The PNC Financial Services Group Q3 2022 Earnings Call Transcript

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Provided by Quartr
October 14, 2022

Key Takeaways

  • Net income: Generated $1.6 B in Q3, or $3.78 per share, driven by 14% growth in net interest income and a 32 bp sequential NIM expansion—its largest increase in over a decade.
  • Noninterest income rose modestly on strong private equity performance and a record quarter in loan syndications, partially offset by weaker M&A activity.
  • Provision for credit losses increased to $241 M reflecting slightly weaker economic expectations, even as overall credit quality remained largely unchanged.
  • Returned $1.7 B of capital to shareholders via $600 M in dividends and $1.1 B in share repurchases, while maintaining a solid CET1 ratio of approximately 9.3%.
  • For Q4, guidance calls for total revenue growth of ~2% with net interest income up 6–8%, fee income stable to down 1%, noninterest expenses flat to +1%, and net charge-offs of $125–150 M.
AI Generated. May Contain Errors.
Earnings Conference Call
The PNC Financial Services Group Q3 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning and welcome to today's conference call for the P&C Financial Services Group. Participating on this call are P&C's Chairman, President and CEO, Bill Demchak and Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward looking information. Cautionary statements about this information as well as reconciliations of non GAAP measures are included in today's earnings release materials as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com under Investor Relations.

Operator

These statements speak only as of October 14, 2022, and P&C undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Speaker 1

Thanks, Brian, and good morning, everybody. As you've seen, we delivered another strong quarter generating $1,600,000,000 of net income or $3.78 per share. The combination of continued growth in our commercial and consumer loan books and higher rates drove net interest income 14% higher and our net interest margin increased 32 basis points. By the way, that's the largest sequential increase in NIM in more than decade. Non interest income was also up modestly reflecting strong private equity performance and a record quarter in loan syndications, partially offset by weaker M and A activity.

Speaker 1

We remain disciplined on the expense front, resulting in 7 percentage points of positive operating leverage. The credit quality was largely unchanged in the quarter. While we have not seen a meaningful deterioration in credit quality taking place, A provision of $241,000,000 reflects our slightly weaker economic expectations. Our capital levels remain solid and we returned $1,700,000,000 of capital to shareholders during the quarter through share repurchases and dividends. We continue to make good progress on our strategic priorities.

Speaker 1

Our new and acquired markets performed particularly well across all lines of business and we see significant untapped opportunities across these markets. We also continue to invest in our payments capabilities provide differentiated value. We recently acquired Linga, enhancing our capabilities to better serve restaurant and retail clients, particularly in the small business space. And during the quarter, we made enhancements across our retail platform to drive customer convenience and retention. For example, we recently announced a partnership with Allpoint to give our customers surcharge free access to 41,000 additional ATMs from coast to coast.

Speaker 1

With this partnership, P and C now offers customers surcharge free access to more than 60,000 P and C and partner ATMs across the country. And AMG. We saw positive quarterly flows of $4,000,000,000 driven by both the Private Bank and Institutional Asset Management. We are recruiting top talent and remain focused on taking share in all of our markets. In summary, in the Q3, we executed well as and we are in a position of strength as we look to the future.

Speaker 1

As always, I want to thank our employees for their hard work in the Q3 and for everything they do to deliver for our customers, communities and our shareholders. And with that, I'll turn it over to Rob to provide more detail about our financial results.

Speaker 2

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 3 and is presented on an average basis. During the quarter, loan balances were $313,000,000,000 an increase of $8,000,000,000 or 3%. Investment securities grew approximately $2,000,000,000 or 2%. Cash balances at the Federal Reserve decreased $8,000,000,000 and our deposit balances averaged 439,000,000,000 a decline of $7,000,000,000 or 2%.

Speaker 2

However, spot deposits were down $2,600,000,000 or less than 1%, as lower consumer deposits were partially offset by growth in commercial deposit. At the end of the 3rd quarter, our loan to deposit ratio was 72% and remains well below our pre pandemic levels. Average borrowed funds increased $8,600,000,000 as we bolstered our liquidity through Federal Home Loan Bank borrowings. During the quarter, we increased our borrowings with the home loan bank by $20,000,000,000 on a spot basis. We continue to be well positioned with significant capital During the quarter, we returned $1,700,000,000 of capital to shareholders through approximately $600,000,000 of common dividends and $1,100,000,000 of share repurchases or 6,700,000,000 shares.

