% from the originally reported annualized fourth quarter 2020 level, and we ended up being down 3% for the full year. Fourth quarter net interest income was down $93 million, or 1% from a year ago and grew $353 million or 4% from the third quarter. The increase in the third quarter was driven by higher loan balances, including higher interest income from loans purchased from securitization pools or EPBOs. We also benefited from higher trading assets and a favorable funding mix. In the fourth quarter, we had $318 million of interest income associated with EPBOs, and at year end we had a total of $17.3 billion of these loans, down from $34.8 billion a year ago. And as I highlighted last quarter, we expect these balances to decline substantially by the end of this year. We also had $130 million of interest income in the fourth quarter from Paycheck Protection Program loans or PPP loans, and were outstanding — and their outstanding declined to $2.4 billion at year end. We’ve reflected the headwind from these portfolios running off in our 2022 net interest income waterfall that I will review later on the call. The net interest margin increased 8 basis points from the third quarter, 3 basis points of which was due to higher interest income from EPBOs.
Now turning the expenses on slide 9. Non-interest expense declined 11% from a year ago. The decrease reflected progress we made on our efficiency initiatives, including reductions in personnel costs, consultant spend, and occupancy expense. I will provide specific examples of the progress we made in our efficiency initiatives in 2021 later on the call before updating you on our expense expectations for 2022. We also had lower restructuring charges and operating losses in the fourth quarter compared with a year ago. Fourth quarter expenses included one month or, approximately, $100 million of operating expenses from our Corporate Trust Services business and Wells Fargo Asset Management prior to their sales on November 1st.
Now turning to our business segment, starting with Consumer Banking and Lending on slide 10. Consumer and small business banking revenue increased 4% from a year ago, primarily due to higher deposit-related fees as fourth quarter 2020 included some COVID-related fee waivers. Fourth quarter 2021 also reflected an increase in consumer activity, including higher debit card transactions compared with a year ago, and the benefit of strong deposit growth was largely offset by lower spreads. Charlie highlighted the enhancements and changes we’re making to help our customers avoid overdraft fees. The impact from the fees that will be reduced, including the elimination of non-sufficient fund or NSF fees as well as overdraft protection transfer fees is estimated to be, approximately, $700 million annually. Also, we expect that they may be partially offset by other fees due to higher levels of activity as well as the expiration of various fee-related waivers that were in place in 2021.
In terms of new features to be rolled out in the latter part of the year, including a 24-hour grace period for overdrafts and a new short-term loan product, we will have to observe how customers respond. Home lending revenue declined 8% from a year ago, primarily due to lower mortgage banking income driven by lower gain-on-sale margins and origination volumes. Even before the recent rate back up, we started to see a drop in application volume in December, and we expect originations to decline in 2022, which will put pressure on margins as the industry adapts to the lower volume. Credit card revenue was up 3% from a year ago, driven by higher point-of-sale volume, partially offset by higher rewards costs, including promotional offers on our new Active Cash card. Auto revenue increased 17% from a year ago and higher loan balances with the average balances up $6.8 billion.
Turning to some key business drivers on slide 11. Our mortgage originations declined 7% from the third quarter. We expect our first quarter originations to continue this decline due to lower refinance activity and the typical seasonal slowdown in the purchase market. We increased our non-conforming originations in the fourth quarter and have grown our non-conforming portfolio for seven consecutive months. Reflecting the improvements in our capabilities as well as the reintroduction of cash out refinancing late in the first quarter of 2021.
Turning to auto. Limited vehicle inventories continued to constrain industry new car sales. However, we had our third consecutive quarter of record originations with volume up 77% from a year ago with the majority of our originations coming from used cars. Originations also benefited from the enhancements we continue to make in our capabilities. Importantly, we are maintaining our underwriting standards and continue to be cautious about the increase in vehicle prices over the last year or so.
Turning to debit card. Transactions were relatively stable from the third quarter and up 10% from a year ago with increases across nearly all categories. Credit card point-of-sale purchase volume continued to be strong, was up 28% from a year ago and 11% from the third quarter. While payment rates remain elevated, balances grew 5% from a year ago due to strong purchase volume and the launch of new products. New credit card accounts more than doubled from a year ago driven by our new Active Cash card, and we’re pleased by the quality of the accounts we’ve been attracting.
Turning to Commercial Banking results on slide 12. Middle Market Banking revenue increased 2% from a year ago. Results included higher deposit balances and modestly higher investment banking fees, partially offset by the impact of lower interest rates. Asset-based lending and leasing revenue increased 1% from a year ago, driven by higher net gains from equity securities and higher revenue from renewable energy investments, partially offset by lower loan balances. Non-interest expense declined 10% from a year ago, primarily driven by lower personnel and consulting expense due to the efficiency initiatives as well as lower lease expense. Loan balances started to increase late in the third quarter and now have grown for four consecutive months with growth accelerating in December. As with other portfolios, we are adhering to the same credit risk appetite. Increases in the Middle Market Banking were driven by growth from our larger clients, a modest uptick in revolver utilization, and strong seasonal borrowing. Growth in asset-based lending and leasing was driven by new client wins as well as increased levels from higher prices and some increases in inventory levels.
