Good morning, and welcome to KeyCorp's Third Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to the Chairman and CEO, Chris Gorman. Please go ahead. Well, thank you for joining us for KeyCorp's Third Quarter 2022 Earnings Conference Call. Joining me on the call today are Don Kimble, our Chief Financial Officer, Clark Khayat, our Chief Strategy Officer, and Mark Midkiff, our Chief Risk Officer. On slide two, you will find our statement on forward-looking disclosure and non-GAAP financial measures. It covers our presentation materials and comments as well as the question- and- answer segment of our call. I am now moving to slide three. This morning, we reported earnings of $513 million, or $0.55 per common share. Our results included $0.06 per share of additional loan loss provision in excess of net charge-offs. Revenue was up 5% relative to the second quarter, driven by higher net interest income with a 13 basis point increase in our net interest margin. One thing that sets Key apart is our approach to managing interest rate risk. We have been very deliberate and intentional in managing with a long-term perspective. While our net interest income is expected to be up double digits this year, our balance sheet positioning presents a unique and significant upside for Key over the next two years. Even in the event that rates remain at current levels, we will experience a meaningful benefit as our securities and swaps reprice. If we were to reprice our existing short-term treasuries and swaps at today's interest rates, we would have an annualized net interest income benefit of over $1.2 billion. Our balance sheet benefits from our strong, stable deposit base. Approximately 60% of our deposits are in stable, low-cost retail and escrow balances. In our commercial businesses, approximately 85% of our deposits are from core operating accounts. We grew our loans again this quarter as we continue to add and expand relationships with our targeted clients. Our growth came from both our commercial and our consumer businesses. We remain diligent in our underwriting practices and have walked away from business that does not meet our moderate risk profile. Our fee-based businesses continue to reflect current market conditions. Investment banking and debt placement fees were up $5 million from the prior quarter, but down meaningfully from the year ago period, reflecting the slowdown in the capital markets. The new issue equity market is virtually nonexistent, and the M&A market is currently engaged in price discovery. Our pipelines remain solid, particularly in M&A. However, the pull-through rate continues to be adversely impacted by market uncertainty. We continue to see more activity moving onto our balance sheet. In the third quarter, we raised a record $39 billion for our clients, of which 23% was retained on our balance sheet, well above our long-term average of 18%. We will continue to do what is best for our clients, including offering on and off-balance sheet solutions. Importantly, we continue to make progress with respect to our targeted scale sectors, which are not only high-growth opportunities for Key, but areas that matter to both our country and our economy. We have made a conscious decision to invest and focus our resources in certain vital growing sectors, including healthcare, renewable energy, and affordable housing that impact both our clients and our communities. Both renewable energy and affordable housing are areas of investment in recently passed federal legislation. Combined, the Inflation Reduction Act and the Bipartisan Infrastructure Bill have allocated over $300 billion for energy transition. In healthcare, we are growing relationships with significant healthcare providers and expanding our Laurel Road business, including our recent market extension to include nurses. We are also very pleased with the early results from our May 2022 acquisition of GradFin. Since the GradFin team joined Key, they have held over 14,000 individual consultations for refinance and public service loan forgiveness. These consultations are with pre-qualified, credentialed prospects, all new to Key. Our expenses continue to reflect our investments in our teammates, digital and analytics. We continue to balance expense discipline with investments for the future. Credit quality remained strong this quarter with net charge-offs as a percentage of average loans of 15 basis points. Non-performing loans declined from the prior quarter. We remain committed to delivering sound, profitable growth by maintaining our discipline with respect to risk. We will continue to support our clients while maintaining our moderate risk profile, which positions the company to perform well through all business cycles. Our capital remains a strength, providing us with sufficient capacity to support our clients and return capital to our shareholders. Our fourth quarter guidance keeps us on a path to deliver positive operating leverage again in 2022 and concurrently make progress against each of our long-term goals. We also continue to make tangible progress against the three commitments we announced earlier this year at our Investor Day. These goals for 2025 are as follows. Growing relationship households in our consumer business by 20%, growing our senior bankers by 25%, and growing our Laurel Road member households to 250,000 from 50,000. We are on pace to achieve all three measures. We have grown consumer households and Laurel Road members, as well as the number of our senior bankers. Although, our senior banker hires have been slower in the back half of this year, reflecting current market conditions. Overall, Key delivered another solid quarter. I remain confident in our future and our ability to create value for all of our stakeholders. With that, I will turn it over to Don to provide more details on the results of the quarter and our outlook. Don? Thanks, Chris. I'm now on slide five. For the third quarter, net income from continuing operations was $0.55 per common share, up $0.01 from the prior quarter and down $0.10 from last year. Our results in the current quarter reflect strong core operating performance and the resiliency of our business model as we continue to navigate through the current market conditions. Pre-provision net revenues was up 9% from the second quarter, with a 5% increase in revenue driven by loan growth and by the way that we positioned our balance sheet to benefit from higher interest rates. Our results also reflect our ongoing focus on expense management and our strong risk profile. Turning to slide six. Average loans for the quarter were $114 billion, up 14% from the year ago period and up 5% from the prior quarter. We continued to add and deepen client relationships across our franchise, which drove loan growth in both our commercial and consumer businesses. Commercial loans increased 5% from last quarter, reflecting broad-based