Operator: Welcome, and thank you for joining the Wells Fargo Q3 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one. If you would like to withdraw your question, press star two. Please note that today's call is being recorded. I would now like to turn the call over to Mr. John Campbell, Director of Investor Relations. Sir, you may begin the conference.
John Campbell: Good morning. Thank you for joining our call today where our CEO, Charlie Scharf, and our CFO, Mike Santomassimo, will discuss Q3 results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our Q3 earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com.
John Campbell: 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 materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie.
Charlie Scharf: Thanks, John. I am going to provide some comments about our results and the momentum we see across all our businesses. I will then turn the call over to Mike to review Q3 results in more detail before we take your questions. Let me start with slide two of the presentation deck. Our Q3 results reflected broad-based growth, higher earnings, and stronger returns. Earnings per share grew to $1.87 in Q3, up 13% from a year ago. Our ROTCE increased from 14.7% during the first nine months of 2025 to 16.2% during the same period this year, and 16.3% this quarter. Revenue grew 2% versus the prior year, with growth across all our operating segments, partially offset by lower revenue from our venture capital investments as expected, and lower lease income following the sale of our railcar leasing business in Q1.
Charlie Scharf: Wealth and Investment Management revenues grew 12%. Commercial Banking grew 6%. Consumer Banking and Lending grew 5%, and Corporate and Investment Banking grew 3%, with 8% growth in banking, partially offset by modest declines in commercial real estate markets. Markets was trending towards achieving higher revenue growth, but was impacted by a slowdown in the last several weeks of the quarter. However, we still had strong results in equities, with revenue increasing 21% from a year ago. Within banking, key areas of investments for us continued to see strong results. M&A revenues grew 30%, and both equity capital markets and investment-grade underwriting fees grew 33% from a year ago. Expenses declined modestly from a year ago. As we have seen in other quarters, higher revenue-related expenses, up 15%, were more than offset by a 4% decline in non-revenue-related expenses as we continued to invest while increasing efficiency.
Charlie Scharf: Headcount continued to decline, down 2% in the quarter, 8% year over year, and down 30% from its Q2 2020 peak, and has decreased every quarter for the past six years. We generated strong growth in loans and deposits throughout 2026, with Q3 average loans and average deposits both up 11% from a year ago. This growth was broad-based, with higher loan and deposit balances in both our commercial and consumer businesses. Turning to slide 3, we are seeing good performance across each of our businesses. Let me start with Consumer Banking and Lending. Growing consumer primary checking accounts is a key indicator of our progress, and this quarter, we continued to see momentum. We achieved our 14th consecutive quarter of year-over-year growth, as stronger branch and digital activity, improved product offerings, and continued investments in marketing have helped drive increased account openings.
Charlie Scharf: Our segmented approach to serving affluent customers is also producing strong results. Premier client assets were up 10% from a year ago. We continue to invest in talent, with double-digit growth in premier bankers and financial advisors year over year. We have been investing in business banking, including adding over 130 business bankers over the past year. We are seeing the initial benefits in our results, including checking account openings up 9% and credit cards opening 61% from a year ago. Importantly, we remain disciplined on credit, with growth focused primarily on customers with deep existing relationships. Credit card revenue increased from both a year ago and the Q2, with growth in balances and purchase volume. We opened more than 660,000 new accounts in the Q3. We again saw strong account openings in our branch channel, which has allowed us to reduce our reliance on third-party channels.
Charlie Scharf: Auto originations grew 15% from a year ago, and average balances were up 31%. While we are growing our lending businesses and our customer base is still strong, our underwriting criteria recognize that at some point, consumer credit conditions will weaken. To be clear, we do not see signs of this yet, but we know that cycles are inevitable. Turning to Wealth and Investment Management. Wealth and Investment Management client assets grew 11% from a year ago to $2.5 trillion. Average loan balances increased 16% from a year ago. We identified this as a significant opportunity several years ago and have since enhanced our products and processes to better serve clients and scale the portfolio. We have made significant investments in our technology platforms and expanded investment capabilities to provide advisors with a stronger platform to serve clients.
Charlie Scharf: These investments include a new portfolio analysis and client proposal tools for advisors leveraging Aladdin Wealth technology from BlackRock. We have also increased the number of alternative product offerings in our platform by over 30% this year. In addition, we just launched an AI-powered tool for our financial advisors that streamlines routine work and helps them access the information they need to better serve clients. This is the first of several capabilities planned as part of our broader AI strategy in Wealth and Investment Management. Turning to Corporate and Investment Banking. In our banking business, revenue grew 8% from a year ago, and year-to-date increased 13%.
Charlie Scharf: The hiring we have done in investment banking has strengthened our client coverage model and improved our ability to compete, which you can see from our improved market share, including equity capital market share increasing 84 basis points to 3.9%, and increasing our rank in announced US M&A volume to number six, up from nine a year ago. It is important to note that while we are building our investment banking business and it benefits from strong market environments, its size is still relatively small in the context of the rest of the company. We do not expect it to drive outsized returns in any one period, but it has contributed and should continue to contribute to higher returns over time. Markets revenue was down modestly from a year ago. Market conditions were more difficult than prior quarters, but we continue to see the benefits of our strategic investments.
Charlie Scharf: Year-to-date, markets revenues increased 14% versus last year. Finally, let me highlight Commercial Banking, where our client acquisition strategy helped to drive strong balance sheet growth. Average loans increased 10% from a year ago, reflecting our continued success in attracting new clients and deepening existing relationships, supported by our investment in additional bankers. Average deposits increased 16% from a year ago, reflecting our deposit gathering initiatives, which have attracted deposits from both new and existing clients, even as we have maintained our pricing discipline. We also continue to capture larger share of our Commercial Banking clients' investment banking and market activities, with gross fees 25% higher than a year ago. These results highlight the benefits of the investments we have made in our Commercial Banking franchise, which is driving client growth and increasing the diversity of our revenue base.
Charlie Scharf: More broadly, we are accelerating our investments in both traditional digital payments and traditional and digital payment solutions for consumers and businesses. We believe tokenized deposits can deliver important benefits for the businesses we serve. Last month, we launched tokenized deposits on our proprietary blockchain platform, providing corporate and commercial clients with a new way to move money more efficiently. As we expand the platform, clients will be able to move funds 24 hours a day, seven days a week, across accounts and borders without changing how they bank with us. Use cases in the US for stablecoins remain unclear, but we are building solutions to be prepared as opportunities potentially unfold. We, along with 20 other international financial institutions, are establishing a new company to issue stablecoins beginning in the first half of 2027.
