Q2 2023 PNC Financial Services Group Inc Earnings Call
Speaker 1: That P.
Speaker 2: Well, good morning and welcome to today's conference call for the PNC financial services.
Speaker 2: Participating on this call are PNC's Chairman, President and CEO Bill Demchak, and Rob Riley, Executive Vice President and CFO .
Speaker 2: Today's presentation contains forward-looking information.
Speaker 2: Questionary 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.
Speaker 2: These are all available at our corporate website, PMC.com, under Invest Relations.
Speaker 2: These statements speak only as of July 18, 2023, and PNC undertakes no obligation to update them.
Speaker 2: Now I'd like to turn the call over to Bill.
Speaker 3: Thank you, Brian , and good morning, everyone. As you can see on the slide, we delivered solid results in the second quarter, generating exactly 1.5 billion in net income, or $3.36 in diluted earnings per share. While the macro environment and the competitive dynamics playing out within the banking sector pressured our revenue during the quarter, our results reflect the overall.
Speaker 3: print. Rob will take you through the details of our second quarter results in a moment but I'd like to call out a few highlights. First we grew our capital during a quarter and feel very good about our positioning of our balance sheet in the current environment. In the next few weeks we expect the Fed will announce changes to the Basel III capital framework.
Speaker 3: We believe our strong capital and liquidity levels, as well as our earnings power, provide the strength and flexibility to address upcoming regulatory changes.
Speaker 3: At the same time, we continue to support our customers, grow our business, and deliver returns for our shareholders. And in line with our focus on shareholder returns, we recently increased our quarterly common stock dividend by 5 cents.
Speaker 3: Our financial strength and stability are evidenced in the Fed's latest stress tests, resulting in an improvement in our stress capital buffer to the regulatory minimum level of 2.5% in October . Second, expense control is in focus. Rob will touch on this in a moment, but we have increased our continuous improvement program target for 2023.
Speaker 3: And finally, I'd like to thank our employees for their efforts and contributions during the quarter. And with that, I'll turn it over to Rob. Thanks, Bill. And good morning, everyone. Our balance sheet is on slide three, and we're presenting on an average basis and comparing to the first quarter.
Speaker 4: Loans were stable at $325 billion. Investment securities declined $2 billion, or 2%.
Speaker 4: Cash balances at the Federal Reserve were $31 billion and decreased $3 billion. Deposits of $426 billion declined $10 billion, or 2%.
Speaker 4: Borrowed funds increased $3 billion. As an aside, since 2021, we've been delivered and issuing TLAC compliant debt, so we're confident we'll meet the upcoming TLAC requirements through our normal course of funding.
Speaker 4: That quarter-end AOCI was a negative $9.5 billion.
Speaker 4: and tangible book value was $77.80 per common share, an increase of 5% compared to the same period a year ago.
Speaker 4: We remain well capitalized with an estimated CET1 ratio of 9.5% as of June 30, 2023, which increased 30 basis points linked quarter.
Speaker 4: We returned approximately $700 million of capital to shareholders in the quarter, which included $600 million of common dividends and approximately $100 million of share repurchases for 1.1 million shares.
Speaker 4: And as Bill just mentioned, our board recently approved a five cent increase to our quarterly cash dividend on common stock, raising the dividend to $1.55 per share.
Speaker 4: Our recent CCAR results underscore the strength of our balance sheet and as previously announced, our current stress capital buffer of 2.9% will improve to the regulatory minimum of 2.5%.
Speaker 4: for the four-quarter period beginning in October 2023.
Speaker 4: Due to the expected issuance by the federal banking agencies of proposed rules to adjust the Basel III capital framework, share repurchase activity in the third quarter is expected to remain modest.
Speaker 4: We will continue to monitor this and may adjust share repurchase activity as appropriate. Slide 4 shows our loans in more detail.
Speaker 4: Second quarter loans averaged $325 billion and increased to $20 billion, or 6%, compared to the same period a year ago.
