John Campbell - Director, Investor Relations Tim Sloan - President and Chief Executive Officer John Shrewsberry - Chief Financial Officer

John McDonald - Bernstein Research Erika Najarian - Bank of America Merrill Lynch Ken Usdin - Jefferies LLC. Betsy Graseck - Morgan Stanley & Co. LLC Scott Siefers - Sandler O'Neill John Pancari - Evercore ISI Matt O'Connor - Deutsche Bank Securities, Inc. Marty Mosby - Vining Sparks Gerard Cassidy - RBC Capital Markets LLC Saul Martinez - UBS Securities LLC Vivek Juneja - JPMorgan Brian Kleinhanzl - Keefe, Bruyette & Woods, Inc.

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 Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions] I would now like to turn the call over to John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Thank you, Regina. Good morning. Thank you for joining our call today where our CEO and President, Tim Sloan; and our CFO, John Shrewsberry, will discuss third quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our third quarter earnings release and quarterly supplement are available on our website at wellsfargo.com. I would 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 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. I will now turn our call over to CEO and President, Tim Sloan.

Thank you, John. Good morning. I want to thank you all for joining us today. Over the past year, we have made fundamental changes at Wells Fargo in order to build a better and stronger bank. And John and I'll be highlighting our progress throughout the call. But first I want to discuss our financial performance. In the third quarter, we earned $0.84 a share; including the impact of a $1 billion discrete litigation accrual for previously disclosed mortgage related regulatory investigations. This is not tax deductible and reduced our EPS by $0.20. This accrual was for a pre financial crisis mortgage related regulatory matter. While this accrual impacted our financial performance in the quarter, the commitment of our team members to put our customers first and help them to succeed financially remains strong and was demonstrated by average deposits growing 4% from a year ago, client assets reaching record levels in wealth and investment management, debit card purchase volume increasing 5% from a year ago, balances in our consumer and general purpose credit card portfolio also growing 5%. And illustrating the benefit of the GE Capital acquisitions and strong collaboration across our wholesale businesses, we led more syndicated asset base loans in any other firm in the third quarter. As part of our priority of rebuilding trust, we provided expanded disclosure in our second quarter 10-Q filing, detailing our efforts to identify and address other areas and instances where customers may have experienced financial harm. Let me update you on a few recent actions and milestones. At the end of August, we announced the completion of an expanded third party review of retail banking accounts covering 165 million accounts over a nearly eight year period. As we committed to a year ago we reviewed more accounts over a longer period of time and identified additional customers who may have been impacted. All customers identified as having potentially unauthorized accounts are being notified directly as to how they can participate in a $142 million class action settlement and we are refunding customers for any of these accounts that experienced fees and charges. Last week we completed another around of broad customer outreach via email in 43 million statement notifications to encourage anyone with questions about their accounts regardless of when they were opened to let us know so we could address their questions. We also announced in August a plan to remediate auto loan customers who may have been financially harmed due to issues related to collateral protection insurance policies which we purchased on their behalf when customers' insurance policies lapsed. We discontinued our CPI program last year and we began issuing checks to affected auto loan customers this month. Last week, we announced plans to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16th of 2013 through February 28th of 2017 and to refund customers who believe they shouldn't have paid those fees. In March of this year, we changed how we managed the mortgage rate lock extension process by establishing a centralized review team that reviews all rate lock extension request for a consistent application of our policies. We are working diligently to make things right for our customers. We will continue to be transparent and we will be reporting more progress in months ahead. We are working hard to transform Wells Fargo into a better bank for our customers, our team members, shareholders and our communities. I'm proud of the progress our team members have made to strengthen our culture, improve our business practices and risk management. We made fundamental changes to our business model, organizational structure and compensation and performance management programs. One reason I am confident that we are on the right path is it in the third quarter total team member attrition at Wells Fargo reached its lowest level in over six years. Within Community Banking, attrition is also at its lowest level in over six years and it has improved every quarter over the past year. Our customers are also responding positively to the changes we've made. While branch customer loyalty and satisfaction with most recent visit scores decline slightly in September after our announcement of the completion of the expanded third party account review, both metrics had reached individual post sales practices settlements high earlier in the quarter. And we saw improvement in loyalty scores near the end of the September. We also continue to invest in innovation to better serve our customers. Let me highlight a few examples. Since launching the Zelle person-to-person experience in June, we've seen significant growth in both the number of transactions and the dollar sent. In the third quarter, P-to-P payment sent by our customers increased 46% from a year ago. We've recently launched a pilot of our online mortgage application. It combines the power of Wells Fargo data with the digital interface to create a know-me customer experience. We expect a complete rollout in the first quarter of next year. Later this month, we'll rollout Intuitive Investor, a new digital advisory offering providing low cost allocation, portfolio selection and rebalancing. We launched CEO Mobile Token which allows our treasury management customers a secured, convenient way to provide secondary authentication anytime they need to complete a transaction. Since the first quarter when we became the first large bank in the US to offer card free access to all of our ATMs through a one time access code, our customers have used card free ATM access codes 3 million times. And just this last we week announced than more than 40% of our ATMs are now NFC- enabled which allows our debit card customers to use their mobile wallet at the ATM providing another option for card free access. Citing our card free ATMs along with a number of new capabilities, Wells Fargo was also recognized as the industry leader in Business Insider's mobile banking study that was released this week. Before turning the call over to John, I want to acknowledge the devastation many of our communities have faced from the recent hurricanes. To help our impacted customers in those areas recover we are providing payment relief and proactively waiving fees. Our mobile response unit was deployed to impacted areas in Texas a month ago and we are deploying three additional units to Florida so customers can receive in person assistance from Wells Fargo disaster recovery specialist. The Wells Fargo Foundation donated $2.6 million for hurricane relief efforts in Texas, Florida and Puerto Rico, and our customers have generously donated over $2.6 million to the American Red Cross Disaster Relief Fund through our ATMs nationwide. We are also working with our customers impacted by the wildfires in California and the Wells Fargo Foundation made a donation to help these communities this week. John Shrewsberry will now discuss our financial results in more detail.