Charlie Scharf: The product will support wholesale, institutional, and retail use cases, providing clients with a trusted form of digital money that can improve cross-border payments and facilitate digital asset settlements. We are devoting significant management time and resources to building AI capabilities and drive value. The work here is multi-dimensioned. Internally, we are using it to write code faster. Over the past year, this has gone from being a tool to assist programmers to now being able to use autonomous agents when appropriate, to increase capacity and revenue from our branches, to launch marketing campaigns faster, to help identify as well as write and test code to close previously unknown cyber vulnerabilities, and to improve and simplify risk management processes.
Charlie Scharf: Externally, we are using it to improve the customer experience, including helping customers complete common banking tasks such as making payments, replacing cards, and getting insights into spending, and to accelerate response times for underwriting decisions and customer complaints. We will also evaluate how third-party models and agents can provide value-added capabilities to our clients while at the same time considering the potential risks these tools can introduce for both our clients and Wells Fargo. Our focus was recently recognized in the Evident AI Index for Banks, which independently tracks AI maturity across the world's leading banks. We increased our ranking to number 5 globally and ranked number 3 in the US based upon their evaluation of four core pillars, including talent, innovation, leadership, and transparency. We are excited by the opportunities AI presents for our clients and our company, and we are taking a disciplined approach to managing risk.
Charlie Scharf: Looking externally, US economic growth continues to be strong. While uncertainty persists due to sticky inflation, the conflict in the Middle East, persistent fiscal deficits, and volatile energy markets, strong labor markets and wage growth, business investment, productivity investments, infrastructure spending, and a historic wave of technology-related capital expenditures have proven more powerful than many predicted. As a result, real GDP growth continues to track well, with the Q3 shaping up to be strong. The consumer remains one of the economy's most important sources of resilience, though higher prices continue to weigh on consumer sentiment. Let me highlight our customer trends. Consumer spending remains strong. Debit card spending increased 8% from a year ago, with broad-based growth across categories accelerating from the 5% growth rate we saw in the Q3 last year. Credit card spending was up 12% from a year ago.
Charlie Scharf: Our growth has been amongst the highest in the industry, driven by strong new account growth. At the same time, consumer credit remains strong, with our charge-off ratio down from both the Q2 and a year ago, and early-stage delinquencies at historically low levels. High-income households continue to benefit from strong asset prices, substantial home equity, and stable labor income. While lower-income households remain more sensitive to financing costs, inflation, and higher living and fuel expenses, they appear to be stable. Corporate America also continues to demonstrate strength. Our corporate and commercial customers remain in good shape. Loan demand continues, and credit remains strong, with only 18 basis points of losses in the Q3 and non-accrual loans down from both the Q2 and a year ago. While our data is strong, we are conscious of the risks.
Charlie Scharf: Inflation and higher interest rates continue to be headwinds, and the longer they persist, the more pressure they could place on both consumers and commercial clients. While markets have been strong, an unexpected or significant movement could filter through the broader economy. The AI investment cycle has become a complicated macroeconomic force in its own right. Demand for semiconductors, networking equipment, power generation, data center infrastructure, cooling systems, storage, cybersecurity, and advanced manufacturing equipment continue to surge. The scale of investment here increasingly resembles prior infrastructure booms, creating both significant opportunities, but also risks, given the significant leverage used to finance the build-out and the upward pressure on prices in selected industries and supply chains. Having said this, the strength of the economy and the positive forces from these investments have thus far outweighed the potential downside.
Charlie Scharf: Before I conclude, I want to thank Derek Flowers, our Chief Risk Officer, for his leadership in strengthening our risk and control framework and culture to position Wells Fargo for continued growth. As we announced last month, Derek plans to retire early next year, and he will work closely with Scott Powell, our Chief Operating Officer, to support a smooth transition when Scott assumes the Chief Risk Officer role. As I close, I will leave you with a few final thoughts. Our progress towards building a growing, high-returning company continues. Our ROTCE continues to increase and is getting closer to our 17% to 18% target. Though timing is influenced by markets and the credit environment, we are confident this trajectory can continue, and ultimately, our targets should be higher.
Charlie Scharf: Like all management teams, we are balancing many things: growth, risk, changing interest rate expectations, inflation, and AI opportunities, just to name a few. However, our North Star remains the same: invest in our people, products, technology, and marketing for the long term, but show consistent progress in growing revenue and returns in the short term without taking outsized risks or growing in ways that is not consistent with our long-term vision for Wells Fargo. I will now turn the call over to Mike.
Mike Santomassimo: Thank you, Charlie. Good morning, everyone. Since Charlie already covered the key drivers behind our financial performance and the business highlights, I will begin my remarks on slide 4. Our Q3 results demonstrated the progress we have made in strengthening the company's financial performance. Strong balance sheet growth, continued revenue growth, disciplined expense management, and solid credit performance drove another quarter of double-digit EPS growth and continued improvement in returns year over year. Turning to slide 6. Net interest income increased $567 million, or 5%, from a year ago, and increased 2% from Q2. The growth from Q2 was driven by higher loan and investment securities balances, one additional day in the quarter, fixed-rate asset repricing, as well as the impact of higher rates on floating-rate assets.
Mike Santomassimo: The net interest margin was stable from Q2 as the benefits of loan growth and higher yields in almost all categories of interest-earning assets, including the impact of fixed asset repricing, were offset by continued growth in interest-bearing deposits. This was a better result than we expected at the beginning of the quarter due to slightly higher cash and securities balances, slightly lower funding costs, and additional efficiency in the deployment of the market's balance sheet. As we continue to grow the market's balance sheet on a gross basis, we are becoming increasingly more efficient in how we deploy it, and we made more progress this quarter than we originally anticipated. As our equity finance business expands, we are realizing greater netting benefits, and on the fixed income side, we are implementing more efficient funding structures, including sponsored repo and other balance sheet optimization solutions.
Mike Santomassimo: I will update you on our expectations for full-year net interest income later on the call. Moving to slide 7. Average loans increased $105 billion, or 11%, from a year ago, driven by growth in commercial and industrial loans, where demand remains healthy. Commitment levels have continued to increase across both Commercial Banking and the Corporate and Investment Bank, while utilization rates have remained relatively stable. On the consumer side, auto, securities-based lending, and credit card continued to be the primary growth drivers. Turning to deposits. Average deposits increased $143 billion, or 11% from a year ago, and were up 1% from Q2. We continue to have strong commercial interest-bearing deposit growth, reflecting continued client demand for higher-yielding products, as well as our targeted growth initiatives. Consumer balances increased from a year ago, and with a modest decline in balances from Q2 reflecting seasonal outflows.