Speaker 4: This growth reflected strong loan demands during the back half of 2022 and our ability to capitalize on opportunities in our expanded franchise.
Speaker 4: Average loan balances were stable in quarter, as growth in consumer was offset by a decline in commercial, with commercial balances reflecting generally weaker demand.
Speaker 4: Consumer loans grew $400 million compared to the first quarter, reflecting higher residential mortgage, credit card, and auto balances.
Speaker 4: Commercial loans averaged $223 billion in the second quarter, a decline of $1 billion, as limited new production was more than offset by paydowns.
Speaker 4: Low yields increased 28 basis points to 5.57% in the second quarter, predominantly driven by the higher rate environment.
Speaker 4: Slide 5 covers our deposits in more detail.
Speaker 4: Deposits declined 2% on both a spot and average basis length quarter, reflecting the continuing pressure of quantitative tightening and increased spending activity, as well as consumer tax payments.
Speaker 4: Deposits continue to move from noninterest bearing to interest bearing accounts.
Speaker 4: As expected, the mix shift is being driven by commercial deposits.
Speaker 4: In the second quarter, commercial non-interest bearing deposits represented 45% of total commercial deposits compared to 47% in the first quarter.
Our consumer deposit noninterest bearing mix has been stable, remaining at 10%.
On a consolidated basis, our level of non-interest bearing deposits was 27% in the second quarter, down slightly from 28% in the first quarter, consistent with our expectations.
And we still expect the non-interest bearing portion of our deposits to stabilize in the mid 20% range.
Our rate paid on interest bearing deposits increased to 1.96% during the second quarter, up from 1.66% in the prior quarter. And as of June 30th, our cumulative deposit beta was 39%.
Looking forward, we expect the Federal Reserve to raise the benchmark rate by 25 basis points in July . We believe this will put additional pressure on betas, and as a result, we expect our third quarter and year-end cumulative betas to be 42% and 44% respectively.
Slide six details our investment securities and SWOT portfolios.
Average investment securities of $141 billion decreased $2.4 billion, or 2%. This limited purchase activity during the quarter was more than offset by portfolio paydowns and maturities.
The securities portfolio yield increased three basis points to 2.52%, reflecting the runoff of lower yielding securities.
And as of June 30th, the duration of the investment securities portfolio was 4.2 years.
I received fixed swaps pointing to the commercial loan book totaled $40 billion at the end of the second quarter.
The weighted average received fixed rate of our SWOT portfolio increased 25 basis points linked order to 1.73 percent. And the portfolio duration was 2.3 years as of June 30th.
During the second quarter, our accumulated other comprehensive loss increased by $400 million.
Paydowns and maturities were in line with our expectations, but were more than offset by the negative impact from higher than expected rates throughout the quarter. Notwithstanding this AOCI impact, our tangible book value increased 1% to $77.80 compared to March 31st.
Importantly, as lower rate securities and swaps roll off, we expect our securities yields to continue to increase, resulting in a meaningful improvement to tangible book value from AOCI accretion.
Turning to the income statement on slide 7.
For the first half of 2023, revenue grew 11% compared to the same period a year ago, reflecting higher interest rates than overall business growth.
Non-interest expense grew 4% and was well-controlled despite a higher FDIC assessment rate and inflationary pressures.
As a result, PPNR grew 24%.
For the second quarter, net income was $1.5 billion or $3.36 per share.
Total revenue of $5.3 billion decreased $310 million, or 6%, compared to the first quarter of 2023. Net interest income declined $75 million, or 2%.
and our net interest margin was 2.79%, for decline of five basis points.
Non-interest income declined $235 million or 12%, driven by both lower fee income and other non-interest income, which included Visa fair value adjustments of a negative $83 million that I will discuss in a moment. Second quarter expenses increased $51 million or 2% link quarter. Provision was $146 million in the second quarter.
reflecting portfolio activity and changes in macroeconomic variables.
