All right, perfect. Next up, we have KeyBank. Before that, I'm going to just get a disclosure out of the way. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, we're delighted to have with us today Chris Gorman, Chairman and CEO of Key, and Clark Khayat, CFO. Thanks so much for joining us.
Thanks for having us. It's quite a turnout. That's good.
It is. Yeah, investor interest has definitely been up this year. Chris, maybe to start, you know, a lot has happened this year. Can you give us an update to your, you know, longer-term investor day targets? Maybe while you speak to that, given how much the environment has changed, are you making any changes to your near and longer-term strategy?
There's a lot in there. Let me kind of unpack that. Good morning, everyone. Let me first start with what isn't changing. What's not changing is that we at Key are a relationship bank, so we have a relationship strategy, and I'll come back to that because that's actually going to be important and I think kind of the new world as we go forward. The next thing is we've been focused now for probably four or five years on what we call primacy. Primacy is having the primacy account, whether it's an individual or a corporation. That's not going to change. The other thing that we've been focused on, there's so many banks in the United States, this notion of targeted scale, finding places where we can be meaningful and focusing on those areas.
In the past, we've talked about areas like affordable housing, where we're the number four player in the country. We've talked about things like renewables, just to pick a couple things. Those are the things that absolutely won't change. The other thing that won't change is our risk management. You know, it's my view that we're on the precipice of going into an economic downturn. How deep or how long, I don't know. I think the kind of shape that your portfolio is in is really, really important, and that's unchanged for us. You know, we've got 70% of our clients, our consumer clients have a FICO score of 760 or greater.
56% of our C&I loans are investment grade, and I think that's really, really important as you go into a downturn. We have been de-risking Key ever since the global financial crisis. That's kind of what's not changing. What is changing? What's changing is basically what people demand in terms of deposit pricing. That obviously is changing, and that's changing quickly. We obviously are going into a regulatory cycle where I think Category IV banks are going to have more capital and more liquidity requirements. I think those things are changing. How are we at Key kind of adjusting to that? One, we're paying a very close attention to RWAs because we don't know how this is going to play out.
As you think about kind of the levers that you can pull, that's really important. The other thing that we are benefited from is I think there's going to be a movement to fee-based income, and we are in a good position to do that. You'll recall that back in 2021, for example, we got rid of $4 billion worth of indirect auto because it wasn't relationship, you couldn't cross-sell it, et cetera. That's the kind of thing that I think everybody's going to be looking at. What I think the net effect of this is going to be that I think banks are going to have lower loan-to-deposit ratios. People are going to be riveted on the quality of the deposit base. People are going to, you know, what's the, what's the duration of these deposits?
What's the granularity of the deposits? We happen to have 3.5 million customers, and we have 2/3 of our deposits are either insured or collateralized, and most of these clients have been with us for a long time. I think that is going to be the gating item for banking kind of going forward. That's kind of an around the world of what stays the same and what changes.
All right. Perfect. No, there's a lot to unpack there, regulation, loan growth, and of course.
Yep
deposits, which, there's been a lot of interest on. You know, maybe before we dig into those topics, Clark, any update on the quarter? There's clearly a lot of uncertainty in the market, maybe if you can update us on the quarter as well as the full-year guidance that you've given before.
Sure. On the quarter, you know, I'd say loans and deposits kind of pretty much where we expected. NII is going to come in softer. I'll come back to that because my sense is there's a fair bit of interest around that one. Capital markets, other fee-based income will reflect, you know, the broad market environment we're in right now. Expenses will be well managed, on track for where we've guided, based on actions we took earlier in the year. And then credit quality, as Chris noted there, continues to be really strong. You know, broadly, that's where we'd be kind of second quarter. As it relates to NII, you know, we're going to come in softer than we thought, again, based on funding mix and deposit cost pressures.
Which again, I think you're hearing from a lot of people. We'd expect that number in the second quarter to be kind of in the range of down 12% versus the 4%-5% we guided on the first quarter call. I think as we exited Q1 we had a cumulative deposit beta kind of high 20s. That was relatively strong. That's based really on having been very retention-oriented in our deposit strategies. In the second quarter, really kind of in May, we started to pivot a little bit more to some acquisition-oriented behavior. I think when you think about the where money market funds are, where other banks are de-pricing deposits, and then being more acquisitive, that's caused that deposit pricing to accelerate a little bit more than we expected. We're getting really good customer traction in that path.