Mike Santomassimo: Turning to slide 8. Non-interest income declined 1% from a year ago. We had growth across several categories, including investment advisory, deposit-related fees, investment banking, and card fees, reflecting continued momentum in businesses where we have been investing. However, this growth was more than offset by lower trading gains, although revenue in our markets business was down only slightly versus a year ago. Lower lease income following the sale of our railcar leasing business in Q1, as well as lower gains from the equity securities, also contributed to the decline. We had only modest net gains from equity securities in Q3, and we currently expect them to remain low in Q4. As we have highlighted in the past, results from our venture capital investments can be volatile from quarter to quarter, but we continue to expect strong returns over time.
Mike Santomassimo: It is important to note that we generated more than $1 billion of equity gains during H1, which is in line with our historical full-year average. As a result, even with minimal gains in H2, we would still be on track for a solid full-year result. Turning to expenses on slide 9. Non-interest expense declined $103 million from a year ago, and our efficiency ratio improved to 63%, down 2 percentage points year-over-year. Personnel expense declined, driven by lower severance costs, which were $296 million a year ago. Higher revenue-related compensation expense was largely offset by the benefits of our efficiency initiatives. Non-personnel expense increased from a year ago, driven by higher tech and technology and equipment expense. Turning to credit quality on slide 10.
Mike Santomassimo: Our credit performance in Q3 remained strong, with a net loan charge-off ratio of 38 basis points of average loans, down from a year ago. Commercial net loan charge-offs were stable from a year ago and increased 8 basis points from Q2 to 18 basis points. We continue to monitor for a range of macroeconomic and industry-specific risks, including higher interest rates, inflation, geopolitical uncertainty, and AI-related disruption. As of now, we do not see signs of broad-based credit deterioration. Losses continue to be idiosyncratic and driven by borrower-specific situations. Consumer credit performance was strong, with good performance across all portfolios, and consumer net loan charge-offs declined to 70 basis points. Our allowance coverage ratio for total loans was relatively stable compared with Q2.
Mike Santomassimo: Growth in commercial, industrial, and auto loan balances drove a modest increase in the allowance, which was largely offset by a lower allowance for commercial real estate office loans. Turning to capital and liquidity on slide 11. Our capital levels remained strong, with our CET1 ratio at 10%, well above our CET1 regulatory minimum plus buffers of 8.5%. The decline from Q2 included a decrease in accumulated other comprehensive income, driven by the impact of higher interest rates. We plan to continue to manage our CET1 ratio to be within our targeted range of 10% to 10.5%. During Q3, we increased our common stock dividend to $0.50 per share and repurchased $2.5 billion of common stock. Looking ahead, we will continue to consider the interest rate environment and the impact on accumulated other comprehensive income when determining how much stock we repurchase.
Mike Santomassimo: As a reminder, we expect the Federal Reserve to finalize Basel III capital rules, and based on the proposal, we have estimated that our risk-weighted assets could decrease by approximately 7%, which, all else being equal, would increase our CET1 ratio. We provide an update on our operating segments on slides 12 through 15. Charlie has already covered the key drivers of revenue growth across the businesses, so I will keep my comments brief and just highlight a few additional points. Let me start with Consumer Banking and Lending. We generated solid revenue growth while reducing expenses, and return on allocated capital increased to over 32% in Q3. Commercial Banking had good revenue growth, and combined with disciplined expense management, their efficiency ratio improved to 43% in Q3 from 48% a year ago. Turning to Corporate and Investment Banking.
Mike Santomassimo: Banking revenue was up 8% from a year ago, including a 10% increase in investment banking. I would like to focus for a moment on our markets business, where results can vary with market conditions. While equities revenue was up 21% from a year ago, total markets revenue was relatively stable from a year ago, and revenue in Q3 was not as strong as during the first two quarters of the year. At an industry conference last month, I indicated that we expected Q3 markets revenue to be up mid-single digits year-over-year. Our actual results reflected a more challenging market environment late in the quarter than we had anticipated. During the final weeks of September, interest rates moved sharply, and these moves pressured fixed income valuations and significantly reduced client activity, particularly in strategic transactions, hedging activity, and the primary issuance market.
Mike Santomassimo: At the same time, equity market volatility stayed low, creating a less favorable environment for our equities derivative franchise. Finally, turning to Wealth and Investment Management, which generated strong results. I'd like to remind you that the majority of WIM advisory assets are priced at the beginning of the quarter. So Q4 results will reflect 1 October market valuations, which were above both 1 July and a year ago levels. Turning to our 2026 outlook on slide 17. Starting with net interest income, we still expect net interest income for full year 2026 to be $50 billion, plus or minus. Q4 net interest income is expected to be approximately $13 billion, and the net interest margin is expected to be stable from Q3.
Mike Santomassimo: We expect the pace of net interest income growth to increase in Q4 versus the prior two quarters due to a few factors. We expect continued benefits from loan growth as well as deposit growth. We also expect continued benefits from fixed rate asset repricing and higher investment securities balances. Given we are modestly asset sensitive, we expect Q4 net interest income, excluding markets, to benefit from the higher interest rate environment. However, markets, which is liability sensitive, some of these benefits would be offset since markets net interest income is negatively impacted by higher rates. However, this would largely be offset by markets non-interest income. Turning to expenses, we continue to expect 2026 non-interest expense to be approximately $55.7 billion.
Mike Santomassimo: While full year revenue-related expenses are expected to be approximately $400 million above our original expectations, driven by strong business growth and equity markets, our ongoing focus on improving efficiency is generating more savings across the company, allowing us to offset the higher revenue-related expense. Our Q3 results demonstrate the strength of the franchise and the ongoing successful execution of our strategy. We continue to grow earnings, increase returns, and invest in the business while maintaining strong credit performance and a disciplined approach to expenses. Our stronger performance during the first three quarters of the year highlights the continued incremental progress we are making towards our goal of higher growth and returns. We will now take your questions.
Operator: At this time, we will now begin the question and answer session. If you would like to ask a question, please first unmute your phone and then press star one. Please record your name at the prompt. If you would like to withdraw your question, you may press star two to remove yourself from the question queue. Once again, please press star one and record your name if you would like to ask a question at this time. Please stand by for our first question. Our first question will come from John McDonald of Truist Securities. Your line is open, sir.
John McDonald: Thank you. Good morning. Mike, I was hoping you could start off, maybe just repeat a little bit of the comments about the drivers of the net interest income growth you expect in Q4, and then maybe just clarify what you were saying about the markets NII versus non-markets, maybe in the context of, I think, for the full year, you originally were hoping for 48 and 2 to get to the 50. Is that still the same? Maybe just clarify what you were saying about the Q4 split, maybe between markets and total NII.
Mike Santomassimo: Yeah. Hey, John. Thanks for the question. Let me just start a little bit on Q3, and then I will quickly bridge into Q4. What we saw in Q3 is the NIM stabilized, the aggregate NIM stabilized. But when you look beneath that a little bit, what was happening is the NIM ex-markets increased slightly, so we saw a little bit of expansion there, and that is part of what you are going to see as you go into Q4 as well. Then we also got the benefit of a lot of the efficiency work we have been doing and how we deploy the balance sheet in the markets business, and that sort of helped bring good stability, I think, overall to the NIM. We still expect that to be flat in Q4 relative to Q3.