Thank you, Tim, and good morning, everyone. We earned $4.6 billion in the third quarter, down $1.2 billion from the second quarter. This decline was driven by higher operating losses from the $1 billion discrete litigation accrual that Tim described. Linked-quarter trends were also impacted by the $100 million reserve release we had in the second quarter. This quarter we did not have a release as improvements and credit performance in certain portfolios were offset by a $450 million of reserve coverage for potential hurricane related losses based on initial review of our portfolio. As a reminder, our result in the second quarter also reflected a $309 million gain on the sale of Pick-a-Pay PCI loan portfolio. On Page 3, we highlighted our results compared with a year ago. While net interest income increased $524 million, revenue declined $402 million reflecting lower non-interest income, driven by lower mortgage results. Average loans declined 1% from a year ago as grown in our commercial loans was more than offset by lower consumer loans, while average deposits increased 4% from a year ago. And we've maintained exceptionally strong capital levels even as we've returned more capital to shareholders including $96 million reduction in common shares outstanding through net share repurchases. Turning to Page 4, I'll be highlighting trends in loans deposits and credit later on the call, so let me just call out a few items from this slide. Cash and short-term investments increased to $7.4 billion, reflecting lower loan balances and growth in deposits. With our strong liquidity levels we could deploy tens of billions of dollars and remain LCR compliant. Investment securities increased $5 billion in the quarter, we had approximately $31.2 billion of gross investment purchases in the quarter, primary agency MBS in the available for sale portfolio which were largely offset by run-off in sales. Turning to the income statement overview on Page 5, I'll describe revenue and expense trends later on the call. So let me just highlight that our effective income tax rate in the third quarter was 32.4%. This included net discrete tax expense of $186 million primarily resulting from the non deductible treatment of the $1 billion discrete litigation accrual, partially offset by discrete tax benefits arising from favorable resolutions of prior period matter of certain state tax authorities. As shown on Page 6, the benefit from higher rates increased average loan yields 5 basis points in the quarter, the seventh consecutive quarter of increasing loan yields. Average loan yields were down $5.2 billion from a year ago with growth in commercial loans offset by declines in consumer loans and down $4.6 billion from the second quarter with declines in both commercial and consumer loans. H.8 data continue to indicate that there was softness across the industry, particularly in certain categories like C&I, but they're also specific actions that we've taken, primarily driven by our own risk discipline, which have impacted our growth. Let me explain the primary factors in more detail. Starting with commercial loans on Page 7, lien utilization rate remain stable at approximately 40% in the third quarter and balance is increased $3.7 billion from a year ago, but declined $5.7 billion from the second quarter. We've previously highlighted expected run-off within our consumer portfolio but we've also had expected run-off in certain portfolios of commercial loan. We provided $6.5 billion of financing relating to our government guarantee student loan sale in the fourth quarter of 2014 which is then securitized in several tranches over the past couple of years with $1.3 billion remaining at the end of the third quarter down approximately $800 million from the second quarter. We fully anticipated the run down of a couple of loan portfolios we acquired from GE Capital and pay downs have totaled $7.9 billion over the past 18 months including $1.7 billion in the third quarter with approximately half of the reduction in the quarter in C&I and half in commercial real estate. On this slide we provide details on the individual loan portfolios that drove commercial loan trends this quarter. We summarize our consumer loan portfolios on Page 8. This portfolio declined $13.1 billion from a year-ago, primarily due to $7.4 billion of lower auto loans and $7 billion of lower junior lien mortgage loans. However, consumer loans increased $200 million from the second quarter with growth in first mortgage loans and credit card. Our first mortgage loans increased $3.6 billion from the second quarter, reflecting $7.5 billion of growth in non-conforming mortgage loans, partially offset by the continued run-off of higher yielding legacy portfolios. Our junior lien mortgage loan portfolio continued to decline as expected as pay-downs more than offset new originations. In terms of credit card portfolio, over the past three years our annual growth rate was the largest among the large banks. Clearly the sales practice announcement last year had an impact but we started gain a bit of momentum. Our credit portfolio increased $944 million linked quarter driven by higher spend per active account. We've invested in our rewards program and had continued our migration to digital acquisition while staying within our risk appetite. In fact, 42% of card openings in the third quarter were through digital channels, up from 17% in the full year of 2016. Our auto portfolio continued to decline as expected and was down $2.5 billion from the second quarter as a result of tightening underwriting standards. We expect auto loans to continue to decline. Other revolving credit and installment loans declined $252 million from the second quarter driven by declines in personal loans and lines which we expect to continue to decline due to lower branch referrals over the past year. As highlighted on Page 9, average deposits were $1.3 trillion, up $44.9 billion or 4% from a year-ago and up $5.2 billion from the second quarter. Based on the latest FDIC data, we retained our number one ranking in retail deposits. Our deposit cost was 26 basis points in the third quarter, up 5 basis points from the second quarter and up 15 basis points from a year ago. We've not made material changes in rates paid on consumer and small business banking deposits within our retail bank with the majority of our peers also holding these rates steady. We have implemented some incremental deposits repricing for commercial and wealth and investment management customers as market rates have increased. Net interest income increased $524 million, or 4% from a year-ago primarily driven by growth in earnings assets and higher interest rates. However, net interest income declined $7 million from the second quarter as the impacts of lower investment portfolio yields driven by accelerated prepayments and lower average loan balances were largely offset by the impact of one additional day in the quarter and a modest benefit from all other growth and repricing. The net interest margin declined 3 basis points to 2.87% as the impact of lower investment portfolio yields driven by accelerated prepayments, lower average loan balances, growth in average deposits and growth in trading assets and related funding were partially offset by lower average long-term debt and a modest benefit from all other growth and repricing. For the first nine months of the year, we've growth net interest income by 5% which is consistent with our previously stated expected of low to mid-single digit growth for the full year 2017. Non-interest income declined $926 million from a year-ago, driven by lower mortgage banking revenue and was $236 million from the second quarter. Let me highlight few of the drivers of this decline. Card purchase volume increased but card fees declined $19 million from the second quarter due to higher reward expense. We offered competitive rewards and our expense is increased due to high purchase volume, more spending on our highest reward card and higher acquisition bonuses. Mortgage banking non-interest income declined $102 million from the second quarter. Servicing income declined $91 million from the second quarter primarily due to higher on reimburse direct servicing cost driven by an increased and estimated cost for aged FHA foreclosures while origination volume increased, residential mortgage origination revenue decline due to a lower repurchase reserve release. Residential mortgage origination volume was $59 billion in the third quarter, up 5% from the second quarter and higher refinancing volume. The production margin on residential held for sale mortgage origination was 124 basis points in the third quarter consistent with the second quarter. Compared with the second quarter there was a favorable impact of $72 million from net hedge ineffectiveness accounting. The FASB has issued new hedge accounting guideline that we will adopt in the fourth quarter which will significantly reduce the interest rate related to foreign currency related ineffectiveness associated with our long-term debt hedges due to the way we structured our hedging instruments, we may continue to experience some ineffectiveness volatility primarily related to require differences in the discount rates for our foreign currency denominated long-term debt and associated cross - currency interest rate swaps. On Page 12, we provide details on trading related revenue and the impact to net interest income and non-interest income. Despite decline in customer trading activity, revenue driven by lower volatility and seasonally lower trading volumes, trading related revenue increased $52 million from the second quarter. Trading related revenue was down $29 million from a year ago, reflecting lower volatility and lower transaction volume. As shown on Page 13, expenses increased $810 million from the second quarter, driven by $1 billion litigation accrual. The discrete litigation accrual increased our efficiency ratio by 456 basis points in the third quarter. Last quarter we said that we expected our efficiency ratio to improve in the second half of the year and that our full year efficiency ratio was expected to be 60% to 61% in 2017 not including any potential non-recurring expenses including not get accrued litigation expense. We currently expect our full year 2017 efficiency ratio to be plus or minus 61% excluding the $1 billion discrete litigation accrual and any other non-recurring expenses including not yet accrued litigation expense. The reason why our 2017 efficiency ratio is now expected to be higher than we anticipated last quarter is due to lower than expected earning asset growth and higher than expected expenses, primarily for cyber regulatory initiatives and data modernization. These expenses are part of a building a better bank. However, we are fully committed to improving our efficiency ratio and achieving our target of total of $4 billion of expense reductions. As you can see on Page 14, we had linked quarter declines across many of our expense categories except for revenue related expenses and running the business non discretionary expenses which is a category impacted by the $1 billion litigation accrual. The increase in revenue related expenses was primarily due to higher commissions and other incentive compensation driven by wholesale banking and brokerage. The $24 million decline in compensation expense was driven by seasonally lower payroll tax expense. Third party service expense declined $82 million from the second quarter driven by lower project related, legal and outside data processing expense. Running the business discretionary expense was down $34 million from second quarter primarily from lower TNE and advertising expense. On Page 15, we showed the drivers of the year-over-year increase and expenses. Compensation and benefit expense increased $338 million driven by higher salaries from annual salary increases and higher health benefit expenses. Also these expenses in the third quarter of 2016 were reduced by the forfeiture of unvested equity award. Revenue related expense declined $131 million from lower commission and incentive compensation driven by lower mortgage and wholesale banking activity. Third party service expense increased to $184 million, driven by higher project spending and legal expense, approximately $80 million of this expense was sales practices related in the third quarter. The $665 million increase in running the business in non-discretionary expense was driven by higher operating losses reflecting the $1 billion litigation accrual. We've previously described the main drivers of the first $2 billion of targeted expense saves by the end of 2018 and we've now identified initiatives and programs for the total $4 billion of expense target. On Page 16, we summarize these initiatives and the expense categories that will be impacted and we are committed to achieving these reductions. This leverage have evolved slightly from Investor Day but are still focused on areas like centralization and optimization and evaluating capacity to achieve savings in areas such as corporate properties and workforce optimization. As you can see on this page, some of these initiatives will generate savings throughout the periods while others unexpected to be realized until later. We are making progress and work that needs to be done on these initiatives but many of the changes that drive savings are longer term efforts and are in the early stages of being realized. For example, while we are seeing benefits from centralizing our functional areas, the saving for corporate property including savings from 200 branches we plan to close in 2017. We are on track as we closed 145 branches during the first nine months of this year. However, there are minimal immediate savings recognized from branch closure due to initial closing cost. Therefore, most of the expense benefit from the branches we close this year will not be realized until next year. It's also important to note that these initiatives do not include the benefit of the expected run-off of core deposit intangibles by 2019 which resulted in $640 million of expenses in the first nine months of the year. It also doesn't include the expected completion of the FDIC special assessment in 2018. And finally it doesn't include the expense savings due to the sale of businesses we've announced including commercial insurance and shareowner services businesses which are expected to close in the fourth quarter and first quarter respectively. On Slide 17, we provide details on the expected timing of our target expense reductions. We expect to achieve 21% of the $4 billion of the annual expense saves by the end of this year and 50% by the end of next year. The rest of the expense saves are expected to be achieved by the end of 2019. As a reminder, the first $2 billion of targeted expense saves will support our investment in the business and we expect that the additional $2 billion target in annual expense reduction by the end of 2019 to go to the bottom line and to be fully recognized in 2020. Turning to our business segments starting on Page 18, Community Banking earned $2.2 billion in the third quarter, the impact from $1 billion litigation accrual which is reported in this segment was the primary driver of the year-over-year and linked quarter decline. On Page 19, we highlight customers continue to actively use their accounts; branch and ATM interactions declined 6% from a year ago. This decline was driven in part by customers migrating to a digital channel with the digital secured session up 6% from a year ago. As teller interactions migrate to self service options, teller FTEs have been reduced 4% from a year ago while we continue to invest in more specialty bankers which are up 5% as part of our goal of providing better customer service and advice. Primary consumer checking customers declined modestly from the second quarter in a year ago, while our attrition rates have remained stable, the decline in new account openings has impacted primary consumer checking customer growth. However, as we've highlighted in Investor Day, our new customers continue to have higher balances and into use their debit cards more frequently. On Page 20, we highlight balance and activity growth. Average consumer and small business banking deposits grew by 2% from a year-ago. Debit card purchase volume increased 5% and consumer and general purpose credit card purchase volume increased 4% from a year-ago. Customer experience survey scores predictably declined after we announced the completion of the expanded third party review of retail banking accounts at the end of August. However, as Tim mentioned earlier, we continue to improve these scores prior to this announcement. While this past year has been challenging, the numbers we've made are creating more consistency -- the changes we've made are creating more consistency and simplicity for our branch team members which will result in a better experience for our customers. We know that improving the experience for customers and team members is critical to growing our business. It's more than being nice it's offering the right products and services to meet the financial needs of our customers; it's also about making changes with real customer impact for example empowering managers in the branches to immediately resolve some customer issues such as fees and service request rather than having to redirect customers to a call center. I am confident that the changes we are implementing will improve customer service and also drive growth. Wholesale Banking earned $2 billion in the third quarter, stable from a year-ago and down 14% from the second quarter. Results from the second quarter included the tax benefit resulting from our agreement to sell Wells Fargo Insurance Services which is expected to close in the fourth quarter and resulted to gain in fourth quarter. Wealth and Investment Management earned a record $710 million in the third quarter, up 5% from a year-ago and up 4% from the second quarter. Revenue increased 4% from a year-ago driven by 19% increase in net interest income. WIM total client assets were a record $1.9 trillion, up 8% from a year ago, driven by higher market evaluations and continued positive net flows. Turning to credit quality on Page 23, the quarterly loss rate was 30 basis points, up 3 basis points from the second quarter but still near historically low levels. Commercial losses increased 3 basis points with higher losses in C&I, consumer losses increased 2 basis points as continued net recoveries in consumer real estate and lower credit card and other revolving credit were offset by higher auto losses. Nonperforming assets continue to decline down $512 million from the second quarter, the sixth consecutive quarter of decreases and NPAs were now less than 1% of total loans. We did not have a reserve build or release this quarter as continued improvement in consumer real estate and commercial loan portfolios including continued improvement in the oil and gas portfolio was offset by a $450 million of reserve coverage for potential hurricane related losses based on an initial review of our portfolio. Our preliminary estimates includes coverage for potential losses in our reliable auto business which is based in Puerto Rico was been specially challenging to determine the full impact from Hurricane Maria. Turning to Page 24, our estimated common equity Tier 1 ratio fully phased-in increased to 11.8% in the third quarter, remaining well above our internal target level of 10%. The growth in our CET 1 ratio reflected lower RWA driven by lower loan balances and commitments, as well as improved RWA efficiency. We remained focused on returning more capital to shareholders. Third quarter was the first quarter under our 2017 Capital Plan and we increased our net share repurchases by 34% from the second quarter. We've returned the total of $4 billion to shareholders through common stock dividends and net share repurchases which was up 16% from the second quarter. Before I conclude, I want to update you on our resolution planning efforts. We made a decision to move from a multiple point of entry resolution strategy to a single point of entry preferred resolution strategy for our next resolution plan submission. We've concluded the developing SPOE strategy will enhance the flexibility of strategic options available to resolve the firm. This decision does not related to any agency feedback we've received in our 2017 submission and is not expected to result in any additional fee lock issuance or liquidity requirements. In summary, while our financial results in the third quarter were impacted by the $1 billion discrete litigation accrual, our asset quality, liquidity and capital levels all remain very strong. We highlighted throughout the call the transformational changes we are making and I am optimistic that these changes will help drive our long-term success. And I think we will now take your questions.