growth across our industry verticals. Our consumer business continued with its strong performance as we saw residential real estate originations of $1.9 billion. Consistent with our focus on healthcare segment, 30% of our consumer mortgage originations were to healthcare professionals. Laurel Road originated approximately $200 million of loans this quarter, reflecting the ongoing federal student loan payment holiday, as well as the impact of interest rates. Continuing on to slide seven. Average deposits totaled $144 billion for the third quarter of 2022, down $3 billion or 2% compared to both the prior quarter and the year-ago period. Year-over-year, we saw a decline in non-operating commercial deposit balances, partially offset by an increase in retail deposits. The decline from the prior quarter reflected lower commercial and consumer balances. Both areas were impacted by a reduction in stimulus-related funds. Interest-bearing deposit costs increased 17 basis points from the prior quarter. This resulted in a cumulative deposit beta of 9%. We continue to have a strong, stable core deposit base, with consumer deposits accounting for approximately 60% of our total deposit mix. In addition, 85% of our commercial deposits are from core operating accounts. Turning to slide eight. Taxable equivalent net interest income was $1.2 billion for the third quarter, compared to $1.0 billion in the year-ago quarter and $1.1 billion in the prior quarter. Our net interest margin was 2.74% for the third quarter, compared to 2.47% for the same period last year and 2.61% for the prior quarter. Year-over-year, net interest income benefited from higher earning asset balances and a favorable balance sheet mix, as well as the benefit of higher interest rates. Quarter-over-quarter, net interest income and margin benefited from higher interest rates and loan growth, partially offset by higher interest-bearing deposit costs. Both net interest income and net interest margin reflect lower loan fees related to PPP loan forgiveness, as well as the impact of the sale of our indirect auto portfolio in the third quarter of 2021. Included in the appendix is additional detail on our investment portfolio and asset/liability positioning. As Chris mentioned, we have intentionally positioned Key to continue to benefit from higher interest rates over the next few years. For example, if we were to reprice our existing $9 billion in short-term treasuries and $26 billion of swaps to today's interest rates, we would have an annualized net interest income benefit of over $1.2 billion. This positions us to continue to grow net interest income and the net interest margin over each of the next few years, even if rates do not increase. Moving to slide nine. Non-interest income was $683 million for the third quarter of 2022, compared to $797 million for the year-ago period and $688 million in the second quarter. Our fee businesses continue to be impacted by the slowdown in capital markets. Investment banking and debt placement fees were $154 million for the quarter, up $5 million from last quarter, but down $81 million year-over-year. Compared to last year, in addition to lower investment banking fees, cards and payments income was $20 million lower, driven by lower prepaid card revenue, which was partially offset by core growth. Consumer mortgage income was also lower, reflecting lower gain on sale margins. Strength in corporate services income from higher derivatives income partially offset these declines. Quarter-over-quarter, fees were down $5 million. Trust and investment services income declined, reflecting lower commercial brokerage commissions. Operating lease income was lower due to lease terminations in the quarter. Increases in cards and payments income and the $5 million increase in investment banking fees partially offset these declines. Despite the increase in other income, this line also reflects a $9 million reduction related to the Visa litigation settlement. This quarter, we also reclassified certain customer-related derivative income items from our other income line to corporate services income. This change was reflected in the current period, as well as reclassified in prior periods for comparability. I'm now on slide 10. Total non-interest expense for the quarter was $1.1 billion, relatively stable with last year and up $28 million from last quarter. Our expenses reflect our ongoing investments in digital, analytics, and our teammates. Compared to the year ago quarter, our expenses are down $6 million. We saw declines across most non-personnel line items, including business services and professional fees. Higher personnel costs partially offset these declines related to an increase in salaries expense. This increase included $8 million of lower deferred costs from slower loan originations and $10 million of higher contract labor related to technology initiatives. Compared to the prior quarter, non-interest expense is up $28 million. Higher personnel costs drove this increase. This increase was caused by higher salaries related to seasonal staffing and $10 million of lower deferred costs from slower loan originations. In addition, higher incentive and stock-based compensation was driven by a $12 million increase related to the relative stock price change on incentive compensation. Partially offsetting these increases were declines across most non-personnel line items, including occupancy and business services and professional fees. Now moving on to slide 11. Overall credit quality remains strong. For the third quarter, net charge-offs were $43 million or 15 basis points of average loans. Non-performing loans were $390 million this quarter or 34 basis points of period-end loans, a decline of $39 million from the prior quarter. We did see a very slight increase in our 30- to 89-day delinquencies in criticized loans this quarter, although both remain near historic lows. Our provision for credit losses was $109 million for the quarter, up from $45 million in the second quarter and exceeding net charge-offs by $66 million. The increase in the provision was driven by the change in the economic outlook. Now on to slide 12. We ended the third quarter with a Common Equity Tier 1 ratio of 9.1% within our targeted range of 9%-9.5%. This provides us with sufficient capacity to continue to support our customers and their borrowing needs and return capital to our shareholders. We will continue to manage our capital consistent with our capital priorities of, first, supporting organic growth of our businesses. Second, paying dividends. As we've mentioned before, our Board of Directors will evaluate a dividend increase in the fourth quarter. Third, repurchasing shares. During the quarter, our Board of Directors approved an extension of our share repurchase authorization of $790 million, which is now in place through the third quarter of 2023. We did not complete any share