Speaker 2

And as of September 30, 2022, Our CET1 ratio was estimated to be 9.3%. Slide 4 shows our loans in more detail. During the Q3, we delivered solid loan growth across our expanded Loan balances averaged $313,000,000,000 an increase of $8,000,000,000 or 3% compared to the 2nd quarter, reflecting growth in both commercial and consumer loans. On a spot basis, loans grew $4,600,000,000 or 1%. Commercial loans grew $3,100,000,000 as strong new production more than offset the syndication of the $5,000,000,000 of high quality short term loans that were expected to mature in the second half of the year.

Speaker 2

Consumer loans increased $1,500,000,000 driven by higher residential mortgage and home equity balances, partially offset by lower auto loans. And loan yields increased 69 basis points compared to the 2nd quarter driven by higher interest rates. Slide 5 covers our deposits in more detail. Although average deposits declined $7,000,000,000 or 2% compared to the 2nd quarter, bought deposits were $438,000,000,000 and declined less than 1% compared to June 30. Commercial deposits grew $1,700,000,000 or 1% on a spot basis and consumer deposits declined $4,300,000,000 or 2%, reflecting inflationary pressures and seasonally higher spending.

Speaker 2

Given the rising interest rate environment, we've begun to see a mix shift from non interest bearing into interest bearing, particularly within our commercial deposits and expect this to continue over time. However, to date, our consolidated deposit portfolio mix has remained relatively stable with 2 thirds interest bearing and 1 third non interest bearing. Overall, our rate paid on interest bearing deposits increased 33 basis points linked quarter to 45 basis As of September 30, our cumulative beta was 22% and we estimate it will increase to approximately 30% by year end. Slide 6 details our securities portfolio. On an average basis, our securities grew $2,000,000,000 or 2% during the quarter as we replaced maturities with higher yielding securities.

Speaker 2

The yield on our securities portfolio increased 21 basis points to 2.1%, driven by higher reinvestment yields as well as lower premium amortization. And during the quarter, new purchase yields exceeded 4%. Throughout the course of the year, we've repositioned our securities portfolio. And as of September 30, we had 66% of our securities classified as held to maturity. While interest rates have continued to increase, this repositioning has reduced the rate of change in our AOCI.

Speaker 2

At the end of the 3rd quarter, Our accumulated other comprehensive loss was $10,500,000,000 and as you know, is not included in our regulatory capital. And importantly, we expect this amount to fully accrete back over the remaining lives of the securities and swaps. As of September 30, we estimate that approximately 5% of AOCI will accrete back per quarter going forward. Turning to the income statement on Slide 7. As you can see, Q3 2022 reported net was $1,600,000,000 or $3.78 per share.

Speaker 2

Revenue was up $433,000,000 or 8% compared with the 2nd quarter. Expenses increased $36,000,000 or 1%, resulting in 7% positive operating leverage linked quarter. Provision was $241,000,000 in the 3rd quarter, reflecting a slightly weaker economic outlook, which impacted our macroeconomic scenarios and weightings. And our effective tax rate was 19.1%. Turning to Slide 8, we highlight our revenue trends.

Speaker 2

As you can see, total revenue for the Q3 was $5,500,000,000 an increase of 8% or $433,000,000 linked quarter. Net interest income of $3,500,000,000 was up $424,000,000 or 14%. The benefit of higher yields on interest earning assets and increased loan balances was partially offset by higher funding costs. And as a result, net interest margin increased 32 basis points to 2.82%. 3rd quarter non interest income of dollars 2,100,000,000 increased $9,000,000 as lower fee income was offset by an increase in other non interest income.

Speaker 2

The decline in fee revenue was driven by lower activity in our Capital Markets, Mortgage and Asset Management businesses, which was somewhat offset by continued strong performance in our lending and deposit Services as well as our card and cash management fees. Growth in other non interest income reflected higher private equity revenue as well as a $13,000,000 positive Visa derivative fair value adjustment in the 3rd quarter compared to a negative adjustment of $16,000,000 in the second quarter. Turning to Slide 9. Our 3rd quarter expenses continued to be well managed and were up 1% linked quarter. The growth reflected increased personnel expense to support business growth as well as one additional day in the quarter.