Turning to Corporate and Investment Banking on slide 13. Banking revenue increased 17% from a year ago. Investment banking had a strong quarter with higher debt origination and advisory fees. Banking results also benefited from higher loan balances. Commercial real estate revenue grew 8% from a year ago, driven by higher loan balances and capital markets results on stronger commercial real estate financing activity. Loan originations returned to pre-pandemic levels, and we had a healthy pipeline as we started the new year. Markets revenue was relatively stable from a year ago and was down 14% from the third quarter, primarily due to lower trading activity in spread products and equity derivatives. Average deposits in Corporate and Investment Banking were down $23.7 billion from a year ago, driven by actions taken across all lines of business to manage under the asset cap. Average loans increased from both the third quarter and a year ago across all lines of business. On a period-end basis, loans grew every month since June and growth accelerated in December.
Wealth & Investment Management on slide 14, the revenue grew 6% from a year ago as higher asset-based fees on market valuations more than offset a decline in net interest income due to lower interest rates. The 5% increase in expenses from a year ago was primarily driven by higher revenue-related compensation, which was more than offset by higher revenue. This increase was partially offset by lower salaries expense, reflecting progress on efficiency initiatives. Client assets reached a record $2.2 trillion, up 9% from a year ago, primarily driven by higher market valuations. Average deposits were up 7% from a year ago and average loans increased 5% from a year ago, driven by the continued momentum in securities-based lending.
Slide 15 highlights our corporate results. Revenue increased from a year ago, driven by strong results in our affiliated venture capital and private equity businesses and gains on the sales of our Corporate Trust Services business and Wells Fargo Asset Management. These businesses contributed $1.6 billion of revenue in 2021, excluding net gains on sale, and $1.5 billion of noninterest expense. We expect, approximately, $200 million of these expenses associated with transition services agreements to remain in 2022, with offsetting revenue so it’s P&L neutral. We also expect, approximately, $300 million of corporate overhead expenses related to these businesses to remain in 2022, which we expect to manage down over time.
Turning now to our expectations for 2022, starting with net interest income on slide 16. As the last couple weeks have demonstrated, it’s challenging this early in the year to predict the rate environment, loan demand, and other variables that impact net interest income for the full year. But let me highlight the key drivers of our net interest income for 2022. We are assuming the asset cap will remain in place throughout 2022. Moving left to right on the waterfall, as we’ve discussed previously, we have a headwind this year from the runoff of PPP and EPBO loans. However, our current outlook for loans is for average balances to grow low-to-mid-single digits from the fourth quarter of 2021 to the fourth quarter of 2022. Along with other balance sheet mix changes, this is expected to more than offset that headwind. This net result would increase net interest income, approximately, 3% in 2022 from the $35.8 billion we generated in 2021.
Moving to rates and repricing. The recent forward curve includes, approximately, three 25 basis-point rate hikes this year beginning in May. Assuming this were to play out, net interest income has the potential to grow up to an additional 5%, resulting in approximately 8% in net interest income growth in 2022 versus 2021. That said, the implied forward curve has changed a lot over the last month and a half, so it’s very hard to forecast with any certainty. Another way to view our asset sensitivity is from the disclosure we provided in our third quarter 10-Q filing. It showed that the estimated impact of an instantaneous 50 basis points increase in short term rates would increase net interest income by, approximately, $2.7 billion over the next 12 months. Ultimately, the amount of net interest income we earn in 2022 will depend on a variety of factors, including the absolute level of interest rates, the shape of the yield curve, loan demand, and cash redeployment.
Now turning to expenses on slide 17. We made progress last year on our efficiency initiatives, and we’ve continued to identify new opportunities. Our portfolio of initiatives that includes realized and identified potential gross saves has grown from, approximately, $8 billion to $10 billion, and we are continuing to work across the company. We expect to execute on our remaining identified initiatives over the next two to three years and we’ll continue to invest across our businesses. Importantly, similar to last year, we are excluding from our efficiency initiatives the resources needed to address our risk and control work and will continue to add resources as necessary to complete this important work. We’ve been reducing expenses across our businesses, but let me highlight a few examples of the progress we made last year.
We eliminated management layers and increased span of control, a 20% decrease in managers with low span of control. We completed, approximately, 270 branch consolidations in 2021, a continuation of the progress we’ve made the last few years with branches down 11% since 2019. We’ve also optimized branch staffing levels to better reflect our customers — how our customers are using our branches. Within our technology organization, we reduced non-engineering roles by, approximately, 40% driven by accelerated adoption of the Agile framework, and headcount across the company declined, approximately, 6% from a year ago, excluding divested businesses.
In addition to reducing the number of branches, we also reduced our office real estate portfolio by, approximately, 7% and occupancy expense was down 9% compared with a year ago. This year we expect to continue to realize savings from these initiatives, including an incremental 5% reduction in office real estate. Additionally, the investments we’re making in technology should drive improvements in operations, consumer banking, consumer lending, commercial banking. Importantly, these efforts should not only reduce expenses, but also improve the customer experience with enhanced fraud detection, more self-service capabilities, and faster underwriting decisions.
Now turning to our 2022 expense outlook on slide 18. Following the waterfall from left to right, we reported $53.8 billion of noninterest expense in 2021. This was largely in line with our most recent guidance, except for higher operating losses. We had, approximately, $500 million of expenses in 2021 related to business exits and restructuring charges and the civil money penalty associated with the OCC enforcement action in September. We also had, approximately, $1 billion of expenses in 2021 from the Wells Fargo Asset Management and our Corporate Trust Services business which were sold and that will not continue in 2022. So we believe a good starting point for the discussion of 2022 expenses is the $52.3 billion. We are assuming a modest increase in equity markets this year and expect revenue-related expenses to grow by, approximately, $300 million. This includes expected increases in Wealth & Investment Management and Corporate and Investment Banking, partially offset by expected declines in home lending reflecting lower origination volumes. Higher revenue-related compensation is a good thing and the associated revenue will more than offset any increase in expenses.