[Operator Instructions] Our first question will come from the line of John McDonald with Bernstein. Please go ahead.

Hi, good morning. John, I want to try again to ask about the idea of the timing differences between initial $2 billion of expense saves to be realized by the end of next year. And when the spending that is offsetting that is occurring, if you could kind of comment on that. And then if you have an initial thought on type of efficiency ratio that you guys might strive for next year. I am sure folks will love to hear any thoughts on that.

Sure. So we provided this slide on the deck this time that shows what portion of that first $2 billion should be out of the run rate by the end of this year and what portion should be out of the run rate by the end of next year which is incremental information. The part that's hard to convey is what is already being spent as reinvestment of that for a variety of programs. We've talked about a lot of these but we've had and will continue to have elevated spending around various regulatory and technology related activities. Now just tick few off for you including resolution planning this year which doesn't completely go away. This BSA and AML activity going on, lot of cyber work going on. I mentioned data modernization earlier in our remarks which is a big undertaking is technology re-platforming and this of course your sales practices issues that are lingering. So some of those are in the run rate today. And many of those will continue to be in the run rate throughout 2018 and maybe some of it even into 2019. There are bits and pieces of getting more efficient on those programs that are part of that $2 billion save that we are working on. So it's not dollar for dollar if as these things roll off and that first $2 billion gets realized those benefit, but with respect to efficiency ratio we think that will be sort in the -- as I mentioned plus or minus 61% from the fourth quarter and it is definitely our goal to be at 59% or below at some point next year. Now there is two parts to that. One is expenses which we are talking about but it is also what happens with revenue. So rate increases, if there are any loan growth which is very important will contribute to that too. So it is both the numerator and denominator that we are working on. But I'll say we are shooting for plus or minus 61% in the fourth quarter and we are -- we like to get to 59% or below at some point during 2018.

