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

We'll go ahead and get started. So next up, we have Rob Reilly, CFO from PNC. Rob, thank you so much for joining us.

Glad to be with you. There's a lot of seat here.

So I guess it's hard to talk about PNC without talking about M&A and what's going on. And we did get some transactions over the last 24 hours, which is good to see some life in the sector. But give us a sense, I mean, I think the notion of, in Bill's comments, during the fourth quarter call around the need for scale, contextualize that for us in terms of what does it mean. And you'll hear from some of your peers that some of the largest banks are in trillions of dollars. So what's the right scale?

Yes, sure, sure. So good morning, again, thanks for having us. Good to be with you all this morning. The first thing to say from PNC's perspective, particularly in the context of this week is we don't have an imminent deal that we're thinking about or have our mindset on or that we're currently working on. So just get that out there straight away. But we do think it's important to talk about scale in the banking industry in the U.S. Some of the reasons for that have been around for a while that aren't new naturally, when you take a look in terms of bringing innovative products and services into a national distribution, scale helps. Everything that you talk about in banking in terms of doing that in addition to protecting the bank requires a tech stack that is large and expensive; again, scale. And then you're seeing regulatory sort of detailoring where the advantages of being small from a regulatory perspective are diminishing. So nothing new there, necessarily, in terms of the way that we've looked at it. What was new was last March in our view, when the disruption came through with the bank failures. We saw in real time in March of last year, a movement to the sentiment, particularly in corporate treasurers with uninsured deposits, that bigger is safe. We were the beneficiary of that. We grew average in spot deposits in the first quarter of last year simply because we were viewed as safe. And so did the other large players. So you take a look at that, we look at it every day. So we see it every day. We like talking about it because we're not sure everybody involved, all the constituencies do see it, look at it every day and fully appreciate that. From PNC's perspective, it's easy to conclude, and I think you would agree scale equals growth. So the scale providers are growing at a higher rate than the nonscale providers. So we think it's plainly evident. The good news for PNC is we are a skilled acquirer. I think we're viewed largely in terms of being good at it if and when the opportunity occurs. So we're positioned for that, the BBVA acquisition from a couple of years ago. We -- from announcement to fully integration was less than a year, pretty good, of $100 billion bank. So you got to show that you're capable. But in the meantime, we've got great -- and we'll talk a little bit about this. We've got some great organic opportunities particularly in the new markets that we're in, that are all tracking well. So we're not reliant on an immediate acquisition, but we do see through time, the need for more scale.

And -- so that's helpful. And not to pin you down, but I'm just wondering when you think about acquisitions, would a $100 billion asset bank still be of interest? Does it move the needle for you?

Yes, I think so. We get asked that a lot of times of, hey, where is the target? I don't have a clear answer for you other than bigger. And then when we talk about individual transactions either in particular or in general, we always say, hey, we know how to do the math. So if it's good for our shareholders, we'll do it. And if it's not, we won't. Larger is obviously in the context of what I just said, more attractive than smaller, but that doesn't necessarily prohibit smaller acquisitions.

Noted. Okay. I guess maybe switching gears to one of the hot topics around commercial real estate. Just talk to us, I mean, obviously, I mean, I think you built reserves about 8.7% against the office CRE book. Spend some time there in terms of the visibility you have in the reserves that are built and just outlook for losses as you look forward.

Yes, sure. So again, nothing new there. The concern, obviously, is within the office space within the commercial real estate portfolio. We've dimensioned it, and it's relatively small for PNC in terms of percentage and even absolute dollar amount. So we can manage it. We moved pretty aggressively in terms of reserves, even though the model suggested because there were no delinquencies that there wouldn't be losses. Common sense told us in the cases particularly of vacant buildings or leases that are coming up and maturities that are coming up that we're going to have some losses. So we reserved pretty aggressively during the course of last year to where now we're on total office, we're just below 9%. And then inside of that, and this is important -- this is an important distinction, inside of our office portfolio is the multi-tenant portfolio, which is where we see the stress single tenant is actually holding up pretty well. And in the multi-tenant, which is about $5 billion of outstandings for PNC, our reserves are close to 13%. So we look at the criticized number, which is about 25%, criticized in terms of that book. We will see inside of that, some of those criticized moved into nonperforming, some of those moved into charge-offs, which is the natural progression. And that's happening. So we feel good about the reserves. There's still not a lot of movement in terms of transactions. So there's varied outcomes in terms of -- there's a lot of extensions that go on properly structured, so not pretend and extend but extend justifiably. But there are some cases where extension isn't going to be possible, and we'll take those losses against those reserves. We're going to find out soon enough. 30% -- 40% of our office portfolio matures at the end of '24 and multi-tenant inside of that is closer to half. So we'll move through this pretty quickly.