Speaker 2

As we previously stated, we have a goal to reduce costs by $300,000,000 in 2022 through our continuous improvement program. We're now 9 months into the year and we've completed actions related to capturing more than 80% of our annual goal. And as a result, we remain confident we will achieve our full year objectives. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on Slide 10.

Speaker 2

Non performing loans of $2,100,000,000 increased $22,000,000 or 1% compared to June 30 and continue to represent less than 1% of total loans. Total delinquencies were $1,600,000,000 on September 30, at $115,000,000 or 8% increase linked quarter. The increase was driven by elevated levels of administrative delinquencies, the majority of which have already been or are in the process of being resolved. Net charge offs for loans and leases were $119,000,000 an increase of $36,000,000 linked quarter, primarily driven by higher commercial loan net charge offs. Our annualized net charge offs to average loans continues to be historically low at 15 basis points.

Speaker 2

Provision for the 3rd quarter was $241,000,000 compared to $36,000,000 in the second The increase reflected slightly weaker economic expectations, which impacted our macroeconomic scenarios and weightings. And during the Q3, our allowance for credit losses remained essentially stable. Our reserves now totaled $5,300,000,000 and continue to be 1.7% of total loans. In summary, PNC reported a strong Q3. In regard to our view of the overall economy, we expect moderate growth in the 4th quarter, resulting in 1.8% GDP growth for the full year 2022.

Speaker 2

We also expect the Fed to raise rates by an additional 125 basis points in the 4th quarter with a 75 basis point increase in November and a 50 basis point increase in December. Looking at the Q4 of 2022 compared to the Q3 of 2022, we expect average loan balances to increased approximately 1%. Net interest income to be up 6% to 8%, fee income to be stable to down 1%, other non interest income to be between $200,000,000 $250,000,000 excluding net securities and Visa activity. Taking our guidance for all components of revenue into consideration, we expect total revenue to increase approximately 2%. We expect total non interest expense to be stable to up 1%.

Speaker 2

4th quarter net charge offs to be between $125,000,000 $5,000,000 and we expect our effective tax rate to be approximately 18.5%. And with that, Bill and I are ready to take your questions.

Speaker 3

Thank And our first question comes from the line of John Pancari with Evercore. Please go ahead.

Speaker 4

Good morning.

Speaker 2

Hey, John.

Speaker 4

On the funding side, I know you saw your deposit balances pull back again On a linked quarter basis in both average and EOP, I'm wondering if you can give us a little bit of Color on your thoughts there on deposit growth in coming quarters as rates continue to rise and you see some Mix and your funding. Thanks.

Speaker 2

Hey, John. Good morning. It's Rob. Yes, so on deposits, we saw Fine in the quarter, less so on a spot basis. Actually, commercial deposits grew there at the end of the quarter, But down quarter over quarter.

Speaker 2

When we look forward to the next quarter, we sort of see stable to down. On the consumer side, we do expect some downward trends just reflecting what we've seen lately, which is largely spend related, somewhat seasonal, but also the inflationary pressures. And then on the commercial side, we're calling it Abel, typically, seasonally, we see commercial increase. And so far in the quarter, we have seen increases. But Yes.

Speaker 2

There's a lot of forces working against that with quantitative tightening and everything that's going on. So we're calling Stable, large overall down maybe a little bit.

Speaker 4

Okay. That's helpful. And related to that, Rob, can you just Maybe update us on how you're thinking about deposit betas in terms of your net interest income expectations and how you're thinking about the margin? Thanks.

Speaker 2

Yes, sure, sure. So as I mentioned in my prepared remarks, our betas are running right now at around 22. We expect it to go to 30 by year end.

Speaker 4

Right. Okay. And then in terms of the margin Trajectory, just see if you can help us with that, how we should think about that as well.

Speaker 2

Well, I think in terms of the margin, we saw a nice increase obviously in the Q3. We won't see that equivalent jump Fairly in the Q4, but as the Fed continues to raise rates, we would continue to see some margin expansion.

Speaker 4

Okay. And then if I could just ask one more. On the buybacks, dollars 1,100,000,000 for the quarter came in above your $750,000,000 guidance. Maybe if you could just talk about expectations, the likelihood of it being $7.50 for next quarter or could you surpass that again if you have the Opportunity given the share price. Thanks.