Mike Santomassimo: Just to double-click on that one second, so when you look at what we did in markets is, and I think fixed income financing is a good illustration of it, the gross financing balances, they grew about 18% from Q2, but the net balances were down. That was a lot of the optimization that we have been doing, moving more clients to sponsored repo and other things. We have got really good confidence that we have got more ability to continue to do that, and that will be pretty stable. That sort of underpins sort of the NIM being pretty stable as we go into Q4. What is happening in Q4, then, is you start to get the benefits of a lot of what you started seeing in Q3.
Mike Santomassimo: So, you look at loan balances, the step-up into Q4 is bigger than, obviously, the average balances you saw in the quarter. I think we were up, the end of periods are up $15 billion or so going into Q4. You have to look through a little bit of that because there is a little bit of seasonality at the end of the quarter in the Commercial Banking, but nonetheless, the step-up is bigger. So you are getting the benefit of that in Q4. We continue to grow deposits, and so you will see more of that contribute into the quarter as well. You get the benefit of rates and sort of yield and repricing sort of coming through in the balance sheet.
Mike Santomassimo: Almost every category outside of the markets business of earning assets saw a little bit of benefit in Q3 from higher yields, and you are going to see more of that in Q4. That is going to lead to a little bit more of an expansion of the NIM ex-markets as well as you go into the quarter. There are a few other factors that sort of drive it, but those are sort of the big ones that sort of lead to the step-up that we are going to see going into Q4. What I was saying on markets NII is, as you go into this rising rate environment, we are asset sensitive on the banking book. You are going to see that NIM expand. You are going to see sort of the impact of rates come through.
Mike Santomassimo: Since markets is liability sensitive, you are going to see some impact on markets NII going into Q4, but that will be offset in fees. When you look at the mix of the $50 billion, our best guess is on the markets NII that it will be slightly below $2 billion, call it $1.8 billion-ish, and then you will make up for some of it to get in the non-markets NII to sort of get back to the full year of $50 billion.
John McDonald: Okay, thanks. That is really helpful. I know it is too early for guidance on 2027 NII, but any early thoughts in terms of kind of just the drivers, the next year's NII relative to where you think you will jump off on Q4? Things we should keep in mind, good guys, bad guys, as you go through your planning?
Mike Santomassimo: Yeah, I mean, look, certainly, when you look at the step-off point coming out of Q4, that is a net positive, sort of where we are. Rates appear to be either increasing or certainly staying higher for longer than we contemplated not that long ago, so that is a net positive. We are still seeing good growth across the loan portfolios. We expect to continue to see good growth in the card business, auto business, as well as on the Commercial side, so those will all be positive.
Mike Santomassimo: We have been pretty successful at growing deposits, particularly the interest-bearing deposits. I think all of those things should sort of continue as we go into next year, with all the right caveats around sort of the macro environment sort of being pretty constructive, despite some of the noise you had there. But we enter the year, and I think if you The $13 billion is, what, close to $700 million over last year, and so you sort of enter the year in a better place.
John McDonald: Okay, got it. Thank you.
Operator: The next question will come from Scott Siefers of TD Cowen. Your line is open.
Scott Siefers: Morning, guys. Thanks for taking the question. Mike or Charlie, was hoping you could maybe just sort of touch on just sort of your thoughts for how a period of sustained higher rates kind of changes your sense for both customer health and resilience, and then maybe also touch on sort of your sense for how commercial demand might change portions of the consumer book, where you've had good growth, how that might change, et cetera. So, basically, impact on sort of resilience and growth dynamic.
Mike Santomassimo: Hey, Scott, it's Mike. I'll take a shot, and welcome back, I think, to the call, and your new seat. Look, I think we've been living in this environment now for a while where inflation's been higher, rates have been pretty high, although have moved a little bit higher more recently. You've seen the cumulative impact of that has been flowing through the economy. What we're seeing sort of offset some of what would be kind of the negatives is wages and employment continues to be really strong. Wages are largely keeping up with inflation. Even at all of the different cohorts of clients we have, when you look at them, income levels, wealth levels, the data would say on a cumulative basis over the last number of years, wages have sort of kept up, which is sort of supporting the activity levels that we're seeing.
Mike Santomassimo: We're not seeing any deterioration in the credit profile of the consumer. I think as long as the employment picture stays pretty strong, we should be able to keep seeing sort of the strong activity levels and strong performance across the consumer base. Even when you start looking at energy and gas prices, it is meaningful for sure, but it ends up being 3% to 6% of spend depending on your wealth level or income level. So it's still manageable, and people were able to offset that with savings in other categories of spend. Overall, we're seeing a pretty strong picture there, and as long as the economy continues to grow and employment stays strong, that should continue.
Mike Santomassimo: We're just not seeing signs of that changing at this point, either from the sentiment across our Commercial Banking client base or just in the actual metrics that we're seeing on the consumer side. On the commercial side, higher rates definitely matter. But in many of our Commercial Banking-type clients, people have been pretty prudent now for a while, for years, in terms of how much leverage they're putting on.
Mike Santomassimo: So they're still being thoughtful about inventory levels or levels of investment, despite sort of the AI and CapEx cycle that Charlie sort of talked about a little bit. So they come into this environment in pretty good shape. Now, the higher rates are definitely going to impact valuations in places like commercial real estate, but that'll take some time to really kind of play through those asset classes. As we sit here today, things look pretty good, despite sort of what you're seeing in terms of rates or just sort of overall sentiment that you hear about.
Scott Siefers: Okay, perfect. Thank you very much. Then maybe switch gears a second. A whole host of AI-related questions sort of floating around investor psyches these days, but maybe it was something you could touch on, just this idea that AI agents eventually make it just a lot easier to identify and move around idle cash toward higher-yielding alternatives. Just maybe at a top level, how you are thinking about the possibility that technology, as it improves, just sort of reduces deposit inertia over time, and what it means for value behavior for large, low-cost deposit bases like yours and others in the industry.
Charlie Scharf: Yeah. Hi, it is Charlie. I will take that, and Mike, you can chime in. Listen, I think we say what many other people have said, which is high-rate alternatives exist today. They have existed for a long time. If you want to move to a high rate, you can just go online and do it yourself in no time. That is not something new. The idea that consumers are going to give the power to an agent to act on their behalf unilaterally and move money around to institutions that they do not know, they do not understand, where they do not understand the terms of the accounts they are moving it to, and all those types of things, I think that is a long ways away.