And so you're right in terms of we've seen very limited transactions. But at the same time, it feels like there's a pool of buyers and capital waiting to step in. Like would you agree with that?

Yes, I would agree with that. Yes, I'd agree with that. There's a lot of money out there circling, but there's an issue that's different than most commercial real estate downturns in the case of these buildings, there's just -- nobody wants them. It's not a case of, though we still want it but we want them at a lower price. So I think that is a distinction that's worth keeping in mind.

I think that it's a good segue into multi-family.

Yes. Right.

But I think that sums up [ why of ] multifamily is not office. Just talk to us in terms of your exposure and just your view around what credit trends might kind of evolve in the multifamily book?

Yes. No, it's a good segue into it because in contrast to what I just described in office and multifamily, we don't expect meaningful losses. We see sort of normal through the cycle, interest rates rise. But there's a structural shortage of housing, multifamily is filling that structural shortage. There's cash flows. So there's some stress on the portfolio. where you'd expect it, where rates have risen and if the owner is refinancing, that's challenging. But there's not anything in the sense of where there's -- the buildings aren't wanted. So you might have some pockets of where there's some overbuilt geographies. You might have some people whose loans, unfortunately, are coming up sooner than they, but they'll be able to normalize that out. In the case of PNC, most of our multifamily is spread out. We don't have any geographic concentrations and we have very little in terms of high-rise multifamily in the urban cities that -- geographies that you read about.

Got it. And I guess maybe just if you put all this together in terms of your charge of outlook, I think you've given guidance for the first quarter. But you give us a sense of like what you could think about it, and I think it came up on the PNC call whether or not you would release this at some point this year. Just the evolution of charge-offs, what you think is the normalized level of charge-offs as we move forward?

Yes. So we're well reserved. We are at 1.7% as you know, in terms of our total reserves. And that's been pretty steady over the last couple of quarters. It's above our day 1 CECL. So day 1 CECL is normal. We're a little bit above normal. We've been surprised pleasantly as everyone else in terms of the losses haven't normalized. We've been calling for normalized losses for the last, I don't know, in 2 years, 3 years, and there hasn't been a whole lot of that. So in terms of our charge-offs, we've been sort of staying between $200 million and $250 million. That's what we've had in the first quarter. And I expect it to be around that, maybe drift up in the outer years a bit but not a lot.

Got it. So when we look at that -- and part of that is you're right, we've been talking about the recession since 2022 now, there's an up -- right?

Yes. Right.

So when you think -- how would you describe the customer sentiment across your markets? Like our business is feeling good about life? Are they investing? Just what's the sense?

Yes. I think if you break that down in terms of consumer and commercial. And roughly speaking, we're 2/3 commercial, 1/3 of consumer in terms of our loans outstanding. On the consumer side, the consumer is in pretty good shape. We've all heard that unemployment numbers are favorable. People have jobs, there's cash in the accounts, and generally, the consumer is in pretty good shape. On the commercial side, I would say, similarly, in very good shape, commercial real estate side in terms of credit quality. But I would say on the commercial side, we definitely see some caution. You're seeing that in the H8 data a little bit. Bryan referenced that with you just a little while ago. So you're seeing some caution. They're doing well. but there's just sort of this outlook in terms of this changing sort of outlook in terms of -- and we agree with this now not a recession, but some stability factors showing up, which largely is around what the Fed does and when they do it. So there's just a little bit of -- I think just a little bit of caution there in terms of go mode, but we'll see that coming, hopefully, in our thinking, in the latter part of -- '24.

That -- I guess, that probably informed your guidance, I think it's spot loan growth about 3% to 4%. Do you still see like that attainable given just ...