Speaker 2

Yes. So we have been active repurchasers of our shares. We've been operating under the stress capital buffer framework, which allows us a lot of flexibility. We pointed to $700,000,000 or $750,000,000 as sort of our average Purchase rate, which is roughly about what we've done since we reinstated our share repurchases following the acquisition of BPVA. So that's just a rule of thumb.

Speaker 2

We can do more, we can do less as conditions warrant. So going forward, we'll see we will be purchasers of our shares in the 4th Quarter, the amount of which will be determined based on conditions.

Speaker 4

Got it. All right. Thanks, Rob.

Speaker 5

Sure.

Speaker 3

Our next question from the line of Scott Siefers, Piper Sandler. Please go ahead.

Speaker 5

Good morning, guys. Thank you for taking the question.

Speaker 2

Good morning. Maybe

Speaker 5

Rob. Hey. I was just curious if you could talk sort of broadly or at a top level about Your ability to sustain positive NII momentum once the Fed stops raising rates. And I think some of the factors or puts and takes will be sort of self evident, but I would just be Curious to hear, in your words, what you think the big movers are each way.

Speaker 2

Well, I mean, I think you said it. I think it's Self evident, as the Fed continues to raise rates, we will see increases in NII. Obviously, we'll see some Higher expenses on the funding part, which gets to the margin. But it will continue to go up as the Fed rates Continues to raise rates, at which point they stop doing that and things will slow down, but that's probably into 2023 as we Yes, take a look at our forecast.

Operator

It's going

Speaker 1

to be a bit of a mechanical exercise. So if you assume the Fed is done, if you look at past cycles, you'll see banks Continue to increase rates as deposits get scarce. So there's a little bit of beta increase. Funding, correct. Offsetting that, More than offsetting that in our case because our the short dated nature of our securities book is the roll down of the Securities that mature and then get redeployed at the then higher yields, right?

Speaker 1

So it will be that fight against where Positive prices go once the Fed stops versus the roll down on the book and the reprice of the yields on the book.

Speaker 5

Yes.

Speaker 2

Which is self evident.

Speaker 5

Yes. Okay, perfect. Thank you. And then if I can go back to, Rob, your comments from the last question on repurchase. So I guess just sort of curious when you think of sort of the conditions and why you would or wouldn't keep up the 3rd quarter's more elevated level.

Speaker 5

It looks like you guys Among the very few that still has very good capacity to repurchase. What are you thinking? Was it just like the stock price in the Q3? Or Are you sort of just there's enough uncertainty in the macro or does like TCE begin to Enter into the equation in addition to regulatory capital levels. What are those conditions that you guys are weighing?

Speaker 2

Yes, sure. Yes. I'd say all of the above other than maybe the TCE. That's not as much of a driver, because it's not part of our regulatory capital.

Speaker 5

Okay.

Speaker 2

All right.

Speaker 5

Perfect. Thank you guys very much. Appreciate it.

Operator

Next question please.

Speaker 3

Our next question is from the line of Gerard Cassidy with RBC. Please go

Speaker 5

ahead. Good

Speaker 1

morning, guys. How are you?

Speaker 2

Hey, Gerard. Hey, Gerard.

Speaker 6

Can you guys share with us, we're hearing some commentary in the commercial real estate markets that loan Availability is becoming tighter, particularly to equity REITs. And you guys obviously are players in the commercial real estate market. Can you tell us what you're seeing and the risks you're assessing and what the outlook is for your commercial real estate loan book?

Speaker 1

Just a general comment. Our exposure to REITs has grown as some of the capital markets opportunities But some REITs are risky and some aren't depending on what their underlying property types are. And Yes. We price for risk and decline risk when it's the right thing to do.

Speaker 6

Very good. Recognizing credit is still very strong and your nonperforming asset ratios are strong. I was curious, I saw in your detail that you gave, which is some of the best out there about the increases in C and I Nonperforming loans and then also I think there was an increase in the 30 to 89 day category. I know in your press release you talked about some Processing issues. Can you expand upon that and talk a little bit about that line those line items?

Speaker 2

Yes, sure. You want me to Yes. On the delinquencies, Gerard, and I mentioned it in my comments, the increase was entirely driven by administrative delinquencies, which have largely been resolved. So delinquencies adjusted for that are essentially flat, maybe even down a little bit. On the non performers, they are up a little bit.

Speaker 2

As you know, we're coming up off of such low, low levels that some increase is inevitable It doesn't necessarily reflect a broader move.

Speaker 1

It also jumps around.

