The PNC Financial Services Group, Inc. (PNC) Earnings Call Transcript & Summary

Good to go. Okay. Great. Thanks, everyone. We're very delighted to have PNC Financial Services with us today. We've got CEO, Bill Demchak, back at the conference. Bill, thanks so much for joining us.

Good to be here. It's actually great to be live.

It definitely is. That's great. So we have -- maybe just start off talking about the macro, we've heard a range of economic forecasts throughout the week. Maybe we could just get your thoughts about the kind of the broad state of the economy, positives, negatives and kind of what you're worried about as you look out with your crystal ball.

I don't know that I have any great soundbites for you. We got ...

No weather forecast?

No weather forecast. Look, I think actually, we're in a fairly straightforward place at the moment. Consumer is really strong. You'll hear that from people, consumer cash. So the balances in our checking accounts continue to grow. I'm not sure I can explain why that is or how that is, but it is. So the consumer is really strong driving the economy, consumer sales, they're unlevered. They can spend down and lever. They're going to continue to drive the economy in the near term, in my view. Inflation is persistent, I think more persistent than the market thinks and then Fed thinks. Back out for a second, although it will have an impact, commodity, oil, food inflation, which I think is going to stick with us for a period of time. Core inflation driven by a wave spiral is real, 11.5 million-plus job openings, 5 million people looking for work, 2 million of those people match off against the 11.5 million. We've got a lot of work to do in terms of driving demand out of the economy on the employment side to get this rightsized. So I think what happens is, given that the Fed has kind of said they're not going to go -- they're not going to do 50, 50, 50, I don't think they're going to keep going until we grind that to my own down. I don't see any possible outcome other than a recession. I don't think it's going to be the hurricane, I think we're going to have a slowdown. I think it's going to be a period of time. We've got to get inflation right. And then frankly, I think we're going to have a big rip back. They're still, notwithstanding QT and everything else, there's a lot of liquidity, and we have the capacity for capital formation like no other country. And so I think we're going to slow down. I think we'll see employment tick up. I think we're going to get inflation under control. I think rates are going to be higher than people assume. And I think we'll come out of it just fine.

Okay. So on the topic of rates, let's talk a little bit about the impact of rates for PNC. Earlier this year, you reiterated your guidance for full year total revenues to grow 9% to 11%, driven by NII growth in high teens. Any update to that outlook given the way rates are changes or the assumptions behind it?

No. We basically pointed to and there's so many things moving inside of the revenues and expenses. We pointed to 5%-plus stock leverage pretty good place to point to. And we're going to stick with that.

And just any reference points for just think for folks to think about how helpful a 50 basis point hike is now, where deposit betas are now.

Yes. Look, not in dollar terms. I mean it's kind of intuitive, right? The first moves fall straight to the bottom line. After that, people start carrying betas move up. We expect that we're going to move back to a normalized beta. I think we're 30% through the last cycle. If rates go materially higher than they did the last cycle, I think that would go higher. But remember, we're always playing -- even if betas go higher, eventually, we're always playing the total spread between what we're paying and what -- where we're investing. So higher rates help us through the end. Remember that we have a disproportionate share of our interest-bearing accounts in consumer, which tend to have lower betas than what we see in corporate, which obviously help us -- which obviously helps us. And then we have, obviously, our non-interest bearing, which you would assume would shrink over time as people got more efficient with their money. But generally, as rates move, we win.

Yes. And what are you thinking about in terms of deposit outflows, first for the system and then also for PNC where you didn't have as much of the surge in flow so-called surge deposits as others. Maybe you can talk about just industry level and then PNC in terms of what you think.

So deposits move for the industry. It's a function of the Fed's balance sheet shrinkage, right? That's going to drop deposits. Loan growth creates deposits through the leverage on the capital that's held. Fed actually hasn't done anything as yet, and we've seen loan growth. So we've created deposits. If you look at the H.8 data, it looks like it's declined. That's corporate money basically moving off into the Fed repo system in the money markets, right? So all of a sudden corporates are paying attention. They can earn more than a basis point, and you would see money moving out of the banking. That's fine. We could get as much of that back or not as we want. But in a moment, we're actually growing system-wide deposits, and I don't know exactly how the math works, but I'm not terribly worried about it. I think they trend down over time because I think loan growth tapers off as QT accelerates, but we didn't get the surge deposits. We -- as I said, our average account balances are, I think, for consumer side up $5,000 in account. We're growing new accounts, importantly in the new markets. So we're not -- it's not anything we're focused on at the moment.