repurchases in the current period. As we have in prior years, we have updated slide 13 to show our fourth quarter outlook relative to our third quarter results. Using the midpoint of our guidance ranges would support Chris's comments about delivering another year of positive operating leverage in 2022. We expect average loans will be up between 2% and 4% and average deposits up 1%-3%. Net interest income is expected to be up 4%-6%, reflecting growth in average loan balances and higher interest rates. Our guidance is based on the forward curve, assuming a Fed funds rate of 4.25% by the end of 2022. Non-interest income is expected to be up 1%-3%. This reflects an expected seasonal pickup in investment banking and debt placement fees, but we would expect the fourth quarter of 2022 to be well below the fourth quarter 2021 results. This also accounts for the implementation of our no-new NSF OD fee structure, which will decrease service charges on deposit accounts by approximately $25 million this quarter. The higher interest rate environment will also impact the earnings credit in our commercial businesses and is expected to further pressure this line item. We expect non-interest expense to be up between 1% and 3% for the fourth quarter, reflecting higher incentive compensation relative to fee production, as well as $20 million of one-time charges in the fourth quarter, including a pension settlement charge, which will flow through other expense. For the quarter, we expect credit quality to remain strong and net charge-offs to be at the lower end of our 15-25 basis point range. Our guidance for the GAAP tax rate remains the same at approximately 19%. Finally, shown at the bottom of the slide are our long-term targets, which remain unchanged. We expect to continue to make progress on these targets by maintaining our moderate risk profile and improving our productivity and efficiency, which will drive returns. Overall, it was a solid quarter, and we remain confident in our ability to grow and deliver on our commitments. With that, I'll now turn the call back over to the operator for instructions to the Q&A portion of our call. Operator? Ladies and gentlemen, if you would like to ask a question, please press one, then zero on your telephone keypad. You will hear acknowledgment that your line has been placed into queue. If you wish to remove yourself from the queue, you may repeat the one-zero command. One moment please for the first question. Our first question is from Steve Alexopoulos with JP Morgan. Please go ahead. Morning, everybody. Morning. You changed your name, Steve? Yeah, I want to start on the deposit side. If we look at the $4 billion decline in the non-interest-bearing deposits, you're appropriately calling out the decline in non-operating deposits. If you look at the $47 billion where you ended the quarter, how much of that is still non-operational and at risk to see outflows? I would say that at the end of the quarter when we look at our commercial balances, it's still in that 85% range. We do believe that part of that decline, to be honest, is that we were a little stingy on some of our deposit rates and it's part of our outlook for the fourth quarter of showing deposits increase. We really have two factors. One is seasonal changes, and then also two is to use some of that deposit beta and maybe retain or attract additional customer relationships that are non-operating. Okay. That's helpful commentary, Don. Follow-up. If we look at the interest-bearing deposit costs at only 25 basis points and the three-month T-bill is now at 4%, why aren't deposit costs going to materially ramp in the quarters ahead for you guys or really for everybody? I know that historically retail was sleepy, right? The money didn't move, but it's a different era today. What gives you confidence that you could continue to see NIM expansion, which you clearly are signaling with the commentary around treasuries and swaps. Can you really flesh that out for us? Thanks. Steve, it's Chris. A couple things. One, when we were awash in liquidity, we were pretty disciplined about what deposits we kept and what deposits we pushed out. Our starting point is a bit differentiated from where it's been in other cycles. The other thing to keep in mind is that 65% or 60% of our deposits are both consumer deposits and our escrow business, which has significant deposits. We've been really focused on. Our pillars have been focused on four things, one of which has been primacy for some time. I think we're in a little bit different position than we've ever been in as the cycle changes. What we're seeing is that our cumulative beta is 9% through the first three quarters. We think our cumulative beta will be 15% for the year. We're projecting an endpoint on a spot basis of just above 30%. We are anticipating a fairly significant ramp, but not the kind of experience that we've had before based on all the work we did prior to the rise in interest rates. Okay. Is it safe to say most banks are guiding that NIMs are going to peak in the first half of next year and then trend down the second half? Are you guys confident you'll see NIM expansion through 2023? Thanks. We'll provide more on the 2023 outlook in January. You're right. As we look at how we're positioned with the benefit that Chris and I both referred to as far as just the short-term swaps and the short-term treasuries and those rollovers, that we do believe that we're going to grow net interest income and margin even beyond that first half of 2023. Even with this increased deposit beta. That was intentional on our part to have more of a long-term focus as far as how we manage interest rate risk. We think that while it's costing us a little bit on a relative basis now, we think that we'll be recouping that throughout the later periods of 2023 and 2024. Okay. Thanks for all the color. Thank you. Next we go to the line of Erika Najarian with UBS. Please go ahead. Hi. Good morning. Good morning, Erika. You know, you mentioned, Chris, the $1.2 billion benefit over time, you know, early on in your prepared remarks. And Don, you mentioned it again. I guess let me ask the question. You know, number one, your C&I loan beta was 53% this quarter. You know, is that essentially the impact from the swaps? And should we expect a similar loan beta as the Fed continues to raise rates? And as we think about that $1.2 billion benefit coming back, how much of that is, you know, coming from the swap book versus the securities book? And over what period of time do you realize that $1.2 billion back into your net interest income? Sure. Maybe I can go ahead and take a crack at that, Erika. I don't have it broken out for C&I, but for total commercial, the swap impact for commercial yields cost us 43 basis points on a linked quarter basis. Instead of the increase that you're seeing for commercial yields that just the actual loan itself