Charlie Scharf: There is no question that agents will become a part of the way people interact. We have them. We are building them ourselves. But the idea that that is going to contribute to mass movement to higher rate alternatives, I think is completely overdone, especially for the time period we can see. Just a reminder, people keep money with us for a lot of reasons beyond just maximizing that last value they get in terms of saving.
Charlie Scharf: They keep money because of, with a primary payments account, they have got money coming in and going out all the time. We have wholesale customers that understand every last basis point, and they want to pay us for certain services. Clearly these agents will become tools, but the idea that they are going to contribute to some mass movement anytime in the near future, I just think is completely overdone. The opportunity for us is to use agents to better serve our customers and let them get access to the things that we can do for them.
Scott Siefers: Perfect. No, that all sounds great. I definitely appreciate all the color. Thanks again.
Charlie Scharf: Absolutely.
Operator: The next question will come from Ken Usdin of Autonomous Research. Please go ahead, sir.
Ken Usdin: Thanks. Good morning, guys. I wanted to ask a question just about capital and balance sheet utility. It noted that obviously AOCI was up, CET1 was down a little bit, as was TCE. You didn't grow RWAs as much as you had in the prior couple quarters. I just wanted to know, are you thinking any differently about what you're thinking about growing, what you're putting on the balance sheet, and how does that build into your expectations for where you want to keep capital and capital return within that? Thanks.
Mike Santomassimo: Yeah. Hey, Ken, it's Mike. Really no different in terms of how we're thinking about growth. Again, we can continue to optimize as we deploy the balance sheet. Even in some of the optimization work that we're doing in markets, it's the same client activity with a lower footprint, so you end up having less RWA associated with some of it as well. When you think about where we've been growing now for a while, it's all the same places that we expect to see some growth going forward. On the consumer side, we continue to expect the card and the auto portfolios to grow. I think you won't see much growth in home lending. On the commercial side, we're seeing really good loan growth.
Mike Santomassimo: Again, you can see that in the Commercial Banking as well as in pockets in the Corporate and Investment Banking. That will ebb and flow on any given quarter based on just sort of what is happening and the opportunity set that is there. In the markets business, we are as excited as ever in terms of being able to continue to scale that business and seeing really good receptivity across a lot of clients that we are either deepening relationships with or adding onto the platform. I think we continue to see really good opportunity there, all in the context of continuing to increase the return profile of the whole company as we go as well.
Charlie Scharf: I would just add on that, I think we feel like we have a lot of flexibility when it comes to our ability to manage our overall capital. As Mike Santomassimo said, we are growing, but we are very conscious of and have the ability to manage the RWA in that. We earn at $6 billion a quarter in terms of earnings power, less dividends. That adds just when we show up, 30 basis points or so to our CET1 ratio for the quarter. We have just variability of rates. Rates are back down from where they were. We have flexibility to both grow and manage capital, and over a period of time, continue to return capital to shareholders as we have been doing.
Ken Usdin: Got it. Just a quick one on deposit betas. Given that you have been changing what has been growing since the asset cap came off, and obviously we have seen the commercial deposits growing, do you have a view at all on how, in this upcycle for rates, how deposit betas might be different than the prior rising rate cycle? Thanks.
Mike Santomassimo: Yeah. Look, at this point, we do not think they are going to be that different versus what we saw last go around. I think what we saw so far from the hike in September, I think is a good example of that. In the Corporate and Investment Banking, those are going to be the highest betas by far. It is right on top of what our playbook is for the rate increase. Maybe slightly, the beta was slightly lower than, at least so far, in terms of what we expected to see. In the Commercial Banking, the betas are much lower than the Corporate and Investment Banking.
Mike Santomassimo: Again, right on top of what we would have expected to see. In the consumer space, it really is about sort of how you manage sort of CD rates and high-yield savings promos that we launched through the branches. The rest of the book is actually quite stable and not moving from a rate perspective. Overall, so far, exactly what we would have expected to see, and don't think at this point it's going to be that different than what we saw last time.
Ken Usdin: Thanks a lot.
Operator: The next question will come from Ebrahim Poonawala of Bank of America. Please go ahead.
Ebrahim Poonawala: Hey, good morning.
Mike Santomassimo: Good morning.
Ebrahim Poonawala: I guess first question just around, I think, Charlie, you laid out all the areas that Wells has been investing in business banking, wealth, except payments. That has been going on for a few years. As we think about where that monetization is showing up already versus where it is on the come looking out over the next 12 to 24 months, just break it down for us how we should think about where we could see building momentum as we think about next year, assuming the macro holds up, and where you have already been able to monetize some of those investments more noticeably over the last few quarters.
Charlie Scharf: Sure, Ebrahim. It is interesting. When we look at our results, we talk about the statistics, whether it is growth in checking accounts, growth in credit card accounts, growth in loans in the Commercial Banking, growth in our lending products, growth in assets under our total client assets and wealth. We tried to lay out, and across the entire franchise, we see all the businesses, with the exception of mortgage, growing those statistics. When we look at our revenue growth, I went through this in my prepared remarks, our WIM revenues are up 12%, our Commercial Banking revenues are up 6%, Consumer Banking and Lending revenues up 5%, Corporate and Investment Banking revenues up 3%, with areas of focus like M&A up 30%, ECM up 33%, investment grade up 33%.
Charlie Scharf: As we think about what we have been investing in versus what we are getting for it, we see that very clear payoff. In terms of our revenue growth for the quarter, this quarter, we had a very big quarter in our equity gains last quarter from our private equity investments. We did not have that this quarter. We said those will be, you need to look them over a long period of time. So, what we see is that these investments that we have been making are paying off, and we would expect that to continue. When we think about where we are on the investment versus the payoff cycle, we are probably much earlier in the consumer bank because of the things that we had to fix over a period of time.
Charlie Scharf: We compete with people who have been investing for a decade to 2 decades, and we have been investing now for 2 years in that. Even though we see growth in that part of the business, we would hope to see more acceleration in our core consumer and small business franchise. We would expect to see more of the same in our card business, more of the same in our auto business, more of the same in the Commercial Banking.
Charlie Scharf: I would say, in the Corporate and Investment Banking, more of the same in some areas, but potentially broader growth with even markets. Overall, when we think about what we have been able to produce, EPS growth of 13%, ROTCE marching upwards north of 16% now, kind of continuous progression upwards with this kind of broad-based growth, and we see it continuing. We feel really good about being able to deliver that as time goes on.
Ebrahim Poonawala: That is helpful. I guess just out of curiosity, I realize it is not needle-moving, but you chose to talk about tokenization and tokenized deposits in your prepared remarks. Just put it in context, do you see significant adoption happening either in the markets or the commercial payments business? Does that create a meaningful opportunity for Wells as you think about investing, growing client wallet share? Just if you can size that for us to whichever way you can. Thank you.