We do. So in terms of guidance, our full year guidance holds and we see that playing out. In terms of the first quarter guidance, maybe a small tweak to that, again, around this issue, so we had called for average loan growth to be stable. It's likely to be less than that, so maybe down about 1%, and that's fully a function of utilization rates that haven't risen, like we just talked about, that haven't risen like they typically do in the first quarter. So there's still sort of at that seasonal low; we expected that to come up a bit. We still expect it to come up. But we're 1.5 months into quarter. So by extension, we'll probably have a little bit less NII because of lower loan volume, where we had previously guided in the quarter to down 2% to 3% in NII, we're probably now looking at down maybe 3% to 5%. So not a big change but just reflecting that. And then importantly, that's all on the loan side because deposits, which we haven't talked about yet is actually behaving a little better than what we expected, still down a little bit, some seasonal, but all of last year, NII was about deposits and what was going on in deposits. That's not the case in this quarter. So a little bit less in NII, but all the other guidance we are tracking to what we said.

And I guess -- so maybe just talking about NII and deposits and all of that. I mean, talk to us around the base case informing your NII outlook for the year. And I think that since you reported earnings, the question is, if we get only 2 or 3 rate cuts, what does that mean for NII?

Yes. So we feel pretty good about our NII guidance, largely because of -- we've worked hard, as you know, to get our balance sheet into a neutral rate position. So we worked hard to do that. And that was part of a deliberate move on our part in terms of the environment that we're in. So we're really in a place right now in February '24 that through the course of '24, we're not real exposed to whether there's more rate cuts or less rate cuts. That variance has come down considerably because of that neutral position. And that feels good.

Got it. And on deposits, so you mentioned I've heard other -- some of your peers talk about the pricing competition is already easing, means would you agree with that?

I think so. We're definitely in the later stages. And the loan issue in terms of being a little softer might be contributing to that a little bit. But I think more so, it's just that it's run its course a little bit. We've talked about that. We've shown that being called the swoosh curve along those lines. So we're normalizing our deposit pricing largely has caught up after having lagged, which is part of the cycle. It was just the magnitude of those rate increases the 5x that really put the pressure on us in '23. And some of that will drift into '24. And that's all part of our guidance. But I think we're in the later stages. It's settled down considerably from what we saw last year.

Got it. So a few rate cuts shouldn't have a big impact. Loan growth probably has some negative impact on full year NII?

No, no. No, I don't think so because within the quarter and the increments that I'm talking about the full year, it's not meaningful to take you outside of the range.

Got it. Got it. And just talk about deposits. I mean, I think the question is, if we are in a structurally different laid backdrop in the next 5 years or 10 years, like what does it mean in terms of the mix of CDs or noninterest-bearing? Like do you think we are at a steady state already? Or...

Well, I think yes. Well, I would say, close to a steady state. So the big change for us, obviously, was the mix of noninterest-bearing going from somewhere in the 30% range to the mid-20s about where we are now, where we expect it to sort of stabilize, and we're seeing that. And that's in large part about -- given about the nature of those deposits, which are largely tied to our operating accounts, also entities that pay for their services through deposits. And generally speaking, this deep end of the rate cycle, if you haven't moved from noninterest-bearing to interest-bearing, probably not. You probably got that memo by now. So I think it's sort of stabilized. We still see for the full year, deposits declining in total as deposits leave the system. But not anything outside of what we've already talked about.

Do you worry much about the QT and over the overnight RRP balance coming down? Is that...

Well, that will be part of it. That will be part of it. But again, I just see that as the normalization. We're sort of going back to the pre-pandemic balance sheet in terms of -- and we get into this in terms of our wholesale funding and the mix and everything is sort of trending to those normalized levels, not outside of that. So I would say with all of the efforts to remove deposits from the system, we're just going back to the future.

Right. And thinking about deposit growth going forward, like, in my view, there are two ways historically banks have grown deposits, branches or M&A. And you announced, I think, a $1 billion plan to...