From a balance standpoint, we really, you know, feel very good about that. I'd say Q2, given the forward curve, is likely to be at or the bottom of NII going forward. You know, we'll see where things progress over the course of the year. As is kind of our standard practice, we'll update the year on our earnings call in July.
Perfect. Second quarter down 12%, QoQ versus the prior guide down 4%-5%. Then on the deposit beta side, I think you've mentioned before that your cumulative deposit beta should be somewhere in the low 40s. Is there an update to that number?
I mean, we said sort of last month, we're kind of low to mid thirties. I think we're progressing towards that low forties. A lot of it's gonna be dependent on what you see in the back half of the year and whether rates stick high or whether the, you know, the forward curve unfolds. We'll update that as we have more information.
All right. Perfect. You know, maybe let's dig in on the deposit side. Take us through some of the broader thoughts on how customer behavior has changed, not only since March 8th, but also over the course of the last month. You know, as we look at the Fed H.8 data, it seems like deposits have stabilized, but, you know, maybe you can talk to some of the trends around the mix of deposits as well as behavior you're seeing from customers.
Yeah. Well, let me start. I'll talk a little bit about client behavior, and then, Clark, we can talk a little bit, we can cover a little more on kind of what we have on betas. Kind of backing up, going back to the beginning of March, what we did is we said. Just like we did when in the PPP, we said we were all in on that Sunday. Prior to the Monday, we said, "We need to reach out and touch all of our clients." Just keep in mind, our clients are clients that have been with us for a long time. Many of them are kind of in a C&I book or like 15 years in duration.
Our clients have been with us for a long time, so we went out and touched all these clients because we knew clients were gonna be concerned, frankly, about the industry. They're gonna be concerned about their deposits. They're gonna be concerned about Key and everything else. We've been able to really maintain our deposit base. We said when we reported, our first quarter in April, we said that deposits were holding in nicely. We said, when I had our annual meeting, we said they were holding in nicely, and they still are. We've been really pleased with the durability of our deposit base. Not surprised, but pleased. I would say, a couple stats on our deposit base, which is kind of interesting. 81% of our C&I deposits are operating accounts.
98% of the dollars are attached to those clients that have those operating accounts. Even where we do have what one might term to be excess deposits, they're tied to these client relationships. We did see early in the crisis, so a limited number of people that had large dollars, move those dollars around. We've seen in many instances, those dollars come back. In terms of client behavior, as everybody knows, probably in this room, there's a couple platforms out there that basically bifurcate deposits. I think they've probably seen a lot of flow. We have not really experienced that. I think I'm just really pleased with how our deposits have performed. I think it goes back to this notion that we've been focused on primacy for some time.
I mean, if you have the operating account for these businesses, they're paying their payroll twice a month, everything flows through that. I mean, it's just not something that people split up. If you have excess deposits, obviously, that's something that someone could. Clark, what would you add to that?
I think the stability of the deposit base today is probably the most important piece, and maybe even to take Chris's comments one step further, when we've talked to clients, I think we've mostly moved past any concern, and often the clients are saying, you know, "How can we help you?" I think clients are standing behind us in the same way we've stood behind them, and I think that's important to the relationship construct. I will say just broadly, and this is no surprise, right? Clients' deposits are staying in place. They're just more expensive, and they're gonna continue to be more expensive as long as rates sort of sit where they are, so.
So what does that mean in terms of the mix shift between interest-bearing and non-interest-bearing accounts? Is there a little bit more going towards interest-bearing now?
There certainly is. I think people are getting smarter about what their excess dollars are. In some cases, you know, we facilitate that on the commercial side to make things simpler for our clients. I do think we are in certain pockets, starting to see that level off, and I think we're just getting down to what are really the core, you know, operating deposits or core kind of personal checking account, kind of operating dollars. I think we're starting to see that trajectory plateau a little bit. But clearly, at rates like this, given where we've been, we're gonna see continued migration.
I think in the earnings, you mentioned mid-twenties, NIB, the total deposit number. Is that still the right level to think about?
I think at this point, that's where we're headed. Again, as we've seen pockets of this start to stabilize a little bit, as long as that continues, we feel good about that.
Perfect. You know, one of the questions I get from a lot of investors is, you know, why look back at, you know, 4Q 2019? Why not go back to GFC and pre-GFC about, and look at the NIB mix back then? You know, can you talk about, you know, whether we could actually go back to that historic low for the industry, or has the industry fundamentally changed?