would have translated to 116 basis point increase. I think that could be much more consistent with what you might be seeing for some others that don't have that hedge impact. This quarter, we did see that kind of relative change on that category as far as the impact from swaps. As far as that $1.2 billion, it really relates to the swap book and the maturities and also the short-term treasuries. Those treasuries, which total about $9 billion, really mature throughout late 2023 and throughout 2024. The swap book between now and the end of 2023, we've got $7.3 billion of swap maturities and another $7.5 billion in 2024. If we just look at that time period for the next two years and using that same math as far as the repricing, we'll have $900 million of that $2 billion annualized net income pickup occur in that two-year time period. $1.2 billion. Of the $1.2 billion. I'm sorry, yes. The $900 million out of the $1.2 billion occur in that two-year time period. Got it. My follow-up question is on expenses. I think that, you know, Key has always been very good at managing expenses, particularly relative to fees. I think that, it probably surprised the street in terms of the, you know, the personnel costs relative to, you know, what happened on the fee side, especially. I'm wondering, given that you called out, you know, some of, you know, the $12 million and the $10 million in your slides, how should we think about the $655 million going forward? I guess my other question, and I'm sorry I'm not getting this out quickly, is, you know, is this just, you know, something that, you know, even though the capital markets remain dislocated, you know, inflation and the competition for talent will continue to push this up, pressure this upward? A couple things. One, our expenses were higher than what we had guided to for this quarter and for the second half of the year. If you look at the components of what drove that change, and I'll get to your question as part of this, is that there are three items that really caused our outlook for all of 2022 to be higher than what we previously expected. One is more one-time items. We've got a pension settlement loss projected in the fourth quarter and also some branch consolidation, or building consolidation type of costs associated with that. Those two combined to $20 million. Outside of personnel, but within our operating losses, during the second quarter, we were seeing our operating losses from the prepaid card by-product come down through the second quarter. We expected that to continue through the third and fourth quarter. What we actually saw was those costs actually go up. It wasn't a huge increase, but compared to what our relative positioning was and the expectation was for that category, it's about a $30 million increase for the second half of the year, expense structure for us. The good thing about that is that we have taken action to address that, and we'll start to see that over time. The other good thing is that it has a limited life to it. These are related to funds that were distributed as part of the stimulus programs and they're winding down. We don't think that will have an ongoing impact to us. The third component, Erika, really is deferred loan origination costs. That cost is about $20 million, and most of that is with our reset of our consumer loan originations and the cost that gets deferred associated with that. We will see increases from that continue for some time period because we're not seeing a return of the previous origination levels. That will be there. For the fourth quarter, we expect to see our capital markets revenues pick up. As we've said before, the incentive compensation expense tends to be correlated to the tune of about 0.30 on the dollar. For every dollar of investment banking and debt placement fee increase, we will see that come through incentives. As far as where we see for other salary and personnel costs, I would say just looking at the year-over-year, adjusting for some of these items I talked about for the deferred loan origination costs and things, our total salary dollars are up about 10% and head count is up about 5%. Now, some of that includes some of the smaller acquisitions we've done throughout the year. That does imply a 4%-5% inflationary impact for some of the salaries. Some of that is because of the lower end of the pay scale continue to have increases. Some of it's market pressure. We'll be working through that as we set our expectation for merit increases for 2023 and beyond. I think that the important thing here, Erika, also is that we're very focused on driving positive operating leverage. We expect to do that this year and we haven't given guidance for 2023 or beyond yet, but we expect to continue that through the next several years as well. Thank you. Thank you. Next, we go to John Pancari with Evercore. Please go ahead. Morning. Good morning. Related to your last comment there on the operating leverage. I mean, your cash efficiency ratio is running at about 60% year- to- date. Just wondering how you could help us think how you're thinking about that for 2023. If not, maybe if you could help us with the magnitude of positive operating leverage that we could see in 2023. Then separately, your long-term target, you maintain that at 54-56. How should we think about what you need to see to be able to achieve that level? Thanks. John, it's Chris. Good morning. I think our efficiency ratio for the quarter we just printed was right around 58%. You know, we do aspire to get to 54%-56%, but as Don mentioned, what we're really focused on is positive operating leverage. If you think about our capital markets business coming back, if you think about some of the many investments that we continue to make coming to fruition, and you think about the trajectory that Don described from an NII perspective, obviously that continues to move us toward that long-term target that you referenced of 54%-56%. Okay. All right. Thanks, Chris. Separately, in terms of deposit growth expectations, I appreciate the color you gave near term. Wanted to just get a little bit of color on how you think about deposit growth as you look into 2023. You know, maybe if you could talk about the mix shift of non-interest bearing towards interest bearing and then overall growth levels. Do you think incremental declines are possible as we look into the early part of 2023? Thanks. Well, I mean, we're really kind of going into a bit of uncharted territory. I will tell you this, though, we have been pretty consistent in that our non-interest bearing have been right around 32%, and that hasn't moved, and I don't anticipate that moving a lot as we go forward. As I mentioned earlier, this deposit book has been pretty well scrubbed over a period of time. Having said all that, as interest rates continue to rise, some deposits that previously were deemed to be not interest rate sensitive will