We also expect, approximately, $500 million of wage and benefits related inflationary increases in 2022 above and beyond the normal level of merit and pay increases driven by higher personnel expenses, including the minimum wage increase that Charlie highlighted and other compensation changes. Through our efficiency initiatives, we expect to realize, approximately, $3.3 billion of gross expense reductions in 2022. This reduction is expected to be partially offset by, approximately, $1.2 billion of incremental investments primarily related to higher personnel expenses in Commercial Banking, Corporate and Investment Banking and technology, as well as increased spending on risk management. We also expect, approximately, $500 million in increased spending in other areas, including higher FDIC insurance assessments, higher travel and entertainment expenses, which were significantly lower in 2021 due to the pandemic. Accordingly, our full year 2022 expenses are expected to be, approximately, $51.5 billion, a net reduction of, approximately, $800 million versus the $52.3 billion. Embedded in our assumptions are, approximately, $1.3 billion of operating losses for 2022, which is the amount we had in 2021, excluding the $250 million associated with the OCC enforcement action. While we’ve made significant progress on working through legacy issues, as we’ve previously disclosed, we still have outstanding litigation and regulatory issues and related expenses could significantly exceed the levels we had in 2021. We made substantial progress last year in executing our efficiency initiatives, but we still have significant opportunity to get more efficient across the company. We are focused on achieving net expense reductions while appropriately investing in our businesses. This remains a multi-year process with the ultimate goal of achieving an efficiency ratio in line with our peers and based on our business mix.
We’ll now take your questions.
Questions and Answers:
Operator
At this time, we will now begin the question-and-answer session. [Operator Instructions] Our first question of the day will come from John McDonald of Autonomous Research. Sir, your line is open.
John McDonald — Autonomous Research — Analyst
Hi. Good morning. Mike, I was wondering if you could give us some sense of, if the asset cap remains in place, how much capacity do you have to look to grow loans? Obviously, the HL data is picking up. It feels like loan growth is getting better for the industry. I just want to make sure that you’re invited to that party and you guys can grow loans while staying under the asset cap.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. Hey, John. Thanks for the question. So it’s just, as you know, and I think it’s implicit in what you asked, but the constraint for us on the asset cap is really on the deposit side. And so that’s the part where we’re actively taking action to make sure we’ve got the room we need to — particularly for our retail clients and we’re continuing to do that. On the loan side, we still have — we’re not constrained on growth on the loan side. So, we still have plenty of room to continue to grow with our clients.
John McDonald — Autonomous Research — Analyst
Could you give us some sense in your NII outlook? What kind of loan growth are you building in? And also liquidity deployment assumptions and how you’re thinking about liquidity deployment given where the curve is here?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. Sure. Embedded on Slide 16, we’ve assumed kind of low to mid single digit growth when you compare fourth quarter ’21 to fourth quarter ’22. And so hopefully, we’re optimistic that we’ll be able to get there and maybe there is certainly some scenarios where it could be — it could grow faster than that, but that’s the assumption that we used — we use there. Embedded in that, in that column 2 on the chart in the loan growth and other balance sheet stuff is some — is a modest redeployment into the securities portfolio, I’d say modest. So sort of single low — kind of mid-to low-single digit sort of increases in the securities portfolio as well. And so those are the assumptions embedded there. And I think as we look at where the curve is today, we’re still being overall pretty prudent and patient, but we are in a very kind of small way beginning to buy some securities in the portfolio.
John McDonald — Autonomous Research — Analyst
Okay. Got it. Thanks, Mike.
Operator
Thank you. The next question will come from Ken Usdin of Jefferies. Your line is open.
Ken Usdin — Jefferies — Analyst
Thanks. Good morning, guys. Mike, you had mentioned that you did a little bit better last year, $4 billion of gross saves versus what you originally thought at $3.6 billion and you just commented that you still have a good line of sight. And as far as efficiency initiatives, can you help us understand like $3.3 billion for this year, how you’re feeling about that? But more importantly, that line of sight, how far out you have that? And do you continue to see an ability to take out this type of cost as you go forward even past this year? Thanks.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah, no. And Ken, what we’re really trying to do is make sure we embed this in the DNA of how we operate the place. And so that’s ultimately what’s going to be really important for us over the long run. And I think you’re seeing that. The portfolio grew from $8 billion to $10 billion in terms of the initiatives that we’ve either executed on or about — or in the process of executing. And so, I think you’re seeing sort of that progress and growth there.
So, you can sort of do the math of what we’ve accomplished so far, what we’ve identified for this year and what’s left for next year. And I continue to believe that we’ve got more to do that we haven’t sort of built into that portfolio yet. And so the teams continues to work on that every day. As you look at our confidence level on the $3.3 billion that we put into the forecast, we feel good. We’ve got really good line of sight. And I think given what the team was able to do last year, we have confidence that we’ll be able to execute on that.
Charles W. Scharf — Chief Executive Officer and President
Hey, Ken. And just — let me just add to something that Mike said, which is, I’m always — I’m a firm believer on these efficiency initiatives, especially in a company like this. Even if you go back over a decade, one of the strengths to this company was never efficiency. It was far more on the revenue side. And so as we get the efficiencies that we’re starting to see, it is like peeling the onion back, where then the next set of opportunities become even clearer.