Okay. And then separately could you talk about some of the factors affecting net interest income and net interest margin for next quarter? With the loan growth headwinds not having a rate hike in September, is it possible to have net interest income growth going forward or what are your thoughts there?

That's good question. So it depends on a few things including what you mentioned. It also depends on what happens to deposit pricing and what the market response is in retail deposits in particular. I wouldn't anticipate a lot of incremental growth in interest income in the fourth quarter. I think we are at 5% [here today] [ph] on year-over-year basis and we've been imagining and telegraphing low to mid 4% to 5% for the year as a whole. So I think the fourth quarter will probably reflect that especially because as you said nothing moved on short end, the long ends moved a little bit but that only matters at the margin as we reinvest.

Okay. And one quick last one for me. The business sales that you mentioned in the fourth quarter and the first are helpful to the efficiency ratio. Are those relatively earnings neutral? Is there any loss of earnings as those businesses go away?

They are relatively earnings -- the run rate which I think is what you are referring to is relatively earnings neutral going forward.

Okay. Meaning when you sell them there is no net income that goes away, they are pretty P&L neutral.

Yes. The only complication that adds is indirect expense because we have a work to do take up the associated indirect expense but in general I'd say that that we will not be giving up a lot of net income.

Okay. Meaning you will just take some time to get the expenses out.

Yes.

Okay. Thank you.

Your next question comes from the line of Erika Najarian with Bank of America. Please go ahead.

Yes. Hi, thank you for taking my questions. My first question is for you Tim. I think that as I speak with your current and prospective shareholders, the biggest sort of question mark in terms of visibility into next year is not really on the expense management side but really on the revenue side. You started out this call with the list of the remedies that you've done on the community bank. I guess the question for me is in terms of the overall culture of the bank how much is the wholesale bank being impacted by the issues and the scandal on the community bank? In other words, is it impacting risk appetite? Is it impacting growth initiatives? Is it impacting your ability to hire?

The short answer as it relates to wholesale banking, Erika, it is a great question, is no, I mean at the margin and our government and institutional banking business. There is a little bit of impact on some municipalities they have put us on probation or just said they are not going to use as much for a period of time. Though we had some municipalities that have taken us off that because we've executed on everything we said we are going to execute over the last year. So it's not impacting our ability to hire people. And I mentioned attrition for the entire company but the same would go for wholesale banking in terms of lower attrition so we are not losing people. And is not affecting our credit appetite at all. And again I think wholesale banking performance in the quarter was good and I'd say the same thing for wealth and investment management. I mean you saw real good performance there. So there is no question that there is impact. We've talked about that. John provided a number of details in his presentation as it relates to some of our consumer businesses but for the rest of the company we are continuing to move forward.

Got it. And just thank you so much for providing the new slide, slide 17, in terms of what we can expect to be achieved when. And I am wondering as we think about 4Q, 2019, John, is it a simple as saying okay let's assume a core run rate for Wells Fargo, let's say it's the $13.3 billion this quarter excluding the $1 billion in litigation accrual, assume a growth rate off of that and then deduct $500 million. Is that what falling to the bottom line means by 4Q, 2019?

That's elegant but I guess the way I think about it -- I think about it is you got to take a snapshot of a business mix that throws off its -- each component which throws of its own efficiency ratio and I expect us frankly to get more efficient in the businesses as we roll forward. But as you look forward a year we should have taken out call it 40% of the first $2 billion and the rest of it to be coming out at the end of next year. So obviously that will be phasing-in through that period of time. You will have these harder to gauge elevated program related expenses for the types of items that I mentioned that sort of happening over the top. They have been for a little while and I anticipate the next 12 or 18 months will be -- there will be a lot of it going on. So I don't know much will be rolling off exactly at the end of the next -- nobody knows exactly how much will be rolling off at the end of next year. But that's a big number. And then we began to have this structural take out like the amortization, deposit intangible, the extra FDIC premium and the cost of the exited businesses although those will be happening earlier in 2018. So those are the moving pieces as I see them. Now with something new could occur to that changes the business but those are the big items and the way that are moving that as we forecast through 2018 and into 2019 are the drivers of where we are going to be. And with that an expectation for revenue that's what makes us think that we will get down to 61% for 2017 in the fourth quarter and hope to get to 59% in 2018.

And just one last question, a follow up on the revenue side of the 2018 efficiency equation. Is there idiosyncratic catalyst for the margin decline that you would like to point out that impacted performance for this year? Or maybe a better way to ask if the Fed does raise rate in December could you walk us through what the impact would be for 1Q, 2018 that would be perhaps different from what we saw this quarter?

Yes. So with respect to year-over-year margin and what's going on I mean it's what you imagine. We've got different categories of earnings assets they are priced differently investment securities loans, short -term investment et cetera. We've got mix and we have repricing. And the sort of weighted average of that matrix is the benefit in a rising rate environment, and then we've got deposits, we've got long-term debt, other funding liabilities, we've got mix and we've got repricing that's the negative in a rising rate environment. And that's what -I think we are five basis points up year-over-year but if there is a move in December and we roll into the beginning of the year and the easy calculation is actually our parallel move, so I'll give you the number for a parallel move. We think that's probable all things being equal that's probably worth $90 million a quarter including in the first quarter. So now things don't happen in parallel. We don't know what's going to happen at the longer end but and the big question mark about that is what is the deposit response in retail that bigger banks either cause or impacted by on the next move because we model a reasonably meaningful response and yet we haven't seen what yet so there could be upside to that.

Your next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

Hey, guys, how are doing? Good morning. Hey, can you talk a little bit about just the loan growth expectations? I know John in your prepared remarks you talked through a couple of the buckets where you are continuing to let things roll off. But obviously we are seeing the period end come in lower than the averages in part because of that. Can you just talk about end demand and try to separate end demand and customer growth from perhaps any lagging ramification of retail sales and the slower account growth in terms of how you expect loans to traject going forward?

Ken, it's Tim. You are talking about fourth quarter next year in term from the timeframe standpoint?

Yes. Just your general outlook for when do you we see kind of bottoming in loan growth and how much of that kind of let go part is weighing on the overall amount of growth that you are seeing?

So let me start with the portfolios that are likely to decline over that period and then we'll get to the ones that are going to increase. So as we've highlighted for last few quarters, I think it's likely that the auto portfolio will continue to decline over the next few quarters. Our expectation is it probably bottom out sometime second half of next year. I think the home equity portfolio will also continue to decline though our expectation is that next year all other things being equal will originate more home equity loan than what we did this year. But again recall there still that legacy portion of that portfolio that's burning off that we used to be very concerned about from a loss standpoint and it is now performing beyond all of our expectations. I expect the credit card portfolio to continue to grow. We saw that this quarter that was absolutely terrific driven by some really good improvement in digital acquisition. And so all the investments that we are making in the credit card business and our digital platform are working. I expect the on balance sheet mortgage portfolio to grow during that period. There will be some seasonality in the fourth and first quarter we've seen but again like we saw this quarter, we saw good growth in the first mortgage residential portfolio. And then on the wholesale side and commercial side we expect to see growth throughout that period. John highlighted some of the idiosyncratic reasons why we saw some decline this year. But our expectation is going to continue to grow. Having said all that, the reason we became the largest lender in this country is because we look at the market, we look at our customer demand and we want to make sure we are making good, long-term credit decision. So sometimes in a quarter it means you grow, sometimes you shrink but over the long term we are very confident we are going to be able to continue to grow.