And that's versus the pre-pandemic starting point?

Yes. Yes.

Yes. So one impact of rates has been AOCI bank. Overall, yourself included took an AOCI hit that hits tangible book value. Can you think -- talk about how you're positioning against that and just kind of protecting against that extent you are?

Yes. So first, I mean focus on the economics and then we'll talk about the geography on the balance sheet income statement. The economics, higher rates are worth a fortune to us, right? Some of that shows up through marking your securities book through AOCI, parts of it don't show up. So the value of our deposit base doesn't show up, and we're owning the securities to hedge the deposit base. You have a mismatch and effective accounting against real economics. That said, because of where we sit in the regulatory realm, AOCI doesn't matter for our regulatory capital, although it hits our GAAP position. And there's some psychology, right? A little bit doesn't matter, but where does it actually matter? Like how low can it go before you say, well, hang on, something is wrong. I don't like that anymore. And that's a real concern, and I don't know what that number is. So what we have done, as you saw since the -- in the first quarter, we moved $20 billion of the available for sale to held to maturity. Subsequent to that, we've moved $60 billion more. So we now have a little bit over 60% of our securities book into held to maturity. And the way I think about this, John, going forward is, if I look at our exposure between swaps and available for sale securities, we will lose on a pretax basis $35 million per basis point in value. Now we don't really lose it because we're gaining it on deposits, but the accounting entry would be we'd lose $35 million. The roll down of the existing book, $135 billion security book in the AOCI, we have is $400 million a quarter against the forward curve. So in any given quarter, interest rates have to go up by 15 basis points a quarter versus the forward curve before I'm not accreting capital back into our tangible book value. And I think that's the best way to think about it. So we sit in a really good place here. We're rolling the book down $400 a quarter into tangible book. We have remaining exposure that isn't in held to maturity that is exposed $35 million a basis point. We've basically been letting the book roll down because I think the rates are going to go high, so higher. So we'll invest into this later. So I think we're in a good place. I don't see any scenario given that roll down that we're going to be in a place where it has anything to do with our capital return, dividend, OpEx, any of the above.

And moving to held to maturity, these are securities you probably would have held anyway [indiscernible] a little flexibility...

But it's -- first off, we were -- on us, we were late to move it. I always think about economics. I don't think about OpEx, and I should spend more time on OpEx, and I don't -- we love our securities position. We love -- we were way underweight asset sensitive going into this, make a ton of money when rates go up, under-invested the whole way through. We should have moved a big chunk of up there and I've gone through this. I didn't do it so, on me. But where we sit today, right? If you look at our actual duration, the extension we've had our mix of mortgages, our average life, all the other stuff, we're in a really good place.

Yes.

And it doesn't -- we leave it in AFS historically because you'd like to think, look, I want the flexibility. But practically, it's $135 billion book we trade around at the margin, but we're not moving that much. So we can move a lot

Yes. Yes. And being patient, as you expect rates to arrive. So you've got a range of 25% to 30%. You talked about having securities generating assets. You probably stay in that range. I think you're maybe 27%?

Look, in the end, it may come -- given the loan growth we've seen that number could come back down to the more normal levels of 20% or so, but we'll see.

Got it. So on that front, maybe you could drill down a little bit into loan growth. You saw good commercial loan growth in the first quarter. You talked about it a little bit higher utilization, good production. What are you seeing so far into the second quarter?

More and better -- so historically, just on utilization, historically, think of our utilization rate is somewhere in the mid-50s. We jumped 1% from fourth quarter to first quarter, we've jumped 1.5% from the end of the first quarter to today, and we have a whole -- we have 3% more to jump to get back to average. So it's improving, and it continues to do so. In addition to that, we've been putting new money out. We continue to win business, and we'll talk about that when we kind of get into the new markets. But loan growth looks really healthy. We haven't changed anything to do that, right? It's the same credit box as we've always had. But we're winning business. And for the business we have, people are drawing more. And you see that, we always talk about that loan growth is going to come back when inventory builds. We see inventory build, we see loan growth back.