Speaker 2

Yes, that's right.

Speaker 1

There's no trend in there. 1 shows up, one goes It's also just a small number. It's hard to look at Percentage increases. It changes quarter to

Speaker 6

Very good. I missed your opening comments, Rob, but thank you.

Speaker 2

Yes, sure.

Speaker 3

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

Speaker 7

Hey guys, good morning. One follow-up on the NII side. I know last quarter Bill you had said that you continue to see the rates Trajectory continue to move up. We know you had an existing pre existing book of swaps that you put on. You said you were going to hold off for now.

Speaker 7

And I'm just wondering if you can help us understand just the philosophy from here as we get potentially towards the high end of the rate cycle and how the existing book works against the natural asset sensitivity. To the earlier point about Can you still continue to move NII growth sequentially after the Q4 as we get into next year? Thanks.

Speaker 1

You have a lot embedded in that question. So start with the swaps. You will have seen what's So number of $4,000,000,000 $5,000,000,000 we dropped swap notion this quarter. If you look at our overall exposure to rates, we're basically We're flat to even more asset sensitive to where we were 6 months ago, purposefully not wanting to invest into this market. So we've let stuff rolled out and kind of replaced what's rolled off but not added.

Speaker 1

Our book today, I guess, our bond book has a duration of 4.6 years. Swap book is 2 point Yes, 5 or 6. 2.3. So it all rolls down really fast. And it's rolling down off of yields that have one handles on Nick, it replaced today at 4.5 plus assuming everything stops right here.

Speaker 1

So there's a big opportunity Set in the repricing of that book and then there's an opportunity set in simply adding duration when it's the right time to do that. I don't think it's the right time to do that

Speaker 7

So then you can you'd mentioned the swap, the roll down. Can you kind of just Help us understand how quickly that current portfolio rolls down. And so as we go forward, should we see a lesser burden Then from the 10 Q and given where rates are from that roll down going forward, is that what you're alluding to?

Speaker 1

Yes. I mean the duration on the swap book is 2.3 years, Rob saying. So it's all bullet maturity. So I'm guessing you're going to see a third a year.

Speaker 7

Okay. Got it. And at this point, you're not you're at the point where you're out to protect Further out down the road, your point, Bill, is just that you'll see how that develops at that point, which time you decide, okay, we now have to think about the downside risk?

Speaker 1

Yes. So we are today much more exposed to down rates than we are to up rates. We make lots of money when rates go up or even if they stay just where they are here. We're under invested, we're asset sensitive. The pieces of that, You shouldn't get too hung up on.

Speaker 1

The exposure we have has fairly short maturities both on the swap side and on the bond side. And so Simply staying where we are gives us the opportunity to reinvest what matures at higher yields, whether that's swaps rolling off or bonds rolling and we're going to do that. We will also at some point add to get rid of some of the asset We're just not doing that yet.

Speaker 7

All right. I understand. Thanks. Okay. I'll leave it there.

Speaker 7

Thanks, guys.

Speaker 3

Our next question from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Speaker 8

Hi. Hey, Mike. Does Rob get a raise because you became more asset sensitive in the last 6 months?

Speaker 2

We'll take that as An offline item. Okay.

Speaker 8

I guess my no good deed goes unpunished. I mean your rate of growth for NII is slower in 4th quarter and in the Q3, quarter over quarter. So just to follow-up on that last question, do you think your 4th quarter NII Will be a peak or do you think it should go higher from there because it could go lower because the catch up, the lag of deposit pricing, Maybe QT, deposits run off, other factors, but mitigated by some of those things about reinvesting swaps And securities. So does it go higher after the Q4 or you just don't know

Speaker 7

or what's the likelihood? Yes. It does go higher.

Speaker 5

Okay.

Speaker 8

And why did you go more asset sensitive 6 months ago? I mean that's different than Your

Speaker 1

peers. Yes. I've been in a camp for a while in arguments with our economics team. That it was going to take a lot higher rates and inflation was going to be exactly what played out. So assuming that what's Playing out, this is what we thought 6 months ago.

Speaker 1

You don't buy anything.

Speaker 2

It wasn't any harder than that. It's your asset sensitivity.

Speaker 8

Yes. Okay. And then why are deposit betas And really the industry outperforming. What have people gotten wrong in their modeling? When you look at your model, Hasn't taken place?