Okay. And then if I could just dig in on the commercial business specifically. The biggest of the loan buckets on the wholesale side. Even maybe some granularity there in terms of -- I know the specifics that John mentioned but obviously C&I had slowed overall and what do you just seeing in terms of customer demand and where that growth would come from inside that commercial business ?

Oh I think again we called out some specifics for example in this quarter we had a number of larger CRE construction loans that paid off and that's again that's going to be little bit episodic but overall view is that we are going to see growth across the entire portfolio again because we are in so many businesses, each business is going to have a little bit different complexion in the quarter. We highlighted the fact that because of the GE Capital acquisition we are now the number one asset base lender and we are pretty excited about that. That hasn't necessary happened over last few years so there is -- we think there is good upside there but really across the board we are optimistic about being able to grow.

Okay, got it. And on the flip side just if I can ask the question about your credit in general and you are kind of got to this point where your charge-off bounced up a little bit and you didn't really release for the first time in a while. There is a lot of moving parts and you mentioned the hurricane impact. But just can you just talk about outlook or any credit normalization going forward in terms of also the mix and just amount of recovery that you are still being continuing to see on the commercial side?

Yes, Ken, it's a really good question. I think that everybody in the industry and certainly been for us too, we've seen such a benign credit environment except for the energy business which we've all work through. Whether you are a 27 basis points or 30 or 33 whatever the number is over the last few quarter it's still really low. If you overlay the current economic environment we continue to believe that losses will probably bounce around at lower rate ex things like the impact from the hurricanes but overall the portfolio has never been in any better shape in my 30 years at the company so we continue to be optimistic. Sorry John --

I think for us auto will look better because we've taken out the low end of credit quality.

It's good point.

Vintages a recent quarterly, vintages of origination. I think with card we've been adding more new cards. We -- our card portfolio is now probably 50% what you consider to be very seasoned vintages so we should probably see a tick up because newer card vintages are going to experience front end loaded losses that's to be expected.

But again that's not necessarily because of any fundamental deterioration at card portfolio, that's just a natural aging of new customers.

Your next question comes from the lines of Betsy Graseck with Morgan Stanley. Pleas go ahead.

Hi, good morning. I had a couple of quick questions. One was on the hedge accounting treatment that you said you are going to adopt next quarter. Could you give us a sense to why you decided to adopt that? And could you also go through what do you think the impact is on balance sheet or you are going to be realizing any gains as you move over securities et cetera?

Yes. So this is -- this really relates to our own liabilities. When we issue long-term fixed rate either in dollars or in other currencies we hedge -- we often hedge back to floating, and we almost -- we generally hedge back to dollars or at least historically we did. So is that accounting noise that gets reduced as a result of the new accounting. So the only real impact that you are going to see is there will be some catch-up adjustment, year-to-date adjustment in Q4 which I think might amount to call it $100 million - $200 million kind of range. We haven't finished all the map on that yet but we'll figure out and that will come through in Q4. And then going forward what you see is a lot less volatility and the reason of course we are adopting it is because we are creating this noise in non-interest income that was bouncing around to the tune of hundreds of millions of dollars a quarter that was just as a result of different evaluation schemes for the liability lag and the hedge lag and things that were permanently hedged. So we are happy with this kind of change.

Okay. And I heard in that there is one time opportunity to move some securities from held for -- held to maturity to AFS. I just wondering if you are going to take advantage of that at all or not?

Not going to. The impact for us is really on the liability side.

Okay, got it. And then question on the living will and living will have been extended right to next one is not for another was it 18 months or so. Just want to understand how you are thinking about that? Because I know we had a conversation before round how you are thinking about the size of the investment bank versus the living will and maybe you can give some updated thoughts on that.

Sure. So the MPOE strategy that we've had in our recently filings works great for us. And I point out that because it's more unique to us among the larger banks because we've got smaller non bank affiliate activity going on and that's sort of a key driver of whether that works or doesn't work. In order to create more flexibility going forward including more either size or complexity of some of our non bank affiliate activity with nothing in particular or urgent in mind but just in general. We get more flexibility with an SPOE strategy. We had to sort of finish the process first of satisfying the deficiencies that were called out a couple of years ago and then filing the most recent plan. And so we stuck to our plan and delivered that and the feedback thus far has been -- it's not complete but it has been fine. So by doing this we think we open up more flexibility for Wells Fargo going forward and as you mentioned the industry got word that there will be instead of an annual cycle, at least this time an extra year and so whether we wait and file at the end of that period or we file at the middle of that period, we haven't really figured out yet but the intention is to move towards SPOE and we thought that the investment community should know that.

Okay. Just on auto specifically. I know you mentioned your actions you would be taking in the auto portfolio. What would drive you to get back into growth mode there? I know there has been some chatter around demand picking up and obviously the hurricane has had some impact.

Yes. I just add I think there are two things going on, Betsy. One, there is the execution of the fundamental changes that we are making in the auto business to make it much more efficient and much more -- much less complex. And then it's just going to be our view of what's going on in the business. And if we think that there is more opportunity from a risk-reward standpoint as it relates to credit and we will take advantage of that but I think the decisions we've made over the last year had really worked because when you look at the average FICO scores of our customers, we did now increase and that's exactly what we wanted. So it's going to be a function of the changes that we are making in the business and then our view of what's going on in the industry. Even said all that I think you should expect that portfolio -- I am not being negative I just want to make sure you reinforce the comment I made to Ken, you should expect the portfolio even if we turn things up a notch to continue to decline through the fourth quarter this year through most of the next year and probably bottom out again sometime hopefully at the second half of next year. I mean we like that business. Don't get us wrong and our expectation is over time we will continue to gain share in that business but right now we are cautious and we got lot of changes going into the business and we got to execute those.

And those changes which we talked about are taking 50 or 55 distributed origination underwriting and collecting centers down to three bigger regional centers. And so while that's happening we rather have a higher credit profile the average customer so just that we are dealing with fewer defaults frankly while we make that change. And it will be made in 2018.

Right. And so that you get down to the 3 by the end of 2018 or is that 2019?

It's happening now; it should be by the end of 2018, Betsy.

And then just lastly on the reserve built for hurricanes $450 million is that right?

Yes. And it's not net build -- it's -- we would have it released but for the analysis that we've done so far on the hurricane impact areas.

Right. And is that -- it's a little figure that we've seen in other folks, can you just give us a sense of exposures or what's include in that? Is that across all credit spectrum, consumer and corporate? Is there anything that's really driving the bus on the size?

Yes, it is. Betsy, again we are the largest lender in the country and you had a significant hurricanes have affected to very fast growing estate Texas and Florida in particular.

And Puerto Rico

And Puerto Rico and so it's across all product types. But I would also put in the category of if it's early in our assessment and I think we've been appropriately prudent in wanting to be conservative. We could end up being a little bit too conservative, maybe a little bit less but right now because there is so much going on in all those markets we just thought it was prudent not to have a release until we get to the bottom or whatever the exposure would be. And our folks have been working very hard in terms of trying to get their arms around it and everyday is a little bit different. My guess we'll have updates throughout the quarter.

Yes. One of the first things we did in Texas and Florida was offer people a 90 day forbearance on their mortgage payment then add them on to the back end of the loan with no negative repercussions so they get just get their feet back on the ground. That's great thing although it is just complicate figuring out whose going to make their payments or not. So we have to wait I suppose just seeing all the information and every first of the month payment cycle. We also have more complications here with our borrower insurance whether it's auto insurance or homeowner insurance, how are they covered for flood, how are they covered for winds, those types of things which will -- which increases the uncertainty on what performance are going to be. So we noticed also that there was a bigger number than what some other people have talked about.

Your next question comes from the line of Scott Siefers with Sandler O'Neill. Please go ahead.