Yes.

That's what's happening.

Changes in the capital markets affected folks looking to use banks a little bit more.

At the margin, it has to capital markets shut down. So you would assume on new deals, people are -- they're saying, look, I'm going to do more of a term loan or revolver instead of to this bond deal. But I don't. I don't know how to measure that. It's got to be happening.

Yes. And presumably, the strength of loan growth is more on the commercial side than the consumer. What are you seeing on the consumer side? You mentioned the balance is so I assume...

Yes. I mean the consumer balances are actually healthy. You'd expect, over time, you'd see growth in credit card as consumers start to get a little more leverage. We've actually seen and expect growth in residential simply because prepays have slowed down. So while our volumes has slowed, prepays have slowed and the stuff we choose to hold is staying longer, look that way.

Yes. And again, maybe the consumer loan growth has not been as strong. You mentioned the deposit growth is still amazingly -- and really, Bank of America mentioned similar stats yesterday on deposits across every strata. Going...

[indiscernible] Right compare notes and then we shake heads by where we're just -- immediate -- it's hard to explain how the consumer is building balances continually through this. I mean it was easy at the start, right? You had not employ me a tax credit -- but as it continues, I'm not sure we have a good explanation for it.

So then just on credit. Obviously, things still feel very good on the credit side. What are your thoughts about where risk might be in the system here as we get into a trickier environment?

It's -- every place you look and we already highlight. So people are worried about office, right? What we've reserved a lot against office, and it's starting to sort of clean itself up. And if you track swipes in markets, people are going back into buildings, and there's some stability there and it's not a big deal, even if it's a deal. Then you look at housing, sorry, can housing be a bubble Sorry. Well, the last time there's a housing bubble, we saw prices run up like this, but we had an overstock of, I don't know, whatever the number was, millions of homes that were built that nobody needed to deliver in. And today, we're still short, 12% or 14% homes. So do I expect defaults through there to increase, yes, because they're 0. But do I think there's going to be big loss given the fault No. So when I think about the economy slowing down, which I think it has to, and I think the Fed has to cause that to anchor inflation, I think where it's going to hit, unfortunately, is in effect, the industry's people who can lease it for it, it's going to be a small business, and it's going to be on the consumer side, and it's a small business getting squeezed through sort of inflationary pressures and just the inability to hold margin. For the rest of the broader economy, I think you see corporate margins getting squeezed. By the way, off of crazy highs but that doesn't necessarily cause credit losses. So I'm -- we're going to slow the economy down. I think we're going to get into a recession. I don't see, and of course, we never see beforehand, right? But I -- for all of our searching around, I just don't see a pocket that's going to be the thing.

Yes. And I've heard you say in the past that you don't change your underwriting ...

No.

Maybe you could just explain that a little bit to folks. I mean, you try to stay consistent across cycle?

Yes. No, we do. We choose the type of consumer we want to underwrite. We choose the type of corporate, the leverage, the market, the reputation, all the stuff that we will lend to, and then we'll compete like hell on price particularly given the share of wallet we get in fee-based products. But we don't compete on pure credit risk. We've never changed that box and haven't through this.

So switching gears to talk about BBVA USA, which you closed the deal a year ago. Can you give us an update on the progress you've made to date since closing that acquisition?

Sure. And just to rewind. We closed the thing in June. We converted it in October, we're up and running. We had basically built the teams across these new markets even starting prior to close. By conversion, we literally had the teams on the ground out and calling. So a couple of statistics that are somewhat stunning. I mean we were really bullish on our ability to go out and grow these markets given our history and the way we go to market, what we saw with RBC. We go into these new markets, we have the teams in place. Our pipeline of business basically doubled fourth quarter to first quarter. This is for Corporate Bank. And then in the first month of the second quarter, it tripled from the end of the first quarter up $50 million in one quarter. Our sales in the first month of the second quarter, doubled the first quarter. And those sales are 65% non-credit. It's our fee-based stuff. We knew it was going to be good. This is astounding.

So it seems like these are good growing markets, but there are also a fair amount of banks there in these areas. What is it that differentiates PNC? And what are you finding when you're going in there that's enabling this business...