in fact be interest rate sensitive. We saw some of that movement in the third quarter where some of our public sector customers that are more interest rate sensitive moved. We're obviously watching it very closely, and it's certainly an interesting dynamic, particularly as the Fed unwinds their balance sheet concurrently. Okay, thanks for taking my question. Next, we go to the line of Gerard Cassidy with RBC. Please go ahead. Morning, Chris. Morning, Don. Good morning. Good morning, Gerard. Chris, you talked about the strength in the commercial and industrial loan growth, and you've taken on more of your originations than you have in the past as more of your customers are coming onto your balance sheet rather than going to the capital markets. A couple questions. One, can you share with us what percentage of that portfolio is considered leveraged loans? And then also in that same kind of vein, how big is your syndicated loan portfolio, and did that impact you know the growth this quarter? A couple things. Our leverage book, Gerard, has been pretty consistent at about 2.5% of total loans. What's interesting about that is it's been 2.5% even when we were a much smaller company. That portfolio has a lot of velocity. It's in the segments in which we focus. You know, there's been some talk about some of the deals that are hung lately. We've just had just a de minimis mark over the last six months in that book. We feel really, really good about that. Most of the growth that you're seeing conversely is really an investment-grade credit. The market was dislocated enough, and our clients were trying to do things in an expeditious manner, and we have really grown the percentage of our C&I book that's investment grade as we brought more onto the balance sheet. Right now, our C&I book is about 50% investment grade, which is a bit of an outlier for a bank of our size. When you underwrite the new originations, do you guys, I assume you always do this, but are you stressing it for, you know, 200 or 300 basis points higher rates just so that you're protected if rates are to go quite a bit higher from here? For sure. I mean, our first stress that we always run is actually 300 basis points, and we run a lot of other stresses. When you get into anything that's leveraged, we stress EBITDA, and we stress interest rates because that's the danger of anything that's leveraged, is you have the concurrent decline of EBITDA and the increase in borrowing costs. We do a lot of stressing with respect to those credits. Very good. As a follow-up question, your credit quality obviously is superb like many of your peers, and I know that's going to be a defining moment for you folks through the cycle. The question I have is on the consumer loan portfolio with the FICO scores. I think you showed it averages out to 772. Have you guys seen anything where these FICO scores, if you compare them to five years ago, they are inflated, or is that really not the case? There's been some chatter that, you know, FICO scores, like I think college grades, have been inflated. Are you guys seeing anything where these FICO scores, if you compare them to five years ago, they are inflated, or is that really not the case? I haven't personally done the analysis, but just because we look at this stuff all the time, I think there's probably a lot of, like, they teach the SAT. I think there's some instruction on how to get your FICO score up. Having said that, if you think about the super prime customers that we're focused on, doctors, dentists, which for example, were 30% of our mortgage originations last quarter, we feel really good about our consumer book as we look kind of across all the metrics. Gerard, you're right. There actually was some technical change in some of the FICO scores. I don't know if it was by law or what, but they had to exclude certain, I think it was medical related, costs or loans or expenses. If you would adjust for that, I think that today's FICO score is probably 10-15 basis points higher than the same would be several years ago. Instead of our 772, it might be a 760, which is still super prime, even on historic standards. Very good. Thank you, Don. Thank you, Chris. Thanks, Gerard. Next, we go to the line of Ebrahim Poonawala with Bank of America. Please go ahead. Good morning. Good morning. Morning, Ebrahim. I guess, Don, just wanted to follow up on the swap and the treasury securities portfolio. I get in terms of how this should help, NII. That's obviously assuming that rates stay high for the next 12-18 months. Is there anything that you plan to do ahead of time to lock in that upside? Or just give us a sense of because what I worry is if we get through the next three-six months, rates slow lower, do we start losing some of that benefit, that you would have otherwise had? Is there a way that you expect to lock that in ahead of time? We're continuing to review that on a regular basis. I would say that our ALCO committee, as we get together, we tend to think that we're gonna see rates higher for longer, just given what we've experienced in the current marketplace. Even with that, you've seen a little bit of a tick up again as far as our forward starting swaps, and that's exactly the purpose of that, Ebrahim, is that we're looking to put on swaps that actually kick in as some of these will mature and start to lock in some of that forward benefit for us as well. We're not ready to do a wholesale type of repositioning to achieve that. We do expect to continue to use that tool over the next several quarters to help lock in some of that benefit. That's fair. I guess just on a separate question, following up on credit, less to do with your portfolio, but you have a lens into sort of the middle market commercial CRE. Like, how stressed do you expect that customer base? Are you seeing areas where you've kind of pulled back given the rapid rise in Fed interest rates and what we're seeing in the markets in terms of spread widening? Like, what are the areas where you're seeing pain, where you pulled back as a bank, and where do you like, do you actually start seeing a 4%-4.5% Fed funds as more certainly creating pressure for a subset of that segment? Sure. I'll take that one. Clearly, I mean, last year our view for some time has been that inflation would be persistent and that rates would have to be higher for longer. If you go back to a year ago in September, when we exited indirect auto $3.3 billion portfolio, that was an area that we thought, and I still believe will be under intense stress in the market that we're entering. The other thing that I always look for is any place that there's leverage. Gerard Cassidy had just asked a question about leveraged loans. That's an area that we pay a lot of attention to. Another area that we pay a lot of attention to is just real estate broadly. By strategy, we're focused on apartments, multifamily and industrial. Interestingly, those