Hi, guys. I was wondering if you could spend just a moment or two talking about the branch footprint overall? I mean you guys definitely been more aggressive recently than you had been over say the last several years and sort of pairing back where appropriate but I guess increasingly I am finding myself getting questions about why your branch footprint shouldn't be like 1,000 or so branches, if you are just given how many more branches you have been -- the other biggest players in the country so just curious if you could maybe offer a little color on sort of how you are thinking about the appropriateness of the footprint as look you forward and what any additional opportunities might be?

Sure. So Scott I think it's a great question but fundamentally I think every institutions going to have a different footprint. We are really, really proud of this footprint that we've developed over decades and decades which is one of the reasons why we have the largest market share from the deposit standpoint. That's incredibly valuable. And I'd also just caution that it's not just about the number of branches, it is the size of the branches, it's how they are organized, it's where they are located, which drive cost and so on. But I think Mary Mack was very clear in our Investor Day in giving a couple of years of guidance in terms of what are plans are and we are in the midst to executing on those plans. So far this year as we've detailed we are on track in terms of the branches we are closing. We haven't seen in any significant revenue impact which is part of the goal too. Most of our team members that were in those branches have now liked other branches which are absolutely terrific. So we've got an experienced crew. My guess is that over time we'll continue to respond to our customers because they are going to ultimately tell us how many branches they want. We transaction billions of dollars, billions of interactions each quarter but over 50 millions time a month somebody still comes into our branches and they want to be able to use them. So I think it's likely over time the number of branches that you see will decline. If our customers tell us that they want fewer of them then we will accelerate that. But candidly, if our customers tell us they want more we are going to listen to them. But I think you had also seen Scott the impact from the investment that we are making from the digital standpoint and it's not just the investment in terms of opening new accounts, it's also how we are integrating that into the branch experience. So it's long-winded answer to your question we are going to execute on what we said for 2018 and 2019. We are going to have an Investor Day next May. We will provide you with an update. I am sorry 2017 and 2018, we will have Investor Day next May, we will provide you with some updates and we will continue to move forward.

Only thing I'd is that we are thinking very, very aggressively about what the right mix is. We own half of our branches. We have short leases on most of the other half. We are in a position to be as flexible as we need to be if we think opportunity presents itself.

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

Good morning. Just wanted to -- sorry to everybody here but I just want to kick the dead horse on loan growth one more time. And I'll be quick on this one but the way we should think about with loan growth and the potential impact of the sales practice in card and auto insurance issues that if those issues did not happen at all. If you never had the sale practice issue emerge nor the auto insurance gap, CPI issue and all that. Loan growth headwind that you are seeing rights now, this decline in commercial et cetera that still would have happened?

For commercial

Yes

Yes. John, the sales practices impact for our loan growth has been primarily based on referrals from our branches to some of our other businesses. So there has been impact in terms of credit card referrals and first mortgage home equity and things like that.

Personal loans

And personal and lines, thank you John. That's really where the impact has been. There has not been material impact in wholesale or wealth and investment management for that matter.

Okay, thank you. And then a couple quick more things on the slide 16 where you give us the targeted savings exclude those items there including the CDI and the FDIC. What is the total of those items? Is it about a $1 billion?

On an annual basis it is about $1 billion, yes.

Okay, all right, great. And then lastly on the credit side the 90 plus days past dues up 14% on a linked quarter basis. I am sorry if I missed this but how much of that is storm related and what is the amount that maybe related to the storms I guess and could that increase from here. Thanks.

I don't have a good answer for you, John. I don't think much because it just happened and so I don't think that's a big driver.

Your next question comes from the line of Matt O'Connor with Deutsche Bank. Please go ahead. Matt O'Connor: Good morning. Tim, so you have been CEO now for about a year

A year and a day I think. Matt O'Connor: All right that even --

Maybe two I don't know, yes, seems like forever, Matt. Matt O'Connor: So now that you've been there for sometime do you feel like you have identified all the issues related to just call it sales practices and tactics have become headline issue for the stock and obviously weighted on results as well, issues like you have identified those issues.

Well, Matt, we've been working very hard to identify all the issues. I am very pleased with the progress obviously, I am not necessarily pleased if you had find something, it sometimes it's not particularly positive but we've made a commitment to look through everything and be very disclosive and I appreciate that can create a headline. And weigh on the company and stock and team members and others stakeholders. But we've made a lot of progress. I can't commit to you Matt that we've finished everything because things are still in progress but we are very far along but I think it's also important to reinforce -- our review of all of our policies, procedures, practices is going to continue for a long time meaning that we got to continue to ask more of ourselves everyday. And I think that was in hindsight one of the mistakes that we made and we've -- I have taken responsibility for that, we've taken responsibility for it. But it's long-winded answer to your question, we are making a lot of progress. We've been transparent about everything that we've talked about, we discovered and so on. I am really pleased with the progress. Matt O'Connor: And if you had to guess I mean how much longer until you can say we've look through everything, this is what we found, we are done and I kind of appreciate that so issues can pop-up at any company at any time but when you kind of put the stake on the ground and say, we've been through everything, it's a big company, lots of businesses, lots of employees and we are moving forward and I kind of 100% guarantee nothing will pop up but like we are essentially on par with everybody else and we are feeling good from here. How long that is going to take?

Well, Matt, I don't ever want to be on par with everybody else. I want to be better than everybody else. And that's why we rolled out our six aspirational goals for our team in March. And we said, look, we want to be the best in the industry. We are not in the best in the industry and everyone of those right now but that's what our goal is. So listen I appreciate the question and I understand the reason for the question and so on. But I don't have a specific date and I think it's a mistake notwithstanding in the short term that might feel good but in long term it would be a mistake, it's a mistake to put a stake in the ground, and say everything is got to be done by certain day because then what happen is people might rush to get to an answer and I don't want them to rush to the answer. I want them to get to the right answer. But again we've made a lot of progress. As John described, we are spending a lot of money looking through everything and building a better company. So we are going to continue on that journey. Matt O'Connor: Okay. I can appreciate it's hard to put a timeframe on it but I do think it's important to come out when you feel confident and say that these legacy issues have been addressed, we are turning the page and we are moving on.

Understood.

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

Thanks for taking the question. Hey, what I want to focus on is your deposit beta has been higher than the peer which is a normal compared to your history. And that is really been I think reflective of you wanting to especially with corporate and wealth management customers not giving any other reasons in this period to work anywhere else. So you have been defensive in your deposit pricing which is not been the case in the past you have been much more offensive and aggressive being able to hold back those deposits. When you look at your assets structure because of the duration that would have had you to assume on your deposit side over time, you would have extended your asset. So what you are kind of getting is a fundamental shift into deposit beta which doesn’t reflect on your asset side so you got almost a mismatch and I am just wondering if that's the way to kind of think about this and is this how and why we are not seeing the margin expansion that we are seeing in some other banks.

The aggregate deposit beta is a function of the component pieces of it. And as I mentioned earlier we are the number one retail deposit franchise and beta there is essentially zero. And in wealth and investment management where we've got a sophisticated clientele with lot of excess liquidity and lot of options, I think our beta -- our realized beta has been on the order of a third -- 30% to 35%. In the wholesale where we as you point out we have lots of sophistication, lots of competition et cetera, I think the realized beta has been something on the order of two thirds and so to the extent that we've been growing wholesale deposits a little bit faster than the weighted average deposit beta moves up reflecting that mix. I don't know whether Perry would say that he is being responsive in this cycle to give not give people a reason to move money away from Wells Fargo. I think they are being judicious; they are going customer by customer or customer category by customer category. We are doing more for example with certain type of institutional borrowers which probably have the most sensitivity to change in rate but we need them for our total liquidity profile and it sort of is what it is on average. And when I think about NIM expansion and the rising rate environment, obviously this is a big part of the outcome but it's also the change in rest of our liability structure as well, we've got more long -term debt than we've ever had before that comes in more of cost which has been NIM depressing during the time that we've been adding an office, this few other structural items as well.