And so we’re ginning up the same process that we did at the beginning of this venture where we came up with the initial $8 billion, to go back and say, okay, now what’s next in a very methodical way across the company? So we feel — I feel really good about what’s in our numbers for next year. And we’re going to continue to pursue this. And I think it’s — just as like — just as you’ve seen in our numbers, it gives us the ability to spend our investments and to become more efficient overall as a company. So, I personally don’t feel like we’re close to done.
Ken Usdin — Jefferies — Analyst
Got it. And if I could just ask the other side of that question, too, which is that, you’re doing a little less than the incremental investments versus what you did last year. How do you get comfortable that you’re doing enough, especially what we’re hearing from the industry pressures, not just inflation, but just on the need to continue to? And you mentioned this, Charlie, about all the new things you’re rolling out. But how do you land on that number and how do you get the confidence that it’s the right amount that you’re reinvesting?
Charles W. Scharf — Chief Executive Officer and President
It’s a good question. I think we do, I think what most good companies do, which is they sit around tables and they ask everyone to come back with what you want to spend money on and then figure out what you can actually do. I think we’ve accomplished a tremendous amount on the technology side, since Saul Van Beurden who runs technology for us was brought in. And I think we’re going to try and spend as much as we physically can get done. But I think we’re always asking the question of what’s next.
But I think the different position that we’re in versus others is, we’re still in the ramping up stage, which I also look at as opportunity because we’ve moved slower historically, investing in some of these areas. And to the extent that we find more efficiency money, it gives us the opportunity to spend more broadly. But I do feel good. I think we as a company, we as a management team do feel good about what we’re investing next year relative to where we stand as a company.
Ken Usdin — Jefferies — Analyst
Okay. Thanks a lot, guys.
Operator
Thank you. The next question comes from Betsy Graseck of Morgan Stanley. Your line is open.
Betsy Graseck — Morgan Stanley — Analyst
Hi. Good morning.
Charles W. Scharf — Chief Executive Officer and President
Betsy.
Betsy Graseck — Morgan Stanley — Analyst
I had two questions. One was on the overdraft fees you mentioned. I think you said that it was like a $700 million impact. But we look at the regulatory filings and the regulatory filings show a higher level of overdraft fee run rate, like in the billion kind of range So, I’m just trying to understand what — why it would be only $700 million?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Well, first of all, I mean, we’re not eliminating overdraft fees. We’re making a series of changes that we think makes sense for the consumer. We have an account that doesn’t allow overdraft, but we have an account that does allow overdraft. And so we think it’s got — it’s more consumer-friendly than it was in the past. But we do continue to believe that there are a substantial number of customers out there that want us to pay overdraft on their behalf after they’ve worked through a bunch of the buffers and benefits we’re giving them and they’re willing to pay for that.
Betsy Graseck — Morgan Stanley — Analyst
Got it. Okay. So the NSF fees will be eliminated, but you’ll have a different product that comes in?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Well, no, it’s the same. NSF fees will be eliminated entirely. Our overdraft fee will stay. But we’ve added a series of things, such as we’ll give you availability on direct deposits two days in advance. We’ll give you an additional 24 hours after you would otherwise would have been charged for an overdraft to curate. So, our overdraft fees will go down, but we’re still going to be providing the overdraft product and will still be charging for it.
Betsy Graseck — Morgan Stanley — Analyst
Okay. All right. So my bad, I thought overdraft and NSF were pretty similar, but that’s not right.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. And I think of that. Betsy, think of the NSF and SF [Phonetic] fees as — when you don’t pay something into overdraft like a cheque and you return it, then historically you would have charged a fee for that returned item, that’s an NSF fee. The overdraft is — the overdraft fees come into play when you actually pay something in overdraft.
Betsy Graseck — Morgan Stanley — Analyst
Yeah. Yeah. I got it. Okay. So, I was using too much shorthand, and that’s my bad. All right. And then the second question is on the loan growth that you were talking about earlier in the prepared remarks and with John. LIBOR is no longer able to be used as a reference rate for C&I or CRE, or any loan or any product, right, starting Jan 1? How does that impact you? Is that — could that be a benefit to your loan growth in C&I and CRE? And how are you thinking about shifting the reference rate that you’re going to be using with your clients?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Well, I mean we’ve started that shift already, as you would imagine, right? And we started — we stopped offering new — effectively stopped offering new LIBOR-based loan products at some point in the fourth quarter. We’ve probably done, in the wholesale side, maybe including wins, so take out the consumer mortgage business, we’ve done something like 4,500 or just under that new facilities based on SOFR, with the large majority. And obviously, there is different ways to calculate SOFR. The large majority of those are using sort of a daily simple rate. So as SOFR moves, obviously, that will adjust.
And so I think we’re seeing clients start to get used to it and start to use it. Complementing what we’re doing on the wholesale side is we’ve got — we stopped our offering LIBOR-based ARMs last year. And so we’ve got tens of thousands, a couple of tens of thousands at this point in terms of ARMs on the books using SOFR there as well. And so I think it’s starting to take hold.
Betsy Graseck — Morgan Stanley — Analyst
Yeah. I’m was just thinking like the capital markets might not be deep enough yet to be competitive against SOFR or BSBY in product at least for the first half of this year. So could that give you a little advantage here in originating?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
I don’t see that. I don’t see that having a huge impact on loan growth.
Betsy Graseck — Morgan Stanley — Analyst
Okay.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
But maybe we surprised a little bit, but I don’t see that happening.