Yeah, I mean, if you maybe before March 8th, people would say never, but, you know, these are good reminders, and you never say never. It's, of course, it's possible. I think what's different in banking pre-financial crisis is just the product capability and the way that we engage clients differently around not just dollars in the account, but, you know, things as simple as online banking. On the commercial side, right, there's just, there's so many ways for your treasury capabilities to plug into these clients that make, to Chris's point, it just makes it very difficult to pull them out. I think that's an aspect of it. Will we see it, you know, continued pressure? I think we will, again, as long as rates sort of sit where they are.
I do think we are fundamentally different in the way we engage clients on deposits.
If you have primacy, it would be unusual for dollars not to be hooked up to some kind of software that's embedded in businesses. Whether it's as simple as online banking for individuals or within business, kind of as you know, we go to market based on sectors. It is, you certainly could, but it would take a lot of work.
Perfect. You know, maybe on that topic, you know, the stress in March drove some deposits out, but many corporates also opened accounts across a range of banks, including yours. You know, can you speak to the trends in account openings and how they're being funded so far?
Sure. The weekend that you just referenced, that weekend, we had our biggest weekend of the year on our consumer side of our business. A lot of our consumer growth is driven by young customers in the West, and that weekend was no different, and those trends have continued in terms of client capture. Within our commercial businesses, we've been opening twice as many accounts on a monthly basis consistently since that first week in March. It's been positive.
All right. Perfect. On the deposit side, because, you know, that's where investors are pretty focused, I think you mentioned that deposits have been trending in line with what you had expected. Any numbers around that for the quarter?
Well, we'll give I mean, we'll give. We're not changing our guidance.
Got it.
I think our guidance was down 1%-2%, and we're performing well. There's flows within intra the quarter, whether it's tax payments or it's escrows, but everything is performing exactly as we would have anticipated it.
All right. Perfect. Another, you know, topic that you brought up on the earnings call was the hybrid accounts that you have. Can you provide some more color and just explain functionally how these accounts work? How are they different from the traditional sweep account offering?
Think about your traditional sweep as a treasurer picking a threshold, and then at the end of every day, whatever's above that threshold gets pushed out off balance sheet into a money market fund. This would be, one, kind of keeping it all on the balance sheet. Two, what we've tried to do for our clients, particularly kind of the core middle market clients, where the CFO is the treasurer, is the AP manager, and, you know, has seven or eight different jobs. We don't actually cause them to think about where that threshold is on a daily or weekly basis.
We've done some math to understand and sit down with them and say, "This is really your core, and we'll, you know, kind of run that every day, and whatever's not core, we will put in at a, you know, at a quote, 'excess rate.' It's all in one account, so they don't have to worry about dollars moving. They don't have to worry about looking at the account every day and setting it. It's very simplified from their standpoint, which again, tends to be fairly attractive. We keep it all on balance sheet, which works well for us. The general kind of gist of it is probably doesn't feel that different than a sweep account other than, again, the sort of the simplicity and the, and the amount that's being calculated.
That qualifies as an interest-bearing account?
Correct.
Correct. All right. Perfect. All right, any thoughts on what the balances are on those accounts? Has that been a meaningful drive over the course of the last, couple of quarters?
It was late last year and early into this year in business in our larger business accounts. We've sort of, we've been in front of our business banking clients, you know, the smaller commercials on that, but those will be probably large in client numbers, small in total volume. That's slowed down as we've come through the year because clients that are interested in that, we've generally been in front of for now, quite some time.
All right. Perfect. Then, you know, maybe just continuing on the same theme on, you know, commercial versus consumer clients. You know, betas are clearly different. A lot of banks have been talking about how commercial clients, the betas are stabilizing, whereas consumers are still moving. Can you talk about, you know, what you're seeing from your client base?
Yeah. Very similar. We would've seen commercial, I think, as you'd expect, commercial move sooner because commercial clients pay for people to think about where their money's being invested. So you know, that would've been started middle of last year, been pretty well ingrained by the end of last year, coming into this year. Again, it's not that there isn't beta there, it's that it's not moving, you know, in the same trajectory as consumer. Consumer lags, and we're going to see that continue to lag into higher rates over time.
We're closer to a peak on the commercial side and a bit further away on the consumer side?
I would say the vast majority of our commercial book is indexed in some way. Doesn't always mean indexed at a 100 beta.
Mm-hmm.
But, indexed so that it's going to move with rates one way or the other. That positive is when rates come down, those will come down sort of naturally.
All right. Perfect. Chris, you touched on this a little bit, but are corporates and small businesses placing a greater emphasis on diversifying their deposit balances between different banks? What are you seeing from your customer base?