And our effective tax rate was 15.5%, which included the favorable impact of certain tax matters in the second quarter.
Turning to slide eight, we highlight our revenue trends.
Second quarter revenue was down $310 million or 6% compared with the first quarter. Net interest income of $3.5 billion decreased to $75 million or 2%. The higher yields on interest earning assets were more than offset by increased funding costs and lower loan and security balances.
Fee income was $1.7 billion and decreased $106 million or 6% linked quarter.
The primary driver of the decline in fee income was residential and commercial mortgage revenue, which was down $79 million.
Inside of that, $58 million was related to lower net valuation of mortgage servicing rights.
Beyond that, capital markets and advisory revenue decreased $49 million, or 19%, driven by lower merger and acquisition advisory fees and loan syndication revenue.
Going forward, we expect this activity to meaningfully increase in the second half of the year, which is included in our guidance that I will cover in a few minutes.
Partially offsetting these declines was a $38 million, or 6%, increase in card and cash management fees.
reflecting seasonally higher consumer transaction volumes and increased treasury management product revenue.
Other non-interest income of $129 million declined 50 percent linked quarter, driven by lower private equity revenue, and included negative Visa fair value adjustments related to litigation escrow funding and other valuation changes totaling $83 million. you
Turning to slide nine, our second quarter expenses were up $51 million or 2% length quarter and remain well controlled.
The growth was primarily due to a $35 million increase in marketing expense, reflecting seasonality.
Personnel expense increased by $20 million, or 1%, which included the full quarter impact of annual employee merit increases. Every other expense category remained stable or declined compared to the first quarter of 2023.
As Bill mentioned, we remain diligent in our expense management efforts, particularly when considering the current revenue environment.
At the beginning of the year, we set a continuous improvement program goal of $400 million.
Recently we've identified initiatives that support increasing our CIP by an additional $50 million.
raising our full year target to $450 million.
Further, we'll continue to look for additional efficiencies during the remainder of 2023, and importantly, as we begin to plan for 2024. Our credit metrics are presented on slide 10.
Our credit quality remains strong and notably the leading indicators for credit quality continue to perform well.
Non-performing loans were down $97 million, or 5%, and continue to represent less than 1% of total loans.
And total delinquencies of $1.2 billion decreased $114 million, or 9% linked quarter.
Net charge loss of $194 million were a stable linked quarter.
Our annualized net charge loss to average loans ratio was 24 basis points in the second quarter.
And our allowance for credit losses totaled $5.4 billion, or 1.7% of total loans on June 30, essentially stable with March 31.
While overall credit quality remains strong across our portfolio, the office category within commercial real estate continues to be a key area of concern.
As expected, we saw increases in charge-offs related to office during the quarter. However, the portfolio metrics remained largely similar to those presented in our comprehensive view last quarter.
Naturally, we'll continue to monitor and review our assumptions to ensure they reflect real-time market conditions.
and a full update is included in the appendix slides.
In summary, PNC reported a solid second quarter 2023. In regard to our view of the overall economy, we're expecting a mild recession starting in early 2024 with a contraction in real GDP of less than 1%.
Our rate path assumption includes a 25 basis point increase in the Fed funds rate in July .
Following that, we expect the Fed to pause rate actions until March 2024, when we expect the Fed to begin to cut rates.
Looking ahead, our outlook for the third quarter of 2023 compared to the second quarter of 2023 is as follows.
We expect average loans to decline approximately 1%. Net interest income to be down 3-4%.
Non-interest income to be up 10 to 11 percent.
Taking the component pieces, we expect total revenue to be up approximately 1%.
We expect total non-interest expense to be stable, and we expect second quarter net charge-offs to be between $200 and $250 million.
Considering our reported operating results for the first half of 2023, third quarter expectations, and current economic forecasts for the full year 2023 compared to full year 2022, we expect spot loans to be relatively stable, which equates to average loan growth of 5 to 6%.