Yes, yes. Thanks for asking that. Yes, so we announced last week and this is all part of our guidance and part of our strategic plan, but we went public with it in terms of -- significant investment, a $1 billion investment to the build out of our branches, both new and the renovation of existing branches. The new part is the part that everybody gets excited about, and that's really an extension of our success in these new markets in the Southwest and was part of the plan. Actually, we're a little ahead of the plan. But think about branches in terms of increasing branches in Dallas, Houston, Austin, Denver, those types of cities where we've done really, really well in the first couple of years that we've been operating in. We're now at the point in terms of our evolution to where we can expand that and grow that distribution. And generally, these are general numbers. If you can get to high single-digit market share, which we think we can with some of these moves, you get that sort of compounded lift in terms of the critical mass that those provide. So that's really just sort of a piece of evidence in terms of how well and how excited we are about these growth -- how well we're doing and how excited we are about these growth markets. And then the renovation of the existing, that's just a commitment, again, back to the scale issue around the tech stack and around the products and services that today and tomorrow's consumers demand.

And on a net basis, do you think the footprint grows like in terms of the net number of branches over the next few years or...

Yes, I think so. I think incrementally, I mean, we'll still consolidate. So we're not going to go to a dramatically different place. We're right now 2,300 or 2,400 in branches. So we'll be around that. And that's, of course, something that we'll continue to manage.

Got it. I think the other -- the other announcement you had was earlier this week with, I guess, Mike Lyons taking on the President role. Just talk to us about thought process there. It means clearly, and I think Mike, correct me if I'm wrong, was kind of led the charge with the RBC acquisition and then the BBVA also.

Yes, yes. So a couple of things on that. We announced that Mike Lyons, who is the head of our commercial and investment bank, C&IB, we call was promoted to President, the job of President, and that job will oversee not just C&IB, but our other business segments, our asset management and our Retail segment as well as our regional presidents model. And that's important in terms of part of the thinking. So it's good. It's good on all accounts. I mean on a personal level, it's obviously always good to see a colleague advance and be promoted in sort of a natural career progression. So that's a good thing. But importantly, there's a functional component to it. If you think about just sort of what I was talking about in terms of what we're doing and how we're trying to advance it. The ability to pull all our businesses together, we do have a regional presidents model where we go to each of these markets as one bank with the regional president as the leader. So Mike being able to oversee all of that, we've already been pretty successful in terms of bringing the whole bank to the market. We're hoping to increase the connection across those businesses because the opportunity is so large. And because it's gone so well and we've been received so well in these markets, the markets are making this opportunity available to us. So it's good all around.

Got it. And any other sort of organizational changes that may follow as a result of this or...

Potentially but nothing that just might be some ways that we sort of arrange our go-to-market strategy but nothing that is radical in terms of a departure. This is -- it's just good timing in terms of Mike's progression, and it's also good timing in terms of the opportunity that we see.

I guess maybe just going back to investing. We talked about branches, like PNC has always been focused on efficiency and driving [indiscernible]. Just talk to us around where the efficiency opportunities are? Where you're investing? And like how should we think about what's the normalized expense growth outlook?

Yes. Yes. So we we're very disciplined around our expenses, and that's been the case for a number of years. We like to manage the positive operating leverage, and we've done that for the better part of the last 10 years or so. When we were -- in last fall, when we were taking a look at the outlook in terms of 2024, we could see the positive operating leverage was going to be very difficult because of the NII effect of the troughing before it goes back up, not a lot that we can do about that. . But we did think that we need to be in a position to be able to hold expenses stable and that necessitated a work restructuring program that we announced and implemented in the fourth quarter of '23, about $325 million or so in savings. The continuous improvement program, which is separate than that, that we have in place and have had in place for the better part of the last 10 years, is our annual cycle in terms of where we recycle expenses for investments. So our continuous improvement program, along with the actions that we took with the work restructuring have us feeling very confident about expense management in '24 in terms of being able to keep it stable. We'll continue to manage that aggressively. And again, let's get back Ebrahim to the scale issue. When you're spending billions and billions of dollars, you look for those kinds of efficiencies. And for us to be able to generate $425 million annually in terms of those savings, that's a scale issue or a scale advantage. So we feel good about the expense discipline. Looking out, and this isn't guidance, but generally speaking, if you take a look at our strategic planning and take a look at the composition of our businesses, we can pretty much count on or manage to mid-single digit, maybe a little bit higher than that revenue growth, low single-digit expense growth in a normal world, which might be a little ways off, but that works for us. And like I said, the composition of the businesses and the diversification of the revenues in the geographies has us pretty excited.