I think let's talk first what kind of what's going on in the industry and then kind of what we're experiencing, because I think there's a little bit of a dichotomy there. Within the industry, there's no question that people are diversifying some of their deposits. As I mentioned earlier, there's a couple platforms. We are not seeing that, though, and really that's because we never had a whole slew of excess deposits. We had sort of this granular half, this granular 3.5 million customers, and most of all of our deposits with respect to our, and we have a strong C&I business, are operating accounts. You don't split up an operating account.
It would be no different than somebody in this room that uses online banking all of a sudden start utilizing two separate platforms for online banking. You could do it. It would be a risk mitigation device. You probably aren't going to do it.
All right. You know, maybe pivoting a little bit, Chris, from reading the Fed and FDIC's reports on Silicon Valley Bank and Signature, it's clear that, you know, regulations are going to change and change pretty quickly. You know, what are you hearing from regulators, and, you know, what sort of proactive actions are you taking on that front?
As you can well imagine, we talk to the regulators all the time. I spend time in Washington talking to the regulators. I'll tell you, the one thing that has been very consistent is whatever actions are taken, it will be subject to the standard rulemaking and a phase-in period. I think that is really an important concept. We, as you can imagine, have modeled out 100 different scenarios. Whether it's, you know, running AOCI through CET1 or TLAC starting tomorrow, or TLAC where you can use the holding company debt or TLAC where you can use... We have modeled out everything. It's our belief that Key is in good shape in terms of having a glide path to whatever comes our way. There will be additional regulation around both capital and liquidity. That's coming.
I think, you know, we feel like we're in good shape. Our AOCI, 40% of it burns off in seven quarters, and 90% of that has nothing to do with rates. It's just straight, short-durated. We think that's really helpful. The other thing that we're doing is we have a very strong loan growth franchise, and we can dial it up and dial it back. As you can well imagine, as we prepare for the inevitable changes in terms of the regulatory environment, we are being very, very careful about saving and preserving our capital for those really good clients. We have a lot of full clients, and that's fine.
I think, and I'll say this for the whole, for the whole industry, I think it's going to be really challenging for people that are borrowers that don't have whole relationships. If you think about all the changes, and I mentioned earlier, lower loan-to-deposit ratios. I've said, and some of you have probably heard me say this before, on a risk-adjusted basis, standalone credit never returned its cost to capital, and now the cost of raw material just went up significantly. I think it's going to be really hard for people that just borrow money to have access, the kind of access they used to have. I think one of the knock-on effects of that, by the way, is I think it's going to drive a lot of lending out of the banking system.
If you think about when people lighten up on RWAs, it will probably, that will probably move to, you know, people that are outside of the banking industry. Those are just a couple things that I'm thinking about. We are, as you can imagine, making sure that we're well prepared for whatever comes our way.
What does that mean for capital return, both on the buyback side as well as the dividend front?
So our capital priorities have always been first to support the organic growth of our customers, and we will continue to do that. On the other end of the spectrum, in terms of repurchasing of shares, it will be just de- minimis until we get clarity as to kind of what the requirements are. We'll continue to support our clients, but with respect to share repurchases, we'll be doing those in, as I said, in a de- minimis way until there's more clarity.
And maybe on the liquidity front, you know, as you mentioned, like the LCR could change.
Mm-hmm.
How does that impact how you'd manage your securities portfolio? I think you've noted that your securities book is already short-dated.
Yep. Yep.
Is that something that will likely continue? You know, would you pivot more towards Treasuries and Ginnies ? Can you just talk about how you'd manage the balance sheet?
First of all, we're very conservative in terms of how we manage our liquidity. You know, I think we're probably sitting on $8 billion or $9 billion of liquidity as we speak. I do think that Category IV banks will be subject to increase scrutiny around that. We run our own liquidity tests all the time, so I feel good about where we are. It will drive people to purchase shorter-durated securities, I don't think there's any question on a go-forward basis.
Any thoughts on even beyond just LCR, when you think about the duration of your deposit book, does that change post the events of March? You know, how do you think about the duration for non-interest-bearing deposits, and does that have an impact on how you think about the asset side?
Yeah, it is the question, right? I think.
... what I would expect to see over time, and I would think most banks are doing this today, but I think you'll see more granularity around, you know, client types and product types. If you think about those, that is kind of a matrix, like, what's the duration in each bucket, and how's that impacted when rates change? I think you'll see more granularity around those buckets, and I think you'll see more rate sensitivity attached to those just because of what we've seen. My guess is on, you know, on the broad deposit base, assuming it looks the way it does today, that the likely duration's gonna be shorter. I think you'll see way more disparity across those buckets.