Total revenue growth to be approximately 2 to 2.5%. Inside of that, our expectation is for net interest income to be in the range of up five to 6%. This is a move to the lower end of our previous guidance, largely driven by anticipated deposit costs, moving a bit faster than we expected, and slightly lower loan growth expectations.
We expect non-interest income to decline 2 to 4%, which is down from our earlier expectations of stable. This change is resulting from softer than expected capital markets revenue in the second quarter, and $127 million of Visa-related charges that have been incurred year-to-date. Expenses are expected to be up approximately 2%.
Credit quality is trending better than expected.
And we expect our effective tax rate to be approximately 18%.
And with that, Bill and I are ready to take your questions.
Thank you. If you'd like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.
Once again, to register for a question, please press the 1 followed by the 4.
Our first question is coming from the line of John Pincare with Evercore. Please go ahead.
Morning. Hey, morning, John . On the fee income side, if you could just maybe elaborate a little bit on your change in your expectation to down two to 4% for the year. I know it represents a change in your view on capital markets as well as the impact of the visa. The vaccinated population has been at the very worst rate yet dropped from nearly camel strPref'es from circa 2019 towoman back in 2012.
But I know you indicated you expected meaningful increase in capital markets in the back half. So maybe if you can kind of talk about what's impacting that and maybe help size it up a bit. Thanks. Yeah, sure. John , this is Rob. So in regard to our total non-interest income guidance for the full year, we did change it from stable to down 2 to 4 percent.
we do expect to pick up in capital markets fees and that's in our guidance both for the third quarter and the balance of the year.
Just to give you some more color around that, we expect capital markets to get back to, in the third quarter, the first quarter level run rate that we were at. And then some meaningful growth on top of that as well. And that's all in our guidance. So in short order, the decline in the guidance has already occurred and we've blended that into the full year.
Okay, all right, that's helpful. And then separately, on the capital returns that I know you indicated that you expect buybacks to remain somewhat minimal, so just pending Basel III, is that needed in perhaps in that?
100 million range or is there another way to think about that? And then separately maybe Bill if you could talk about any thought around M&A appetite both on the non-bank side and the bank side. Alright, thanks.
I can handle the first one there, I guess, in terms of the capital and then Bill, and you can talk about some of the changes. Yeah, no surprise there. We feel good about our capital levels. Our CET capital ratio increased 30 basis points in the quarter, so we're at nine and a half. We did well.
on the stress test, the most recent stress test, where our stress capital buffer decreased. So we're in an excess capital position. The part of that thinking was the increase in the dividend that we announced recently. You know, as far as share repurchases, like I said, it's not a surprise. We're on pause. You know, it's sensible to see what these new rules mean, understand the details.
and then fill that into our capital return plan. So we're positioned for share repurchases going forward, but it's just sensible to take a pause right now.
I think on the M&A side, we continue to look, as we have done for the last several years, at small things that might augment our client offerings.
The volume of things that are being shown to us is actually probably increased. Our appetite to do them is probably decreased a little bit at the margin. Larger things are going to be kind of a function of the environment and what the regulatory landscape looks like. But all else equal.
we would be interested in expanding our franchise. Okay, great. Thanks for taking the question.
in our franchise. Okay, great. Thanks for taking the questions. Sure. We've got our astronomers.
Our next question is coming from the line of Dave George with Baird. Please go ahead.
Hey, good morning guys. Kind of a big picture question for both Bill and Rob. I wanted to get a sense as to how you're thinking about managing the balance sheet today given where the cost of new money is relative to a year ago with loans and securities down a bit. I would guess economics and perhaps some capital relief are driving some of that, but I'm curious as to how you're thinking about balance.
I think at the 10,000 foot level.
You know, our appetite to lend and support our clients isn't affected by short term.
funding costs and so forth. You're seeing somewhat tepid loan growth largely because there's tepid loan demand. I think as a practical matter, there's a backlog building. A lot of our clients have been hesitant to do refinance under some hope that spreads would come back down. I don't think that's gonna happen, so I think you'll see activity towards the back half of the year. But in any event, we support clients. We don't manage the back.