Well, first, I mean, I'll talk about the corporate side in a second. By the way, this is holding true in consumers. Well, our unit sales out of our branches are up 42% just the fourth quarter just by adding product capacity that BBVA didn't have. So it's not even -- I mean corporate bank is one thing, but it's actually just happening across ...

What would be some examples on the consumer side that they didn't have, but just ...

Just full brokerage capabilities more on-site mortgage help basic products, but we just have people in the branches offering as opposed to having to call in or make appointments and stuff. But go back to the corporate bank for a second, why is this working? And it all starts with people, but I'll give you guys another example -- [indiscernible] competition. By the way, we only compete with 5 banks, right? And the same 5, but we compete with them in every market. So it doesn't matter what market we're in. Our Net Promoter Scores. So from the Greenwich survey for basically middle market commercial, which is our sweet spot. Our Net Promoter Score is twice our nearest competitor, twice. We win outright. So we're #1 in client satisfaction. There's 15 categories. We win outright 10 of those categories. So you take that business model with our product set and you go into these new markets where we've taken our best people and then hired the best people in those markets and even we're surprised by what we're actually seeing in terms of the potential coming out of it, but not potential. I mean, it's real, it's just showing up. It's $50 million in a month. That's an impossible number.

So you mentioned treasury management has a significant opportunity in the investment markets. Is that a big driver of this fee penetration that you're seeing in ...

It is. But what's fascinating, John, as it's not -- like we knew we would -- we have 85% penetration or something like that on treasury management and their clients [ add ] 60 something. And so we knew we'd always close that gap, but these sales are actually kind of the new clients. Some of it's upscaling their old clients, but a lot of it is actually just, if not most of it is actually new clients. And we still have that other opportunity.

Any other product gaps that come to mind in the BBVA markets?

Product gaps?

Product gaps. Things that they don't have on the corporate side that your treasury is one area where you're ...

It's all of the advisory-based businesses from ESOP to Harris Williams to Solebury to we do OCIO investment, and that's a big business for us. We do financial wellness for corporations. So just it's a whole bunch of things. And then, of course, inside of the TM suite, maybe as TM, yes, it's a cool thing. TM is 1,000 products. It's literally 1,000 products. And that set of products -- what we have in our bucket versus what BBVA had, it's not even comparable.

Yes. So overall, when you look at this opportunity, you are obviously very excited about in the Western markets, how do you compare it to what you did with RBC in the Southeast, which another area you entered an acquisition?

Well, that's what we modeled it after. We -- and so we expected this outcome, like we were confident we could do this. it's faster and it's better. And partly, I think the maturity of our own corporate bank is better. So our go-to-market model has matured in the way we execute our product suite is better. I think we are a -- more of an employer of choice right now than we were back when we did RBC, so we have an ability to actually pull the best bankers out of the market, whereas back then, maybe we didn't. We were wildly successful with what we did with RBC, but as to why we're faster and bigger this time, I guess we're just executing better.

And then just kind of sticking on the fee businesses. Can you talk about payments for a bit, just in terms of the broad positioning that PNC has in payments and how important that is as an offering to commercial clients and consumers?

I mean, look, it's a -- people measure it different ways. It's at least a $0.5 trillion business, and it's growing fast. It is on the consumer side, to be honest, more of a mind share must-have capability in all forms than it is a large revenue generator. But to the extent you want to be core funded and you want to have those consumer accounts, then payments in all forms and ease of payments in all forms for consumers as table stakes. On the corporate side, inside of our treasury management suite. Corporations today are still -- I don't know what the number is 60% plus physical check, right? The size of the potential wallet is corporates move from physical check and ACH [ fund cash ] balances, reconciliation to kind of modern tech where our TM system is integrated directly into their ERP system is massive. It's a massive growth opportunity. The cost to the scale necessary to play in the space on the banking side, the investment necessary to get there, the complexity of being able to have those conversations on both a technology basis and a finance basis with the clients is a huge investment. It's a massive opportunity set. Today, 10 years ago, we used to get a client, we'd onboard them in treasury management. You have tech teams get together and you'd open the accounts and everything because they have these technology teams and they'd write spaghetti code between 2 legacy cobalts? I mean, it's horrible. It was painful, it would take months. Today, the client uses NetSuite he goes in. It's an add-in module. He basically clicks it. We give them log-in IDs. Our Pinnacle interface shows up directly in his system, and he's in business day 1. If he wants to buy more, so he's already right there doing payments and he's seeing all his account balances. Okay, now I want to do fraud screening or maybe I want to do FX netting or maybe I want to do this. I just say, okay, I'm going to click and add this feature, $18.99 a month. And I just -- and that goes all the way down to our commercial clients. We have people who can virtually -- we have a virtual sales team in our commercial base that onboards clients virtually, right? As opposed to having to do this old manual stuff. The client itself can self-service. Think of the infrastructure necessary to be able to create that and then deliver it and then integrate it with all these ERP systems, right? How many times does Oracle actually want to integrate with -- they want to integrate with 5,000 bank TM systems. Now they want -- they're going to pick a couple they're going to do this [indiscernible]