Betsy Graseck — Morgan Stanley — Analyst
All right. Because I didn’t think the CLO bid was there yet for SOFR?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
I guess that I don’t see that happening. I think there are starting to be some CLOs in SOFR, but like — I don’t see that happen, being a big driver.
Betsy Graseck — Morgan Stanley — Analyst
Okay. Thanks.
Operator
The next question comes from Erika Najarian of UBS. Your line is open.
Erika Najarian — UBS — Analyst
Hi. Good morning. Mike, my first question is for you. Could you give us a sense of what deposit growth or runoff assumption you have in your 2022 NII simulation and similarly what kind of deposit repricing you presume?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah, no. Thanks, Erika. Look, as you can guess, like we’re in a bit of a different spot than others, right, given our asset cap. And so we’re already constrained on deposits and so we’re pushing away deposits every week now. And so I don’t expect in this year to have much of a run-off in deposits. And if we start to see deposit levels going down, we’ll stop pushing others off. And so I don’t see that’s going to be a big driver for 2022. As you think about betas or in deposit pricing assumptions, it’s largely similar to what we saw the last rate cycle. But I would say that over the last three years, four years, five years, our deposit base has changed quite a bit.
If you look at just based on the segments we are in, as a short-hand where 57% of our deposits are in our consumer and small business banking business today, if you go back a number of years, that was probably closer to 43% or 45%. And so the remixing of sort of our deposits as a result of some of the actions we’ve had to take will kind of lower the overall beta for the first number of rate hikes. But I think it will look pretty similar to what we saw. And as you can imagine, since we’re constrained on growing deposits, we’re not going to be the leader on pricing likely, as we go over the next number of quarters.
Erika Najarian — UBS — Analyst
And just to clarify, so the betas in the last cycle, if I remember were driven by a handful of CIB deposits, right? And clearly, that has been pushed out given asset — some of that has been pushed out given asset cap restrictions. So embedded in this NII number is the experience of the last cycle that included the beta — the betas contributed by those deposits. Whereas as we actually look out today, you have a much better and less rate sensitive deposit base.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
For sure. And the betas might be similar on the CIB deposits. We just have less of them as a percentage of the overall book, which lowers our overall beta.
Charles W. Scharf — Chief Executive Officer and President
The mix.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. So — but we’ll see and a lot of that will be driven by what we see in the competitive environment, right? So particularly on these wholesale deposits, but it will have a smaller impact on us than it did in the past just given the mix.
Erika Najarian — UBS — Analyst
Understood. And my last question is for Charlie. I think your investors are receiving very warmly, you and Mike have said about, you’re trying to change how this bank is thinking by constantly identifying cost saves to fund future investments. And as we look out and what looks like a more favorable rate backdrop and revenue backdrop from a growth perspective for banks, do you see yourself reinvesting more of the identified savings as we enter a more favorable revenue backdrop?
Charles W. Scharf — Chief Executive Officer and President
I don’t think — I guess, let’s put it as, we don’t think about it relative to what the rate scenario is or how much we’re making in NII. I think, again, just think about where we are in the stage of our evolution, which is, we are limiting our investments based upon just what can physically be done, not based upon how much we actually want to spend. I mean, there are always a couple of small places around the place where people want to spend and you do have to prioritize.
I think a lot of the answer to your question will have to do, as we continue to do our work strategically to determine where we want to create additional capabilities across the company, we would expect the investment number to grow for sure.
But also, as you know, we’re spending a lot of money on infrastructure and I’m not talking about the risk build out. I’m just talking about the basic infrastructure of the company. So, I think, as we sit here today, we still think that we’ve an opportunity to both become much more efficient and to continue to grow the level of investments that are going to drive business results inside the company. And that will — that’s, I would say, is focused upon where we think we need to get to, relative to how much money we should be spending as a company as opposed to any upside that we have because of just the change in rates at this point.
Erika Najarian — UBS — Analyst
Got it. That’s clear. Thank you.
Charles W. Scharf — Chief Executive Officer and President
And there is no doubt, I just think for us that’s just — it takes the pressure off of us too, I think, if we were to think that way. If we were to say, okay, because of nothing we’ve done, rates have gone up, we then start spending a lot more money. We’re still in this, as I said earlier, we’re still in this phase of challenging ourselves to become as efficient as we should be. And having that pressure across the company at this stage for us is still a good thing. Just as where it is to challenge people to come up with where we should be investing.
Erika Najarian — UBS — Analyst
Thanks, Charlie.
Operator
The next question comes from Matt O’Connor of Deutsche Bank. Your line is open.
Matt O’Connor — Deutsche Bank — Analyst
Good morning. So, wanted to ask about the asset cap. And can you just remind us like where you are in the process from your perspective? Have you implemented everything that you submitted in your proposal and it’s just a matter of consistently executing on those changes? Or are there still, call it material changes that you’re making to address those issues?
Charles W. Scharf — Chief Executive Officer and President
Matt, I understand that you’re very consistent and wanting to know the answer and I certainly appreciate that. We have across all of this regulatory work, we still have a substantial amount to do. It’s really not right for me to talk about under any specific consent order where we think we are in the process. Because, again, what I said ultimately is what’s going to matter is whether our regulators believe it’s done to their satisfaction and it’s really unhealthy to get into the game of, do we think we’re done? Do we think they’re making the right conclusions? I think it’s on us to continue to do all that’s necessary. And when they’re comfortable that we satisfy those obligations, they will make that determination. And so I just — again, I’m sorry, I understand why you seek more detail, but it’s just a difficult thing and probably not the right thing for us to get to that level of specificity.