Speaker 8

Or is it just yet to take place?

Speaker 1

Yes. I don't know the answer to that, Mike. I mean the consumer money is stickier than everybody.

Speaker 2

Yes, that's the answer. Relative to our expectations, consumers moved more slowly than we would have thought.

Speaker 1

Yes. Corporates are kind of doing what you would otherwise That depending on their size, money market yields are doing what you'd otherwise expect. So you have set of boundaries on competition from money funds and You have a set of boundaries and competition from high rate deposit accounts, the online deposit accounts. So it's really just the repricing of the core consumers Just occurred slower than I think the industry assumed.

Speaker 2

All right. Thank you.

Speaker 3

Our next question comes from the line of Bill Caracci with Wolfe Research. Please go ahead.

Speaker 9

Thank you. Good morning, Bill and Rob. Bill, you said that you don't think it's time to add duration yet. Can you give some color on the trigger you're looking for?

Speaker 1

I would tell you that we're probably getting close, but I continue to Thank you. And we've seen a lot of this play out that the back end of the curve is going to sell off here. I mean my base expectation is that it's going Tough to get inflation down to even have a 2 handle on it. But I do think the Fed is going to pause at some point. And When they do that, inflation is still sticky.

Speaker 1

I think you're going to see the curve flatten. So I just It's tough to want to lock in term rates at the moment, and essentially eat negative carry 3 months from now.

Speaker 2

Or longer.

Speaker 1

Yes. Well, no, you'd go negative in 3 months based on forward. So it's we need to see some semblance of When and how the Fed is going to stop and whether or not inflation is really moved towards 2 or just kind of gotten down to the low 3s And sticks there, which is what I'm afraid might happen.

Speaker 9

Understood. That's really helpful. Separately, many banks talked about deposit growth that they were generating under QE as their expectation that it would be sticky. Some others were less certain. Can you speak to that dynamic broadly at the industry level?

Speaker 9

And then maybe specifically whether you expect P&C's Interest bearing versus non interest bearing deposits to ultimately remix back to pre COVID levels?

Speaker 2

Yes. I mean, well, for the It's all pretty straightforward. You see it there. I would say, following at the altitude, you're asking the question, following the flood of liquidity and deposits We're going to see those recede. And then in regard to the mix between net interest bearing and or non interest bearing and interest bearing, We'll see that shift.

Speaker 2

We're already starting to see it on the corporate side. But the bulk of our deposits in terms of the core deposits, It's the same ratio, 33% non interest bearing, 2 thirds interest bearing.

Speaker 9

Got it. And on your debt as a percentage of your overall funding that ticked up a little bit this quarter, but it's still below 4Q 2019. Is it reasonable to expect that's going to remix back to Pre COVID

Speaker 3

levels?

Speaker 1

You'd have to I mean, at some point in time, you would expect that to occur. That's A function of where you think liquidity is going to go from the deposit side. But I don't know what timeline that would otherwise follow.

Speaker 9

Okay. That helps. And then finally, when the tailoring rules were coming together, You guys did a good job of articulating why Main Street Banks like yourselves don't pose systemic risk to the financial system. Can you speak to some of what's happening now and how you're positioned for the risk that regulatory scrutiny could intensify somewhat for the super regionals.

Speaker 2

So on the TLAC and SPOE issue? Yes. Yes. Well, Bill, you want to open up and I can add color. Well, just a couple of thoughts.

Speaker 2

I mean, one is obviously There's a lot of conversation about it, but at this point, there's no formal proposals or anything to look at. So from our view, it's just Observations and speculation, if we observe what's in place with the GSIBs, our conclusion is it's not necessary for large regional banks to your point. That we thought that came through in the tailoring, 95% plus of what we do is within the bank. 99% well, 95% that's 95% plus. So again, a simple structure and it's unclear to us Why an SPOE would need to be on top of what's already in place with the FDIC and the Deposit Insurance Fund.

Speaker 2

So that has us a bit perplexed.

Speaker 9

Thank you for taking my questions.

Speaker 3

Our next question is from the line of Michael Rose with Raymond James. Please go ahead.

Speaker 10

Hey, good morning. I was hoping to get some color on the health of your borrowers at this point and maybe if there's any Unwillingness to lend into certain asset class at this point. I'm hearing more and more on the construction side that the banks are pulling back. We just Love any updates that you have on the commercial and the consumer side. Thanks.