You know by swaps and securities fixed-rate assets rolling off and re-crisis you know and that's kind of what we target as we run the balance sheet in a neutral position right now.
I would just add to that, we ran for many years substantially asset sensitive and that's changed. Slightly asset sensitive but really neutral right now.
Thank you.
Our next question is coming from the line of Erica Najarian with UBS. Please go ahead..
Hi, good morning. I guess the first question here, and I just want to emphasize this. You know, this squares with your 10-Q disclosure. You mentioned a neutrally positioned balance sheet. So as we think about that exit run rate that is implied for your guidance on that interest income of $2.5 million,
within that range of 3.2, 3.25 billion, again, excluding any assumed growth. Yeah, that's fair. That's fair. Of course, our own plans are, as I mentioned in our opening comments, that we wouldn't see rate cuts until first quarter of next year, but you're in the right neighborhood.
Got it. And, you know, thank you so much for all the disclosure on slide six. I'm wondering
When do you think is the time to start thinking about adding and protecting from that downside risk with regards to maybe adding new receive-fix swaps at obviously a higher floor than where they're coming off of and what's the pricing like for those swaps?
Again, we are at the moment basically neutral to rates, so a duration of equity that's been bouncing around plus or minus a half a year. So adding in this environment would be choosing to get long, choosing to get long would basically be saying that we think the forward curve is correct and we like term rates. And I'm not sure we do that.
We agree with that yet, which is why you've seen security balances roll down. I think the big unknown for us and everybody is if and when the Fed pauses and then cuts rates, what actually happens to the shape of the yield curve and term rates.
with that yet, which is why you've seen security balances roll down. I think the big unknown for us and everybody is if and when the Fed pauses and then cuts rates, what actually happens to the shape of the yield curve and term rates.
And, you know, expectations would be you'd see a massive flattening. So I'm not sure at the moment that there's value to be had in extending duration. To the extent we do, we're doing it in a very short time. You'd in fact see that in our swaps book while balances are down. We cancelled some and put some other ones on.
Sandler, please go ahead.
Good morning, everyone. Thank you for taking the question. Just wanted to ask sort of a conceptual question on deposit pricing. The pressures seem, I guess, a little bit uneven by company. I was hoping you could spend a moment discussing sort of how you think about the balance between not necessarily needing to show liquidity the way some others do, but still being bound.
and just naturally by competitive dynamics within the footprint. Sure, I follow the question. I mean, the basic, our deposit outflows, I guess maybe I'll answer it this way, are largely following the expectations I think you'd see across the industry with QT. Inside of that, we try to keep our...
was going. But mostly protecting our core consumer customer and commercial customer.
Yeah, no, I mean you hit on it. I guess I probably could have ordered it better, but really, you know, I look at your Q-beta assumption, it's lower than some others, but seems sort of realistic also just within the sort of confines of what you're actually experiencing. So I was just curious about how the competitive dynamic sort of weighed in there, and I think you touched on it. So I appreciate that. I think if your base flows were higher than what was otherwise happening, because —
our flows have been largely
Kind of following QT trend maybe a little better. Yeah Okay, perfect. Thank you And it was something we could feel back a little more into the sort of the expected capital markets recovery I guess as I look at that from a top level, you know If there are sort of three big chunks in the capital markets DCM seems like it's sort of fine ECM
maybe it has found firmer footing, but M&A is the piece that's still sort of in a logjam. I guess maybe as you think about the nuance for that recovery in the back half of the year, just what are the main drivers that you see? Yeah, sure. Scott, this is Rob. Yeah, particularly for us, the M&A piece, Harris-Williams, is a high percentage of our capital market sees. We're going off of...
Okay, perfect. All right, thank you all very much.
Perfect. All right. Thank you all very much. Sure.