Got it. And just own expenses, I mean, again, the biggest debate, I think, foreign banks, in near term is going to be what happens to inflation and how that informs the Fed outlook. Just as you're managing expenses, hiring of people, technology spend? Are you seeing inflation recede? Like do you feel good about...

Yes. I wouldn't say we feel good about it, inflation. Things naturally cost more. But I do think we're on it, and we're confident that we can blend it into our business model and be successful.

But you -- have you seen the price pressures recede over the last year or...

Slowdown. Yes, slowdown in various places. Our biggest spend, no surprise is technology, where we continue to increase. And sometimes in technology prices go down and sometimes they go up, but generally, the total spend goes up.

And on technology, AI, is it meaningful? Is it...

Yes. Yes. It is. We've always said and now a lot of other people are saying it that we were doing AI before AI was cool. And a lot of that is in our back offices. And we've got a lot of activity that is AI, particularly around when you think about sort of high-volume data, which we have a lot of. And we're mindful in terms of where the opportunities are. I wouldn't say that it's radically changing everything. But it's certainly present and something that we're mindful of.

Got it. I guess maybe switching gears to fee revenue growth outlook. I think capital market seems like will be a big force on whether how that plays out over there. Just talk to us about what the expectation is on capital markets and how are things evolving?

Yes, sure. So the fee components of our revenue stream are very important. Capital markets is a big one. The other ones -- I'll come back to capital markets, asset management, card, treasury management, deposit services and fees and then residential mortgage, which -- and commercial mortgage, which isn't as large for us as some other players, but an important fee stream. We feel good about all of our fee businesses. Again, they're all sizable. They all have great opportunity for growth along the lines of what we were talking about. Capital markets, specifically, it's been on a little bit of a wild ride for us, and you know this, Ebrahim, our largest component of our capital markets and advisory is our M&A advisory shop, Harris Williams, which in the 0 interest rate environment produced record levels. Last year, that fell off a bit. And I would call it more sort of transitioning to these buyers and sellers of companies, which are the customers of Harris Williams sort of transition to this higher rate environment. We saw some softness there in the first 3 quarters of '23, a pickup in '24 -- a nice pickup in '24. So we've got sort of a run rate there that we're feeling good about. So capital markets, it's been a little bit of a wild ride. We've got it up to 20% year-over-year, and we're tracking to it. And then -- and again, the rest of the fee businesses are all very good businesses. The wealth management business, huge opportunity in these growth markets. We're continuing to bring in new inflows, which is really important. And that should continue despite whether the equity markets hold in or not.

And is the wealth management opportunity tied to the current P&C customers? Or are you going beyond...

It's expanded. Yes, we're a large player. And if you go all the way back, if you go back all the way back to the early 2000s, I ran that business prior to being in this job in 2010. And we are a larger player than you -- that you would think, $300 billion in terms of assets under management, wide distribution, largely driven off of our legacy trust businesses, but it's expanded now into a contemporary wealth from the affluent, mass affluent, high net worth and ultra-high net worth, full complement of services, product services. Generally, it is to PNC consumer clients. But there's an awful lot of PNC consumer clients that don't utilize our wealth management products. And again, just to sort of tie that back to Mike in his new role, that's a clear opportunity. So when you have 10 million-plus consumer clients and 1 million of them using your wealth, you got 9 million people to talk to. And that's the primary focus, but it's not limited to that. Of course, we compete like everybody else outside of that.

Got it. I guess moving to capital. So talk to us, I mean, I think you've talked about buybacks just, I mean, [ M&A aside ], just capital deployment priorities.