The one thing I would say, and, you know, we haven't done this yet in detail, but I would expect our best relationships in those core accounts to look exactly the way we've always thought they looked, because they're here. We just went through a pretty significant stress event, and they haven't moved. Again, I think that's really positive. I think as you break out and get more granularity and sort of get farther away from that core, you'll just see deposits that sort of have and are treated as having much shorter lifespan.
Is that a process? Is that an analysis that will happen over the course of this year, or how soon can we expect, you know, the industry generally to change how they're managing their deposits?
Again I think, in a starting point today, I think different banks have different views of that. I think over the course of this year, you know, maybe the next 12 months, you'll see more and more of that. I think some of it'll be, you know, part of the regulatory changes.
Okay.
that we see coming.
All right.
I wanna go back to, embedded in your last question that I answered, you asked about returns, which are so important, and with all the changes. I think people are in some ways overestimating the impact on returns. We've always had a target of 16%- 19%. I can't tell you what I think the number is, but I don't think it's gonna be geometrically different than that. The biggest thing that drives returns in our industry, and I've been doing this a long time, are credit losses. Yes, capital, if you consume more capital, does that drive down returns? It absolutely does. Do I think they're gonna go down? I do. I don't think they're gonna go down by a huge amount, but I don't know yet what the framework's gonna be.
The biggest determinant, I think, 'cause I believe that we're going into an economic downturn, the biggest determinant is gonna be who has credit losses. That's what really decimates returns and decimates them for a period of time. It'll be interesting. I don't think the change in returns is gonna be as great as some of the literature I've read.
Maybe while we're on the topic of credit, you know, I think you've spoken about in the past, that CRE that you've been de-risking your CRE book over the last decade. Your total exposure is down pretty meaningfully, I think by 10 percentage points since the crisis. You know, can you talk about what you're doing on the CRE front, how you're managing that book, and how you're trying to get ahead of any stress that comes through in the system?
Yeah. Well, just to give the group just some historical context, we were an underperformer during the Global Financial Crisis as it related to our CRE book. Specifically, we were in a couple asset classes, like home builders, for example, that we just completely exited. The other thing that I really got us focused on as we changed that business 10 years ago, now, by the way, I think our real estate business is one of our best businesses. We said, one, we're gonna have a lot less exposure, period. To your good point, we've gone from it being 26% of our book to 16% of our book. Even more importantly is construction, because when the music stops, construction is a huge problem.
We have 2% of our book with very good sponsors are in construction today. Going into the global financial crisis, that number would've been 12. The other thing we did is we said: We're gonna be really focused on who we back and in what location. Two-thirds of our exposure in real estate right now is multifamily, with certain sponsors in certain cities. In a subcategory of that, and a not insignificant subcategory, is affordable housing, affordable housing is a massive unmet need in this country. I feel really good about it. The last thing that we did is, like the rest of our business, we converted that to an underwrite and distribute model. What we had been doing is just putting things on our balance sheet, that doesn't work.
You know, we now can distribute and do distribute, whether it's Fannie, Freddie, FHA, the life companies, the CMBS market, and so on and so forth. You know, we can serve these select clients, but we don't have the tail risk. I feel really, really good about our real estate book. Since we're sitting here in a central business district, I'd be remiss if I didn't talk about exposure with respect to office, because I do think there's significant losses in office. We, in particularly B and C class office, multi-tenant, central business districts, we have a total exposure in that category of $127 million.
We also have I don't know, most of you probably know this, we have a third-party commercial loan servicing business, so this is all off-us debt. Picture us servicing principal interest, taxes, and insurance, and then also named special servicer on over $200 billion worth of debt that when it goes bad or needs to be restructured, we don't have any dollars in it, but we're the restructuring agent. We have a pretty good window on kind of what's not working out there. no surprise, it's been retail forever that goes into active special servicing. During the pandemic, obviously it was leisure. Right now, the fastest-growing sector by far is B and C class office in central business districts. I feel really, really good about our real estate exposure.
It's a business that I really like. I didn't like it when we had the Global Financial Crisis. I didn't think we were properly positioned. We are gonna have a downturn. I think we're properly positioned for this one.
All right, perfect. I do wanna delve into loan growth a little bit before moving to the audience.
Sure
... a question or two. you know, I think you spoke about how, loan-to-deposit ratios are going to be lower.