Thank you. Our next question is These are all the same.
I thought you might push a little harder on this. So your revised 2023 guidance using midpoints.
is for NII to be 150 basis points less, fees to be 300 basis points less, and expenses only 50 basis points less. So I'm just wondering how much harder you might push on the expenses. You did mention the CIP going from 400 to 450 million of savings this year, so I guess that helps.
But are you preserving infrastructure and resources for potential growth? Is it just not that variable? Or what else can you do to get expenses more in sync with the revised lower revenue guidance? And that's all recognizing, I think you're still guiding for positive operating leverage this year. It's not as high as it once was.
Thanks for the question Mike. The short answer is we are going to push harder on it. The practical answer is I'm not entirely sure that the benefits of what we will be doing will show up in the run rate in 23. If you look at our costs, we are basically down in every category other than personnel.
I'm not sure it shows up in 23. Just in terms of the timing, because there's only six months left, so actions that you take don't show up in that run rate. But we did reduce, as you pointed out, we did reduce the expectation to up 2% year over year. That includes the FDIC special assessment that was in there, and obviously inflationary pressure. So that's pretty good.
But we're not going to stop there.
All right, well, one follow up then as we, how does this set you up for 2024? I guess is it too early to say? And just in general, you guys have been, and you and the industry, it's been about six to nine months of negative downward guidance. You know, it was loan spreads for you guys one quarter, higher interest rates and others, half the market a little bit this quarter.
And, you know, these are factors outside of your control, these those are. Do you think you're level setting enough now? Are we there or there's still more risk to the downside than to the upside?
24 seems so far away at the moment. But I think, I guess what I would say is we're running the company for the long term here. We continue to see once we get through rate normalization.
tremendous upside in the company in growth through clients in our new markets. And are we at the trough now? Are we at the trough with our guidance for the fourth quarter? I don't know. I don't know if you have a view on it, Rob. Well, I would say you sort of talked about it. I mean the...
extraordinary change in the rates. Are we in the later innings of that? I think probably, but hard to...
or to be accurate exactly.
exactly. Okay, thank you.
Thank you. Our next question is coming from the line of Betsy Greysik with Morgan Stanley . Please go ahead. Hi, how are you doing? Hi Betsy. I'm good.
Two questions. One is, I know we talked earlier about demand for loans not that great, but I'm also wondering, is there a credit box widening event or process we should be thinking about given that credit quality is so good?
Probably not. Well, you've always said we don't change our box. Yeah, I think at issue right now,
It's kind of pretty straightforward. The companies who otherwise in the normal cycle would be out refinancing and perhaps increasing lines or holding off under some assumption that credit is going to get cheaper.
either through rate or through spread. And so there's a backlog building. I don't, you know, I think we wait for that market to come to us. I don't think there's a big appetite on anyone's part to go out and, you know, go at a loss-leading price, particularly given the funding markets today.
So I think it'll be slow for a while until people are kind of forced into this new environment and new pricing and then you'll see growth. Okay, all right. Separately on the regulatory, I know you've said in the past that your LCR ratio is compliant no matter how you measure it. When you say no matter how you measure it, are you talking about, hey, even if you were at a G-substand...
even though we're measured at the 70% threshold.
Yeah, no, it's much higher than anybody else we calc. So, I was just wondering if that's what you were thinking about there. Yeah. Okay, last ticky-tacky thing is just on this FDIC special assessment, I'm not sure if I heard this right or not, but is that in your full year expense guide or should we be thinking about that? Yeah, no, no, no. Thanks for asking that, Betsy. So, I'm not sure if that's what you were thinking about there.
No, the FDIC assessment that I was referring to was the one that was announced last year that went into place at the beginning of this year, 23. It doesn't relate to the special assessment that's being contemplated for the Silicon Valley Bank and Signature Bank.
we expect to be finalized sometime in the second half. So our guidance does not include that. And that you would be putting below the line, like I said, right?