Marty, let me just reinforce how we think about pricing, deposits for our wholesale customers. It's very much based -- very much done on a relationship by relationship basis. So it's not just about hey let's decide whether or not we want to keep these deposits, it's about what's the value of the overall relationship. And so it's as you appreciated it's a little bit more complicated than just the deposit. It's the relationship and it's very much coordinated with what we are doing on the wealth and the individual side. So there is a lot of coordination going on, if there has as John mentioned the beta is a little bit higher but I wouldn't necessary jump to the conclusion that's fundamentally changed the structure at the company.

Now I thinking that might be temporary in the sense that you used to be able to most aggressive lagger which helped you to be able to expand when everybody else was expanding but also maintain a higher margin because you had extended the duration on your assets prudently so that defended your margin in a decline rate environment but takes away a little bit of the punch in the way up that you used to be able to make by just being half of what everybody else did in deposit increases. Then my last question was if you look at fee income, you've seen disruption of activities related to these hurricanes and other things that have go on in the last couple of months. Do you feel like -- we've seen what you have allocated on the loan loss reserve, but hasn't it also probably impacted some of your fee income in the third quarter.

Oh I think at the margin, Marty, there is no question when you have such an important market like Florida without power and still parts of Florida without power, you have an important market like in and around Houston which has been like very dynamic from a growth standpoint, there are some impact. I don't know how much it is but at the margin there is some impact and we'll work through, that has an impact to the company in a very short term, over the long terms those are great markets, they are going to recover. Generally, what you see kind of post hurricane, in a hurricane situation you see kind of V shape recovery in those markets and we are looking forward to that. That's one of the reasons why we've really focused on making sure that we provided all the benefits to our customers possible to help them recover even faster.

No, I think that's right. And this was say it's kind of hidden impact there was no way to put your finger on but it is kind of underneath a numbers as you kind of look at and it will rebound quickly but thanks.

Your next question will come from the line of Gerard Cassidy with RBC. Please go ahead.

Good morning, Tim. Good, thank you. Can you guys give us some color -- obviously, you're leading mortgage originator in the United States, leading mortgage originator. And can you give us some color on where you see the housing industry at this point in the cycle? Are we halfway through the cycle? 2/3 the way through? We're just turning out? Any color would be helpful.

Yes, I mean everybody has got an opinion on this. I wish Franklin on the phone because he'd probably give you the best one but my personal view is that I think this recovery is very different than what we've seen historically because of the impacts of demographics and what we just see the millennials forming households and therefore buying houses at a different pace than what we saw in earlier recovery and/or prior recoveries in other demographics. So I think there is -- and we believe there is a lot more room to grow. I don't know what inning it's in but I would say its -- again assuming kind of the steady economic growth that we've seen, we see that demographic grew aging more, they are starting to form families more, we are starting to -- and we are starting to see the benefit of that. So my expectation is that we are early in that process and we got lot to look forward to. And that's one of the reasons why we have been so focused on rolling out our new digital mortgage application because I think particularly for that demographic group, they are used to a mortgage and then they want a mortgage experience and maybe you and I didn't experience when we bought our first home. They are used to --when they go online they want all the information as they should have and so that's why we are excited to roll this out in the first quarter and we think that will be very positive to that demographic group.

In that application you've described, Tim, that's equivalent to the rocket mortgage that Quicken loans has right now?

I want to be respectful to the Quicken, I think they've done a great job with rocket mortgage but I would describe what we are doing as the kind of the next generation because it's not just about giving a fast answer. That's part of it. Everybody expects that and we are doing that across the platform from a consumer side. This is about if you are going online, you are Wells Fargo customer, you type in a little bit information like who you are and you want to mortgage and we pre populate your application so that you are not -- we are not asking you and you are not having to give for the 44 time where you live, how much you make and it's using the trusted data that we have here. What's even more exciting about that is that we are going to have the capability of pulling that data from outside Wells Fargo too. So we are going to have that same capability both inside and outside of Wells Fargo. So I would describe that is a next generation.

So I mentioned in my comments earlier that data modernization is one of our big initiatives because for reasons like this with the breadth of reach that we have to call it 21 million households and 70 million customers in one way or another, we know so much about our customers that we should be able to as in this case pre populate with trusted data, but present really customized, really personalized solution when people are looking for a new product or new service. We can use that same data in a fraud protection way, it's very, very, powerful and a risk management way, it's very, very powerful. The more we know because of the breadth of our relationship with customers, the stronger the value proposition is going forward. So it's a huge initiative and it's going to -- it should change the way retail banking is done.

I see. And maybe Tim, sticking with home mortgage for a moment, I think, very recently, the mortgage bankers association came up with the top 20 originators. And what's fascinating is the top 10, the number of non-banks that are in there, like the Quicken loans or Freedom Mortgage Corp., and they're growing very rapidly. How do you see them as a competitive threat to the traditional banks like your own?

Well, I think the primary driver for the change in mix in the top 10 has been related to FHA direct mortgages again set correspondent aside for a minute. Because the FHA has not adopted the same liability structure that Fannie and Freddie have. The larger originators we would be one and our other bank competitors or the other have just said you know what we are not going to sign up for the fact that 10 years from now somebody could come back and say I mortgage the originated today defaulted at that point in time. That's really been the driver. Now I am hopeful that with all the changes we are going to incur as we look at how homes are financed in this country that issue will be dealt with and I can assure you that if and when that occurs we will back into FHA direct business and you will see an improvement in our share over time. But that's been the driver. Plain and simple. And I don't mean to be negative about any other competitors. They are all terrific and I am sure they are providing good service and so on to their customers but that's been the driver.

Great. And then with home equity loans, I think you mentioned, if I heard you correctly a moment ago, that you could see growth in the product in 2018, but the vintage home equity loans are performing much better than your earlier thought. Is there any possibility that, that type of product whether it was an interest only product for a 10-year term, would those come back when you think about growing the portfolio since they performed so much better than expected.

There is no question that we want to try to retain as many of those customers as we can. So the short answer is yes, I think that's part of our overall growth strategy but many of those are just paying off because the customers don't need them any more.

I see. And then just lastly, you guys talked about your expense initiative, of course, and it's $4 billion that you're going to reduce, I think you, John, pretty clear, that the expectations for the reduction in expenses do not include the core deposit premiums that you've been running every year, also the FDIC special assessment and then also expenses associated with businesses that you sold of. Can you frame up for us what that total could be from those 3 areas and that it will be on top of the $4 billion?

Yes, I think Betsy had asked about the sum of the FDIC premium and the amortization of deposits intangible. That's about $1 billion a year in full run rate. And the expenses from the businesses that we are selling, I don't think that we have called that out one yet, it's less than $1 billion but there is a portion of that's direct and a portion indirect and so we need to make sure that we can drive out all of the indirect that's associated with it in order to take the full amount out. We will get some more clarity as those businesses actually close and are sold.

Yes. Let's get the deal and then we will provide some more detail.

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

Hi, good morning, everybody. Two questions. First, client customer growth, your primary checking account customers have essentially been flat over the last year, that compares to sort of mid to high single digit historically and it's really decelerated since second quarter of last year. And on top of that small business account deposit and consumer deposits have been come in as well. So I mean how important is it to stem that and start to drive some consumer account growth and what you need to do to kick start that? Is it at some point does it suggest that maybe you do have to start to become a little bit more aggressive in terms of deposit pricing on the retail side as well?