Speaker 1

I'm not Sure, what you're referring to about construction. But broadly, we haven't seen any change in our credit book. I We're seeing balances increase in credit card, which is a good thing. So people are finally drawing down on credit. But we really haven't seen Deterioration in the performance of the book across anything.

Speaker 1

In terms of what we lend to, we just don't we don't change our credit box. We have a set of criteria that we lend to. We'll change price and in certain asset classes prices are going up or in certain classes. Auto is Example where spreads are just too tight relative to where we want to lend. I can't think of any other examples where

Speaker 2

No, no. And we operate, as you know, mostly in the higher best point of the spectrum in terms of credit quality. So investment grade and prime space and

Speaker 1

Toomer, our approach is the same. If it's real estate construction, We've been active in the multifamily side. But if you're looking at sort of smaller Real Estate

Speaker 2

Higher risk. Yes, we were never there.

Speaker 1

We were never in that business to begin with. Yes, that's kind of a smaller bank activity.

Speaker 10

All right. Maybe just one follow-up. Appreciate the 4th quarter guide. I think as it relates to PPNR For the full year, it seems like even with the Q4 guide maybe being a little bit softer than work consensus, once you guys are squarely within the ranges for Full year revenue and non interest expense, is that the way we should be reading it? Thanks.

Speaker 2

Yes.

Speaker 1

Perfect. Thanks for taking my questions.

Speaker 3

And our next question comes from the line of Matt O'Connor, Deutsche Bank. Please go ahead.

Speaker 2

Hey, everyone. This is Nathan Stein

Speaker 8

on behalf of Matt O'Connor. So 3Q capital markets fees came down versus the really strong 2Q levels, but I think that makes sense just given the macro backdrop. Can you talk about the capital markets outlook from here? Thanks.

Speaker 2

Sure. Well, the decline in the 3rd quarter was more than just the macroeconomic Economic backdrop. It was off of elevated levels of our Harris Williams unit in the Q2, which were in effect. We did most of our activity in the first half in the Q2 with Harris Williams. So we knew that, we called that and we put that into our guidance.

Speaker 2

And then just going forward in terms of our capital markets view, Harris Williams is the biggest component. Their pipeline is very big. The degree to which they do more or less deals remains to be Our view for the broader category is flattish to down and recognizing there could Some upside or downside depending on the macroeconomic factors you talk about.

Speaker 1

Inside of that space, we actually had a record quarter in loan syndications. We had a record quarter in middle market loan originations, which is related to that. There's actually a lot of activity, particularly as the bond markets are drying up, that benefits us. Harris Williams just was The big number in the Q2. So when you're going off of that base, it's not as if the core underlying business ex Harris Williams Is struggling.

Speaker 1

It's actually doing quite well.

Speaker 2

Yes, that's right.

Speaker 1

Yes, that's right. The M and A market at the moment is tough.

Speaker 2

Thank you.

Speaker 3

We appear to have a follow-up from John Pancari with Evercore. Please go ahead.

Speaker 4

Hi, thanks for taking my follow-up. Just Real quick, on the Capital Markets revenue on the Harris Williams, can you just remind us what the comp ratio is in that business? And then separately, I just want to see if you can maybe walk through a bit of the outlook for the other larger line items And non interest income, including the asset management and cash management and others. Thanks.

Speaker 2

Yes. So I mean, your question is just around in terms of the fees. In the Harris Williams line item, efficiency ratios is probably in the mid-70s, Just roughly plus or minus. In regard to the outlook in terms of the fees, we'll see obviously I'll just Go through the categories, asset management is probably going to see some headwinds. You can see what's going on in the equity markets, although any given day, who knows.

Speaker 2

But we'll be under some pressure, mortgage obviously included in that. Card and cash management will continue to be strong. We have Solid fundamentals there and that's a steady Eddie which will continue to expand. And then capital markets I just spoke about, we sort of see it stable. We could outperform if people want to do deals, the pipeline is there, but it's just it's a question of whether the next 90 days it occurs.

Speaker 4

Got it. All right. Thanks, Rob.

Speaker 5

Sure.

Speaker 3

And we appear to have no further questions on the phone line.

Operator

Okay. Well, thank you for joining the call today. And if you have any further follow-up questions, Please feel free to reach out to the IR team. Thank you and have a good day.

Speaker 2

Thank you.

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