Mike Santomassimo: Yeah, Ebrahim, it is Mike. I would say, what we are doing in tokenized deposit payments really starts with how do you do a better job servicing cross-border payment needs of our customers. I think the existing, there is lots of discussion around some of the negatives of the existing payment rails when it comes to cross-border payments, takes too long, transparency, et cetera, et cetera. I think what this allows us to do is completely change that experience. It goes from what could be a day or 2 to sort of get your payment to where it is going to, this is in production, by the way, and it is small volume so far, but the payments that we are doing are getting from initiation to beneficiary account in 2 minutes or less.
Mike Santomassimo: I think, so it completely starts to change sort of the experience that you can provide to the customers. Then for us, more broadly, we don't have the same international branch network that other big global players have. This technology allows us to go after an addressable market in the cross-border space in a completely different way and provide a solution that is as good or better than a lot of the peers can provide. So, it does, over time, increase our addressable market that we can go after without having to make significant investments of putting people locally in a bunch of different places around the world.
Mike Santomassimo: Then just more broadly, it gives us the blockchain technology to do a whole bunch of other stuff if the use cases start to materialize around other tokenization of real-world assets, tokenization of securities, whether it's crypto trading in our wealth business or a whole bunch of other different places. So, it does give us some real-world benefits today. It increases the addressable market in payments, then just much more gives us a lot of optionality over a whole bunch of different use cases if and when they develop and become more meaningful.
Ebrahim Poonawala: That's helpful. Thank you both.
Operator: The next question will come from Manan Gosalia with Morgan Stanley. Please go ahead.
Manan Gosalia: Hey, good morning. I wanted to ask on the deposit mix. I know you've previously spoken about interest-bearing Commercial deposits leading the growth initially, then lower-cost operating balances coming through over time. Can you help us think through when we should see that mix start to improve consistently, and are we getting close to an inflection in those non-interest-bearing deposit balances as well?
Mike Santomassimo: Yeah, I think you probably need to focus a little bit less on mix and a little bit more on dollars of deposits growing, because we still think there's a lot of opportunity to grow on the interest-bearing side. As I said on the call and just in other forums, these are great-returning, long-term balances that come with other fees associated with them and the payment side. I think they're very valuable over a long period of time. The non-interest-bearing or low-interest-bearing deposits come as we grow more on the consumer side. You see momentum building, as Charlie sort of talked about in his remarks on the consumer side. Those will bring either non-interest-bearing or sort of low-interest-bearing deposits with them.
Mike Santomassimo: As we continue to grow our treasury management and payments business on the Commercial side, those also bring non-interest-bearing deposits with them just for clients to support all of the payment needs that they have with us. Those things just take a little bit longer to sort of materialize and grow in a more meaningful way. I think you'll see interest-bearing still grow at a faster clip for a while as we continue to deepen with many of our clients.
Manan Gosalia: Got it. Maybe pivoting to expenses, the full-year guide implies about $14 billion or so of expenses in Q4, so it's a little bit of a step up from this quarter. How much of that is just the timing of investments and other spend that you're making, and is that a good jumping-off point as we think about next year?
Mike Santomassimo: Well, in Q3 to Q4, if you go back and look over time, there is always a little bit more of an increase from Q3 to Q4. So there is nothing special embedded within that. I think we are trending well to sort of hit the full-year guide and potentially could be a little bit better, but we are trending well there. I think as you sort of think about next year, without giving specific numbers, Q4 is not a good jumping-off point because it does not take into account all the work we continue to do on the efficiency side, which again, as we have said over and over, we still think there is a lot of meaningful opportunity to drive that.
Mike Santomassimo: As we enter sort of our budget conversations going into next year, we come at it in the same way we have been doing it for years now, which is we expect every part of the company to drive meaningful efficiency. We have got to continue to make the investments that we want to make. You have got to deal with inflation on salaries and other things, and that will net down to a number. So I think we still expect to see sort of meaningful efficiencies as we go into next year to help offset some of that.
Charlie Scharf: Maybe I can just add a couple of things to that. First of all, when we think about we as a company and what we are focused on, I think we are very focused on growing the business in a smart, methodical way. We have talked about that a whole bunch in terms of where we are seeing that. In terms of the expenses and what we have done and the way we think about it, we have been very consistent since we have been here about focusing on efficiencies, reinvesting. Even this quarter, the fact that our expenses were somewhat flat to down when our revenue-related expenses, which are mostly commissions, which are formulaic, are up, says a lot about levers that we are able to pull. We are very focused on building a company which has higher embedded returns, which is more efficient.
Charlie Scharf: When we get questions about AI and people talk about agents and all these other things, I personally think there is this underappreciation for the benefits that those with scale have when it comes to AI. I think there are huge benefits when it comes to how we can serve customers and our ability to build tools for customers and deploy them broadly. But the same thing is true on the expense side. We can go build an agent that can do the work in our call centers or in our off-sites, and we can spend the same amount of money as someone else, but deploy it over a very large part of the company here. So this idea of scale matters in an AI world is even more so. That is probably not very good English, but I hope you understand what I am saying.
Charlie Scharf: I think we feel that way both on the how we serve customers and ultimately what it means for revenue over a period of time, but certainly when it comes to our ability to continue to become more efficient, which will allow us to either control expenses and reinvest in other things at the same time. That is just kind of something that is appeared with the advent of these models that we are incredibly bullish about.
Manan Gosalia: That is great color. Thanks, Charlie. Thanks, Mike.
Charlie Scharf: Sure.
Operator: The next question comes from Erika Najarian of UBS. Your line is open.
Erika Najarian: Thank you, and good morning. Just a few follow-up questions for me. First on capital. When Moody's affirmed your ratings on 5 October, they did say something about estimating that your RWA benefit from Basel III Endgame would be RWAs down 7%, but they would view operating at the low end of your CET1 ratio target of 10% to 10.5% as credit negative. I know that they said it in context of Basel III Endgame, but I am just wondering with the current CET1 at 10% and some of the growth opportunities that you have mentioned so far in this call, how investors should think about the buyback as a priority and absolute buyback levels relative to your CET1 today and that comment from Moody's, if that comment at all is impactful to how you are thinking about capital.
Mike Santomassimo: Yeah. Erika, it's Mike. I'll take a shot. Look, I think you're over-reading the comment. I think obviously it is. I think their comment was in the context of if RWAs go down by a bunch and you manage below 10%, that would imply, in their analysis, would imply, I think, they said a $13 billion decline in capital. I think you just got to take that in context. Less capital from a rating agency perspective is worse than more capital. There's a lot to play out between now and then, so I wouldn't overthink that too much. I think as you look at our capital priorities and the way we're going to manage capital, I think we said it in our remarks again. We plan to manage capital between 10% and 10.5%.