So let me answer the last question, last part of your question and get to the beginning because it's a really good question. The short answer is no. We don't -- that the driver this is not deposits pricing. I think that at the margin if you are competing on price, you are making short term decision and invest in the opportunity to build long term relationships. What -- how I would think about the primary checking account growth in kind of two parts. One is quality and one is quantity. You are talking about quantity which is an absolute fair point year-over-year it's been flat. I think the reason for that is because we've been through and are going through a transformation in our retail business. And when you think about what -- how that sales practices settlement and related reputational impact affected our team and our customers particularly in the third and the fourth quarter, and then Mary and team have been making fundamental changes to the business in terms of a new incentive plan, going through reducing a layer of management in terms of new training and just there has been so much going on. And I think that what we are seeing and actually I was talking to Mary about this over the last couple of days. What we are seeing right now in our branches our team members that are so much more confident and working so much better with their customers to provide them with solutions and I think you are going to see that in not only continued improvement in customer experience and loyalty scores but you are going to see that in terms of growth. The quality I think is an important point. Mary highlighted at Investor Day that average customer deposits per account were up about 8% year-over-year, now we are seeing that be up about 11%. So we've got work to do on quantity, quality is already improving but it's just the execution of all the plans that are in the process right now. And we are seeing improvement everyday.

Okay. No, that's helpful. I guess a follow up with sort of a bigger picture type of question and you guys have lot of stakeholders as any banker any company, employees, the community, you serve your client, your shareholders, you obviously want to be seen as good corporate citizen whose actions are doing good for society at large. But sort of in the grand scheme of things I mean how important is generating an 11% to 13% ROE for shareholders. And the question isn't meant to be confrontational or grandstanding in anyways but it does feel like it sort in the background of discussions you have with investors as well going to pull the cost leverage harder as they can or they going to communicate that or they are going to be more up to change pricing or increase deposit pricing or whatever it is. But I kind of wanted to just ask sort of how do you think about the push and pull of how you run the business and decide how to address different stakeholders' interest?

Yes. I will start and then I am sure John want to jump in but look we appreciate that we have lot of stakeholders. And it is not lost on us, that one of our most important stakeholders are you; our shareholders and we have historically provided exceptional returns on an absolute and relative basis. I think our returns are continued to be very, very good. Others have caught up, we appreciate that but make no mistake, we understand that increasing our capital return to our shareholders like we did this quarter where we were up to $4 billion and continuing to grow ROE is very important. And that's one of the reasons why when we introduced our six aspirational goals to our team that we were very clear that providing the best long-term returns to our shareholders and the industry is one of our goals. And we are going to achieve that goal.

Your next question comes from the line of Vivek Juneja with JPMorgan. Please go ahead.

Hi, John. Just a couple of questions, mortgage application issue that came out you said you are refunding customer from September 2016. Just want to understand does something changed in the system that caused this thing to start from September 2016? Any color on that what happened that it starts on that point?

Sure. So prior to 2013, we were in the midst of refinancing boom and everybody was so busy, everybody in the industry but we certainly were that we didn't charge for any sort of rate lock extension. We put a new policy and practice in place at that point which was in place until we changed it. So it's that roughly three year timeframe that we are focused on where some customers where we charged a rate lock extension maybe should have been -- it should have been handled differently and that's population that we were focused on. We changed our practice, it's done centrally now and so that's there is a focus.

Okay. And so I guess brings a bigger picture question. So with all these kind of little, little things that have come up which not always easy to find, is that something you are trying to do to I mean it is a big bank in terms of processes so that you can catch more of these, Tim?

Oh, absolutely. I think that's really been fundamental to the changes that we've been executing on in the last year. We are very clear about the fact that one of the reasons that we had some issues in our retail banking business is because of how we were organized. So we've centralized all of our control functions whether its compliance or HR, finance, you name it. And so we've got a better check in balance than we did before. That's number one. Two, we've been very focused on reinforcing to the entire team that if there is something they are concerned about, go ahead and raise your hand and escalate it and so that's working too. And then within our centralized risk functions we are also -- we've also created a conduct office and within that we are assembling data to John's point about the investment we are making at data. So that we are using data better to triangulate into any area that we are concerned about. You take call to an FX line or attrition or complaints or whatever, you put that altogether and then you can more quickly look at something and say, hey, we got an issue, we don't. The good news is we are making lots of progress but absolutely right. I mean we have fundamentally changed this organization. We fundamentally changed it for the better and we are seeing that everyday. Now, sometimes in seeing that it means that we find something. We are going to be very transparent about it because that's what we promised you to do.

So even things like product pricing, Tim? Product pricing -

Yes, oh sure.

Okay. Different question. John, you mentioned something about spending on BSA AML; I haven't heard that from you before. Something new I mean is there an order or event or something that caused you to mention that or any color on that?

Nothing new. There has been an order in place for sometime which just raises the standard for the level of borrower due diligence if necessary in order to be satisfying from a regulatory perspective. So there is a lot of beneficial owner or if there is a lot of sort of incremental memo writing, file cracking et cetera across hundreds and hundreds of thousands of wholesale customers. And it cost at the margin hundreds and millions of dollars per year to accomplish. That sort of a backlog issue.

Okay. And when do you expect you might be able to get out of this consent order?

Well, I think the expectation is that the work necessary to deliver would be done -- finished in 2018. It has been underway for more than a year. That's a different question as to getting under the consent order.

Our final question will come from the line of Brian Kleinhanzl with KBW.

Hi, good morning. So yes two quick questions I think. When you look at the C&I growth, I know it's down, I know you highlighted some of the decline and some of -- what was offset by growth in the presentation but that still only accounts for $1 billion of the $3 billion decline. So can you just highlight where the rest of the decline came from? And in light of some of your peers were reporting strong growth in large corporate banking, how would that large corporate banking perform on a quarter?

Large corporate was down, I don't have the specific number in front of me but it was down a bit. I would say was probably in line with what I have seen from some of our competitors. It was just a little bit decline or low in some of the larger transactional activity. But we called out these specific areas that were the primary drivers. Everything else was relatively small and we also called out the impact in terms of the commercial real estate.

Okay. And then on the facility ratio for 2018, I know you hear -- you have been saying that your whole to lending growth picks up and that you are optimistic it will but being what kind of lending growth is in the budget for you hit that 59%? I mean can you just still hit the 59% goal with 1% loan growth or 2% loan growth?

We haven't exactly send a budget for next year yet but look our assumption is that we are going -- and belief is that we are going to be able to grow our commercial loans as we have year-over-year-over-year, I mean we had some impact us so far in the last couple of quarters. But I wouldn't describe that as the primary driver for what's going to happen from the efficiency standpoint because we've got a consumer loan portfolio and we've got revenues coming from our fees and like. So it's a little bit more complicated than that in terms of the driver or the efficiency. But again our goal is to get down to a 59% level sometime next year. So I am sure we'll be talking about that again.

Okay, thanks.

Thank you. Listen, I really appreciate everybody's time this morning. I know it's been a busy morning for all of you. Just want to reemphasis that over the past years we've made a number of fundamental changes to our business model, to structure the organization which I was just mentioning and to a number of our performance management programs to ensure that we are focusing on our customers and focusing on their financial needs. Again, I want to thank the hard work and effort of our 268,000 team members for their focus and resiliency in meeting those customers' need. We are seeking every opportunity to identify and fix any issues that we have with the company. And make sure they are done correctly. As I mentioned, we've seen a very strong progress in addressing those issues and also rebuilding trust with all of stakeholders including all of you. And while we understand there is more work to do, I am confident that we are absolutely on the right path as we continue to build a better, stronger Wells Fargo. So again thank you very much for your time. Have a good day.

Ladies and gentlemen, this concludes today's conference. Thank you all for joining. And you may now disconnect.