Yes. So with capital, that was obviously a big subject in '23 as well and it still is, particularly in the context of these new proposed rules. So last -- this time last year, we were all waiting for the new rules to come out. There was a lot of concern that the new rules were going to increase our capital requirements dramatically. It turned out for P&C not so much in terms of the numerator, obviously, it's conclusion of the AOCI, which is negative at the moment. And for P&C on a relative and absolute basis, that's a relatively small number that burns off faster than most, then that's important because these rules proposed transition -- a transition time. But then where more of the focus was, was on the RWA calculation. And in our case, it turned out that our RWAs increased about 4% from the prior sort of calculation requirements. But there's a lot of fluidity going on, as you know. There's been recalibration. There's been some acknowledgment, I think, in the industry, but there may be more than just minor recalibration. So we're watching that and taking a look at that -- the good news for us is we were never out a position in terms of our capital ratio, so we didn't need to go on a capital or RWA diet. In fact we bought, that was an opportunity for us to buy in the second half of last year, the -- some of the signature loans because we had that flexibility. The good news for our model is we generate more capital in our businesses than we can intelligently deploy. So we have this capital -- we have this ability to grow our capital levels when we need to. So you know all of that. We did last year suspend our share repurchases for the better part of 2023. We started repurchasing again late in the fourth quarter at approximately $100 million or so. We said that we're probably going to do that, maybe a little bit better depending on market conditions this quarter, and we'll sort of take it as it goes. So it's -- it's important that we have a program in place. It's important that we recognize that we have capital flexibility regardless of what the ultimate rules are. But still, you want to be mindful of the rules in terms of what sort of the definitive lines are before you go more aggressive than that.

Do you have a sense, not to put you on the spot, in terms of when we get some visibility on the rules or the final rules? Do you see that...

I thought you guys knew that better than we did, Ebrahim. I don't know. I don't know any more than what we read. I think we're looking at sort of the mid part of this year at the earliest. But I'm not in charge.

Yes. Neither am I.

Well, it's good to get that out.

But -- and the other thing you mentioned too, you mentioned the portfolio purchase that you did last year. Are there more of those? Like because obviously there are banks, as you mentioned, in RWA optimization...

I think so. Yes, I think so are likely to occur. And like I said, even when we were talking about the acquisitions, whether it's a stand-alone bank or a piece of a bank or something along those lines, we'll take a look at it. And again, if it makes sense to do it, we'll do it and if it won't or it doesn't make sense, we won't do it. And that happens all the time.

And this was asked earlier, but I wonder how Bill and you think about private credit, like do you see that as an opportunity where you can partner with private equity...

Yes, it's a popular question. I mean the most meaningful -- with a lot of dimensions, the most meaningful dimension is, are we somehow or another displaced in the needs of the borrowers. And the answer to that for PNC is no with our customer base, simply because the bulk of the private credit players require a yield that necessitates a higher risk than we're willing to take. We can afford, so to speak, to take a lower yield, lower risk because more often than not, it's part of a broader relationship of services that, in the aggregate, justify the capital outlay. So that's sort of a natural barrier to entry from the private credit side. To the extent that the ecosystem that they rely on bank loans to fund their extensions of credit. There's some of that. There's servicing that's related to some part of that. And potentially, I suppose, a private credit wasn't available, those borrowers might need to conform to some sort bank -- conventional bank structure. So it could be a little there. I sort of like when you were talking that earlier with Bryan, you know his view, which is, hey, it's all good. Just let's all play by the same rules. And to the extent that some of these private credit players are outside of the regulatory system and there are large players, do you really want to give them a structural advantage around the rules that we all abide by and the answer to that for the benefit of the overall economy is, probably not.

And one last one on capital. I think you're one of the few banks that still has a decent stake in Visa. The vote went through, to my understanding. Just talk to us around how big that is and what's the sort of thought process?

Yes. So we're finally -- we're finally at the end of this process that started with the distribution of B shares when Visa went public a long time ago. And where it stands is, you're right, we have a stake which is about $1.5 billion of B shares. I think most of you know, Visa, the Visa shareholders approved in January the ability to allow those shares to be monetized and convert to A shares. So that approval occurred. Where it stands right now is Visa submitted their S-4 to the SEC for review, which is part of the process. The SEC will have a certain amount of time to take a look at it. If they look at it fast, we could be in a position where maybe we'd be monetizing that, which we will look to monetize, maybe by the end of the first quarter; if it takes longer, it might be the beginning of the second quarter. So we'll see. But we do have $1.5 billion. We will look to monetize that 50% in an orderly good way. and Visa will have some rules around that. And then the remaining half under the proposal or the approved approach allows for further monetization of that over the course of some time period.