How much of a differentiator is your technology on this front? Are there many banks that are offering similar?

On the TM side, I -- look, I think there's 3 or 4 people in the space, and that's it. And I don't think anybody else is ever going to get in the space. I think just people who can come pick off the edges. But the collective effort to deliver an ERP embedded finance inside embedded treasury solution. I mean there's just a handful of us. And it's -- you got to remember you said, well, why is this for a company, right? The company's job is to do whatever the company's job isn't to worry about my treasury management system, right? Their finance staff and their treasurer is looking to save money and do their job to the best of their ability. And that's what we do. How can I make their life easier and save them money. Almost everything we do with a corporate actually just hands them money. We're just -- everything we show up to do. We're actually handling that money today.

We shift gears and talk a little bit about capital markets. All the banks saw a big drop-off in capital markets activity in the first quarter. For PNC, that was reflected mostly in your M&A business in Harris Williams. What are you seeing so far in the second quarter? How is that affecting your view for the year?

Yes. So Harris Williams came ripping back, their pipeline was strong and continues to be strong. And so they've come ripping back. The rest of it, we saw a slowdown in the first quarter in bond fees in IPO fees through Solebury and other things. That stuff is still, still. But the big nut was a Harris Williams is in the first quarter, and it's come ripping back. And we will get back to maybe not the record quarters, we were kind of printing the last couple of quarters, but a pretty decent trend line would be my expectation, at least for the second quarter and see what happens.

What do you think has enabled that M&A bounce back. We've heard from broader investment banking guides have been pretty rough for the second quarter so far from some of the bigger ...

Harris Williams is perhaps a little different only in that they're smaller size, midsized deals, private -- typically private equity to private equity. And the private capital, private credit markets are wide open. So the ability to just get stable finance on anything from private credit to private credit is as much as you want and they've had no issue funding these deals, even as you've seen broader markets contract.

Yes. And what changed between the first and second quarter for them to...

I think everybody was just tired from the fourth quarter. Okay. I mean I don't know if it was any more magical than that.

Yes. Okay. Well, that's good. So how are you dealing with inflation? You mentioned that you have a positive outlook on operating leverage and your ability to deliver very good operating leverage this year. How are you doing that while making the investments you need to do and absorbing inflation that everyone's feeling?

Yes. So all of our guide for this year, we embed all those numbers in there. And so the bigger question is how do you do it on a go-forward basis where this -- my view, inflation is going to have a tail here, right? So we're not done with wage increases, I don't think. And if you go back and just look at us through time, we're good at this. right? We've ripped out all the acquisitions. We basically have kept our expenses flat and invested tons of money every year, which is why our tech stack is modern. It's why we are on a core platform. It's why we're all cloud-native and have everything API based. It's why we're set up where we are. I think the next big leap for us here, efficiencies have come over the last bunch of years is we've modernized branches and then consolidated branch networks. I think what we're going to see in the next big savings coming, at least from our institution on the back of the tech platform that we have built and continue to build is massive savings coming out of back office. I think the manual workload, remember when everybody talked about operations, they said, AI is going to eliminate operations, right? AI will do everything. It's actually not AI that's going to do any of that. RPA will simplify human tasks, but it doesn't eliminate. What modern client service platforms do with a real-time core is actually allow you to move all of the client servicing right in the hands of the branch employees and the care center employees. So you no longer take an old [indiscernible], you don't take a loan application fill it out in the branch and then fax it into somebody in the back office 15 years ago, right? Factor than somebody enters in. Now the whole thing that the branch employees are completely unable to basically do that with a real-time underwrite back and get all the data in and it's booked. Well, I don't really need that back office function the same way. Now we got to figure that out on a piece of paper that works, and there's always going to be exceptions and problem solving and all the other stuff that you got to do. But that's where I think this next not of -- all right, how do I continue to invest in a modern tech stack that is client serving, solving problems because I can't pass prices long, right? Like I can raise my prices in inflation. So for a bank to survive here, you basically have to rip costs out and build volume in an inflationary environment. I think we have a map to do that. I could see it. I don't know how to do it yet, but I can see it on the back of the work that we've done on this modern tech stack.