Mike Santomassimo: Depending on what we think the growth opportunity looks like and all the risks that are out there in the quarter, we'll use buybacks as that lever after we go through that assessment. That's kind of the way we've approached it now for a number of years. I think as Charlie said earlier, I think we certainly feel like we're going to have capacity over time to buy back plenty of stock, and I think we've done a lot over the last number of years. I think in any given quarter, it's going to be a function of what we think the growth opportunity looks like and what risks are there, and then buybacks end up being that last piece.
Charlie Scharf: Let me just kind of put a fine point on what Mike said is, listen, obviously, we care a lot about our ratings. We care a lot about what rating agencies think. We look at where we are today and believe we continue to still have a significant amount of flexibility to deploy capital and not be in a position to harm anything relative to our ratings. As Mike said, we are comfortable with the range of managing capital that we've said.
Charlie Scharf: We do have the change in RWA coming, hopefully, from Basel III Endgame, which should be tailwinds for us. We earn a lot of money in a quarter. When we look at all of that gives us the opportunity to use the balance sheet to serve customers as well as return stock. We don't view that comment as limiting to anything we otherwise would be contemplating doing.
Erika Najarian: Thank you for that complete answer. As my second question, as a follow-up to John's line of questioning on net interest income, the exit rate for NII in Q4 implies a 4% to 5% gross rate, and obviously that is coming off of a 260 net interest margin in Q4 2025. Is that 4% to 5% the right sort of ballpark as we think about 2027? Sorry for the compound question, Mike, but just wanted to clarify.
Erika Najarian: We are calculating your beta in the last cycle, Q4 2021 to Q2 2024, to be about 46% versus 55% at JP Morgan and 52% at B of A. I just wanted to make sure that you meant that you will continue to sort of outperform your peers in terms of deposit beta when you responded to the question that your beta should be the same this time around as it was in the last hiking cycle.
Mike Santomassimo: Okay. If I miss a piece of that, Erika, you got to remind me, but I will.
Erika Najarian: Sorry.
Mike Santomassimo: I will try and capture all of that. Maybe on the beta first. Look, I think when you look at the You have to look at each of the components of our deposit base separately. The mix is changing a little bit, right? When you look at each component of the deposit base, we do not expect the betas to be any different than they were the last cycle. We will have If you are comparing it to that timeframe, we had more, a bigger percentage of our deposit base was in the consumer side, so you are going to have a lower beta. Now that we are growing on the Commercial Banking side, in aggregate, you will have a slightly higher beta, but that is a good thing, as you sort of see the growth overall come through.
Mike Santomassimo: Exactly how that will compare to the peer set is a function of the mix of deposits and how much of it is consumer versus commercial. I think you do need to normalize through that, but we do not expect each component to be really any different than what we saw in the last go around. I think in terms of the way to think about the jumping off point into 2027, I think we will give more guidance like we normally do in January. But certainly, having a strong Q4 sets us up well as we go into next year.
Erika Najarian: Thank you.
Operator: The next question will come from Chris McGratty of KBW. Your line is open.
Chris McGratty: Well, great. Good morning. Mike, in your prepared remarks for Charlie, you talked about markets and banking not being a huge ROTCE P&L driver today. I guess my question is that the desired outcome when you think about your 17% to 18% ROE target over time, or might that consider greater allocation to those businesses? Thanks.
Charlie Scharf: Yeah, let me just clarify what I meant to say. So, those businesses are very important drivers for our high ROTCE and improving ROTCE. As we grow those businesses, we do expect those to be additive to the return to the company. What I was just trying to say was that when you look at our company, we have $80 billion in revenue. When we look at the types of fees, whether it is like M&A, ECM, it is a relatively small portion of the revenues. So, if there are significant market events or significant transactions, it is not going to move the needle as much for us because it is a smaller portion in any one quarter.
Charlie Scharf: So, we compete with people that participate in super big underwritings and get very, very big fees, or the market environment is very favorable and they have got very favorable trading results. We participate in that, but just not to the same degree because the mix of those businesses is smaller. So, I do not want to confuse this. It is an important part of both the returns today and the improvement. We just do not expect it to be outsized in any individual quarter relative to what other companies might see.
Chris McGratty: Okay, that is helpful. Thank you for that. To the capital, I just wanted to try and fully understand the messaging. It seems like maybe it is coincidence that tangible common equity ratio for some of your peers lands around 6%.
Charlie Scharf: You are breaking up.
Mike Santomassimo: Operator, maybe we can come back. Maybe we can take the next call and see if he rejoins.
Operator: Certainly. We can go on to Matt O'Connor of Deutsche Bank. Your line is open.
Matt O'Connor: Good morning. I just want to drill into a couple of the consumer businesses. I guess first in credit card, how far along are we into the seasoning of some of the kind of promos that you have done. Looks like the yields are relatively stable, but you are getting good revenue growth overall. Just how do we think about what ending of the seasoning of some of these new accounts that were on promotion?
Mike Santomassimo: I will try to give a little color there. When you look at the progression that we have seen, we launched the first new product back in the summer of 2021, our Active Cash card. What you have seen over the last few years is progressively the vintages have gotten bigger. In particular over the last 2 years, those have been the biggest vintages by far. The earliest vintages are maturing and performing right on top of where we would have thought they would be. But the most recent vintages are bigger, and so you do not see the full impact of those coming through in terms of the profitability. I think as we look forward from here, I do not expect big step-ups in terms of originations that continue to happen.
Mike Santomassimo: I do expect we'll sort of operate in this 600,000 to 700,000 cards a quarter, somewhere in that range for a little bit. I think as those vintages, as the most recent vintages start to mature more, you'll start to see the profitability come into the P&L in a much bigger way. I think that'll start happening as we go into next year, and then in a bigger way the year after.
Charlie Scharf: Just to be really direct, that means that adds to earnings, that adds to returns. So, when we talk about continued progress that we expect to see, we've been talking about this one for a while, and now that our originations are leveling out and those vintages are maturing, we should start to see more of an impact in the overall company, which is terrific.
Matt O'Connor: Okay, that's helpful. Then maybe on the other side, in the auto business, you guys have continued to grow pretty aggressively the last few quarters here, and you've seen some more of the smaller peers pull back. Just wondering how you're able to kind of maintain reasonable returns there, spreads, in light of some others pulling back here, claiming the spreads have gotten too tight for them. Thank you.
Mike Santomassimo: Yeah. No, it's a good question that we spent a lot of time talking about, and I think there's a few factors that help where we are. One, we've got- The relationship we put on about, I guess, a little over a year ago now, maybe 15 months ago with Volkswagen and Audi, so that continues to add to the originations. Those returns are sort of right on top of where we would have expected at this point and decent.