values are up significantly from pre-pandemic levels, respectively 15% and 39%. The other area where I think that there's gonna be a lot of dislocation is in office, particularly B and C class office because those buildings are leveraged, and obviously people have changed the way they work. That's not a business that we're in in any significant way, although we do have a $600 billion third-party commercial loan servicing portfolio, which is debt that's off us. Now the second largest category below retail, where you would expect that's starting to go into active special servicing are these B and C class offices in central business districts. Those are a few of the places that I'd bring to your attention. Just on the office, do you think it's a cliff event just given the nature of the leases, or is it gonna be more like what we've seen with big box retail malls, where it's played out over the last decade as opposed to in any given quarter or any given year? Yeah. I think I don't think it's a cliff event. I think it's a slow burn because if you think about these B and C class office space, they have many, many tenants with varying termination dates on their leases. I think it will be, I think it'll be a slow but consistent burn. Thanks for taking my questions. Sure. Next, we go to the line of Scott Siefers with Piper Sandler. Please go ahead. Morning, guys. Thanks for taking the question. Maybe, Chris, I was hoping you could sort of walk through, you know, the investment banking pipelines and pull through. You know, I think we can all see what's happening in the industry. You know, some companies are noting that, you know, there's still enough activity taking place at sort of the smaller end of the segment, you know, middle market and below that it's keeping sort of activity going, enough to prop up numbers. You know, where are you seeing healthier activity versus what's still slow? Just given your background, you know, do you think there's a point where we will say, you know, get price discovery and then increased activity despite higher rates and a weaker economic backdrop? I do. Where the activity is has remained strong, and we had a very good quarter in areas like syndicated finance. That area continues to be strong. The areas that are really challenged are the public equity market. That's a market unlike the debt market, where it's binary. Either you can issue equity or you can't, basically, and right now you clearly can't. The M&A markets, I'm confident will come back. We are involved in a lot of these strategic discussions. What's happening, Scott, is if you're a buyer, you basically have sort of a free option. There's no huge impetus to close. Everyone is looking out over the horizon and predicting a downturn. If you have a deal locked up, you sort of drag your feet and wait and see, you know, what the downturn's gonna look like. Our pipelines remain strong in that business. We continue to selectively hire people. It will come back. I don't think it's gonna come back. I don't see any significant market change in the fourth quarter, by the way, but I do think that the business will come back. Having said that, I've been doing this for a long time. There's an inverse relationship between the amount of time you've been working on the deal and the probability that it's actually gonna close. I throw that out as a watch point. Perfect. Okay. That's good color. Thank you. Maybe, Don, you know, there's this notion of AOCI marks and the tangible book and TCE hits has gotten a lot more attention. A lot of companies have begun to move, you know, pretty substantial amounts of their securities portfolios to held to maturity. You know, so in a sense, you can sort of make the TCE tangible book issue go away with the, you know, the wave of a hand, so to speak. Maybe just some thoughts on, you know, why you guys are keeping mostly available for sale. To what degree does TCE matter in your eyes? You know, does it govern any of your capital management thinking or things like that? Sure. That, as we look at our future security purchases, we're starting to put a portion of those into held maturity, whereas it used to be primarily only into the available for sale. We're just separating some where we might wanna have bullet maturities, where we can do some end of life type of swaps attached to it that we need to keep those in available for sale as opposed to move them into a held maturity. Mm-hmm. The TCE ratio isn't a high priority for us. Our main capital ratio that we focus on is the Common Equity Tier 1 ratio and some of the other regulatory ratios, whether it's Tier 1 or total. That's why you saw us take action in the third quarter with a preferred stock issuance and also a sub-debt issuance. We feel very good about how we're positioned across that capital spectrum. The other thing to think about too, as far as the TCE ratio, if you would just back out the AOCI impact for TCE, that would take our ratio up by 330 basis points. On that adjusted basis, which will all come back over time because we don't have risk of those investments not being paid off, because they're all agencies or U.S. Treasuries, we're gonna see that realized. That's more of the area of focus for us as well. Perfect. Okay, good. Thank you guys for taking the questions. Thank you. Next, we go to the line of Matt O'Connor with Deutsche Bank. Please go ahead. Good morning. Just wondering what you're seeing in loan pricing trends, specifically in commercial. Obviously, the absolute yield is going up because of higher rates, but are you seeing any improvement in spreads given we see widening in the marketplace in public markets that is? That's a great question, Matt. What's ironic about this is to date, what we've seen is credit spreads widen out for the investment grade companies that we serve, and because they're seeing that in the capital markets. For the middle market space, because of the competition there tends to be more local, we haven't seen the commercial spreads widen that much yet. We would expect that to pick up over time here, but near term, spreads are holding in but not expanding on the commercial for the lower middle market customers. Any way to quantify on the investment grade? As you mentioned, you're overweight investment grade versus others, so that's probably a positive for you. Well, it is for us. I would say that on the credit spread widening, we've probably seen a good 20 basis points of widening generally on pricing reflective of credit spreads in the market. Okay. Thank you very much. Uh-huh. Next, we have a question from Mike Mayo with Wells Fargo Securities. Please go ahead. Hi. One negative, one positive. The negative is, you know, the personnel expense, you know, up so much quarter-over-quarter, and I get, you know, one-time items, you know, 8% just versus. It's just how the one-time items seem to repeat, and therefore, maybe