We will stay tuned on that. So can we talk a little bit about capital and how you're thinking about managing excess capital? Just for context, you have a really nice excess more than most large banks today were just under 10% CET1 versus and a target of 8.5% or so that you've talked about. You just did a big dividend increase. How are you putting everything together and thinking about your capital position?

Yes. Look, we're in a good place. We're -- our targeted needs haven't really changed. Our -- we raised our dividend, our earnings growth when I go forward, will -- we have a good track record on that. We'd like to keep doing that. We talk about 40% to 50% of the payout ratio. We've been spending what $700 million quarter buyback assume that sort of continues. We're opportunistic at the margin. So you'll see our volumes kind of go up or down. We obviously have the capacity to do more. We also have the luxury right now of a lot of loan growth. And so all else equal, we like to pursue that angle. But we have flexibility to frankly do whatever do what we want here.

Yes. And you did a dividend a little bit off cycle from some other ...

Yes, because we hadn't raised it because of the BBVA acquisition, and we had the capacity to, and we told you guys we've looked at it and it just seemed it mattered in this environment, and we had the ability to do with the way the rules work allow you to do it. So we did it. Yes.

Okay. And how about the idea of bolt-on acquisitions? Can you remind us in terms of adding capabilities in fintech or otherwise, how much of that has been part of your playbook and how will you think about that in the future?

Well, we look all the time, and we execute some of the time. So we bought Tempus, which is a gateway. We actually just recently looked at a deal and really interesting, this will bring to light sort of the challenge with a bank buying a tech player. So a real company makes real money. We could maybe double their sales through our network. They say, all right. So therefore, I ought to be able to outpay a financial buyer. Problem is by double their -- all I can do is double what they have. That deal to us, even with a good IRR, 100% goodwill basically gives me almost a perpetual dilution in tangible book value. EAS and IRR perpetual dilution intangible book, and I can double something. It's a relevant product, but it's not a game changer for us. We pass. I can't play at the level where now I go and I say somebody like Tempus. They come with a core skill set. They make decent money. You pay less in and of itself may cause the same tangible book dilution, [indiscernible] is a smaller deal, but I can scale a thing 100 times, right? So when I then look at the growth that it can give our company beyond what it does on its own, it becomes really attractive. And that's the nut, right? We can't go buy something and then pay pull the full value for something when you basically trade as a function of low multiple earnings as banks doing some multiple to tangible book, you can't do that. You've got to buy some capability and scale it massively for it to make sense to fit inside of a bank portfolio and we do that. The other thing that's happening not surprisingly as we get into a little bit of scare about credit as a whole bunch and the cost of funding going up. We get all sorts of people jumping off the sinking ship, looking for somebody to buy assets, and that's always fun for us. So we have all sorts of things coming in where we buy this book or that book or this business or that one and we're good at that. I wouldn't -- you shouldn't be surprised if you see us take down some Boston portfolio from somebody.

Yes. So we put all this together, it seems like a decent time for bank fundamentals. We've got good loan growth, interest rates are helping and bank stock investors are [indiscernible] ...

Yes, I don't get it.

Do you think they're overly nervous?