Well, we'd be expensing it, but we need to understand what that number is. Got it. Okay. All right. Thanks so much. Sure.
As a reminder, to register for a question, please press the 1 followed by the 4. Again, that's the 1 followed by the 4.
Our next question is coming from the line of Abraham.
from Bank of America. Please go ahead. Good morning. I have a couple of follow-up questions. One, I think you talked about interest in expansion, I guess as it pertains to M&A. When you talk to investors and bank management teams, it appears that there are three hurdles to that. One is, if you're going to be using a M&A, what are some of the other things you can do? What is the best way to make your business possible? The first one is, if you're going to be using a M&A, what should the first one be? The first one is, if you're going to be using a M&A, what should the first one be?
lack of policy alignment in DC, mark-to-market purchase accounting and then the macro. Bill, if you had to rate them, which of these three is the biggest hurdle to trigger a little bit of a consolidation in the sector?
Well, I think for the industry broadly, it's fair value accounting targets where even MOEs at this point, there'd have to be for most banks, it would get together a fairly substantial capital raise. That's going to stop people from doing things.
Just the franchise value of what you might look at.
People used to do deals just for size. I think we're in an environment, in a credit environment, where that can be dangerous because I think there's a lot of bad balance sheets out there, you know, heavy real estate concentration and other things that would be a red flag.
Let the mark to mark for the primary challenge.
Got it. And I guess no way to resolve that the low rates at some point. And this does a follow up on interest rates and your deposit beta guidance. It all feels incremental, well in control. If the Fed is close to being done, do you see a big risk of.
deposit behavior shifting, back book repricing down the road or if the Fed is actually done, we are getting close to the end game here.
So a couple of things. I want to go back to your comment just quickly on we've got to wait for rates to go lower. You don't necessarily need rates to go lower. You need the existing book to pull the par. So for example our securities book because of short duration will pull the par very quickly. Others, some have long books, some have short books, so it will vary across the industry.
The issue of deposit betas, you know, if the Fed just freezes and stays here for a long period of time, you would have deposit beta creep. You know, where at the margin there'd be competition for deposits as long as QT was ongoing. And you'd see some...
some bleed to the upside. I don't know how large that would be. We're kind of assuming some of that in our guidance. But I think that's a real issue and we've seen it in past history when the Fed was done.
Particularly in the interest-bearing consumer deposits, which could still go up even though the Fed stops or cuts.
Thank you both. And our last question in queue is a follow-up question coming from the line of Mike Mayo with Wells Fargo. Please go ahead. Have you watched the You
Hey Bill, just your big picture perspective. So are we going into a recession, soft landing, no landing, hard landing? And remind us, your reserves are predicated on unemployment of a certain level. And at what theoretical point would you say, hey, it's okay for us to release some of those reserves? Well, I'll give you the official Rob answer, which is we are
You know, and we'll reflect on that as time comes. You know, we're not even in a soft landing. I'd remind you that a, you know, a large amount of the reserves we have appropriately are focused towards commercial real estate and office specifically. And I think even with a soft landing, that asset category is going to have trouble.
Okay, and did you make any changes? Where are you right now in the commercial, the office reserving? Because I know you were kind of high in the industry before. Yeah, we're higher. We're 7.4% on the office book.
But we're over 10 on the multi-tenant piece. I'm sorry, so the office book, inside of the office book, the multi-tenant piece, which is where we have the biggest concern, is close to 11 percent.
Yeah. So I think we're reserved for whatever happens in that book, but that's, you know, we'll need those reserves because we do think there's going to be problems in the office space.
So I think we're reserved for whatever happens in that book, but that's, you know, we'll need those reserves because we do think there's going to be problems in the office space. Great. All right. Thank you. You're welcome.
We have no further questions. Thank you all for your participation on the call. If you have any follow-up questions, please feel free to reach out to the IR team. Thanks, everybody. Thank you.
That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
It.
The.
It pro.