Mm-hmm
... going forward. You know, can you talk about what is driving that? Is it the demand side of it? Is it the supply side and tightening lending standards? Can you talk about what's happening in the industry and also specifically what you guys are doing?
I think all the things you just described are happening, in our case, it's really how we are going to manage our balance sheet. In answer to one of your earlier questions, you know, the regulatory regime is going to change, what are you guys going to do differently? Yes, there's a slowdown out there. Yes, there's less demand. We're not changing our credit box. One of the things I feel strongly about is, you know, in this business, you make money by not losing it. We've been really, really conservative, we'll continue to support our clients. I think, you know, being aggressive, not aggressive is not a good way to do that.
What we will be very demanding is we'll be supporting full relationships, and it goes back to what I mentioned earlier on kind of what the returns are on credit-only deals. You're gonna see us manage our RWAs as we prepare for kind of what I think the next chapter of banking's gonna be.
You touched on this before, that a lot of the lending is going to move away from.
Mm-hmm
banks into the non-banks.
Yep.
We've also seen headlines that, you know, there is private capital out there that's looking to partner with some of the banks. You know, can you talk about, A, are you willing to partner with any of those firms? B, you know, how do you think that will change the banking landscape as we get into 2024 and 2025?
Well, I mean, I'll answer the first one, the second part of your question first. I mean, I think the way it's gonna change the banking landscape is there'll be fewer dollars within the system, which I don't think is necessarily a great thing if you think about systemic risk. Would I be willing to partner with people that can help us serve our clients and are less demanding in terms of kind of what the returns are and kind of what they're looking for? The answer is absolutely. You know, think about our business in the ordinary course, we only put 23% of the capital that we raise on our balance sheet anyway, sometimes 20%. Last quarter was up to 30% because the markets were dislocated.
I don't have any problem partnering with a variety of people that perhaps have a different perspective than we do, or perhaps have a different regulatory regime than we do.
Yeah, on that front, you know, we've been partnering with Fintechs since, you know, over the last seven or eight years. I think we're pretty good at figuring out how to deliver the best solutions to clients, even if they're not ours. I do think we've seen the trend over the last decade of dollars moving out of the system. I don't think that's gonna slow down.
All right, perfect. Are there any questions in the room? One over there.
You're very convinced that we're headed into a downturn. What are you seeing that's making you so convinced, and what would change your mind?
I just think the lag effects of the significant tightening that we've had, I think are going to come into play. I'm out talking with clients all the time, and what I see is, right now, they're saying: "Well, we're actually gonna put that on hold, and we're gonna put that on hold, and maybe we're not even going to do it." The flip side of that is, the conundrum for the Fed is the labor market continues to be very strong, and it's very hard to slow down the economy without damaging the labor market. Having said that, I just think the cumulative effect... Keep in mind, we've got other things going on, too, that are gonna naturally have an impact.
The $85 billion that rolls off of the Fed's balance sheet every single month, that has an impact of effectively raising rates. The notion of the, you know, the Treasury's gonna wade into the market in the not-too-distant future for $1 trillion of financing based on resolving the debt ceiling issue, I think that will have an impact. Just as I'm out talking to people, I've seen people go from, you know, this, "The, we're definitely gonna have a soft landing," to, "We need to be cautious," to people starting now to either delay, indefinitely, big projects or, in some cases, scrap them. Thank you for your question.
We can do a quick last question here.
Can you talk about the repricing on the loan side?
Yeah.
Obviously, some of it is, some of your loans are floating, and therefore-
Yeah
... they reprice. I, in that part of the book, interested in hearing about how that is being taken, you know, by borrowers.
Yeah.
On the part that's not floating, just, how is it replicate the cadence of repricing?
Yeah. Well, unfortunately, this is always the case, the banking industry lags the bond market. That's because there's excess capacity in the banking industry. The banks right now are not getting the repricing to the degree that I feel that we should. Obviously, the deals that come to my desk, we are pricing. Our raw material has gone up significantly and as a result of pricing. In general, will that happen? Absolutely. It never happens as fast in the banking sector as it does in the capital markets. There's just a little bit of a lag due to the excess capacity. Some people just have a different perspective. You know, there's a...
The borrowers that get the best deals are kind of the big company in a relatively small town that's banked by the local bank. They get whatever pricing they ask for. It takes a while for it to adjust. It will happen, though. It's a good question.
All right, perfect. With that, we're out of time. Chris, Clark, thanks so much for your time.
Thank you.