Yes. I think I mean, I literally don't get it. I mean banks -- there's always the odd one out and there's some who will do better versus than others, but I think a well-run bank that has a conservative balance sheet going into this given where valuations come is a bargain. I don't else to put it. I mean, if I look, can things get are we going to run into Jamie's hurricane? I don't think can they get stormy -- or are we going to have a big CECL reserve at some point? Yes, probably, right? Because charge-offs are going to go from 0 to something. But I think we can continue to generate value through that. And every time that has happened in our history since I've been at the bank, we benefit. We come out of that stronger than when we went into it every single time. And we're set up today. We've got rising rates. We have these new markets that are going gangbusters, our tech stack is done and invested. You know what our investments need to be. We can gain share. We have capital flexibility and strong earnings, big fee mix. We're not a wildly exposed to capital market slowdown. Bring it on. It could be a little bit painful. I kind of like it. It's going to weed out some of the fluff. We're going to get more business. We'll take some reserves and some charge-offs and come out of the other side stronger. I think the market is just saying, okay, possible reception, banking recession, banking is bad get out. And I that's a really, really nearsighted, totally missing the change in financial institutions, the capitalization, the stress test, the amount of liquidity we have, all the other stuff. I think it's wrong.

A couple of questions from the audience here at the wrap up. How much should investors worry about the credit buildup that's occurred outside the banking system in the last couple of years?

As it relates to banks or that for the economy?

No -- Well, a little bit of both, I guess.

I think there's going to be a problem. I think there's going to be a problem. On the consumer side, you've had a whole bunch of start-ups that still rely on securitization and untested underwriting and a bunch of those will blow up. I mean history repeats itself. It's not a question of whether it happen, it will happen. That will be fun for us. You'll see a whole bunch of private credit -- smart guys doing private credit, by the way, this isn't done money. But the capacity to work out problem loans inside of the private credit space, it just doesn't exist. So I think you're going to see some turmoil and depressed prices on credit as defaults increase in workouts happen. You actually physically have to do the old school work out where you put in a manager of a company or you padlock the building and you sell their inventory, you go to -- this is kind of old school rail credit stuff that the non-bank market doesn't have the core infrastructure to be able to deal with. But that's fun for us. It might be bad for the broader market, that's fun for us.

Yes. So in retail banking, you recently announced a leadership transition that will come up this year. Maybe just talk about the retail piece of your business. What are your priorities there?

Sure. But I actually ought to talk about Karen Larrimer for a second, who is retiring, phenomenal lady and friend that has worked with us for a long period of time who's done so much to modernize what we've done in retail. And she -- I don't think she'd be mad if I talked about it. She's got 2 young kids. She's been this the model of a working mom, who's just done amazing things work through crisis after crisis and integration, sees to 12-year-old twins. She says, you know what, I'm going to go hang out with my kids. And I I'm thrilled for Alex Overstrom who's coming in, by the way, he's been with us for a bunch of years and exposed to all sorts of different parts of the company. But frankly, kind of impressed us and got the seat based on the work you did in the integration with BBVA. So he got down in the weeds and know all the parts and ran that integration, which is how he ends up, and I've got high hopes with what he can do there. Our retail business, broadly based, and nobody ever actually wants to kind of say this out loud, and I'll just say it out long. Retail banking is kind of a cost of capital return business if you're lucky, if you're good at it. Now that's if you don't give the franchise value to deposits, which you should give, right? So if you just think about the individual lines, the payment businesses, you're giving away everything for free. Your deposit accounts are for free. Interest rates have been so low, maybe this changes if rates go and stay higher, you'll make some money because of the core deposits. And basically, consumer credit on average, is a return on capital. Some people are really good at parts of it and can do a little bit better, cover their cost of capital. And so what you're trying to do there at all times because you want this core franchise to fund your balance sheet is to figure out how you can best serve those customers at the lowest cost. All the products they need, don't do it to lose money, do it to make money, knowing your -- I don't -- I just don't think it's a wildly exciting revenue space. Other people outside of banking because they want to harvest data. They want to sell data, they want to do a whole bunch of things besides banking, look at it differently. And our focus on that -- and by the way, we're good at it, right? We go into these new markets. I just -- I tell you, we're going to these new markets are unit sales per branch are up 42% in these new markets. So we know how to do this. I just think we're honest with ourselves. Our profit engine, our growth engine, our towering strength continues to be in our C&IB business, and that's what we're focused on.

And maybe just another comment on wealth management in terms of what you're doing there and growth opportunities you see.