they aren't so one time. I mean, I guess you said fourth quarter might have some more. Next year, do you expect more one-time items? Or when do we get more core expense numbers? Because that seemed to come in a little higher than expected. On the positive side, as far as your outlook for NII and the NIM, I mean, your NIM of 2.7%, a decade ago, it was close to 3.7%. Conceptually, you know, we've had almost 14 years of zero interest rates, and now that we're getting out of that, could you potentially get all the way back to 3.7%? Or what are some of the ins and outs since the global financial crisis that could help or hurt that? Sure. As far as personnel, a couple of things that we've talked about as being one time or just different. One is the pension settlement loss that we'll have in the fourth quarter. The good thing there is that with rates being higher, the threshold is higher for us to be in a position to have to realize losses in the future. We do think this truly is more one time. As long as rates remain where they're at or even go a little higher, we shouldn't see that come through as far as a charge. The one thing that you will see, Mike, is that a good portion of our long-term incentive compensation is tied to our stock price. We want our employees to be shareholders and have a consistent objective to what our shareholders have as well. Part of that incentive compensation expense does fluctuate from time to time with our share price. Our expectation and hope is that we'll see our share price increase. From that, you will see the incentive compensation expense increase with that as well. Beyond that, Mike, I would say for the current quarter versus a year ago, as I mentioned before, the core salary line item is up about 10%, with about 5% of that coming from headcount-related increases. Some of that's from acquisitions we've done. We had about a 4% kind of merit increase impact to that as well throughout the year. That reflects some of the experience we had for rightsizing the lower salaries, but also the market pressure that we're seeing. Near term, I think we'll probably see a little higher than our typical 2% as far as wage inflation going forward. I think we'll see that settle down. As Chris has said, we'll continue to make investments in talent, and especially in our frontline bankers and also in the technology space to continue to grow our business. With that, we'll be holding the people accountable to making sure that we're getting the appropriate returns on those investments and showing the growth going forward. Yeah. Don, the only thing I would add to that is on the technology front, there has been a transition, which we think about full stack engineers from some contract labor to people that are part of our headcount. We just think it's important as we continue to become the digital bank that we are, that we control that talent. That's a piece of what you're seeing there, Mike. Yeah. Mike, as far as the margin expansion, I don't want people to start thinking that we're gonna be at a 3.7% margin because our risk profile is much different than what it was historically. So it is relationship based, but we do see significant growth from that. One, just a simple math for that would be us taking a look at our full year net interest income. If you just layered on top of that, the $1.2 billion that we've talked about for the repricing of the swaps and the treasuries, that clearly gets you into the mid-3s% and maybe not to the 3.7% range, but we would see some meaningful lift from here if the rates play out with this kind of environment. Just one follow-up on that comment about technology. Less consultants and more full-time tech employees so that you can better control your tech destiny. Is that the idea of this? What was the tipping point for that change? The tipping point was, as we were in the pandemic, and everybody was short on talent, we were getting more turnover from some of our contractors than frankly we wanted to get. We wanted to be able to literally have the continuity, and we wanted to drive our strategy in a consistent way with leadership. We made the decision in certain areas to dial back contract labor and to hire in, you know, what I say is full stack engineers. The nice thing is with some of the acquisitions we've made, Mike, we have the kind of leaders that can attract the kind of people onto our platform that we want as we go to the next level. All right. Thank you. Thank you. Thank you. Our next question is from Ken Usdin with Jefferies. Please go ahead. Thanks a lot. Good morning. Don, just one more follow-up on the balance sheet mix. The securities portfolio has been hanging around $50 billion. Just wanna understand with that plan runoff and that good slide you have in the back about the maturities, do you expect to keep the securities portfolio around this size from here? You know, just on trying to understand how that, you know, that gets funded incrementally given that you're still expecting decent loan growth. Yeah. There's really two pieces of our investment portfolio. One is the core book, which is about $40 billion, and the other is the U.S. Treasuries, which are about $9 billion. I think near term our outlook would suggest that we think that core portfolio will hang in there around the $40 billion level. We think that's appropriate just from a liquidity perspective and a balance sheet mix. For the U.S. Treasury portion of the portfolio, we'll make some assessments as that maturities or those maturities come through. We'll get the benefit whether we use that for future funding or we just go ahead and roll that into the core portfolio. Yet to be determined how that plays out, but I would say that there's probably less certainty on that $9 billion short-term treasury portfolio. Just following on to that then. Does the $1.2 benefit contemplate like any type of delta in sizing of both the securities book and the overall swaps book as you get to those out years? The swap book assumes that it would stay the same. Then on the treasury portfolio, it has either the assumed impact of rolling that over into more one-year treasuries or using that for funding. It's the same net bottom line impact at this point in time. Okay. Sorry, one more follow-up. Just, do you have an understanding or can you help us understand just when, you know, the near term swaps, the detriment just from the natural higher rates kind of gets to its bottom and then you start to get this, that, you know, that incremental benefit, you know, rate of change starts to happen? I guess it sounds like that's in next year, but do you have an understanding of kind of when that pivot happens? I would say that a couple of things we'd have to know for that. When do short-term rates peak? Because that's gonna be the main driver as to when that negative impact happens for the existing portfolio. Then as we have the rollovers of that