Got it. So at this point, when you monetize -- this is too nitpicky, but when you monetize half of that, that's the only thing that you mark-to-market under the...

Yes. That's the current thinking right now. The accountants are looking at it because this is new, but the current thinking would be naturally mark up the part that you could sell. The remaining stake, the accountants are still working on.

Understood. And you told me earlier you don't -- you generate more capital than you know what to do with -- what are you going to do with this?

Well, it will be more capital. I knew you were going to go there. So it will be some more capital and allow us some more flexibility to be used in all the ways that you would think about.

We have a couple of minutes. I just wanted to open up the room to see if there are any questions in the audience. If there are any questions, raise your hands.

Just curious if you believe that you could do a transaction like that today based on the current OCC and other regulatory guidance? Or if you feel as though that's something that might require a change of administration.

Yes. So everybody hear that question. If you think the -- it's a good question. Thanks for asking about it. The short answer is, we think should an opportunity arise for us of what I was talking about, we think that there would be a large degree of regulatory support under the current setup. And talking to the regulators, they would be supportive of what they would call a good merger and a good merger means a competent acquirer that meets all of the requirements in terms of that. We were actually with the OCC last week, and I asked about Michael Hsu. I asked him point blank, I said, "Hey, you put out this -- these were my words, not his -- this no brainer, no brainer approval, which were pretty small." Those weren't the word he used, but he nodded his head. And I said, and some people thought maybe that meant that you're anti anything larger than that. And he said, straight up, that's not what I said. Those are not my words. He said, everybody wants a green light or a red light, but we don't do it that way, we use a measuring stick. And if the measuring stick works, it's good. And if it doesn't, obviously, we won't approve it. So I think with the right acquisition and doing all the things like we did with BBVA, I think it would -- we'd be optimistic about that.

And just given what happened with one of the acquisitions of TD, First Horizon last year, do you think it makes sellers a lot more apprehensive of putting their franchise at risk waiting for 12 months to see whether or not the regulators approve the deal. Is that...

All eyes will be on this, of course, in terms of seeing that, so, including ours. So we'll see how it plays out.

Any other questions? If not, I have a last question for you. So I think just speaking to investors, I mean, obviously, your stock trades at a premium deservedly. Just talk to us in terms of -- in your seat, the investment thesis, how you think about P&C and the attractiveness of the investment proposition?

Yes. I think a couple of things to think about. One is we're really well positioned in terms of our balance sheet, and that played out through all of gyrations in terms of '23. We're in the right position. We've got the right flexibility. We've got plenty of capital. We've got plenty of liquidity. There aren't any rules that are really in our way. And we could talk more about some of that recalibration, but there's nothing in our way and there are some things that could actually benefit us. So that's good. That's good to have. Not everybody has that. And then I think you just take a look in terms of the opportunity that we've got with these growth markets. We've been very, very successful, very successful over a large number of years in terms of our model, our business approach in our legacy in more mature markets. We've never operated that model in high-growth markets like Texas, like Colorado, like the Southwest in terms of the United States. So the ability to do what we do, which isn't super fancy, it's big but it's is not super fancy. And the only thing that you change in terms of the variable is some tailwinds in terms of the growth dynamics of where you're doing it, is substantial, particularly when you compound that over a number of years as you build out that franchise.

And I think investors with this thresholds around $100 billion, $700 billion, is $700 billion -- just talk about like preparedness of the bank?

Yes, I don't -- that's not an issue. That used to be -- in terms of tailoring, we're a Category 3 banks, so they had a category 2 bank, the $700 billion, are there any issues? And the biggest issue for us was if we had gotten to that point was the inclusion of AOCI into our capital ratio. So we've told our Board, Category 2 came to us. So -- and then that sort of gets to the issue, too, in terms of this -- where we were talking about the regulatory tailoring diminishing.

Is the opposite of Christmas coming earlier, I guess.

Yes, right. Yes. That's right, Ebrahim.

We are out of time. On that note, Rob, thank you so much.

Very good. Thank you. Great being with you this morning.