Matt O’Connor — Deutsche Bank — Analyst
And I can appreciate that. And I know I ask this line of question kind of every quarter, but obviously, it’s such a key part for the stock. And I know I’ve also asked this kind of follow-up questions. I think you have like a slew of local regulators on site or at least on site virtually. But I think there is a perception that is kind of more of the central regulators that are kind of going to be the ones that make the call. And just remind us, in general, what is like the frequency of the dialogue with some more of those central regulators? And just any flavor you can add on the communication there? Thank you.
Charles W. Scharf — Chief Executive Officer and President
I think it’s fair that — I think I would speak for most big banks, that the level of dialogue with both local staff and with DC is substantial and meaningful. I mean, I can just tell you even from my last role, it’s the right thing to do. Again, we certainly have increased, I think the level of dialogue that we have since the new team has gotten here. And it’s hard to put specific — how often we do it? But it’s very, very regular.
And I think it’s true that all of the big banks, both the local staff as well as the staff in D.C. are both extremely important in their monitoring and in the way they draw conclusions about the company. And we worked hard to treat both extremely respectfully. There is a very direct and open communication on their side as far as I can tell. And as I said, we say the same to the local people as we do to the D.C. staff. But again, they are a very, very important part of the journey that we’re on. And we want them to be as knowledgeable about what’s going on here on all of these important issues. And we’re always available and willing to have those conversations with them.
Matt O’Connor — Deutsche Bank — Analyst
Okay. Thank you.
Operator
The next question comes from Scott Siefers of Piper Sandler. Your line is open.
Scott Siefers — Piper Sandler & Co. — Analyst
Good morning, guys. Thank you for taking the question. Mike, wanted to ask in a little bit more detail about rate positioning. I think I can figure this out mostly from your guidance disclosures, but would still be curious to hear your thoughts. Just with your significant asset sensitivity, can you talk a little bit about sort of where you’re most sensitive on the curve? And sort of when and how you benefit like — put simply, is the first hike the same benefit as the third and so on? Or where is it more — where or when is it more or less powerful?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. To state the obvious, probably, the short end of the curve is most meaningful, right. So when you look at just the whole curve shifting up, something like two-thirds of the benefit ends up being on the short end. And so that’s going to be the — by far the most meaningful piece of it. I think for the first number of rate rises, it’s hard to say exactly how many. I think the first three or four though, it’s pretty linear. And you can use our disclosures as a way to sort of model that. You get it earlier in the — you get it in March, it’s worth a quarter or more than if you get it in June and so forth. And so it’s pretty — it’s a pretty good guide at this point to use it that way.
Scott Siefers — Piper Sandler & Co. — Analyst
Okay. Perfect. Thank you. And then just separately, one of the criticisms on the story over the past few years has been that there are number of your competitors, a lot of smaller banks out there that sort of suggests that it’s still pretty easy to steal talent and business from Wells Fargo. Your emerging loan growth seems to be running kind of contrary to what’s been that argument for the last couple of years. Can you just sort of touch on that criticism and sort of where you are in terms of comfort with sort of stability and growth of the workforce?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Listen, I feel — I feel great about the people that we have here. And I’ve listened to that for quite a while since I’ve been here. And when I asked people for specifics, very little seems to come back. Listen, it’s a very, very competitive workplace. We lose people to competition. We hire people from competition of all sizes. I think I would say, as I’ve said before, when you look at the team that we have in place, both at a senior level, all the way down to people that we cover customers, I feel great about it. And I can honestly tell you, we’ve — I’m trying to remember, Mike, keep me honest here.
If we sat around a room and talked about, gee, oh! my god, look at all the people that we’re losing to the smaller competitors and what are we going to do about it? That conversation hasn’t happened. And we’re very knowledgeable about attrition that’s happening at the company. So if a small company hires a banker, it might be a big deal for them. We’re lucky enough to have a very broad set of coverage officers, but that’s not to say it’s not competitive. So maybe they’re right, but we feel good about the people that are here and we’re going to work hard to keep the people that are here. Yeah. And I would just add a little color. We’ve been happy at what we’ve been able to recruit in places like the investment bank. We’ve hired almost a few — probably two to three dozen sort of relatively senior investment bankers. We’ve hired a bunch of people in the commercial bank on the front line. And so I think, as Charlie said, it’s definitely competitive and you can always find an anecdotal story of where somebody left to go do a bigger job at a smaller place or so forth. But we feel — I think the teams feel good about being able to attract good people into the roles. And so, yeah, obviously, we got to be competitive on pay. We’ve got to — but I think people are attracted to the franchise and attracted to the sort of direction and so far it’s been constructive there.
Charles W. Scharf — Chief Executive Officer and President
Yeah. And I just want to say one other thing, which is especially when you get down into places like the commercial bank, and different businesses that cover consumers, as we’ve talked about having to improve the talent in some parts of the company, the talent that we have in those areas is really exceptional and it’s really deep. And it’s a huge strength of the company. It’s been the strength of the company for a very long time. So, again, I think that might tell you just how we think about the people that we have. And again, we never want to lose good people, but it happens. But it’s not something that we worry about hurting the franchise at this point.
Scott Siefers — Piper Sandler & Co. — Analyst
Yeah. Good. Okay. Perfect. I very much appreciate those thoughts. So thanks again.
Charles W. Scharf — Chief Executive Officer and President
Sure.
Operator
The next question will come from John Pancari of Evercore ISI. Your line is open.