Mike Santomassimo: I think we've got other relationships with other OEMs where we've got some good flow that comes through there, and I think those are contributing to the core sort of returns. Then I think just more broadly, like we've been talking about becoming a slightly more full-spectrum lender. We used to focus mainly on sort of the upper end of the prime spectrum, now we sort of are a little bit closer to near-prime, so you see good returns coming out of some of those originations as well.
Charlie Scharf: We are doing more near-prime than we did before.
Mike Santomassimo: Yeah. It ends up, if you look at sort of that lower end originations, it is only about 5% of the originations, but that also contributes to the returns we are getting. It is a constant, if rates stay high from here, that may compress returns more, so we sort of, we look at it quarter to quarter to see how we feel about it. So far, we have been comfortable with what we have put on year to date.
Matt O'Connor: Okay. Thank you.
Operator: The next question will come from John Pancari of Evercore ISI. Your line is open.
John Pancari: Morning. Mike, just on the trading and IB revenues, I know trading revenues came in a bit lighter this quarter, and you noted FICC revenues, and then IB revenues also a bit pressured. Can you maybe give us a little more color on underlying trends and maybe your thoughts on how we should think about IB revenues here, just given the pipeline, if you can update us on that, and maybe similar thoughts on how we should think about trading, just given the potential volatility amid the rate environment?
Mike Santomassimo: Sure. On the IB side, look, we were just under, I think, firmwide, just under $900 million for the quarter, which is not a bad result given where we have come from over the last couple years. In there, you saw M&A up 30%, you saw equity capital markets up a bunch, and what you did not see is that LevFin, leveraged finance, and investment grade be as big a driver as you might have in other quarters. But overall, we continue to take a little bit of share over time as we go, and that is kind of what we expected from all the investments that we have made over the last few years. What happens in any given quarter is going to be a function of individual deals closing, but we feel like the opportunity to continue to grow the IB fee line is big.
Mike Santomassimo: I think we are continuing to make investments across a bunch of different coverage sub-sectors within the coverage group, whether it is in tech or in the healthcare space in particular, and as well as some of the industrial sub-sectors. So, we think there is a lot of opportunity to continue to grow that. What we are also very pleased with is that we are really starting to see the efforts to cover our Commercial Banking clients really work well. The fees for the Commercial Banking clients are up 25%, and they are up a lot relative to where we started this journey three or four years ago. So, we continue to see meaningful opportunity in that space.
Mike Santomassimo: In the markets, if you break it apart, NII is going to be, it is a liability-sensitive business, so rates go up, NII is going to go down, and you are going to see this geography shift back to fees. You really have to look at overall markets revenue to sort of judge the overall business. That was effectively kind of flat year-on-year, despite including some of the slowdown that we saw in September.
Mike Santomassimo: Over a period of time, the opportunity there to grow that business and grow total revenues is still as meaningful as we have been saying, and we think it is, and we thought it was for a while. It is just methodically chipping away at sort of continuing to get more efficient at deploying the balance sheet, onboarding clients, continuing to deepen relationships across the financing side, and parlaying that into doing more on the trading side. We still think there is a lot of upside to come in the overall revenue in markets.
John Pancari: Okay, good. Thanks for that. On the credit side, it is good to hear that consumer and commercial health is mostly intact. You did cite that higher rates could impact CRE valuations. Are you observing any incremental stress at this point as rates have spiked on the commercial real estate front? We are fielding a number of questions around multifamily implications potentially. Are you seeing anything on that broader front?
Mike Santomassimo: Well, John, as you know, it is just math, right? So, rates go up, valuation has got to go down, right? All else equal. I think, but it is too early to kind of see real stress come through. It will be very much specific to individual properties and whether the net operating income will be able to offset any increase in rate as they go through a refinancing. Again, in some properties, I think it will be just fine, and you are going to see some that get a little bit more stressed. That will take some time to kind of play out over a longer period of time. At this point, it is not causing an acute issue in the first few weeks.
Charlie Scharf: The other thing I would just add is, I think just when we look at our ACL, that we feel very good about what we have for CRE.
John Pancari: Okay, great. Thank you for that.
Operator: Our final question for today will come from David Chiaverini with Jefferies. Your line is open.
David Chiaverini: Hi. Thanks for taking the questions. Maybe a follow-up on the loan side. How should we think about loan growth from here in coming quarters relative to the guide of the mid-single-digit pace? You spoke about this earlier, but maybe talk about your appetite to provide financing for AI infrastructure.
Mike Santomassimo: Yeah. David Chiaverini, I think when you look at what we've seen in actual loan growth and where we likely will end of the year, it is going to be higher than the guide we gave in the beginning of the year. But we have been sort of talking about that over the last couple quarters. That is definitely going to be the case. I think how that progresses after this quarter, I think we will see as we get to the end of the year and provide our assumptions as we think for our guidance next year. But overall, we are still seeing good demand for loans across a lot of the different parts of the business.
Mike Santomassimo: I think when it comes to the AI trade, I think we are very cognizant of all the different kinds of layered risks that sort of are embedded in those investments, whether it is the data center construction and all the permitting and power issues that are well sort of trodden, or sort of the financing related to chips and other things that go inside the data centers. We are very focused on ensuring we understand sort of who the lessees are, where the guarantees are, all the different sort of layered risks that could potentially come into play there.
Mike Santomassimo: We have very hard limits in terms of what we are willing to do and what we are not willing to do, and are sticking to that. It is a conversation that we are very focused on from the top down across all the different businesses that are impacted by it.
David Chiaverini: Great. Thanks for that. Follow-up on the net interest margin. Does the stable NIM guide for Q4 assume a reduction in balances in the markets business, or should we expect continued solid growth in the markets business? Is the netting of sponsored repos fully baked in at this point?
Mike Santomassimo: It is not fully baked in. We do expect to see more activity growth in the business. Exactly what that nets into on a net balance sheet perspective, I think I am not going to sort of guide there, but I think we still have opportunity there.
Charlie Scharf: But we are not reducing market-
Mike Santomassimo: Yeah, we are not-
Charlie Scharf: to hit a NIM number at all.
Mike Santomassimo: Yeah.
Charlie Scharf: Just the opposite. We are continuing to grow the business.
Mike Santomassimo: Yeah. Like I said earlier, our fixed income finance gross balances were up 18% versus Q2, and the net balance sheet was down. The activity levels are increasing, and I expect that to continue into Q4. Exactly where the net balance sheet ends up, we will see. But the activity is quite robust.
David Chiaverini: Very helpful. Thank you.
Mike Santomassimo: Okay. Thanks for the questions. We will talk to you next time. Thank you.
Operator: Thank you all for your participation on today's conference call. At this time, all parties may disconnect.