It's -- I mean it's a smaller scale for us, so we don't highlight it as much as we should because we actually do really well at it. It's following the same footprint through BBVA. And by the way, BBVA had some amazing teams in certain of the markets in wealth, which have joined our platform. But same sort of thing. I mean at the moment, it's struggling top line simply because markets are down. It's a mechanical outcome, but share growth, new money in is all really positive. It's integrated, as you know, into our normal channels. So one of the things we do really well as our corporate bankers sell wealth, both to the company in terms of investment services for the corporate, but also to the individuals and the same through the network and the branches. So it does well. It's a high-return business. It's just a smaller part of our business. So we don't highlight it as much as we probably should.

Yes. And the last question, I've asked a few CEOs that this question this week. It's really just about banks and ESG scores. They don't do well on ESG metrics, yet banks seem to be doing more to serve all stakeholders and doing things that are more customer-friendly, working on climate. Do you see progress on that front and think that banks can score better to ESG-oriented investors in the future.

That's an interesting question. Think about what banks do for our country. I mean, through -- maybe it was because CRA was forced on them, but I don't think so, right? We were -- we're the model institution in somebody who has to support our clients and communities in order and our employees in order for our shareholders to benefit, right? If we're miserable inside of the community, we're all about a people business, we don't take care of our employees. You guys are going to get no return. We're going to stick at what we do. So we -- that's just what we did. It has nothing to new statements as it all the -- it's just funny, that's how you do banking. We always did it that way. Beyond that, we went out -- we've been an outstanding CRA forever, but we do the BBVA deal, we put an $88 billion community commitment out there, which, by the way, is fun to do. And it's not -- we're not going to go out and lose money, right? We're changing the way we allocate capital to parts of the community that are in need, where we can actually make a difference. How do you change wealth distributions in America, you focus on it. Why is homeownership for Black America less than white homeownership? Well, there's a lot of history to it. But one of the reasons particularly for LMI communities, is mortgage brokers don't focus on it. Simple mechanical reason, lower-priced homes, why am I going to spend my time, right? So we said we're going to make a commitment to do loans into first-time homebuyers in those communities, and we're going to get mortgage brokers who are paid salary to be there. And to sit in CDFIs and the community centers and educate and you get a salary. I don't care how many you do. I want you to do this and get paid for it and do a good job, change an outcome, right? You give me on a rant here, but the amount of good to buy where we're not unique to that. The amount of good that the banking industry does for this country and is total unrecognized for it just blows me away.

Ryan said the same thing yesterday.

What said?

Ryan said the same thing yesterday.

But instead, we get hammered because we do something with capital that 49% of the company -- or the country doesn't like or 51% likes. And you can pick your list of things, whether it's ESG related or social-related issue. And at the end of the day, our employees and our clients are a slice of America, right? We can't be the arbiter. We're a slice of America. We serve our clients, right? We follow the values of our company and our employees, and we will make decisions that are just obvious because something is wrong. But the political football that has become banking as a way to somehow cause social change because the politicians don't have the backbone to actually do what they want to do or be out loud about it is bulls****. Let us run our business. We're going to run our business. We're going to focus on the forecast issuances. We're going to make you guys money. We're going to help communities. I love our employees, and we need to keep them happy, and we need them to love their job. We want to grow in their job and let us do our business. The whole notion in the screening of you get me going on this climate disclosures, SEC proposals on climate disclosure stress test from the SEC on climate disclosures price. We're in the risk business. What do they think we do. We stress test this stuff all the time. This isn't a stress loss issue for the banking system. It's a real climate change issue for the country that we need to transition in, but our policies to do that are terrible. And the way to trying to shame people out of certain exposures for social reasons without a plan without a formidable plan on the other side to actually cause changes is n***. So you give me on around here. We do a damn good job. We put emotional capital behind it. We put real capital behind it. We put hours behind it from employee voluntarism. We focus on real risk of our clients not just economic risk, but reputational risk when we do something about long-term tail risk when we do something, we're really good at this. The rest of the people who want to throw rocks out, look in the mirror and figure out how good they are before they come through on rocks at the banking industry. By the way, PNC is this way, but I stand up for the whole industry is the same way.

It's a great perspective. Thanks, Bill. We appreciate it. Thanks for your time.