John Pancari — Evercore ISI — Analyst
Good morning. On the low-single digit to mid-single digit loan growth assumption, could you give us little more detail how that breaks out among the products other than core C&I versus commercial real estate and consumer? And then separately, are there any areas of the loan book that you’re really emphasizing at this point or seeing opportunities to ramp your activity, similar to what you’ve been doing on the credit card side? Thanks.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. Look, it’s a little bit of growth really across the board, John. And I think we’re seeing opportunity really everywhere. And I think if you look at on the card side, we are expecting to see some growth on the card side. Some of that will be like true revolve balances. Some of that will be some of the intro balances coming off the new products, which will start to really pay off at the end of next year and to the year after. We’ve been really happy with what we’ve seen in the auto space, which in this environment are pretty good assets, pretty short-lived assets and high quality in terms of what we’ve seen there. So, we see some continued opportunity to grow there.
And then on the consumer side, you have to go a little bit — no, I’m sorry, on the mortgage side, you have to go a little bit below the covers. And if you look at the non-conforming space, we are seeing some growth there, which we think will continue as we go into the year. That’s offset by these EPBO loans going away. But nonetheless, we see some growth there. So it’s really — and I gave some color on the commercial banking stuff on my comments, and we do expect some more opportunity in the multifamily and apartments and asset classes like that in commercial real estate.
So in places like commercial real estate, we’re being really targeted about it. And even where you see a little — you see a little limited growth in places like office in the quarter and even in places like that, cash to equity ratios are up, structures are better, spreads are better, given sort of what we’ve — the way we’re managing that. So, we’re being really, really cautious in that space, but I do think it will be a little bit of growth across the board, if we’re successful.
John Pancari — Evercore ISI — Analyst
Okay. Great. That’s helpful. And then separately on the buyback front, buybacks came in a little bit better than we’ve expected in the fourth quarter. Maybe if you can just give us your thoughts on the outlook there on your appetite, buybacks and also the — how you’re thinking about the dividend here in terms of deployment? Thanks.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. Look, I think we’ve talked about this before and we’re maybe in a different spot than others, just given some of the constraints we have on the asset cap. But we still feel like we’ve got excess capital. You can see that in the numbers yourself. We do expect that we’ll continue to see some loan growth, so that will drive some RWA. And so that — we’ve got to be thoughtful about that.
And so as we laid out earlier last year, we said we would do 18 — at least $18 billion of buybacks through the four-quarter period ending next — in the second quarter. That still is achievable, and we potentially have the opportunity to go above that if we decide that’s the right path either this quarter or next quarter. So we’ll look at how we feel with all the things we got to think about and make that decision. As you think about the dividend, I think Charlie covered this a couple times last year is, you think about a payout ratio that we hope to get to on a normalized basis, so take out some of the one-time things that you see in the results, it’s really a 30% to 40% payout ratio is what we target over time and that just takes some time to get there. And so I think we’ll — ultimately that’s the board decision in terms of when and how much we increase the dividend. But we’re still marching down that path, but it takes some time to get there.
John Pancari — Evercore ISI — Analyst
Got it. All right. Thanks, Mike. Appreciate it.
Operator
The next question comes from David Long of Raymond James. Your line is open.
David Long — Raymond James Financial, Inc. — Analyst
Good morning, everyone. You’ve talked in the past about the operating expense savings being a multi-year plan or initiative. And so with your guidance this year in the $51.5 billion range, should we be expecting 2023 operating expenses to still be below that level?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. Look, at this point, as we think about it, our goal would be to see a net reduction next year. I think we’ll, obviously, give you more guidance on how that’s progressing as we get towards the end of the year, and that’ll be a function of what we think we can invest properly and what inflation looks like and a whole bunch of factors. But we’ve certainly given what our view on the efficiency side is targeting that, but we’ll give you more guidance on that later in the year. I don’t know if you have anything to add.
David Long — Raymond James Financial, Inc. — Analyst
Okay, great. And then as a follow-up, a little bit longer down the road, once the consent orders are mostly in the past, if you replace the cost today to improve and upgrade your internal operations with the expected cost to just maintain proper controls and risk management efforts, how much savings do you see there?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. Look, I think there are some savings there, but our focus now is getting the work done and getting all the stuff in place and making sure it’s operating properly. And so we’re focused a little bit — we’re being thoughtful about how we implement that stuff, but our focus is a little bit less on making it the most efficient and optimized process. So we will get there when that stuff is all done and running for a while, but that’s a few years off I think in terms of really optimizing the risk and compliance efficiency [Phonetic].
David Long — Raymond James Financial, Inc. — Analyst
Got it. Thanks, Mike. Appreciate it.
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah.
Operator
The next question comes from Steven Chubak of Wolfe Research. Your line is open.
Steven Chubak — Wolfe Research LLC — Analyst
Hi, good morning. So just wanted to squeeze one more question in here just on the fee outlook. There was fair amount of noise in the fee line this quarter. I know you didn’t give an explicit fee guide for 2022, but as we reflect the impact of business sales, the overdraft change, some weaker mortgage banking, and normalization in equity gains, how should we be thinking about the right jumping-off point for fee income just looking ahead to next quarter and ’22 just more broadly?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Well, I think you just outlined it, to be honest. I think you just have to take each of the lines, right? I know we’ve talked about this on calls before. If you look at one of the biggest fee lines, you take the investment advisory and other asset-based fees, that’s a function of our client assets and what the equity market is doing primarily. And so that’s probably something that you can model. And we’ve got — that grew a bit as we went through the year last year. And then I think as you said, we’re in the mortgage space. We’ll see some — the fourth quarter number in the consumer side is probably a good place to start your jumping-off point in modeling. And as I think others have spoken about, too, is we all expect the mortgage market to be down with refinancings really driving that. And how well we do will be a function of how well we’re able to penetrate on the purchase side. So, hopefully, we’re down a little less than what the market is, but that’ll be a function of what we can deliver. And so I think you just got to take each of those lines and model it forward.