book, we'll be picking up over 300 basis points on the swaps as they would roll over. So that's that will help offset that. But it probably be sometime in 2023 that we start to see that peak and move the other direction. Okay, got it. Thanks, Don. Thank you. Our next question is from Betsy Graseck with Morgan Stanley. Please go ahead. Hi. Good morning. Good morning. Good morning. A couple of questions. One, I just wanted to understand what kind of loan growth you've got baked into your outlook and what is your expectation for how you're gonna fund that loan growth? On the loan growth front, we would not see the same trajectory of loan growth that we've experienced in the last couple of quarters. Our guidance for Q4 is 2%-4%, Betsy. We've had a lot of lift from the consumer side over the last several quarters. I don't see the same level of lift. I think you're gonna see we haven't given guidance yet for 2023, but with respect to loan growth, we're targeting 2%-4% in the fourth quarter. Just to fund that, though, our guidance for the fourth quarter is also a 1%-3% increase in our deposits. If you go through the math, it's a pretty close match there as far as the midpoints of both are around that $3 billion kind of range. We think we'll be fairly close to funding that through just the core balance sheet growth. We have used other wholesale funding to help fill that gap in the last couple of quarters, but expect it to be more core going forward. If the deposits don't come through for whatever reason, can you just give us your hierarchy of how you would go about funding it? Is it securities roll-off or you first go to the wholesale funding piece? Near term, we've been using FHLB advances and locking those into set maturities or term maturities. We would probably continue that. Then as I mentioned before, we're still yet undecided as far as the roll-off of the U.S. Treasuries when they start coming through next year and in 2024 as to how we use those proceeds. Then just lastly, I know the forward curve is looking for, you know, the Fed to be done in early 2023, but, you know, if they end up extending with the rate hike cycle going further into 2023, how should we expect that, you know, impacts the outlook here? I know you mentioned that you've got, you know, the benefit of the short term of the swaps rolling off that should help, but I'm just wondering, is there any timing that we should be considering here? I don't think there's any cliff or any events there that we still view the rates going up. We'll still have a net positive, even with deposit betas being higher than what they've been before. Then just the repricing of the swaps and Treasuries will be additive for us. So we think that we still will be able to grow net interest income and margin throughout the next couple of years, even if rates do go beyond the current outlook. Got it. Okay. Just last question, going back to the quarter in mortgage for the quarter, you know, very strong results here. I just wanted to understand, you know, what the main driver of that was and the tail, the legs on that type of increase. Thanks. Sure. For us, it was driven really by purchase. 87% of our originations were purchase, and this is a relationship-based business. 30% were medical professionals. Our refinance business, Betsy, has completely dried up. I would envision from here that purchase mortgage continues to decline in this environment as we believe we're in for a cycle that's higher for longer. Right. This is, you know, reflecting in, you know, loans that had probably started a quarter or two ago. We should expect that should tail off. Are these, you know, 30-year fixed you're putting on or 15-year, you know, ARM floaters? Can you give us a sense of the construct? It tends to be more ARMs and 15-year. We do have some 30-year fixed in some of our doctor dentist program that we've had. I'd say it's a mix of those. We would expect to see the fourth quarter origination levels be lower than what the third quarter was. It still is a core product for us and something that we had underweighted in the past. We still think there is room for some modest growth in the balance sheet there. Okay, great. Thank you. Thank you. Our final question will come from Bill Carcache with Wolfe Research. Please go ahead. Hey, good morning, Chris and Don. Good morning. I wanted to follow up on your comments around the modest increase in the reserve rate due to the economic outlook. Can you give a little bit more detail on what kind of unemployment assumption is implicit in that reserve and what you'd expect the reserve rate to go to if unemployment were to increase to, say, the 5%-5.5% range? Yeah. As far as what we use as our baseline for our CECL reserves, we tend to start with the consensus assessments from Moody's. We did see a shift in that from last year to this year. I would say that Moody's unemployment levels are using about a 4% unemployment level for 2023. I don't know off the top of my head what the impact would be of seeing that go to 5%, because we'd have to have the other components of the economic outlook. I would say that if we look at where our reserves were back at January 1, 2020, I would say that the unemployment levels and economic outlook was a little worse than what we're seeing now today. Our reserve levels there were about 10 or 15 basis points higher than what they are today for us. It's a lot of moving parts and pieces, but I think that it's not gonna be a huge change, but still would be reflective in our reserve. That's helpful. Thank you. Separately, it seems intuitive that the cohort that you're targeting with your Laurel Road products would perform relatively well in a downturn. Is there less credit history for this asset class? If so, can you give a little bit of color on the kind of data and analytics that you're using to underwrite potential customers? What's the approval rate of customers seeking a loan through Laurel Road and actually those that actually receive one? I would say that we do have data for a doctor's and dentists' programs, both on the residential mortgage side and also for student loans. That history is continuing to be built out. We are using that insight in order to inform our credit underwriting decision. I don't have the exact approval rate for loans, but you would probably assume that it's fairly high given the nature of the doctor that we're approaching who is going from, say, $80,000 a year in compensation to $300,000 + and has a firm commitment and a new assignment with a large hospital. I would assume that it could be a fairly high approval rate. Understood. Thank you for taking my questions. Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference service. You may now disconnect. Again, thank you for participating in our call today. If you have any questions, you can direct them to our Investor Relations team, 216-689-4221. Thank you again. Goodbye.