Steven Chubak — Wolfe Research LLC — Analyst
Thanks, Mike. And maybe I’ll just squeeze one more in if I can. Just on the earlier discussion around excess liquidity deployment. Looked like you deployed some of that excess in the quarter, and yet if I look relative to pre-pandemic levels, you’ve still seen a doubling of excess reserves. And those deposits that you guys have on balance sheet, as you noted earlier, should be stickier as the Fed initiates QT just given some of the changes in deposit mix. I was hoping you could just size the amount of excess liquidity available for deployment today. If the long end continues to grind higher, is there any appetite or willingness to deploy more aggressively than that mid-single-digit growth that’s contemplated in the NII walk?
Michael P. Santomassimo — Senior EVP, Chief Financial Officer
Yeah. The first thing we’ll be looking at is how fast loans are growing, right. So, obviously, that’s the place you’d want to — you’d see that liquidity get deployed first to support customers. And so that’ll be a function of what we think is going to happen over a series of quarters. And I think when you look at the securities portfolio, we have done a lot in the last year, both in increasing our mortgage exposure, increasing our structured product CLO exposure. The place that you saw the decline was really in the treasury side given what was happening in the rate environment. And so I think you will see us start deploying more. And as I mentioned earlier, we’ve started in a very small way already, given what we’ve seen over the last couple weeks. And I think really how fast we go or how much we go will be both a function of what we think is going to happen with rates but also how fast we think loans will grow. And so those two things I think will drive the pace. And at this point embedded in our outlook or considerations there, we do expect a modest increase in the portfolio. And so we’ll see how — but we’ll make that determination based on all the factors there that I mentioned.
Steven Chubak — Wolfe Research LLC — Analyst
Very helpful color, Mike. Thanks so much for taking my questions.
Operator
The final question for today will come from Gerard Cassidy of RBC Capital Markets. Your line is open.
Gerard Cassidy — RBC Capital Markets LLC — Analyst
Thank you. Good morning, guys. Charlie, you talked about joining the Net-Zero Alliance as with some of your peers. Can you frame out for us as you guys get deeper into that and your peers do as well, how should we try to estimate what types of risks you might be coming up against and how do you guys monitor those risks?
Charles W. Scharf — Chief Executive Officer and President
Listen, I think it’s a great question. I think it’s the question that everyone is asking. And I think the whole point about joining these alliances is to ensure that we’re all benefiting from each other’s experiences and those that have experienced this in other parts of the world to understand how to actually think about that. What we’re doing is we’re going through how we think the impact of climate on a much longer-term basis can impact all of the different businesses from a risk perspective but also understanding where the opportunities for us are. And so, whenever we talk about where we’re going on climate with our goal to get to net-zero, I think people too often jump to that means we’re going to stop doing things. First of all, what we’re trying to do is to assure that we’re doing everything we can to help all of our clients transition and that doesn’t mean walking away from clients. It means helping them invest in areas whether it is — and we can do that in lots of different ways across the company with our own balance sheet or the public markets to invest in very different ways. And I think what you’ll start to see from us and others is a lot more disclosure on what the embedded risks are but also all the different things that we’re doing to play our part in reducing emissions more broadly. So I just think it’s a question that I think we should continue to ask as we all continue to provide more significant disclosures than we’ve all done in the past on the topic.
Gerard Cassidy — RBC Capital Markets LLC — Analyst
I appreciate that. Thank you. And pivoting to the follow-up question on credit. Obviously, your guys’ credit is fantastic, unlike the industry, considering what we just came through. Can you give us some color on the reserve — I assume as we normalize credit, you and your peers, how should we be looking at the reserve building over the next — in 2022 going into 2023, loan loss reserve building that is?
Charles W. Scharf — Chief Executive Officer and President
Well, let me start, Mike, and then you just pick up. I think the one thing I obviously — and I think you guys all know this is, not everyone starts at the same position when you look across what people have done with reserving across the industry. I think we feel very good about where we are relative to what we’re seeing. We all have to make determinations. remember on a forward-looking basis as to what the embedded losses are. And I think, everyone has got a different point of view on that, on the way that looks and I think we’re at the — we’re doing the right thing, but I still think it’s — our assumptions are appropriate and conservative.
And beyond that, remember, the idea of looking forward in terms of what’s going to change, in addition to just loan growth and making sure that we provide for growth in the balance sheet, it’s going to depend on the ultimate outcome of the performance of the economy. And so as we sit here today, we feel very, very good about it. But it can take lots of different turns and hopefully, we’re still insulated from some level of a downturn from where we sit today, given the assumptions that we’ve made because of the uncertainty that exists in the environment. So, I’m not worried about where we are in 2022 personally, but I think as we look beyond that, it’s a living, breathing calculation.
Gerard Cassidy — RBC Capital Markets LLC — Analyst
Great. Thank you.
Charles W. Scharf — Chief Executive Officer and President
Thanks. Listen, thank you very much, everyone, for the time and we appreciate it. And we will talk to you over the next quarter. Take care. Bye-bye.
Operator
[Operator Closing Remarks]